CubeSmart
Annual Report 2012

Plain-text annual report

______________________ (cid:2)(cid:3)(cid:4) (cid:5)(cid:6)(cid:7)(cid:7)(cid:8)(cid:9)(cid:10)(cid:5)(cid:11)(cid:12)(cid:13)(cid:14)(cid:15)(cid:16)(cid:5) ______________________________ (cid:2)   (NYSE: CUBE) CubeSmart (NYSE: CUBE), a Maryland real estate investment trust, is one of the largest owners and operators of self-storage facilities in the United States. Our self-storage facilities are designed to offer affordable and easily-accessible storage space for our residential and commercial customers. As of December 31, 2012, we owned 381 self-storage facilities located in 22 states and in the District of Columbia containing an aggregate of approximately 25.5 million rentable square feet. In addition, as of December 31, 2012, we managed 133 properties for third parties, bringing the total number of properties we owned and/or managed to 514. In 2012, we continued to deliver on our core strategic objectives of: (cid:131) Producing robust organic growth through a deep operating platform and sound fundamental execution; (cid:131) Establishing a portfolio of high-quality, well-positioned storage assets concentrated in core markets with the most attractive long-term prospects; and (cid:131) Maintaining a conservative, unsecured balance sheet structure that provides an attractive long- term cost of capital and the flexibility to support our external growth objectives. The culmination of these efforts contributed to a 13.8% increase in FFO per share, as adjusted, and a 42% total return for common shareholders. In short, 2012 was a very good year for CubeSmart. Robust Organic Growth Fundamental execution starts with our people. At CubeSmart, we have worked diligently to build a service-oriented culture that fosters the delivery of exceptional service to both internal and external Customers. We recast our value proposition to our Customers with a new CubeSmart brand and Superstore service model, and established a dedicated Customer service and training department to champion our service culture. CubeSmart employees have never had a greater sense of morale and solidarity than they have today, and, importantly, have begun to receive external recognition for their outstanding Customer service – namely, an Inside Self Storage Best of Business Award for Customer Service and three Gold Stevie® Awards for Sales and Customer Service. We remain committed to building upon our exceptional operating platform, which continues to set us apart in an industry characterized by wide fragmentation and relatively unsophisticated competition. In 2012, we continued to refine our Internet marketing platform and benefited from increased website traffic, improved website conversion rates, and greater efficiency of our marketing spend. Likewise, aided by the implementation of our internally developed Customer relationship management system (eCRM), our award-winning National Sales Center continued to set new highs for reservation conversion rates. Finally, we continued to enhance our revenue management systems, which ensure that we are maximizing the revenue potential from every Customer demand opportunity. Supported by these initiatives, same-store net operating income grew by a historically strong 6.0% in 2012. Notably, this was supported by all-time high occupancy levels and same-store revenue growth that accelerated throughout the year. A Portfolio of High-Quality, Well-Positioned Storage Assets In 2012, we continued to significantly enhance our portfolio through acquisitions totaling $432.3 million, as well as the strategic disposition of 26 assets for $60 million. Our acquisitions included the purchase of 22 assets located predominantly in our core investment markets for $128.4 million, the successful purchase and integration of the remaining six assets from the previously announced Storage Deluxe transaction for $201.9 million, and the purchase of the remaining interests in two joint ventures. Today, CubeSmart has a very competitive, high-quality portfolio in place, with a streamlined and simplified property ownership structure and more than 62% of net operating income coming from our core investment markets, including industry leading exposure to what we would characterize as the greatest storage market in the world – New York City. Our third party management platform has been and continues to be an important part of our portfolio growth and enhancement initiatives. We continue to see significant and growing interest from private owners who are struggling to compete with the scale advantages and more sophisticated operating platforms enjoyed by CubeSmart and other large operators. In 2012, the number of stores in our third- party management program grew by nearly 30%, from 103 at the end of 2011 to 133 at the end of 2012. Importantly, our third-party management platform continues to be an attractive pipeline for acquisition opportunities. Notably, the significant growth in our third-party management platform came despite our acquisition of 14 stores from the program during the year. Since the launch of our third party management program in 2010, stores acquired from the program have accounted for more than $200 million of acquisition volume. This platform, combined with our deep industry relationships and disciplined investment process, provides us a significant competitive advantage as we continue to pursue our external growth objectives. A Conservative, Unsecured Balance Sheet Structure We have long communicated our objective of achieving and maintaining an unsecured balance sheet structure that affords significant financing and portfolio management flexibility, while supporting an attractive long-term cost of capital. In 2011, we reached a significant milestone along this path with the assignment of investment grade credit ratings from Moody’s and Standard & Poor’s. In 2012, our efforts culminated in the successful execution of our $250 million debut public bond offering. Additionally, with the repayment of $230 million in secured loans, the Company finished 2012 with a secured debt balance that represented just 9% of our total gross asset value. Today, CubeSmart’s financial position has never been stronger, and we have proven access to the full array of capital sources. In addition to our debut bond offering, and following a common equity offering and a debut preferred equity offering in 2011, we effectively utilized our “at-the-market” equity program for $102 million in net proceeds to support our external growth initiatives in 2012. Looking forward, we expect to continue to fund growth in a manner that maintains credit metrics consistent with our investment grade rating. Value Creation At CubeSmart, one of the values by which we live and work on a daily basis is to “Visualize Success.” Ultimately, we measure success by the value that we create for our shareholders. By this measure, 2012 was a very good year for CubeSmart and our shareholders. We thank you for your interest and support as we remain focused on continuing to deliver on our strategic objectives and, ultimately, to build shareholder value over time. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2012 OR For the transition period from to Commission file number 001-32324 (CubeSmart) Commission file number 000-54662 (CubeSmart, L.P.) CUBESMART CUBESMART, L.P. (Exact Name of Registrant as Specified in Its Charter) Maryland (CubeSmart) Delaware (CubeSmart, L.P.) (State or Other Jurisdiction of Incorporation or Organization) 460 East Swedesford Road Suite 3000 Wayne, Pennsylvania (Address of Principal Executive Offices) 20-1024732 (CubeSmart) 34-1837021 (CubeSmart, L.P.) (IRS Employer Identification No.) 19087 (Zip Code) Securities registered pursuant to Section 12(b) of the Act: Common Shares, $0.01 par value per share, of CubeSmart Title of each class 7.75% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $.01 per share, of CubeSmart New York Stock Exchange New York Stock Exchange Name of each exchange on which registered Registrant’s telephone number, including area code (610) 293-5700 Securities registered pursuant to Section 12(g) of the Act: Units of General Partnership Interest of CubeSmart, L.P. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. CubeSmart CubeSmart, L.P. Yes  No  Yes  No  Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. CubeSmart CubeSmart, L.P. Yes  No  Yes  No  Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. CubeSmart CubeSmart, L.P. Yes  No  Yes  No  Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). CubeSmart CubeSmart, L.P. Yes  No  Yes  No  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. CubeSmart CubeSmart, L.P. Yes  No  Yes  No  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act: CubeSmart: Large accelerated filer  CubeSmart, L.P.: Large accelerated filer  Accelerated filer  Accelerated filer  Non-accelerated filer  Smaller reporting company  Non-accelerated filer  Smaller reporting company  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). CubeSmart CubeSmart, L.P. Yes  No  Yes  No  As of June 30, 2012, the last business day of CubeSmart’s most recently completed second fiscal quarter, the aggregate market value of common shares held by non-affiliates of CubeSmart was $1,431,731,476. As of February 26, 2013, the number of common shares of CubeSmart outstanding was 133,593,640. As of June 30, 2012, the aggregate market value of the 4,408,730 units of limited partnership (the “Units”) held by non-affiliates of CubeSmart, L.P. was $51,449,879 based upon the last reported sale price of $11.67 per share on the New York Stock Exchange on June 30, 2012 of the common shares of CubeSmart, the sole general partner of CubeSmart, L.P. (For this computation, the market value of all Units beneficially owned by CubeSmart has been excluded.) Documents incorporated by reference: Portions of the Proxy Statement for the 2013 Annual Meeting of Shareholders of CubeSmart to be filed subsequently with the SEC are incorporated by reference into Part III of this report. EXPLANATORY NOTE This report combines the annual reports on Form 10-K for the year ended December 31, 2012 of CubeSmart (the “Parent Company” or “CubeSmart”) and CubeSmart, L.P. (the “Operating Partnership”). The Parent Company is a Maryland real estate investment trust, or REIT, that owns its assets and conducts its operations through the Operating Partnership, a Delaware limited partnership, and subsidiaries of the Operating Partnership. The Parent Company, the Operating Partnership and their consolidated subsidiaries are collectively referred to in this report as the “Company.” In addition, terms such as “we,” “us,” or “our” used in this report may refer to the Company, the Parent Company, or the Operating Partnership. The Parent Company is the sole general partner of the Operating Partnership and, as of December 31, 2012, owned a 97.6% general partnership interest in the Operating Partnership. The remaining 2.4% interest consists of common units of limited partnership issued by the Operating Partnership to third parties in exchange for contributions of properties to the Operating Partnership. As the sole general partner of the Operating Partnership, the Parent Company has full and complete authority over the Operating Partnership’s day-to-day operations and management. Management operates the Parent Company and the Operating Partnership as one enterprise. The management teams of the Parent Company and the Operating Partnership acting through its general partner are identical. There are a few differences between the Parent Company and the Operating Partnership, which are reflected in the note disclosures in this report. The Company believes it is important to understand the differences between the Parent Company and the Operating Partnership in the context of how these entities operate as a consolidated enterprise. The Parent Company is a REIT, whose only material asset is its ownership of the partnership interests of the Operating Partnership and subsidiaries of the Operating Partnership. As a result, the Parent Company does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing the debt obligations of the Operating Partnership and subsidiaries of the Operating Partnership. The Operating Partnership holds substantially all the assets of the Company and, directly or indirectly, holds the ownership interests in the Company’s real estate ventures. The Operating Partnership conducts the operations of the Company’s business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s direct or indirect incurrence of indebtedness or through the issuance of partnership units of the Operating Partnership or equity interests in subsidiaries of the Operating Partnership. The Company believes that combining the annual reports on Form 10-K of the Parent Company and the Operating Partnership into a single report will:    facilitate a better understanding by the investors of the Parent Company and the Operating Partnership by enabling them to view the business as a whole in the same manner as management views and operates the business; remove duplicative disclosures and provide a more straightforward presentation in light of the fact that a substantial portion of the disclosure applies to both the Parent Company and the Operating Partnership; and create time and cost efficiencies through the preparation of one combined report instead of two separate reports. In order to highlight the differences between the Parent Company and the Operating Partnership, the separate sections in this report for the Parent Company and the Operating Partnership specifically refer to the Parent Company and the Operating Partnership. In the sections that combine disclosures of the Parent Company and the Operating Partnership, this report refers to such disclosures as those of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and real estate ventures and holds assets and debt, reference to the Company is appropriate because the business is one enterprise and the Parent Company operates the business through the Operating Partnership. As general partner with control of the Operating Partnership, the Parent Company consolidates the Operating Partnership for financial reporting purposes. The Parent Company does not have significant assets other than its investment in the Operating Partnership. The substantive difference between the Parent Company’s and the Operating Partnership’s filings is the fact that the Parent Company is a REIT with public shares, while the Operating Partnership is a partnership with no publicly traded equity. 2 In the financial statements, this difference is primarily reflected in the equity (or capital for Operating Partnership) section of the consolidated balance sheets and in the consolidated statements of equity (or capital) and comprehensive income (loss). Apart from the different equity treatment, the consolidated financial statements of the Parent Company and the Operating Partnership are nearly identical. The separate discussions of the Parent Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company’s operations on a consolidated basis and how management operates the Company. This report also includes separate Item 9A (Controls and Procedures) disclosures and separate Exhibit 31 and 32 certifications for each of the Parent Company and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Parent Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350. 3 PART I TABLE OF CONTENTS Item 1. Business ............................................................................................................................................................ Item 1A. Risk Factors ...................................................................................................................................................... Item 1B. Unresolved Staff Comments ............................................................................................................................. Item 2. Properties .......................................................................................................................................................... Item 3. Legal Proceedings ............................................................................................................................................. Item 4. Mining Safety Disclosures ................................................................................................................................ PART II Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities ........................................................................................................................................................... Item 6. Selected Financial Data ..................................................................................................................................... Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ............................ Item 7A. Quantitative and Qualitative Disclosures About Market Risk .......................................................................... Item 8. Financial Statements and Supplementary Data ................................................................................................. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................ Item 9A. Controls and Procedures ................................................................................................................................... Item 9B. Other Information ............................................................................................................................................. PART III Item 10. Trustees, Executive Officers and Corporate Governance ................................................................................. Item 11. Executive Compensation ................................................................................................................................... Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters .......... Item 13. Certain Relationships and Related Transactions, and Trustee Independence ................................................... Item 14. Principal Accountant Fees and Services ........................................................................................................... PART IV Item 15. Exhibits and Financial Statement Schedules ...................................................................................................... 5 6 12 23 23 36 36 36 36 38 42 57 57 57 58 59 59 59 59 59 60 60 60 60 4 PART I Forward-Looking Statements This Annual Report on Form 10-K and other statements and information publicly disseminated by the Parent Company and the Operating Partnership, contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, future events and actual results, performance, transactions or achievements, financial and otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forward-looking statements. Risks, uncertainties and other factors that might cause such differences, some of which could be material, include, but are not limited to:  national and local economic, business, real estate and other market conditions;  the competitive environment in which we operate, including our ability to maintain or raise rental rates;  the execution of our business plan;  the availability of external sources of capital;  financing risks, including the risk of over-leverage and the corresponding risk of default on our mortgage and other debt and potential inability to refinance existing indebtedness;  increases in interest rates and operating costs;  counterparty non-performance related to the use of derivative financial instruments;  our ability to maintain our Parent Company’s qualification as a real estate investment trust (“REIT”) for federal income tax purposes;  acquisition and development risks;  increases in taxes, fees, and assessments from state and local jurisdictions;  changes in real estate and zoning laws or regulations;  risks related to natural disasters;  potential environmental and other liabilities;  other factors affecting the real estate industry generally or the self-storage industry in particular; and  other risks identified from time to time, in other reports we file with the SEC or in other documents that we publicly disseminate. Given these uncertainties and the other risks identified elsewhere in this Report, we caution readers not to place undue reliance on forward-looking statements. We undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise except as may be required by securities laws. 5 ITEM 1. BUSINESS Overview We are a self-administered and self-managed real estate company focused primarily on the ownership, operation, management, acquisition and development of self-storage facilities in the United States. As of December 31, 2012, we owned 381 self-storage facilities located in 22 states and in the District of Columbia containing an aggregate of approximately 25.5 million rentable square feet. As of December 31, 2012, approximately 84.4% of the rentable square footage at our owned facilities was leased to approximately 182,000 tenants, and no single tenant represented a significant concentration of our revenues. As of December 31, 2012 we owned facilities in the District of Columbia and the following 22 states: Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Maryland, Massachusetts, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Utah, Virginia and Wisconsin. In addition, as of December 31, 2012, we managed 133 properties for third parties, bringing the total number of properties we owned and/or managed to 514. As of December 31, 2012 we managed facilities in the following 27 states: Alabama, Arizona, Arkansas , California, Colorado, Connecticut, Florida, Georgia, Illinois, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, and Virginia. Our self-storage facilities are designed to offer affordable and easily-accessible storage space for our residential and commercial customers. Our customers rent storage cubes for their exclusive use, typically on a month-to-month basis. Additionally, some of our facilities offer outside storage areas for vehicles and boats. Our facilities are designed to accommodate both residential and commercial customers, with features such as wide aisles and load-bearing capabilities for large truck access. All of our facilities have an on-site manager during business hours, and 256, or approximately 67%, of our owned facilities have a manager who resides in an apartment at the facility. Our customers can access their storage cubes during business hours, and some of our facilities provide customers with 24-hour access through computer controlled access systems. Our goal is to provide customers with the highest standard of facilities and service in the industry. To that end, approximately 76% of our owned facilities include climate controlled cubes, compared with the national average of 44% reported by the 2013 Self-Storage Almanac. The Parent Company was formed in July 2004 as a Maryland REIT. The Parent Company owns its assets and conducts its business through its operating partnership, CubeSmart, L.P. (our “Operating Partnership”), and its subsidiaries. The Parent Company controls the Operating Partnership as its sole general partner and, as of December 31, 2012, owned an approximately 97.6% interest in the Operating Partnership. The Operating Partnership has been engaged in virtually all aspects of the self-storage business, including the development, acquisition, management, ownership and operation of self-storage facilities. Acquisition and Disposition Activity As of December 31, 2012 and 2011, we owned 381 and 370 facilities, respectively, that contained an aggregate of 25.5 million and 24.4 million rentable square feet with occupancy rates of 84.4% and 78.4%, respectively. A complete listing of, and additional information about, our facilities is included in Item 2 of this Annual Report on Form 10-K. The following is a summary of our 2012, 2011 and 2010 acquisition and disposition activity: 6 Facility/Portfolio 2012 Acquisitions: Houston Asset ............................... Dunwoody Asset ........................... Mansfield Asset ............................ Texas Assets ................................. Allen Asset ................................... Norwalk Asset .............................. Storage Deluxe Assets .................. Eisenhower Asset .......................... New Jersey Assets ........................ Georgia/ Florida Assets ................ Peachtree Asset ............................. HSREV Assets .............................. Leetsdale Asset ............................. Orlando/ West Palm Beach Assets Exton/ Cherry Hill Assets ............. Carrollton Asset ............................ 2012 Dispositions: Michigan Assets............................ Gulf Coast Assets ......................... New Mexico Assets (b) ................. San Bernardino Asset .................... Florida/ Tennessee Assets ............. Ohio Assets ................................... 2011 Acquisitions: Burke Lake Asset .......................... West Dixie Asset .......................... White Plains Asset ........................ Phoenix Asset ............................... Houston Asset ............................... Duluth Asset ................................. Atlanta Assets ............................... District Heights Asset ................... Storage Deluxe Assets .................. Leesburg Asset ............................. Washington, DC Asset .................. 2011 Dispositions: Flagship Assets ............................. Portage Asset ................................ 2010 Acquisitions: Frisco Asset .................................. New York City Assets .................. Northeast Assets ........................... Manassas Asset ............................. Apopka Asset ................................ Wyckoff Asset .............................. McLearen Asset ............................ 2010 Dispositions: Sun City Asset .............................. Inland Empire/Fayetteville Assets Location Transaction Date Number of Facilities Purchase / Sales Price (in thousands) Houston, TX Dunwoody, GA Mansfield, TX Multiple locations in TX Allen, TX Norwalk, CT Multiple locations in NY and CT Alexandria, VA Multiple locations in NJ Multiple locations in GA and FL Peachtree City, GA February 2012 February 2012 June 2012 July 2012 July 2012 July 2012 February/ April/ August 2012 August 2012 August 2012 August 2012 August 2012 Multiple locations in PA, NY, NJ, VA and FL September 2012 September 2012 November 2012 December 2012 December 2012 Denver, CO Multiple locations in FL Multiple locations in NJ and PA Carrollton, TX Multiple locations in MI Multiple locations in LA, AL and MS Multiple locations in NM San Bernardino, CA Multiple locations in FL and TN Multiple locations in OH June 2012 June 2012 August 2012 August 2012 November 2012 November 2012 Fairfax Station, VA Miami, FL White Plains, NY Phoenix, AZ Houston, TX Duluth, GA Atlanta, GA District Heights, MD Multiple locations in NY, CT and PA Leesburg, VA Washington, DC January 2011 April 2011 May 2011 May 2011 June 2011 July 2011 July 2011 August 2011 November 2011 November 2011 December 2011 Multiple locations in IN and OH Portage, MI August 2011 November 2011 Frisco, TX New York, NY Multiple locations in NJ, NY and MA Manassas, VA Orlando, FL Queens, NY McLearen, VA July 2010 September 2010 November 2010 November 2010 November 2010 December 2010 December 2010 Sun City, CA Multiple locations in CA and NC October 2010 December 2010 1 1 1 4 1 1 6 1 2 3 1 9 1 2 2 1 37 3 5 6 1 3 8 26 1 1 1 1 1 1 2 1 16 1 1 27 18 1 19 1 2 5 1 1 1 1 12 1 15 16 $ $ $ $ $ $ $ $ $ $ $ $ 5,100 6,900 4,970 18,150 5,130 5,000 201,910 19,750 10,750 13,370 3,100 102,000(a) 10,600 13,010 7,800 4,800 432,340 6,362 16,800 7,500 5,000 6,550 17,750 59,962 14,000 13,500 23,000 612 7,600 2,500 6,975 10,400 357,310 13,000 18,250 467,147 43,500 1,700 45,200 5,800 26,700 18,560 6,050 4,235 13,600 10,200 85,145 3,100 35,000 38,100 7 (a) Purchase price listed represents the fair value of the assets at acquisition. (b) The Company issued financing in the amount of $5.3 million to the buyer in conjunction with the New Mexico Assets disposition. The comparability of our results of operations is affected by the timing of acquisition and disposition activities during the periods reported. At December 31, 2012 and 2011, we owned 381 and 370 self-storage facilities and related assets, respectively. The following table summarizes the change in number of owned self-storage facilities from January 1, 2011 through December 31, 2012: Balance - January 1 ..................... Facilities acquired ....................... Facilities sold .............................. Balance - March 31 ..................... Facilities acquired ....................... Facilities consolidated ................. Facilities sold .............................. Balance - June 30 ........................ Facilities acquired ....................... Facilities sold .............................. Balance - September 30 .............. Facilities acquired ....................... Facilities sold .............................. Balance - December 31 ............... 2012 2011 370 6 — 376 2 — (8) 370 24 (7) 387 5 (11) 381 363 1 — 364 4 (1) — 367 4 (18) 353 18 (1) 370 Financing and Investing Activities The following summarizes certain financing activities during the year ended December 31, 2012:  Storage Deluxe Acquisition. During the year ended December 31, 2012, as part of the $560 million Storage Deluxe transaction involving 22 Class A self-storage facilities located primarily in the greater New York City area, the Company acquired the final six properties with a purchase price of approximately $201.9 million. The six properties purchased are located in New York and Connecticut. In connection with the acquisitions, the Company allocated a portion of the purchase price to the intangible value of in-place leases which aggregated $12.3 million.  Facility Acquisitions. In addition to the Storage Deluxe Acquisition, during the year ended December 31, 2012, we acquired 22 self-storage facilities located throughout the United States for an aggregate purchase price of approximately $128.4 million. In connection with these acquisitions, we allocated a portion of the purchase price to the intangible value of in-place leases which aggregated $13.2 million.  Investments in Unconsolidated Real Estate Ventures. On September 28, 2012, the Company purchased the remaining 50% ownership in a partnership that owned nine storage facilities, collectively the HSRE Venture (“HSREV”), for cash of $21.7 million. In addition, upon taking control of these assets, the Company repaid $59.3 million of mortgage loans related to the properties. Following the acquisition, the Company wholly owns the nine storage facilities which are unencumbered and have a fair value of $102 million at the date of acquisition. In connection with this acquisition, the Company allocated a portion of the fair value to the intangible value of in-place leases which aggregated $8.3 million.  Facility Dispositions. During the year ended December 31, 2012, we sold 26 self-storage facilities located throughout the United States for an aggregate sales price of approximately $60.0 million. These sales resulted in the recognition of gains that totaled $9.8 million.  Investments in Consolidated Real Estate Ventures. On August 13, 2012, the Company purchased the remaining 50% interest in the HART joint venture from Heitman for $61.1 million, and now owns 100% of HART. Accordingly, the Company wholly owns the 22 properties, which are unencumbered by any property-level secured debt. The Company previously consolidated HART, and therefore the acquisition of the remaining 50% interest is reflected in the equity section of the accompanying consolidated balance sheets. As a result of the transaction, the Company eliminated noncontrolling interest in subsidiaries of $38.7 million and recorded a reduction to additional paid in capital of $18.5 million. 8  Senior Note Issuance. On June 26, 2012, the Operating Partnership issued $250 million in aggregate principal amount of unsecured senior notes due July 15, 2022 (the “senior notes”), which bear interest at a rate of 4.80%. The indenture under which the unsecured senior notes were issued restricts the ability of the Operating Partnership and its subsidiaries to incur debt unless the Operating Partnership and its consolidated subsidiaries comply with a leverage ratio not to exceed 60% and an interest coverage ratio of less than 1.5:1 after giving effect to the incurrence of the debt. The indenture also restricts the ability of the Operating Partnership and its subsidiaries to incur secured debt unless the Operating 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 the Operating Partnership and its consolidated subsidiaries. We are currently in compliance with all its financial covenants under the senior notes.  At The Market Program. Pursuant to our sales agreement with Cantor Fitzgerald & Co. (the “Sales Agent”), dated April 3, 2009, as amended on January 26, 2011 and September 16, 2011 (as amended, the “Sales Agreement”), we may sell up to 20 million common shares at “at the market” prices. During the year ended December 31, 2012, we sold 7.9 million shares with an average sales price of $13.13 per share, resulting in gross proceeds of $103.8 million under the program. The Company incurred $1.7 million of offering costs in conjunction with these sales. Business Strategy Our business strategy consists of several elements:  Maximize cash flow from our facilities — Our operating strategy focuses on maximizing sustainable rents at our facilities while achieving and sustaining occupancy targets. We utilize our operating systems and experienced personnel to manage the balance between rental rates, discounts, and physical occupancy with an objective of maximizing our rental revenue.  Acquire facilities within targeted markets — During 2013, we intend to pursue selective acquisitions in markets that we believe have high barriers to entry, strong demographic fundamentals and demand for storage in excess of storage capacity. We believe the self-storage industry will continue to afford us opportunities for growth through acquisitions due to the highly fragmented composition of the industry.  Dispose of facilities not in targeted markets — During 2013, we intend to continue to reduce exposure in slower growth, lower barrier-to-entry markets. We intend to use proceeds from these transactions to fund acquisitions within target markets.  Grow our third party management business — We intend to pursue additional third party management opportunities in markets where we currently maintain management that can be extended to additional facilities. We intend to leverage our current platform to take advantage of consolidation in the industry. We plan to utilize our relationships with third party owners to help source future acquisitions. Investment and Market Selection Process We maintain a disciplined and focused process in the acquisition and development of self-storage facilities. Our investment committee, comprised of our named executive officers and led by Dean Jernigan, our Chief Executive Officer, oversees our investment process. Our investment process involves six stages — identification, initial due diligence, economic assessment, investment committee approval (and when required, Board approval), final due diligence, and documentation. Through our investment committee, we intend to focus on the following criteria:  Targeted markets — Our targeted markets include areas where we currently maintain management that can be extended to additional facilities, or where we believe that we can acquire a significant number of facilities efficiently and within a short period of time. We evaluate both the broader market and the immediate area, typically five miles around the facility, for its ability to support above-average demographic growth. We seek to increase our presence primarily in areas that we expect will experience growth, including the Northeastern and Middle Atlantic areas of the United States and areas within Georgia, Florida, Texas, Illinois and California and to enter new markets should suitable opportunities arise.  Quality of facility — We focus on self-storage facilities that have good visibility and are located near retail centers, which typically provide high traffic corridors and are generally located near residential communities and commercial customers.  Growth potential — We target acquisitions that offer growth potential through increased operating efficiencies and, in some cases, through additional leasing efforts, renovations or expansions. In addition to acquiring single facilities, we seek to invest in portfolio acquisitions, including those offering significant potential for increased operating efficiency and the ability to spread our fixed costs across a large base of facilities. 9 Segment We have one reportable segment: we own, operate, develop, manage and acquire self-storage facilities. Concentration Our self-storage facilities are located in major metropolitan areas as well as suburban areas and have numerous tenants per facility. No single tenant represented a significant concentration of our 2012 revenues. Our facilities in New York, Florida, California, and Texas provided approximately 16%, 15%, 10% and 10%, respectively, of our total 2012 revenues. Our facilities in Florida, California, Texas and Illinois provided approximately 17%, 12%, 10% and 7%, respectively, of our total 2011 revenues. Seasonality We typically experience seasonal fluctuations in occupancy levels at our facilities, with the levels generally slightly higher during the summer months due to increased moving activity. Financing Strategy Although our organizational documents do not limit the amount of debt that we may incur, we maintain a capital structure that we believe is reasonable and prudent and that will enable us to have ample cash flow to cover debt service and make distributions to our shareholders. As of December 31, 2012, our debt to total capitalization ratio (determined by dividing the carrying value of our total indebtedness by the sum of (a) the market value of the Parent Company’s outstanding common shares and units of the Operating Partnership held by third parties and (b) the carrying value of our total indebtedness) was approximately 34.2% compared to approximately 36.0% as of December 31, 2011. Our ratio of debt to the depreciated cost of our real estate assets as of December 31, 2012 was approximately 49.0% compared to approximately 42.4% as of December 31, 2011. We expect to finance additional investments in self-storage facilities through the most attractive available sources of capital at the time of the transaction, in a manner consistent with maintaining a strong financial position and future financial flexibility. These capital sources may include borrowings under the revolving portion of our 2011 Credit Facility and additional secured or unsecured financings, sales of common or preferred shares of the Parent Company in public offerings or private placements, and issuances of common or preferred units in our Operating Partnership in exchange for contributed properties or cash and formations of joint ventures. We also may sell facilities that we no longer view as core assets and reallocate the sales proceeds to fund other acquisitions. Competition Over the last decade, new self-storage facility development has intensified the competition among self-storage operators in many market areas in which we operate. Self-storage facilities compete based on a number of factors, including location, rental rates, security, suitability of the facility’s design to prospective customers’ needs and the manner in which the facility is operated and marketed. In particular, the number of competing self-storage facilities in a particular market could have a material effect on our occupancy levels, rental rates and on the overall operating performance of our facilities. We believe that the primary competition for potential customers of any of our self-storage facilities comes from other self-storage facilities within a three-mile radius of that facility. We believe our facilities are well-positioned within their respective markets and we emphasize customer service, convenience, security and professionalism. Our key competitors include local and regional operators as well as the other public self-storage REITS, including Public Storage, Sovran Self Storage and Extra Space Storage Inc. These companies, some of which operate significantly more facilities than we do and have greater resources than we have, and other entities may generally be able to accept more risk than we determine is prudent for us, including risks with respect to the geographic proximity of facility investments and the payment of higher facility acquisition prices. This competition may generally reduce the number of suitable acquisition opportunities available to us, increase the price required to consummate the acquisition of particular facilities and reduce the demand for self-storage space in areas where our facilities are located. Nevertheless, we believe that our experience in operating, managing, acquiring, developing and obtaining financing for self-storage facilities should enable us to compete effectively. Government Regulation We are subject to various laws, ordinances and regulations, including regulations relating to lien sale rights and procedures and various federal, state and local environmental regulations that apply generally to the ownership of real property and the operation of self-storage facilities. 10 Under various federal, state and local laws, ordinances and regulations, an owner or operator of real property may become liable for the costs of removal or remediation of hazardous substances released on or in its property. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substances. The presence of hazardous substances, or the failure to properly remediate such substances, when released, may adversely affect the property owner’s ability to sell the real estate or to borrow using the real estate as collateral, and may cause the property owner to incur substantial remediation costs. In addition to claims for cleanup costs, the presence of hazardous substances on a property could result in a claim by a private party for personal injury or a claim by an adjacent property owner or user for property damage. We may also become liable for the costs of removal or remediation of hazardous substances stored at the facilities by a customer even though storage of hazardous substances would be without our knowledge or approval and in violation of the customer’s storage lease agreement with us. Our practice is to conduct or obtain environmental assessments in connection with the acquisition or development of facilities. Whenever the environmental assessment for one of our facilities indicates that a facility is impacted by soil or groundwater contamination from prior owners/operators or other sources, we work with our environmental consultants and, where appropriate, state governmental agencies, to ensure that the facility is either cleaned up, that no cleanup is necessary because the low level of contamination poses no significant risk to public health or the environment, or that the responsibility for cleanup rests with a third party. In certain cases, the Company has purchased environmental liability insurance coverage to indemnify the Company against claims for contamination or other adverse environmental conditions that may affect a property. We are not aware of any environmental cleanup liability that we believe will have a material adverse effect on us. We cannot assure you, however, that these environmental assessments and investigations have revealed or will reveal all potential environmental liabilities, that no prior owner created any material environmental condition not known to us or the independent consultant or that future events or changes in environmental laws will not result in the imposition of environmental liability on us. We have not received notice from any governmental authority of any material noncompliance, claim or liability in connection with any of our facilities, nor have we been notified of a claim for personal injury or property damage by a private party in connection with any of our facilities relating to environmental conditions. We are not aware of any environmental condition with respect to any of our facilities that could reasonably be expected to have a material adverse effect on our financial condition or results of operations, and we do not expect that the cost of compliance with environmental regulations will have a material adverse effect on our financial condition or results of operations. We cannot assure you, however, that this will continue to be the case. Insurance We carry comprehensive liability, fire, extended coverage and rental loss insurance covering all of the facilities in our portfolio. We carry environmental insurance coverage on certain properties in our portfolio. We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice. We do not carry insurance for losses such as loss from riots, war or acts of God, and, in some cases, environmental hazards, because such coverage is not available or is not available at commercially reasonable rates. Some of our policies, such as those covering losses due to terrorist activities, hurricanes, floods and earthquakes, are insured subject to limitations involving large deductibles or co-payments and policy limits that may not be sufficient to cover losses. We also carry liability insurance to insure against personal injuries that might be sustained on our properties and director and officer liability insurance. Offices Our principal executive office is located at 460 E. Swedesford Road, Suite 3000, Wayne, PA 19087. Our telephone number is (610) 293-5700. Employees As of December 31, 2012, we employed 1,409 employees, of whom 188 were corporate executive and administrative personnel and 1,221 were property level personnel. We believe that our relations with our employees are good. Our employees are not unionized. Available Information We file registration statements, proxy statements, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, with the SEC. You may obtain copies of these documents by visiting the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, by calling the SEC at 1-800-SEC-0330 or by accessing the SEC’s website at www.sec.gov. Our internet website address is www.cubesmart.com. You also can obtain on our website, free of 11 charge, a copy of our annual report on Form 10-K, the Operating Partnership’s registration statement on Form 10, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file such reports or amendments with, or furnish them to, the SEC. Our internet website and the information contained therein or connected thereto are not intended to be incorporated by reference into this Annual Report on Form 10-K. Also available on our website, free of charge, are copies of our Code of Business Conduct and Ethics, our Corporate Governance Guidelines, and the charters for each of the committees of our Board of Trustees — the Audit Committee, the Corporate Governance and Nominating Committee, and the Compensation Committee. Copies of each of these documents are also available in print free of charge, upon request by any shareholder. You can obtain copies of these documents by contacting Investor Relations by mail at 460 E. Swedesford Road, Suite 3000, Wayne, PA 19087. ITEM 1A. RISK FACTORS Overview An investment in our securities involves various risks. Investors should carefully consider the risks set forth below together with other information contained in this Annual Report. These risks are not the only ones that we may face. Additional risks not presently known to us, or that we currently consider immaterial, may also impair our business, financial condition, operating results and ability to make distributions to our shareholders. Risks Related to our Business and Operations Adverse macroeconomic and business conditions may significantly and negatively affect our rental rates, occupancy levels and therefore our results of operations. We are susceptible to the effects of adverse macro-economic events that can result in higher unemployment, shrinking demand for products, large-scale business failures and tight credit markets. Our results of operations are 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. A continuation of, or slow recovery from, ongoing adverse economic conditions affecting disposable consumer income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs, 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. It is difficult to determine the breadth and duration of the economic and financial market problems and the many ways in which they may affect our customers and our business in general. Nonetheless, continuation or further worsening of these difficult financial and macroeconomic conditions could have a significant adverse effect on our sales, profitability and results of operations. Many states and local jurisdictions are facing severe budgetary problems which may have an adverse impact on our business and financial results. Many states and jurisdictions are facing severe budgetary problems. Action that may be taken in response to these problems, such as increases in property taxes on commercial properties, changes to sales taxes or other governmental efforts, including mandating medical insurance for employees, could adversely impact our business and results of operations. Our financial performance is dependent upon the economic and other conditions of the markets in which our facilities are located. We are susceptible to adverse developments in the markets in which we operate, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors. Our facilities in New York, Florida, California, Texas, Illinois, New Jersey, and Tennessee accounted for approximately 16%, 15%, 10%, 10%, 6%, 5% and 4%, respectively, of our total 2012 revenues. As a result of this geographic concentration of our facilities, we are particularly susceptible to adverse market conditions in these areas. Any adverse economic or real estate developments in these markets, or in any of the other markets in which we operate, or any decrease in demand for self-storage space resulting from the local business climate could adversely affect our rental revenues, which could impair our ability to satisfy our debt service obligations and pay distributions to our shareholders. We face risks associated with facility acquisitions. We intend to continue to acquire individual and portfolios of self-storage facilities. These acquisitions would increase our size and may potentially alter our capital structure. Although we believe that future acquisitions that we complete will enhance our financial performance, the success of acquisitions is subject to the risks that: 12   acquisitions may fail to perform as expected; the actual costs of repositioning or redeveloping acquired facilities may be higher than our estimates;  we may be unable to obtain acquisition financing on favorable terms;   acquisitions may be located in new markets where we may have limited knowledge and understanding of the local economy, an absence of business relationships in the area or an unfamiliarity with local governmental and permitting procedures; there is only limited recourse, or no recourse, to the former owners of newly acquired facilities for unknown or undisclosed liabilities such as the clean-up of undisclosed environmental contamination; claims by tenants, vendors or other persons arising on account of actions or omissions of the former owners of the facilities; and claims by local governments, adjoining property owners, property owner associations, and easement holders for fees, assessments, taxes on other property-related changes. As a result, if a liability were asserted against us based upon ownership of an acquired facility, we might be required to pay significant sums to settle it, which could adversely affect our financial results and cash flow. In addition, we do not always obtain third-party appraisals of acquired facilities (and instead rely on value determinations by our senior management) and the consideration we pay in exchange for those facilities may exceed the value determined by third-party appraisals. We will incur costs and will face integration challenges when we acquire additional facilities. As we acquire or develop additional self-storage facilities, we will be subject to risks associated with integrating and managing new facilities, including customer retention and mortgage default risks. In the case of a large portfolio purchase, we could experience strains in our existing information management capacity. In addition, acquisitions or developments may cause disruptions in our operations and divert management’s attention away from day-to-day operations. Furthermore, our income may decline because we will be required to expense acquisition-related costs and amortize in future periods costs for acquired goodwill and other intangible assets. Our failure to successfully integrate any future acquisitions into our portfolio could have an adverse effect on our operating costs and our ability to make distributions to our shareholders. The acquisition of new facilities that lack operating history with us will make it more difficult to predict revenue potential. We intend to continue to acquire additional facilities. These acquisitions could fail to perform in accordance with expectations. If we fail to accurately estimate occupancy levels, rental rates, operating costs or costs of improvements to bring an acquired facility up to the standards established for our intended market position, the performance of the facility may be below expectations. Acquired facilities may have characteristics or deficiencies affecting their valuation or revenue potential that we have not yet discovered. We cannot assure you that the performance of facilities acquired by us will increase or be maintained under our management. We depend on external sources of capital that are outside of our control; the unavailability of capital from external sources could adversely affect our ability to acquire or develop facilities, satisfy our debt obligations and/or make distributions to shareholders. We depend on external sources of capital to fund acquisitions and facility development, to satisfy our debt obligations and to make distributions to our shareholders required to maintain our status as a REIT, and these sources of capital may not be available on favorable terms, if at all. Our access to external sources of capital depends on a number of factors, including the market’s perception of our growth potential and our current and potential future earnings and our ability to continue to qualify as a REIT for federal income tax purposes. If we are unable to obtain external sources of capital, we may not be able to acquire or develop facilities when strategic opportunities exist, satisfy our debt obligations or make distributions to shareholders that would permit us to qualify as a REIT or avoid paying tax on our REIT taxable income. Rising operating expenses could reduce our cash flow and funds available for future distributions. Our facilities and any other facilities we acquire or develop in the future are and will be subject to operating risks common to real estate in general, any or all of which may negatively affect us. Our facilities are subject to increases in operating expenses such as real estate and other taxes, personnel costs including the cost of providing specific medical coverage to our employees, utilities, insurance, administrative expenses and costs for repairs and maintenance. If operating expenses increase without a corresponding increase in revenues, our profitability could diminish and limit our ability to make distributions to our shareholders. 13 We cannot assure you of our ability to pay dividends in the future. Historically, we have paid quarterly distributions to our shareholders, and we intend to continue to pay quarterly dividends and to make distributions to our shareholders in amounts such that all or substantially all of our taxable income in each year, subject to certain adjustments, is distributed. This, along with other factors, should enable us to continue to qualify for the tax benefits accorded to a REIT under the Internal Revenue Code. We have not established a minimum dividends payment level, and all future distributions will be made at the discretion of our Board of Trustees. Our ability to pay dividends will depend upon, among other factors:    the operational and financial performance of our facilities; capital expenditures with respect to existing and newly acquired facilities; general and administrative costs associated with our operation as a publicly-held REIT;  maintenance of our REIT status;    the amount of, and the interest rates on, our debt; the absence of significant expenditures relating to environmental and other regulatory matters; and other risk factors described in this Annual Report on Form 10-K. Certain of these matters are beyond our control and any significant difference between our expectations and actual results could have a material adverse effect on our cash flow and our ability to make distributions to shareholders. If we are unable to promptly re-let our cubes or if the rates upon such re-letting are significantly lower than expected, then our business and results of operations would be adversely affected. We derive revenues principally from rents received from customers who rent cubes at our self-storage facilities under month-to- month leases. Any delay in re-letting cubes as vacancies arise would reduce our revenues and harm our operating results. In addition, lower than expected rental rates upon re-letting could adversely affect our revenues and impede our growth. Property ownership through joint ventures may limit our ability to act exclusively in our interest. We have in the past co-invested with, and we may continue to co-invest with, third parties through joint ventures. In any such joint venture, we may not be in a position to exercise sole decision-making authority regarding the facilities owned through joint ventures. Investments in joint ventures may, under certain circumstances, involve risks not present when a third party is not involved, including the possibility that joint venture partners might become bankrupt or fail to fund their share of required capital contributions. Joint venture partners may have business interests or goals that are inconsistent with our business interests or goals and may be in a position to take actions contrary to our policies or objectives. Such investments also have the potential risk of impasse on strategic decisions, such as a sale, in cases where neither we nor the joint venture partner would have full control over the joint venture. In other circumstances, joint venture partners may have the ability without our agreement to make certain major decisions, including decisions about sales, capital expenditures and/or financing. Any disputes that may arise between us and our joint venture partners could result in litigation or arbitration that could increase our expenses and distract our officers and/or Trustees from focusing their time and effort on our business. In addition, we might in certain circumstances be liable for the actions of our joint venture partners, and the activities of a joint venture could adversely affect our ability to qualify as a REIT, even though we do not control the joint venture. We face significant competition for tenants and acquisition and development opportunities. Actions by our competitors may decrease or prevent increases of the occupancy and rental rates of our properties. We compete with numerous developers, owners and operators of self-storage facilities, including other REITs, some of which own or may in the future own properties similar to ours in the same submarkets in which our properties are located and some of which may have greater capital resources. In addition, due to the relatively low cost of each individual self-storage facility, other developers, owners and operators have the capability to build additional facilities that may compete with our facilities. If our competitors build new facilities that compete with our facilities or offer space at rental rates below the rental rates we currently charge our tenants, we may lose potential tenants, and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants when our tenants’ leases expire. As a result, our financial condition, cash flow, cash 14 available for distribution, market price of our shares and ability to satisfy our debt service obligations could be materially adversely affected. In addition, increased competition for customers may require us to make capital improvements to our facilities that we would not have otherwise made. Any unbudgeted capital improvements we undertake may reduce cash available for distributions to our shareholders. We also face significant competition for acquisitions and development opportunities. Some of our competitors have greater financial resources than we do and a greater ability to borrow funds to acquire facilities. These competitors may also be willing to accept more risk than we can prudently manage, including risks with respect to the geographic proximity of investments and the payment of higher facility acquisition prices. This competition for investments may reduce the number of suitable investment opportunities available to us, may increase acquisition costs and may reduce demand for self-storage space in certain areas where our facilities are located and, as a result, adversely affect our operating results. We may become subject to litigation or threatened litigation which may divert management’s time and attention, require us to pay damages and expenses or restrict the operation of our business. We may become subject to disputes with commercial parties with whom we maintain relationships or other parties with whom we do business. Any such dispute could result in litigation between us and the other parties. Whether or not any dispute actually proceeds to litigation, we may be required to devote significant management time and attention to its successful resolution (through litigation, settlement or otherwise), which would detract from our management’s ability to focus on our business. Any such resolution could involve the payment of damages or expenses by us, which may be significant. In addition, any such resolution could involve our agreement with terms that restrict the operation of our business. There are other commercial parties, at both a local and national level, that may assert that our use of our brand names and other intellectual property conflict with their rights to use brand names and other intellectual property that they consider to be similar to ours. Any such commercial dispute and related resolution would involve all of the risks described above, including, in particular, our agreement to restrict the use of our brand name or other intellectual property. We also could be sued for personal injuries and/or property damage occurring on our properties. We maintain liability insurance with limits that we believe adequate to provide for the defense and/or payment of any damages arising from such lawsuits. There can be no assurance that such coverage will cover all costs and expenses from such suits. Potential losses may not be covered by insurance, which could result in the loss of our investment in a facility and the future cash flows from the facility. We carry comprehensive liability, fire, extended coverage and rental loss insurance covering all of the facilities in our portfolio. We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice. We do not carry insurance for losses such as loss from riots, war or acts of God, and, in some cases, flooding and environmental hazards, because such coverage is not available or is not available at commercially reasonable rates. Some of our policies, such as those covering losses due to terrorism, hurricanes, floods and earthquakes, are insured subject to limitations involving large deductibles or co-payments and policy limits that may not be sufficient to cover losses. If we experience a loss at a facility that is uninsured or that exceeds policy limits, we could lose the capital invested in that facility as well as the anticipated future cash flows from that facility. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it impractical or undesirable to use insurance proceeds to replace a facility after it has been damaged or destroyed. In addition, if the damaged facilities are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these facilities were irreparably damaged. Our insurance coverage may not comply with certain loan requirements. Certain of our properties serve as collateral for our mortgage-backed debt, some of which we assumed in connection with our acquisition of facilities and requires us to maintain insurance at levels and on terms that are not commercially reasonable in the current insurance environment. We may be unable to obtain required insurance coverage if the cost and/or availability make it impractical or impossible to comply with debt covenants. If we cannot comply with a lender’s requirements, the lender could declare a default, which could affect our ability to obtain future financing and have a material adverse effect on our results of operations and cash flows and our ability to obtain future financing. In addition, we may be required to self-insure against certain losses or our insurance costs may increase. 15 Potential liability for environmental contamination could result in substantial costs. We are subject to federal, state and local environmental regulations that apply generally to the ownership of real property and the operation of self-storage facilities. If we fail to comply with those laws, we could be subject to significant fines or other governmental sanctions. Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at a facility and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by such parties in connection with contamination. Such liability may be imposed whether or not the owner or operator knew of, or was responsible for, the presence of these hazardous or toxic substances. The cost of investigation, remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to properly remediate such substances, may adversely affect our ability to sell or rent such facility or to borrow using such facility as collateral. In addition, in connection with the ownership, operation and management of real properties, we are potentially liable for property damage or injuries to persons and property. Our practice is to conduct or obtain environmental assessments in connection with the acquisition or development of additional facilities. We carry environmental insurance coverage on certain properties in our portfolio. We obtain or examine environmental assessments from qualified and reputable environmental consulting firms (and intend to conduct such assessments prior to the acquisition or development of additional facilities). The environmental assessments received to date have not revealed, nor do we have actual knowledge of, any environmental liability that we believe will have a material adverse effect on us. However, we cannot assure you that our environmental assessments have identified or will identify all material environmental conditions, that any prior owner of any facility did not create a material environmental condition not actually known to us or that a material environmental condition does not otherwise exist with respect to any of our facilities. Americans with Disabilities Act and applicable state accessibility act compliance may require unanticipated expenditures. Under the Americans with Disabilities Act of 1990 and applicable state accessibility act laws (collectively, the “ADA”), all places of public accommodation are required to meet federal requirements related to physical access and use by disabled persons. A number of other federal, state and local laws may also impose access and other similar requirements at our facilities. A failure to comply with the ADA or similar state or local requirements could result in the governmental imposition of fines or the award of damages to private litigants affected by the noncompliance. Although we believe that our facilities comply in all material respects with these requirements (or would be eligible for applicable exemptions from material requirements because of adaptive assistance provided), a determination that one or more of our facilities is not in compliance with the ADA or similar state or local requirements would result in the incurrence of additional costs associated with bringing the facilities into compliance. If we are required to make substantial modifications to comply with the ADA or similar state or local requirements, we may be required to incur significant unanticipated expenditures, which could have an adverse effect on our operating costs and our ability to make distributions to our shareholders. Privacy concerns could result in regulatory changes that may harm our business. Personal privacy has become a significant issue in the jurisdictions in which we operate. Many jurisdictions in which we operate have imposed restrictions and requirements on the use of personal information by those collecting such information. Changes to law or regulations affecting privacy, if applicable to our business, could impose additional costs and liability on us and could limit our use and disclosure of such information. We face system security risks as we depend upon automated processes and the Internet. We are increasingly dependent upon automated information technology processes. While we attempt to mitigate this risk through offsite backup procedures and contracted data centers that include, in some cases, redundant operations, we could still be severely impacted by a catastrophic occurrence, such as a natural disaster or a terrorist event or cyber-attack. In addition, an increasing portion of our business operations are conducted over the Internet, increasing the risk of viruses that could cause system failures and disruptions of operations despite our deployment of anti-virus measures. Experienced computer programmers may be able to penetrate our network security and misappropriate our confidential information, create system disruptions or cause shutdowns. 16 Terrorist attacks and other acts of violence or war may adversely impact our performance and may affect the markets on which our securities are traded. Terrorist attacks against our facilities, the United States or our interests, may negatively impact our operations and the value of our securities. Attacks or armed conflicts could negatively impact the demand for self-storage facilities and increase the cost of insurance coverage for our facilities, which could reduce our profitability and cash flow. Furthermore, any terrorist attacks or armed conflicts could result in increased volatility in or damage to the United States and worldwide financial markets and economy. Risks Related to the Real Estate Industry Our performance and the value of our self-storage facilities are subject to risks associated with our properties and with the real estate industry. Our rental revenues and operating costs and the value of our real estate assets, and consequently the value of our securities, are subject to the risk that if our facilities do not generate revenues sufficient to meet our operating expenses, including debt service and capital expenditures, our cash flow and ability to pay distributions to our shareholders will be adversely affected. Events or conditions beyond our control that may adversely affect our operations or the value of our facilities include but are not limited to:          downturns in the national, regional and local economic climate; local or regional oversupply, increased competition or reduction in demand for self-storage space; vacancies or changes in market rents for self-storage space; inability to collect rent from customers; increased operating costs, including maintenance, insurance premiums and real estate taxes; changes in interest rates and availability of financing; hurricanes, earthquakes and other natural disasters, civil disturbances, terrorist acts or acts of war that may result in uninsured or underinsured losses; significant expenditures associated with acquisitions and development projects, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property; costs of complying with changes in laws and governmental regulations, including those governing usage, zoning, the environment and taxes; and  the relative illiquidity of real estate investments. In addition, prolonged periods of economic slowdown or recession, rising interest rates or declining demand for self-storage, or the public perception that any of these events may occur, could result in a general decline in rental revenues, which could impair our ability to satisfy our debt service obligations and to make distributions to our shareholders. Rental revenues are significantly influenced by demand for self-storage space generally, and a decrease in such demand would likely have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio. Because our portfolio of facilities consists primarily of self-storage facilities, we are subject to risks inherent in investments in a single industry. A decrease in the demand for self-storage space would have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio. Demand for self-storage space has been and could be adversely affected by ongoing weakness in the national, regional and local economies, changes in supply of, or demand for, similar or competing self-storage facilities in an area and the excess amount of self-storage space in a particular market. To the extent that any of these conditions occur, they are likely to affect market rents for self-storage space, which could cause a decrease in our rental revenue. Any such decrease could impair our ability to satisfy debt service obligations and make distributions to our shareholders. 17 Because real estate is illiquid, we may not be able to sell properties when appropriate. Real estate property investments generally cannot be sold quickly. Also, the tax laws applicable to REITs require that we hold our facilities for investment, rather than sale in the ordinary course of business, which may cause us to forgo or defer sales of facilities that otherwise would be in our best interest. Therefore, we may not be able to dispose of facilities promptly, or on favorable terms, in response to economic or other market conditions, which may adversely affect our financial position. Risks Related to our Qualification and Operation as a REIT Failure to qualify as a REIT would subject us to U.S. federal income tax which would reduce the cash available for distribution to our shareholders. We operate our business to qualify to be taxed as a REIT for federal income tax purposes. We have not requested and do not plan to request a ruling from the IRS that we qualify as a REIT, and the statements in this Annual Report on Form 10-K are not binding on the IRS or any court. As a REIT, we generally will not be subject to federal income tax on the income that we distribute currently to our shareholders. Many of the REIT requirements, however, are highly technical and complex. The determination that we are a REIT requires an analysis of various factual matters and circumstances that may not be totally within our control. For example, to qualify as a REIT, at least 95% of our gross income must come from specific passive sources, such as rent, that are itemized in the REIT tax laws. In addition, to qualify as a REIT, we cannot own specified amounts of debt and equity securities of some issuers. We also are required to distribute to our shareholders with respect to each year at least 90% of our REIT taxable income, excluding net capital gains. The fact that we hold substantially all of our assets through the Operating Partnership and its subsidiaries further complicates the application of the REIT requirements for us. Even a technical or inadvertent mistake could jeopardize our REIT status and, given the highly complex nature of the rules governing REITs and the ongoing importance of factual determinations, we cannot provide any assurance that we will continue to qualify as a REIT. Furthermore, Congress and the IRS might make changes to the tax laws and regulations, and the courts might issue new rulings, that make it more difficult, or impossible, for us to remain qualified as a REIT. If we fail to qualify as a REIT for federal income tax purposes and are able to avail ourselves of one or more of the statutory savings provisions in order to maintain our REIT status, we would nevertheless be required to pay penalty taxes of $50,000 or more for each such failure. If we fail to qualify as a REIT for federal income tax purposes, and are unable to avail ourselves of certain savings provisions set forth in the Internal Revenue Code, we would be subject to federal income tax at regular corporate rates on all of our income. As a taxable corporation, we would not be allowed to take a deduction for distributions to shareholders in computing our taxable income or pass through long term capital gains to individual shareholders at favorable rates. We also could be subject to the federal alternative minimum tax and possibly increased state and local taxes. We would not be able to elect to be taxed as a REIT for four years following the year we first failed to qualify unless the IRS were to grant us relief under certain statutory provisions. If we failed to qualify as a REIT, we would have to pay significant income taxes, which would reduce our net earnings available for investment or distribution to our shareholders. This likely would have a significant adverse effect on our earnings and likely would adversely affect the value of our securities. In addition, we would no longer be required to pay any distributions to shareholders. Failure of the Operating Partnership (or a subsidiary partnership) to be treated as a partnership would have serious adverse consequences to our shareholders. If the IRS were to successfully challenge the tax status of the Operating Partnership or any of its subsidiary partnerships for federal income tax purposes, the Operating Partnership or the affected subsidiary partnership would be taxable as a corporation. In such event we would cease to qualify as a REIT and the imposition of a corporate tax on the Operating Partnership or a subsidiary partnership would reduce the amount of cash available for distribution from the Operating Partnership to us and ultimately to our shareholders. To maintain our REIT status, we may be forced to borrow funds on a short term basis during unfavorable market conditions. As a REIT, we are subject to certain distribution requirements, including the requirement to distribute 90% of our REIT taxable income, which may result in our having to make distributions at a disadvantageous time or to borrow funds at unfavorable rates. Compliance with this requirement may hinder our ability to operate solely on the basis of maximizing profits. We will pay some taxes even if we qualify as a REIT, which will reduce the cash available for distribution to our shareholders. Even if we qualify as a REIT for federal income tax purposes, we will be required to pay certain federal, state and local taxes on our income and property. For example, we will be subject to income tax to the extent we distribute less than 100% of our REIT taxable income, including capital gains. Additionally, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which 18 dividends paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The determination as to whether a particular sale is a prohibited transaction depends on the facts and circumstances related to that sale. We cannot guarantee that sales of our properties would not be prohibited transactions unless we comply with certain statutory safe- harbor provisions. In addition, any net taxable income earned directly by our taxable REIT subsidiaries, or through entities that are disregarded for federal income tax purposes as entities separate from our taxable REIT subsidiaries, will be subject to federal and possibly state corporate income tax. We have elected to treat some of our subsidiaries as taxable REIT subsidiaries, and we may elect to treat other subsidiaries as taxable REIT subsidiaries in the future. In this regard, several provisions of the laws applicable to REITs and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation. For example, a taxable REIT subsidiary is limited in its ability to deduct certain interest payments made to an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on some deductions taken by a taxable REIT subsidiary if the economic arrangements between the REIT, the REIT’s customers, and the taxable REIT subsidiary are not comparable to similar arrangements between unrelated parties. Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to federal income tax on that income because not all states and localities follow the federal income tax treatment of REITs. To the extent that we and our affiliates are required to pay federal, state and local taxes, we will have less cash available for distributions to our shareholders. We face possible federal, state and local tax audits. Because we are organized and qualify as a REIT, we are generally not subject to federal income taxes, but are subject to certain state and local taxes. Certain entities through which we own real estate either have undergone, or are currently undergoing, tax audits. Although we believe that we have substantial arguments in favor of our positions in the ongoing audits, in some instances there is no controlling precedent or interpretive guidance on the specific point at issue. Collectively, tax deficiency notices received to date from the jurisdictions conducting the ongoing audits have not been material. However, there can be no assurance that future audits will not occur with increased frequency or that the ultimate result of such audits will not have a material adverse effect on our results of operations. Risks Related to our Debt Financings We face risks related to current debt maturities, including refinancing risk. Certain of our mortgages, bank loans, and unsecured debt (including our senior notes) will have significant outstanding balances on their maturity dates, commonly known as “balloon payments.” We may not have the cash resources available to repay those amounts, and we may have to raise funds for such repayment either through the issuance of equity or debt securities, additional bank borrowings (which may include extension of maturity dates), joint ventures or asset sales. Furthermore, we are restricted from incurring certain additional indebtedness and making certain other changes to our capital and debt structure under the terms of the senior notes and the indenture governing the senior notes. There can be no assurance that we will be able to refinance our debt on favorable terms or at all. To the extent we cannot refinance debt on favorable terms or at all, we may be forced to dispose of properties on disadvantageous terms or pay higher interest rates, either of which would have an adverse impact on our financial performance and ability to pay dividends to investors As a result of our interest rate hedges, swap agreements and other, similar arrangements, we face counterparty risks. We may be exposed to the potential risk of counterparty default or non-payment with respect to interest rate hedges, swap agreements, floors, caps and other interest rate hedging contracts that we may enter into from time to time, in which event we could suffer a material loss on the value of those agreements. Although these agreements may lessen the impact of rising interest rates on us, they also expose us to the risk that other parties to the agreements will not perform or that we cannot enforce the agreements. There is no assurance that our potential counterparties on these agreements will perform their obligations under such agreements. 19 Financing our future growth plan or refinancing existing debt maturities could be impacted by negative capital market conditions. Recently, domestic financial markets have experienced extreme volatility and uncertainty. At times in recent years liquidity has tightened in the domestic financial markets, including the investment grade debt and equity capital markets for which we historically sought financing. Consequently, there is greater uncertainty regarding our ability to access the credit markets in order to attract financing on reasonable terms nor can there be any assurance we can issue common or preferred equity securities at a reasonable price. Our ability to finance new acquisitions and refinance future debt maturities could be adversely impacted by our inability to secure permanent financing on reasonable terms, if at all. The terms and covenants relating to our indebtedness could adversely impact our economic performance. Like other real estate companies that incur debt, we are subject to risks associated with debt financing, such as the insufficiency of cash flow to meet required debt service payment obligations and the inability to refinance outstanding indebtedness at maturity. If our debt cannot be paid, refinanced or extended at maturity, we may not be able to make distributions to shareholders at expected levels or at all and may not be able to acquire new properties. Failure to make distributions to our shareholders could result in our failure to qualify as a REIT for federal income tax purposes. Furthermore, an increase in our interest expense could adversely affect our cash flow and ability to make distributions to shareholders. If we do not meet our debt service obligations, any facilities securing such indebtedness could be foreclosed on, which would have a material adverse effect on our cash flow and ability to make distributions and, depending on the number of facilities foreclosed on, could threaten our continued viability. Our 2012 Credit Facility contains (and any new or amended facility we may enter into from time to time will likely contain) customary affirmative and negative covenants, including financial covenants that, among other things, require us to comply with certain liquidity and net worth tests. Our ability to borrow under the 2012 Credit Facility is (and any new or amended facility we may enter into from time to time will be) subject to compliance with such financial and other covenants. In the event that we fail to satisfy these covenants, we would be in default under the 2012 Credit Facility and may be required to repay such debt with capital from other sources. Under such circumstances, other sources of debt or equity capital may not be available to us, or may be available only on unattractive terms. Moreover, the presence of such covenants in our credit agreements could cause us to operate our business with a view toward compliance with such covenants, which might not produce optimal returns for shareholders. Increases in interest rates on variable rate indebtedness would increase our interest expense, which could adversely affect our cash flow and ability to make distributions to shareholders. Rising interest rates could also restrict our ability to refinance existing debt when it matures. In addition, an increase in interest rates could decrease the amounts that third parties are willing to pay for our assets, thereby limiting our ability to alter our portfolio promptly in relation to economic or other conditions. Our organizational documents contain no limitation on the amount of debt we may incur. As a result, we may become highly leveraged in the future. Our organizational documents do not limit the amount of indebtedness that we or our Operating Partnership may incur. We could alter the balance between our total outstanding indebtedness and the value of our assets at any time. If we become more highly leveraged, then the resulting increase in debt service could adversely affect our ability to make payments on our outstanding indebtedness and to pay our anticipated distributions and/or the distributions required to maintain our REIT status, and could harm our financial condition. Risks Related to our Organization and Structure We are dependent upon our senior management team whose continued service is not guaranteed. Our executive team, including our named executive officers, has extensive self-storage, real estate and public company experience. Although we have employment agreements with members of our senior management team, we cannot provide any assurance that any of them will remain in our employment. The loss of services of one or more members of our senior management team could adversely affect our operations and our future growth. We are dependent upon our on-site personnel to maximize customer satisfaction; any difficulties we encounter in hiring, training and retaining skilled field personnel may adversely affect our rental revenues. As of December 31, 2012, we had 1,221 field personnel involved in the management and operation of our facilities. The customer service, marketing skills and knowledge of local market demand and competitive dynamics of our facility managers are contributing factors to our ability to maximize our rental income and to achieve the highest sustainable rent levels at each of our facilities. We 20 compete with various other companies in attracting and retaining qualified and skilled personnel. Competitive pressures may require that we enhance our pay and benefits package to compete effectively for such personnel. If there is an increase in these costs or if we fail to attract and retain qualified and skilled personnel, our business and operating results could be harmed. Certain provisions of Maryland law could inhibit changes in control, which may discourage third parties from conducting a tender offer or seeking other change of control transactions that could involve a premium price for our shares or otherwise benefit our shareholders. Certain provisions of Maryland law may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the holders of our common shares with the opportunity to realize a premium over the then-prevailing market price of those shares, including:  “business combination moratorium/fair price” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested shareholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the most recent date on which the shareholder becomes an interested shareholder, and thereafter imposes stringent fair price and super-majority shareholder voting requirements on these combinations; and  “control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in electing Trustees) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares” from a party other than the issuer) have no voting rights except to the extent approved by our shareholders by the affirmative vote of at least two thirds of all the votes entitled to be cast on the matter, excluding all interested shares, and are subject to redemption in certain circumstances. We have opted out of these provisions of Maryland law. However, our Board of Trustees may opt to make these provisions applicable to us at any time without shareholder approval. Our Trustees also have the discretion, granted in our bylaws and Maryland law, without shareholder approval to, among other things (1) create a staggered Board of Trustees, and (2) amend our bylaws or repeal individual bylaws in a manner that provides the Board of Trustees with greater authority. Any such action could inhibit or impede a third party from making a proposal to acquire us at a price that could be beneficial to our shareholders. Our shareholders have limited control to prevent us from making any changes to our investment and financing policies. Our Board of Trustees has adopted policies with respect to certain activities. These policies may be amended or revised from time to time at the discretion of our Board of Trustees without a vote of our shareholders. This means that our shareholders have limited control over changes in our policies. Such changes in our policies intended to improve, expand or diversify our business may not have the anticipated effects and consequently may adversely affect our business and prospects, results of operations and share price. Our rights and the rights of our shareholders to take action against our Trustees and officers are limited. Maryland law provides that a trustee or officer has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our declaration of trust and bylaws require us to indemnify our Trustees and officers for actions taken on behalf of the Company by them in those capacities to the extent permitted by Maryland law. Accordingly, in the event that actions taken in good faith by any Trustee or officer impede our performance, our shareholders’ ability to recover damages from that Trustee or officer will be limited. Our declaration of trust permits our Board of Trustees to issue preferred shares with terms that may discourage third parties from conducting a tender offer or seeking other change of control transactions that could involve a premium price for our shares or otherwise benefit our shareholders. Our declaration of trust permits our Board of Trustees to issue up to 40,000,000 preferred shares, of which 3,100,000 shares have already been issued, having those preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications, or terms or conditions of redemption as determined by our Board. In addition, our Board may reclassify any unissued common shares into one or more classes or series of preferred shares. Thus, our Board could authorize, without shareholder approval, the issuance of preferred shares with terms and conditions that could have the effect of discouraging a takeover or other transaction in which holders of some or a majority of our shares might receive a premium for their shares over the then-prevailing market price of 21 our shares. We currently do not expect that the Board would require shareholder approval prior to such a preferred issuance. In addition, any preferred shares that we issue would rank senior to our common shares with respect to the payment of distributions, in which case we could not pay any distributions on our common shares until full distributions have been paid with respect to such preferred shares. Risks Related to our Securities Additional issuances of equity securities may be dilutive to shareholders. The interests of our shareholders could be diluted if we issue additional equity securities to finance future acquisitions or developments or to repay indebtedness. Our Board of Trustees may authorize the issuance of additional equity securities, including preferred shares, without shareholder approval. Our ability to execute our business strategy depends upon our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing, including common and preferred equity. Many factors could have an adverse effect on the market value of our securities. A number of factors might adversely affect the price of our securities, many of which are beyond our control. These factors include:         increases in market interest rates, relative to the dividend yield on our shares. If market interest rates go up, prospective purchasers of our securities may require a higher yield. Higher market interest rates would not, however, result in more funds for us to distribute and, to the contrary, would likely increase our borrowing costs and potentially decrease funds available for distribution. Thus, higher market interest rates could cause the market price of our equity securities to go down; anticipated benefit of an investment in our securities as compared to investment in securities of companies in other industries (including benefits associated with tax treatment of dividends and distributions); perception by market professionals of REITs generally and REITs comparable to us in particular; level of institutional investor interest in our securities; relatively low trading volumes in securities of REITs; our results of operations and financial condition; investor confidence in the stock market generally; and additions and departures of key personnel. The market value of our equity securities is based primarily upon the market’s perception of our growth potential and our current and potential future earnings and cash distributions. Consequently, our equity securities may trade at prices that are higher or lower than our net asset value per equity security. If our future earnings or cash distributions are less than expected, it is likely that the market price of our equity securities will diminish. The market price of our common shares has been, and may continue to be, particularly volatile, and our shareholders may be unable to resell their shares at a profit. The market price of our common shares has been subject to significant fluctuations and may continue to fluctuate or decline. Between 2010 and December 31, 2012, the price of our common shares has been volatile, ranging from a high of $14.74 (on December 24, 2012) to a low of $6.14 (on February 25, 2010). In the past several years, REIT securities have experienced high levels of volatility and significant declines in value from their historic highs. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. If our stock price is volatile, we may become the target of securities litigation. Securities litigation could result in substantial costs and divert our management’s attention and resources from our business. 22 ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES Overview As of December 31, 2012, we owned 381 self-storage facilities located in 22 states and the District of Columbia; and aggregating approximately 25.5 million rentable square feet. The following table sets forth certain summary information regarding our facilities by state as of December 31, 2012. State Florida ................................................ Texas .................................................. California ........................................... New York ........................................... Illinois ................................................ Arizona .............................................. Tennessee ........................................... New Jersey ......................................... Connecticut ........................................ Georgia ............................................. Ohio ................................................... Virginia .............................................. Colorado ............................................ Maryland ............................................ North Carolina ................................... Pennsylvania ...................................... Utah.................................................... Massachusetts .................................... New Mexico ....................................... Washington DC .................................. Nevada ............................................... Indiana ............................................... Wisconsin .......................................... Total/Weighted Average .............. Number of Facilities Number of Units Total Rentable Square Feet % of Total Rentable Square Feet Occupancy 55 53 43 30 27 24 23 21 20 16 15 9 9 6 6 7 4 4 3 2 2 1 1 381 38,802 25,859 26,196 34,219 13,829 11,931 12,327 13,418 9,089 9,645 8453 6,722 4,755 5,117 3,873 4,829 2,207 2,379 1,620 1,799 885 713 486 239,153 4,076,940 3,258,014 3,099,697 2,127,114 1,607,406 1,283,093 1,606,973 1,386,285 1,041,681 1,182,150 979,849 692,015 567,556 596,912 463,062 513,880 239,623 206,419 182,061 145,615 97,446 73,014 58,500 25,485,304 16.0% 12.8% 12.2% 8.4% 6.3% 5.0% 6.3% 5.4% 4.1% 4.6% 3.8% 2.7% 2.2% 2.3% 1.8% 2.0% 0.9% 0.8% 0.7% 0.6% 0.4% 0.4% 0.3% 100.0% 85.0% 83.8% 82.9% 84.7% 88.0% 83.5% 84.0% 81.9% 85.0% 83.9% 86.1% 83.9% 87.2% 84.4% 82.2% 84.5% 87.5% 81.9% 85.3% 92.8% 85.6% 86.6% 81.2% 84.4% 23 Our Facilities The following table sets forth certain additional information with respect to each of our facilities as of December 31, 2012. Our ownership of each facility consists of a fee interest in the facility held by our Operating Partnership, or one of its subsidiaries, except for five of our facilities, which are subject to ground leases. In addition, small parcels of land at four of our other facilities are subject to ground leases. Facility Location Chandler, AZ ......... Glendale, AZ .......... Green Valley, AZ ... Mesa I, AZ ............. Mesa II, AZ ............ Mesa III, AZ .......... Phoenix I, AZ ......... Phoenix II, AZ ....... Scottsdale, AZ ........ Tempe, AZ ............. Tucson I, AZ .......... Tucson II, AZ ......... Tucson III, AZ ....... Tucson IV, AZ ....... Tucson V, AZ ........ Tucson VI, AZ ....... Tucson VII, AZ ...... Tucson VIII, AZ .... Tucson IX, AZ ....... Tucson X, AZ ........ Tucson XI, AZ ....... Tucson XII, AZ ...... Tucson XIII, AZ .... Tucson XIV, AZ .... Apple Valley I, CA Apple Valley II, CA Benicia, CA ............ Cathedral City, CA † Citrus Heights, CA . Diamond Bar, CA .. Escondido, CA ....... Fallbrook, CA ........ Lancaster, CA ........ Long Beach, CA .... Murrieta, CA .......... North Highlands, CA Orangevale, CA ..... Palm Springs I, CA Palm Springs II, CA † Pleasanton, CA ....... Rancho Cordova, CA Rialto I, CA ............ Rialto II, CA .......... Riverside I, CA ...... Riverside II, CA ..... Roseville, CA ......... Sacramento I, CA ... Sacramento II, CA . San Bernardino I, CA Year Acquired/ Developed (1) 2005 1998 2005 2006 2006 2006 2006 2006 1998 2005 1998 1998 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 1997 1997 2005 2006 2005 2005 2007 1997 2001 2006 2005 2005 2005 2006 2006 2005 2005 2006 1997 2006 2006 2005 2005 2005 1997 Year Built 1985 1987 1985 1985 1981 1986 1987 1974 1995 1975 1974 1988 1979 1982 1982 1982 1982 1979 1984 1981 1974 1974 1974 1976 1984 1988 1988/93/05 1982/92 1987 1988 2002 1985/88 1987 1974 1996 1980 1980 1989 1982/89 2003 1979 1987 1980 1977 1985 1979 1979 1986 1987 Occupancy (2) 85.7% 85.2% 77.0% 87.9% 82.2% 74.3% 86.4% 82.3% 82.0% 84.4% 79.9% 89.1% 76.9% 81.4% 83.3% 86.5% 85.4% 89.4% 85.4% 81.6% 80.1% 84.6% 80.2% 89.0% 83.3% 76.3% 82.5% 83.3% 85.2% 91.4% 90.9% 81.9% 71.2% 68.9% 88.8% 85.5% 83.5% 82.9% 77.8% 87.1% 87.2% 84.7% 75.4% 83.6% 67.8% 85.3% 86.1% 70.9% 86.5% Rentable Square Feet 47,520 56,807 25,050 52,375 45,361 58,189 100,775 83,309 79,525 53,890 59,350 43,950 49,832 48,040 45,184 40,766 52,688 46,600 67,720 46,350 42,700 42,225 45,792 49,095 73,290 61,405 74,770 110,974 75,620 102,984 142,670 46,620 60,675 125,091 49,835 57,244 50,317 72,675 122,550 85,045 53,978 57,391 99,803 67,120 85,166 59,869 50,714 61,888 31,070 24 Units Manager Apartment (3) 431 515 258 485 391 492 750 793 657 404 485 532 482 483 418 412 590 441 600 411 413 428 512 548 495 428 731 624 671 900 1,219 447 327 1,351 424 469 530 535 579 693 453 437 716 635 815 545 538 549 232 Y Y N N Y Y Y Y Y Y Y Y N Y Y Y Y Y Y N Y Y Y Y Y Y Y Y Y Y Y Y N Y Y Y Y Y Y Y Y Y N Y Y Y Y Y N % Climate Controlled (4) 6.9% 0.0% 8.0% 0.0% 9.8% 4.5% 9.0% 2.6% 9.7% 13.0% 0.0% 100.0% 0.0% 3.7% 3.0% 3.4% 2.0% 0.0% 1.9% 0.0% 0.0% 4.8% 0.0% 8.8% 0.0% 5.3% 0.0% 2.2% 0.0% 0.0% 6.5% 0.0% 0.0% 0.0% 2.9% 0.0% 0.0% 0.0% 8.5% 0.0% 0.0% 0.0% 0.0% 0.0% 3.9% 0.0% 0.0% 0.0% 0.0% Facility Location San Bernardino II, CA San Bernardino III, CA San Bernardino IV, CA San Bernardino V, CA San Bernardino VII, CA San Bernardino VIII, CA San Marcos, CA ..... Santa Ana, CA ....... South Sacramento, CA Spring Valley, CA Temecula I, CA ...... Temecula II, CA .... Thousand Palms, CA Vista I, CA ............. Vista II, CA ............ Walnut, CA ............ West Sacramento, CA Westminster, CA .... Aurora, CO ............ Colorado Springs I, CO Colorado Springs II, CO Denver I, CO .......... Denver II, CO ........ Federal Heights, CO Year Acquired/ Developed (1) 1997 1997 2005 2006 2006 2006 2005 2006 2005 2006 1998 2007 2006 2001 2005 2005 2005 2005 2005 2005 2006 2006 2012 2005 Year Built 1991 1985/92 2002/04 1974 1978 1977 1979 1984 1979 1980 1985/2003 2003 1988/01 1988 2001/02/03 1987 1984 1983/98 1981 1986 2001 1997 2007 1980 Rentable Square Feet 41,546 35,341 83,166 57,001 78,729 95,029 37,430 63,896 52,165 55,045 81,550 84,398 74,305 74,405 148,081 50,708 40,040 68,098 75,867 47,925 62,300 59,200 74,520 54,770 Occupancy (2) 73.1% 83.7% 85.4% 92.9% 92.7% 80.6% 91.0% 89.8% 81.0% 80.7% 82.9% 83.6% 89.9% 86.7% 80.3% 84.6% 85.0% 86.1% 87.8% 85.5% 83.1% 90.4% 85.8% 84.7% Units Manager Apartment (3) 373 373 688 466 604 816 242 712 411 713 687 630 674 621 1,270 537 478 558 613 462 433 449 675 544 Y N Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y N Y % Climate Controlled (4) 0.0% 0.0% 11.6% 4.2% 1.3% 0.0% 0.0% 2.0% 0.0% 0.0% 46.5% 51.3% 27.2% 0.0% 2.3% 9.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 91.0% 0.0% 25 Facility Location Golden, CO ........... Littleton, CO ......... Northglenn, CO ..... Bloomfield, CT ..... Branford, CT ......... Bristol, CT ............ East Windsor, CT Enfield, CT ........... Gales Ferry, CT ..... Manchester I, CT (6) Manchester II, CT Milford, CT ........... Monroe, CT ........... Mystic, CT ............ Newington I, CT ... Newington II, CT .. Norwalk, CT ......... Old Saybrook I, CT Old Saybrook II, CT Shelton, CT ........... South Windsor, CT Stamford, CT ........ Wilton, CT ............ Washington I, DC Washington II, DC Boca Raton, FL ..... Boynton Beach I, FL Boynton Beach II, FL Bradenton I, FL ..... Bradenton II, FL ... Cape Coral, FL ...... Coconut Creek, FL Dania, FL .............. Dania Beach, FL (6) Davie, FL .............. Deerfield Beach, FL Delray Beach, FL .. Fernandina Beach, FL Ft. Lauderdale, FL Ft. Myers, FL ........ Jacksonville I, FL Jacksonville II, FL Jacksonville III, FL Jacksonville IV, FL Jacksonville V, FL Kendall, FL ........... Lake Worth, FL † Lakeland I, FL ....... Lutz I, FL .............. Lutz II, FL ............. Margate I, FL † ..... Margate II, FL † .... Merrit Island, FL ... Miami I, FL ........... Year Acquired/ Developed (1) Year Built 1985 1987 1980 1987/93/94 1986 1989/99 1986/89 1989 1987/89 1999/00/01 1984 1975 1996/03 1975/86 1978/97 1979/81 2009 1982/88/00 1988/02 2007 1976 1997 1966 2002 1929/98 1998 1999 2001 1979 1996 2000 2001 1988 1984 2001 1998 1999 1986 1999 1998 2005 2004 2003 2006 2004 2003 1998/02 1988 2000 1999 1979/81 1985 2000 1995 2005 2005 2005 1997 1995 2005 2005 2001 1995 2002 2005 1996 2005 1996 2005 2005 2012 2005 2005 2011 1996 2005 2012 2008 2011 2001 2001 2005 2004 2004 2000* 2012 1996 2004 2001* 1998* 2001 1996 1999 1999 2005 2007 2007 2007 2007 2007 1998 1994 2004 2004 1996 1996 2002 1996 Units Manager Apartment (3) 640 442 497 438 434 453 301 366 597 455 399 376 399 560 246 195 351 720 253 857 558 362 769 754 1,045 605 755 578 585 849 855 756 492 1,836 832 517 819 784 695 589 705 657 675 705 695 703 1,355 487 594 531 338 424 465 560 Y Y Y Y Y N N Y N N N Y N Y N N N N N Y Y N Y Y N N Y Y N Y Y N Y N Y Y Y Y Y Y N N N N N N Y Y Y Y N Y Y Y % Climate Controlled (4) 1.2% 37.4% 0.0% 6.6% 2.2% 22.4% 0.0% 0.0% 6.5% 37.5% 0.0% 4.0% 0.0% 2.3% 0.0% 0.0% 100.0% 5.9% 54.2% 85.7% 1.1% 32.8% 54.8% 96.5% 99.0% 68.2% 54.1% 82.3% 2.7% 40.0% 83.6% 48.1% 26.9% 21.5% 55.7% 38.9% 39.3% 35.3% 46.8% 67.1% 100.0% 100.0% 100.0% 100.0% 82.3% 71.0% 37.2% 79.4% 36.9% 20.6% 9.9% 28.8% 56.7% 52.1% Occupancy (2) 91.5% 87.8% 86.0% 87.1% 84.3% 88.9% 78.6% 88.8% 75.6% 81.4% 87.9% 91.6% 85.7% 86.2% 86.1% 85.2% 97.3% 86.8% 90.9% 80.6% 77.1% 87.9% 85.4% 93.7% 92.1% 89.1% 87.6% 79.8% 80.3% 86.2% 82.9% 89.8% 92.8% 70.1% 87.2% 92.7% 85.6% 84.2% 91.4% 69.7% 95.0% 85.0% 87.9% 90.6% 82.4% 91.0% 92.1% 75.4% 80.2% 86.0% 83.5% 78.5% 82.0% 93.9% Rentable Square Feet 87,382 53,490 52,102 48,700 50,679 47,725 46,016 52,875 54,230 47,025 52,725 44,885 58,700 50,725 42,620 36,140 31,239 86,950 26,425 78,465 72,125 28,957 84,475 63,085 82,530 37,958 61,749 61,703 68,391 87,960 76,627 78,783 58,270 168,217 80,985 57,230 67,813 110,995 70,063 67,510 80,296 65,270 65,580 77,425 81,835 75,395 161,808 49,111 66,795 69,232 54,165 65,186 50,417 46,825 26 Facility Location Miami II, FL ......... Miami III, FL ........ Miami IV, FL ........ Naples I, FL .......... Naples II, FL ......... Naples III, FL ........ Naples IV, FL ....... Ocoee, FL ............. Orange City, FL .... Orlando II, FL ....... Orlando III, FL ...... Orlando IV, FL ..... Orlando V, FL ....... Oviedo, FL ............ Pembroke Pines, FL Royal Palm Beach II, FL Sanford, FL ........... Sarasota, FL .......... St. Augustine, FL .. Year Acquired/ Developed (1) 1996 2005 2011 1996 1997 1997 1998 2005 2004 2005 2006 2010 2012 2006 1997 2007 2006 1999 1996 Year Built 1989 1988/03 2007 1996 1985 1981/83 1990 1997 2001 2002/04 1988/90/96 2009 2008 1988/1991 1997 2004 1988/2006 1998 1985 Rentable Square Feet 67,010 150,735 76,352 48,150 65,850 80,266 40,600 76,250 59,586 63,084 102,705 76,565 75,359 49,251 67,321 81,405 61,810 71,402 59,725 Occupancy (2) 80.2% 86.0% 90.0% 93.5% 90.7% 89.5% 92.2% 80.2% 84.2% 85.9% 77.2% 89.0% 86.3% 80.5% 88.5% 90.5% 86.9% 79.9% 76.6% Units Manager Apartment (3) 568 1,518 932 319 627 797 428 620 639 577 784 637 638 427 696 759 437 524 699 Y N N Y Y Y N Y N N Y N N Y Y N Y Y Y % Climate Controlled (4) 7.9% 86.9% 100.0% 26.6% 44.6% 23.7% 42.2% 15.5% 39.1% 74.2% 12.4% 64.4% 85.3% 3.2% 63.2% 82.3% 28.6% 42.3% 29.9% 27 Facility Location Stuart, FL ................. SW Ranches, FL ...... Tampa, FL ................ West Palm Beach I, FL West Palm Beach II, FL West Palm Beach III, FL Alpharetta, GA ......... Atlanta, GA .............. Austell , GA ............. Decatur, GA ............. Duluth II, GA ........... Duluth, GA .............. Lawrenceville, GA ... Leisure City, GA ...... Norcross I, GA ......... Norcross II, GA ........ Norcross II, GA ........ Norcross III, GA ...... Peachtree City I, GA Peachtree City II, GA Smyrna, GA ............. Snellville, GA .......... Suwanee I, GA ......... Suwanee II, GA ........ Addison, IL .............. Aurora, IL ................ Bartlett, IL ................ Bellwood, IL ............ Des Plaines, IL (6) ... Elk Grove Village, IL Glenview, IL ............ Gurnee, IL ................ Hanover, IL .............. Harvey, IL ................ Joliet, IL ................... Kildeer, IL ................ Lombard, IL ............. Mount Prospect, IL .. Mundelein, IL .......... North Chicago, IL .... Plainfield I, IL .......... Plainfield II, IL ........ Schaumburg, IL ....... Streamwood, IL ....... Warrensville, IL ....... Waukegan, IL ........... West Chicago, IL ..... Westmont, IL ........... Wheeling I, IL .......... Wheeling II, IL ........ Woodridge, IL .......... Indianapolis, IN ....... Boston I, MA ........... Boston II, MA .......... Year Acquired/ Developed (1) 1997 2007 2007 2001 2004 2012 2001 2012 2006 1998 2012 2011 2011 2012 2001 2012 2011 2012 2001 2012 2001 2007 2007 2007 2004 2004 2004 2001 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2005 2004 2004 2005 2004 2004 2004 2004 2004 2004 2004 2010 2002 Year Built 1995 2004 2001/2002 1997 1996 2008 1996 2008 2000 1986 2004 2009 1999 2005 1997 2007 1996 2005 1997 2005 2000 1996/1997 2000/2003 2005 1979 1996 1987 1999 1978 1987 1998 1987 1987 1987 1993 1988 1981 1979 1990 1985 1998 2000 1988 1982 1977/89 1977 1979 1979 1974 1979 1987 1976 1950 2001 Units Manager Apartment (3) 955 647 790 975 834 919 670 626 646 1,244 538 589 597 615 582 499 396 505 433 430 489 748 616 575 367 555 408 739 635 623 738 720 411 575 530 422 544 587 491 427 404 355 321 557 377 682 430 377 491 601 462 713 592 628 Y N N Y Y Y Y N Y Y N N N N Y Y N Y N N Y Y Y N Y Y Y Y N Y Y N Y Y Y Y Y Y Y N N N N N N Y Y Y N Y Y Y N Y % Climate Controlled (4) 51.3% 85.3% 28.5% 47.2% 73.9% 51.2% 75.1% 100.0% 66.4% 2.7% 100.0% 100.0% 24.4% 55.0% 55.8% 100.0% 57.0% 81.6% 75.6% 47.7% 100.0% 27.1% 28.9% 61.8% 0.0% 6.9% 33.5% 52.1% 0.0% 5.5% 100.0% 34.1% 0.4% 3.0% 100.0% 0.0% 9.8% 12.7% 8.9% 0.0% 3.3% 22.8% 5.6% 4.4% 0.0% 8.4% 0.0% 0.0% 0.0% 7.3% 6.7% 0.0% 100.0% 100.0% Occupancy (2) 82.5% 90.7% 86.9% 88.0% 90.5% 69.4% 87.2% 71.0% 81.8% 75.8% 89.7% 75.2% 82.0% 82.2% 89.2% 90.6% 95.2% 74.4% 87.8% 93.9% 91.8% 87.4% 86.9% 85.2% 86.2% 86.0% 89.8% 86.2% 81.9% 88.1% 91.8% 92.6% 88.5% 86.9% 84.9% 89.4% 88.1% 91.5% 89.6% 90.1% 90.0% 93.7% 83.5% 85.8% 86.6% 81.1% 91.3% 86.3% 87.9% 92.1% 85.4% 86.6% 75.4% 83.5% Rentable Square Feet 87,037 64,955 83,738 68,051 94,503 85,460 90,485 66,675 83,875 145,280 47,242 70,985 73,765 56,177 85,420 47,270 52,020 57,555 49,875 57,100 57,015 80,000 85,240 79,590 31,325 74,435 51,425 86,650 74,400 64,129 100,115 80,300 41,190 60,090 72,765 46,285 57,764 65,000 44,700 53,350 53,900 51,900 31,160 64,305 48,796 79,500 48,175 53,450 54,210 67,825 50,262 73,014 33,286 60,545 28 Leominster, MA ....... Medford, MA ........... Baltimore, MD ......... California, MD ......... District Heights, MD Gaithersburg, MD .... Laurel, MD †............ Temple Hills, MD .... Belmont, NC ............ Burlington I, NC ...... Burlington II, NC ..... Cary, NC .................. Charlotte, NC ........... Raleigh, NC ............. Bordentown, NJ ....... Brick, NJ .................. Cherry Hill I, NJ ...... Cherry Hill II, NJ ..... Clifton, NJ ................ 1998 2007 2001 2004 2011 2005 2001 2001 2001 2001 2001 2001 2002 1998 2012 1996 2010 2012 2005 1987/88/00 2001 1999/00 1998 2007 1998 1978/99/00 2000 1996/97/98 1990/91/93/ 94/98 1991 1993/94/97 1999 1994/95 2006 1981 2004 2004 2001 53,823 58,765 93,350 77,865 78,660 87,045 162,792 97,200 81,600 109,396 42,305 112,086 69,000 48,675 50,600 51,725 52,600 65,050 105,550 81.3% 84.5% 83.4% 79.7% 80.2% 83.4% 87.7% 88.1% 86.1% 68.7% 77.2% 87.9% 88.3% 88.8% 81.5% 82.5% 73.4% 72.1% 89.0% 500 659 809 720 954 785 1,022 827 586 950 394 794 737 412 385 432 378 610 1,018 Y Y Y Y Y Y N Y N N Y N Y Y N N Y N Y 38.5% 96.0% 45.3% 39.0% 90.3% 42.0% 41.1% 68.5% 23.1% 4.7% 12.0% 7.5% 52.8% 8.2% 18.8% 0.0% 0.0% 87.5% 85.5% 29  Year Acquired/ Developed (1) Facility Location Cranford, NJ.......... East Hanover, NJ .. Egg Harbor I, NJ ... Egg Harbor II, NJ Elizabeth, NJ ......... Fairview, NJ .......... Freehold, NJ ......... Hamilton, NJ ......... Hoboken, NJ ......... Linden, NJ ............. Lumberton, NJ ...... Morris Township, NJ (6) Parsippany, NJ ...... Randolph, NJ ........ Sewell, NJ ............. Somerset, NJ ........ Albuquerque I, NM Albuquerque II, NM Albuquerque III, NM Las Vegas I, NV † . Las Vegas II, NV .. Bronx I, NY .......... Bronx II, NY (5) ... Bronx III, NY ........ Bronx IV, NY (5) .. Bronx V, NY (5) ... Bronx VI, NY (5) .. Bronx VII, NY (5) Bronx VIII, NY ..... Bronx IX, NY ....... Bronx X, NY ......... Brooklyn I, NY ..... Brooklyn II, NY .... Brooklyn III, NY ... Brooklyn IV, NY .. Brooklyn V, NY .... Brooklyn VI, NY .. Jamaica I, NY ....... Jamaica II, NY ...... New Rochelle I, NY New Rochelle II, NY North Babylon, NY Queens, NY ........... Riverhead, NY ...... Southold, NY ........ Tuckahoe, NY ....... West Hempstead, NY White Plains, NY .. Woodhaven, NY ... Wyckoff, NY ........ Yorktown, NY ...... Cleveland I, OH .... Cleveland II, OH ... Columbus , OH ..... 1996 1996 2010 2010 2005 1997 2012 2006 2005 1996 2012 1997 1997 2002 2001 2012 2005 2005 2005 2006 2006 2010 2011 2011 2011 2011 2011 2012 2012 2012 2012 2010 2011 2011 2011 2011 2011 2001 2011 2005 2012 1998 2010 2005 2005 2011 2012 2011 2011 2010 2011 2005 2005 2006 Year Built 1987 1983 2005 2002 1925/97 1989 2002 1990 1945/97 1983 2004 1972 1981 1998/99 1984/98 2000 1985 1985 1986 1986 1997 1931/2004 2006 2007 2007 2007 2011 2005 1928 1973 2001 1917/2004 2006 2006 2007 2007 2006 2000 2010 1998 1917 1988/99 1962/2003 1985/86/99 1989 2007 2002 1938 2008 1910/2007 2006 1997/99 2000 1999 Units Manager Apartment (3) 851 966 293 704 674 448 760 614 742 1,118 786 565 566 541 454 513 609 527 484 369 516 1,322 831 2,040 1,314 1,095 1,092 1,524 545 3,021 2,661 861 851 793 887 1,416 1,396 918 1,473 401 1,029 651 1,148 328 599 758 903 1,508 1,029 1,042 783 340 565 602 Y N N N N N N Y N N Y Y Y Y N N Y Y Y Y Y N N N N N N N N Y Y N N N N N N Y N N Y N N N N N Y N N N Y Y Y Y % Climate Controlled (4) 7.9% 1.6% 12.6% 16.6% 0.0% 100.0% 56.4% 0.0% 100.0% 2.1% 27.8% 1.3% 6.9% 82.5% 5.3% 69.3% 3.2% 4.1% 4.7% 5.4% 75.2% 96.5% 58.3% 97.3% 96.7% 100.0% 93.9% 100.0% 100.0% 99.0% 65.8% 83.0% 100.0% 100.0% 100.0% 94.5% 100.0% 30.7% 84.5% 15.0% 93.4% 9.0% 25.3% 0.0% 3.0% 99.2% 30.8% 77.2% 90.5% 90.2% 63.3% 5.0% 0.0% 25.6% Occupancy (2) 89.4% 73.8% 85.4% 62.6% 82.7% 84.9% 87.3% 82.2% 81.5% 84.4% 81.2% 83.0% 83.6% 82.1% 87.7% 90.1% 79.7% 89.4% 87.7% 84.7% 86.5% 84.1% 92.5% 83.3% 76.5% 85.6% 81.1% 80.1% 78.6% 84.8% 79.5% 81.5% 92.7% 90.3% 86.9% 83.2% 91.6% 91.3% 84.8% 55.1% 85.1% 91.8% 93.2% 97.1% 81.6% 87.5% 91.1% 84.7% 80.5% 82.2% 83.3% 89.6% 82.5% 81.4% Rentable Square Feet 91,250 107,679 36,025 70,425 38,830 27,875 81,495 70,550 34,200 100,425 96,025 71,776 66,325 52,465 57,830 57,585 65,927 58,598 57,536 48,596 48,850 68,813 90,270 106,065 75,580 54,683 39,495 78,575 30,550 148,470 159,830 57,020 41,625 37,467 46,945 74,415 72,710 88,415 91,325 48,434 63,295 78,188 60,945 38,340 59,745 51,688 85,281 87,705 50,665 61,960 78,615 46,050 58,425 71,905 30 Grove City, OH ..... Hilliard, OH .......... Lakewood, OH ...... Marblehead, OH .... Middleburg Heights, OH North Olmsted I, OH North Olmsted II, OH North Randall, OH Reynoldsburg, OH Strongsville, OH ... Warrensville Heights, OH ...... Westlake, OH ........ Conshohocken, PA Exton, PA ............. Langhorne, PA ..... Levittown, PA ....... Montgomeryville, PA Norristown, PA ..... Philadelphia, PA ... 2006 2006 1989* 2005 1980* 1979* 1988* 1998* 2006 2007 1980* 2005 2012 2012 2012 2001 2012 2011 2001 1997 1995 1989 1988/98 1980 1979 1988 1998/02 1979 1978 1980/82/98 2001 2003 2006 2001 2000 2003 2005 1999 89,290 89,690 39,287 52,300 92,725 48,665 47,850 80,229 66,895 43,507 90,281 62,750 81,435 57,650 65,150 76,180 84,145 52,031 97,289 83.1% 85.2% 88.5% 83.2% 90.6% 85.5% 82.2% 89.8% 85.0% 92.3% 84.4% 90.0% 87.8% 88.9% 85.3% 85.9% 77.0% 81.8% 85.6% 773 777 455 382 682 442 396 799 664 400 723 453 728 548 670 655 773 501 954 Y Y Y Y Y Y Y N Y Y Y Y Y N Y Y Y N N 16.9% 24.5% 24.6% 0.0% 3.8% 7.0% 14.2% 90.8% 0.0% 100.0% 0.0% 6.1% 35.0% 90.3% 59.3% 36.3% 47.9% 86.8% 47.1% 31 Facility Location Alcoa, TN ............. Antioch, TN .......... Cordova I, TN ....... Cordova II, TN ...... Knoxville I, TN ..... Knoxville II, TN ... Knoxville III, TN .. Knoxville V, TN ... Knoxville VI, TN .. Knoxville VII, TN . Knoxville VIII, TN Memphis I, TN ...... Memphis II, TN .... Memphis III, TN ... Memphis IV, TN ... Memphis V, TN .... Memphis VI, TN ... Memphis VII, TN Memphis VIII, TN † Nashville I, TN ..... Nashville II, TN .... Nashville III, TN ... Nashville IV, TN ... Allen, TX .............. Austin I, TX .......... Austin II, TX ......... Austin III, TX ....... Baytown, TX ......... Bryan, TX ............. Carrollton, TX ....... College Station, TX Cypress, TX .......... Dallas, TX ............. Denton, TX ........... El Paso I, TX ......... El Paso II, TX ....... El Paso III, TX ...... El Paso IV, TX ...... El Paso V, TX ....... El Paso VI, TX ...... El Paso VII, TX † Fort Worth I, TX ... Fort Worth II, TX Frisco I, TX ........... Frisco II, TX ......... Frisco III, TX ........ Frisco IV, TX ........ Garland I, TX ........ Garland II, TX ....... Greenville I, TX .... Greenville II, TX ... Houston I, TX ....... Houston II, TX ...... Houston III, TX ..... Houston IV, TX .... Houston V, TX † ... Year Acquired/ Developed (1) 2005 2005 2005 2006 1997 1997 1998 1998 2005 2005 2005 2001 2001 2005 2005 2005 2006 2006 2006 2005 2005 2006 2006 2012 2005 2006 2006 2005 2005 2012 2005 2012 2005 2006 2005 2005 2005 2005 2005 2005 2005 2005 2006 2005 2005 2006 2010 2006 2006 2005 2005 2005 2005 2005 2005 2006 Year Built 1986 1985/98 1987 1995 1984 1985 1991 1977 1975 1983 1978 1999 2000 1983 1986 1981 1985/93 1980/85 1990 1984 1986/00 1985 1986/00 2003 2001 2000/03 2004 1981 1994 2002 1993 1998 2000 1996 1980 1980 1980 1983 1982 1985 1982 2000 2003 1996 1998/02 2004 2007 1991 2004 2001/04 2001 1981 1977 1984 1987 1980/1997 Occupancy (2) 86.2% 88.5% 88.6% 76.5% 75.0% 77.5% 82.8% 80.0% 85.8% 77.7% 70.8% 89.7% 91.4% 80.4% 80.2% 86.0% 82.3% 85.1% 75.8% 86.2% 87.7% 91.4% 91.0% 88.1% 84.0% 79.8% 81.9% 82.7% 63.2% 71.2% 74.8% 75.1% 88.7% 87.5% 91.5% 94.8% 80.6% 85.1% 76.0% 92.1% 35.4% 85.8% 89.3% 81.8% 83.2% 87.7% 89.3% 93.1% 92.0% 78.9% 82.6% 82.9% 87.9% 82.5% 87.7% 81.8% Rentable Square Feet 42,350 76,160 54,125 67,700 29,337 37,900 45,736 42,790 63,440 55,594 95,868 92,320 71,710 40,507 38,678 60,120 108,996 96,163 96,060 103,910 83,484 101,575 102,450 62,490 59,520 65,241 70,560 38,950 60,450 77,420 26,559 58,141 59,324 60,836 59,952 48,704 71,252 67,058 62,290 36,620 34,545 50,621 72,900 50,854 70,999 74,815 74,835 70,100 68,425 59,385 44,900 100,730 71,300 60,820 43,975 126,180 32 Units Manager Apartment (3) 354 618 387 711 281 326 445 373 583 454 763 699 556 347 319 498 875 533 548 695 632 598 732 524 538 594 580 350 495 549 346 442 534 462 513 412 585 527 402 257 5 406 653 431 511 611 512 679 469 448 313 616 391 461 383 1,013 Y Y Y Y Y Y Y N Y Y Y N N Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y N N Y Y Y Y Y Y Y Y N Y Y Y Y Y N Y Y Y N Y Y Y Y Y % Climate Controlled (4) 0.0% 8.5% 0.0% 7.2% 6.8% 7.0% 6.9% 0.0% 0.0% 0.0% 0.0% 57.1% 46.3% 6.2% 4.1% 0.0% 4.1% 0.0% 0.0% 0.0% 6.5% 5.2% 7.0% 40.2% 58.8% 38.9% 85.4% 0.0% 0.0% 0.0% 0.0% 42.3% 28.0% 3.9% 0.9% 0.0% 2.0% 3.2% 0.0% 0.0% 0.0% 26.6% 49.0% 17.5% 25.2% 86.0% 16.4% 4.4% 39.6% 28.8% 36.3% 0.0% 0.0% 4.4% 6.1% 55.0%  Year Acquired/ Developed (1) Facility Location Houston VI, TX ... Houston VII, TX ... Houston VIII, TX Keller, TX ............. La Porte, TX ......... Lewisville, TX ...... Mansfield I, TX ..... Mansfield II, TX ... McKinney I, TX .... McKinney II, TX .. North Richland Hills, TX Pearland, TX ......... Roanoke, TX ......... San Antonio I, TX . San Antonio II, TX San Antonio III, TX 2011 2012 2012 2006 2005 2006 2006 2012 2005 2006 2005 2012 2005 2005 2006 2007 Year Built 2002 1989 1992 2000 1984 1996 2003 2002 1996 1996 2002 1985 1996/01 2005 2005 2006 Rentable Square Feet 54,680 54,882 53,630 61,885 44,850 58,140 63,075 58,400 47,020 70,050 57,200 72,249 59,500 73,305 73,230 71,775 Occupancy (2) 89.4% 86.9% 72.5% 85.7% 89.4% 84.6% 93.8% 95.2% 84.9% 81.5% 83.5% 75.0% 91.5% 85.8% 88.8% 84.6% Units Manager Apartment (3) 588 499 429 486 426 429 486 484 362 537 433 457 450 573 670 569 N N Y Y Y Y Y Y Y Y Y N Y Y N N % Climate Controlled (4) 100.0% 71.2% 39.1% 21.1% 15.4% 19.7% 38.4% 55.1% 9.2% 46.3% 47.6% 32.6% 29.9% 79.0% 82.3% 87.4% 33 Facility Location Sherman I, TX ......... Sherman II, TX ....... Spring, TX .............. Murray I, UT ........... Murray II, UT † ...... Salt Lake City I, UT Salt Lake City II, UT Alexandria, VA ....... Burke Lake, VA ...... Fairfax, VA ............. Fredericksburg I, VA Fredericksburg II, VA Leesburg, VA .......... Mannasas, VA ......... McLearen, VA ........ Vienna, VA ............. Milwaukee, WI ....... Year Acquired/ Developed (1) 2005 2005 2006 2005 2005 2005 2005 2012 2011 2012 2005 2005 2011 2010 2010 2012 2004 Year Built 1998 1996 1980/86 1976 1978 1976 1978 2000 2003 1999 2001/04 1998/01 2001/04 1998 2002 2000 1988 Rentable Square Feet 54,975 48,425 72,751 60,280 71,221 56,446 51,676 114,650 90,927 73,650 69,475 61,207 85,503 73,045 69,240 54,318 58,500 Occupancy (2) 82.0% 79.8% 79.5% 87.4% 90.3% 83.9% 87.5% 74.4% 85.2% 88.6% 80.0% 76.2% 89.9% 83.4% 88.8% 94.6% 81.2% Units 505 391 535 632 371 724 480 1,156 910 683 605 562 890 638 719 559 486 % Climate Manager Apartment (3) Controlled (4) 21.1% 30.9% 14.1% 0.0% 2.6% 0.0% 0.0% 100.0% 72.5% 77.4% 21.4% 100.0% 75.7% 50.9% 90.0% 92.5% 0.0% Y Y N Y Y Y Y N Y N N N Y Y Y Y Y Total/Weighted Average (381 facilities) ..... * Denotes facilities developed by us. 25,485,304 84.4% 239,153 † Denotes facilities that contain commercial rentable square footage. All of this commercial space, which was developed in conjunction with the self-storage cubes, is located within or adjacent to our self-storage facilities and is managed by our self-storage facility managers. As of December 31, 2012, there was an aggregate of approximately 373,000 rentable square feet of commercial space at these facilities. (1) Represents the year acquired for those facilities acquired from a third party or the year developed for those facilities developed by us. (2) Represents occupied square feet divided by total rentable square feet at December 31, 2012. (3) Indicates whether a facility has an on-site apartment where a manager resides. (4) Represents the percentage of rentable square feet in climate-controlled cubes. (5) We do not own the land at these facilities. We lease the land pursuant to ground leases that expire between 2052 and 2059, but have renewal options. (6) We have ground leases for certain small parcels of land adjacent to these facilities that expire between 2013 and 2019. We have grown by adding facilities to our portfolio through acquisitions and development. The tables set forth below show the average occupancy, annual rent per occupied square foot, average occupied square feet and total revenues for our facilities owned as of December 31, 2012, and for each of the previous three years, grouped by the year during which we first owned or operated the facility. 34 Facilities by Year Acquired - Average Occupancy Year Acquired (1) # of Facilities Feet 2012 Rentable Square Average Occupancy 2011 2010 2009 and earlier ............ 2010 .............................. 2011 (5) ......................... 2012 .............................. All Facilities Owned as of December 31, 2012 ....... 306 12 26 37 381 20,308,555 734,759 1,795,171 2,646,819 25,485,304 82.6% 78.3% 82.3% 83.8% 82.5% 79.3% 69.1% 78.7% — 78.9% 77.2% 67.7% — — 77.1% Facilities by Year Acquired - Annual Rent Per Occupied Square Foot (2) Year Acquired (1) # of Facilities 2012 Rent per Square Foot 2011 2010 2009 and earlier ......................... 2010 ........................................... 2011 (5) ...................................... 2012 ........................................... All Facilities Owned as of December 31, 2012 .................... $ 306 12 26 37 $ 11.80 18.44 24.01 15.55 $ 11.98 19.12 22.80 — 11.96 13.50 — — 381 $ 13.24 $ 13.02 $ 12.01 Facilities by Year Acquired - Average Occupied Square Feet (3) Year Acquired (1) # of Facilities 2012 Average Occupied Square Feet 2011 2010 2009 and earlier ....................................... 2010 ......................................................... 2011 (5) .................................................... 2012 ......................................................... All Facilities Owned as of December 31, 2012 ......................................................... $ 306 12 26 37 16,769,285 578,149 1,476,913 2,199,295 $ 16,117,150 510,496 1,409,521 — $ 15,680,890 480,918 — — 381 21,023,642 18,037,167 16,161,808 Facilities by Year Acquired - Total Revenues (dollars in thousands) (4) Year Acquired (1) # of Facilities 2012 Total Revenues 2011 2010 2009 and earlier ....................................... 2010 ......................................................... 2011 (5) .................................................... 2012 ......................................................... All Facilities Owned as of December 31, 2012 ......................................................... $ 306 12 26 37 $ 207,875 11,181 36,945 19,028 $ 200,741 10,108 9,548 — 193,614 1,663 — — 381 $ 275,029 $ 220,397 $ 195,277 (1) For facilities developed by us, “Year Acquired” represents the year in which such facilities were acquired by our operating partnership from an affiliated entity, which in some cases is later than the year developed. (2) Determined by dividing the aggregate rental revenue for each twelve-month period by the average of the month-end occupied square feet for the period. Rental revenue includes the impact of promotional discounts, which reduce rental income over the promotional period, of $16.1 million, $13.3 million and$11.7 million, for the periods ended December 31, 2012, 2011 and 2010. 35 (3) Represents the average of the aggregate month-end occupied square feet for the twelve-month period for each group of facilities. (4) Represents the result obtained by multiplying total income per occupied square foot by the average occupied square feet for the twelve-month period for each group of facilities. This result will vary from amounts reported on the financial statements. (5) Facility count does not include the Phoenix parcel acquisition in 2011. The parcel is adjacent to a property that was purchased in 2006 and is therefore consolidated with that property. Planned Renovations and Improvements We have a capital improvement and property renovation program that includes office upgrades, adding climate control at selected cubes, construction of parking areas, safety and security enhancements, and general facility upgrades. For 2013, we anticipate spending approximately $7 million to $10 million associated with these capital expenditures and expect to enhance the safety and improve the aesthetic appeal of our facilities. ITEM 3. LEGAL PROCEEDINGS We are involved in claims from time to time, which arise in the ordinary course of business. In the opinion of management, we have made adequate provisions for potential liabilities, if any, arising from any such matters. However, litigation is inherently unpredictable, and the costs and other effects of pending or future litigation, governmental investigations, legal and administrative cases and proceedings (whether civil or criminal), settlements, judgments and investigations, claims and changes in any such matters, could have a material adverse effect on our business, financial condition and operating results. ITEM 4. MINING SAFETY DISCLOSURES Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES As of December 31, 2012, there were approximately 61 registered record holders of the Parent Company’s common shares and 12 holders of the Operating Partnership’s Units (other than the Parent Company). These figures do not include beneficial owners who hold shares in nominee name. There is no established trading market for the Units of the Operating Partnership. The following table shows the high and low closing prices per share for our common shares, as reported by the New York Stock Exchange, and the cash dividends declared with respect to such shares: 2011 First quarter ................. Second quarter ............ Third quarter ............... Fourth quarter ............. 2012 First quarter ................. Second quarter ............ Third quarter ............... Fourth quarter ............. $ $ $ $ $ $ $ $ High Low Cash Dividends Declared 10.57 11.39 11.15 10.66 12.14 12.81 13.48 14.67 $ $ $ $ $ $ $ $ 9.20 9.93 8.53 8.04 10.30 10.90 11.69 12.59 $ $ $ $ $ $ $ $ 0.070 0.070 0.070 0.080 0.080 0.080 0.080 0.110 For each quarter in 2011 and 2012, the Operating Partnership paid a cash distribution per Unit in an amount equal to the dividend paid on a common share for each such quarter. 36 Since our initial quarter as a publicly-traded REIT, we have made regular quarterly distributions to our shareholders. Distributions to shareholders are usually taxable as ordinary income, although a portion of the distribution may be designated as capital gain or may constitute a tax-free return of capital. Annually, we provide each of our shareholders a statement detailing distributions paid during the preceding year and their characterization as ordinary income, capital gain or return of capital. The characterization of our dividends for 2012 was as follows: 81.7538% ordinary income distribution, 14.9075% capital gain distribution, and 3.3387% return of capital distribution from earnings and profits. Distributions to 7.75% Series A Cumulative Redeemable Preferred Shareholders are usually taxable as ordinary income, although a portion of the distribution may be designated as capital gain or may constitute a tax-free return of capital. Annually, we provide each of our shareholders a statement detailing preferred distributions paid during the preceding year and their characterization as ordinary income, capital gain or return of capital. The characterization of our preferred dividends for 2012 was as follows: 84.5778% ordinary income distribution and 15.4222% capital gain distribution from earnings and profits. We intend to continue to declare quarterly distributions. However, we cannot provide any assurance as to the amount or timing of future distributions. Under the revolving portion of our 2011 Credit Facility, we are restricted from paying distributions on our common shares that would exceed an amount equal to the greater of (i) 95% of our funds from operations, and (ii) such amount as may be necessary to maintain our REIT status. To the extent that we make distributions in excess of our earnings and profits, as computed for federal income tax purposes, these distributions will represent a return of capital, rather than a dividend, for federal income tax purposes. Distributions that are treated as a return of capital for federal income tax purposes generally will not be taxable as a dividend to a U.S. shareholder, but will reduce the shareholder’s basis in its shares (but not below zero) and therefore can result in the shareholder having a higher gain upon a subsequent sale of such shares. Return of capital distributions in excess of a shareholder’s basis generally will be treated as gain from the sale of such shares for federal income tax purposes. 37 Share Performance Graph The SEC requires us to present a chart comparing the cumulative total shareholder return on our common shares with the cumulative total shareholder return of (i) a broad equity index and (ii) a published industry or peer group index. The following chart compares the yearly cumulative total shareholder return for our common shares with the cumulative shareholder return of companies on (i) the S&P 500 Index, (ii) the Russell 2000 and (iii) the NAREIT All Equity REIT Index as provided by NAREIT for the period beginning December 31, 2007 and ending December 31, 2012. Index CubeSmart ...................................... S&P 500 .......................................... Russell 2000 .................................... NAREIT All Equity REIT Index .... 12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 100.00 100.00 100.00 100.00 52.03 63.00 66.21 62.27 87.82 79.68 84.20 79.70 115.84 91.68 106.82 101.98 133.17 93.61 102.36 110.42 188.85 108.59 119.09 132.18 Period Ending There were no repurchases of the Parent Company’s common shares during the three-month period ended December 31, 2012. ITEM 6. SELECTED FINANCIAL DATA CUBESMART The following table sets forth selected financial and operating data on a historical consolidated basis for the Parent Company. The selected historical financial information for the five-year period ended December 31, 2012 was derived from the Parent Company’s financial statements, which have been audited by KPMG LLP. The following data should be read in conjunction with the audited financial statements and notes thereto of the Parent Company and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this report. 38 2012 For the year ended December 31, 2010 (Dollars and shares in thousands, except per share data) 2011 2009 2008 REVENUES Rental income ................................................................. Other property related income ........................................ Property management fee income ................................... Total revenues ............................................................. $ 250,959 27,776 4,341 283,076 $ 202,762 20,715 3,768 227,245 $ 179,748 17,114 2,829 199,691 $ 178,669 14,659 56 193,384 $ 185,426 13,708 — 199,134 OPERATING EXPENSES Property operating expenses ........................................... Depreciation and amortization ........................................ General and administrative ............................................. Total operating expenses ............................................. OPERATING INCOME OTHER INCOME (EXPENSE) Interest: Interest expense on loans ............................................ Loan procurement amortization expense .................... Loan procurement amortization expense - early repayment of debt ................................................... Acquisition related costs ................................................. Equity in losses of real estate ventures ........................... Gain from remeasurement of investment in real estate venture ........................................................................ Other ............................................................................... Total other expense ..................................................... LOSS FROM CONTINUING OPERATIONS DISCONTINUED OPERATIONS Income from discontinued operations ............................. Net gain on disposition of discontinued operations ........ Total discontinued operations .................................... NET INCOME (LOSS) NET (INCOME) LOSS ATTRIBUTABLE TO NONCONROLLING INTERESTS Noncontrolling interests in the Operating Partnership .... Noncontrolling interest in subsidiaries ............................ NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY Distribution to Preferred Shares ...................................... NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS OF THE COMPANY Basic and diluted loss per share from continuing operations attributable to common shareholders ............. Basic and diluted earnings per share from discontinued operations attributable to common shareholders ............. Basic and diluted (loss) earnings per share attributable to common shareholders ..................................................... Weighted-average basic and diluted shares 110,821 113,874 26,131 250,826 32,250 94,630 65,955 24,693 185,278 41,967 85,779 58,876 25,406 170,061 29,630 83,968 63,825 22,569 170,362 23,022 84,716 66,924 24,964 176,604 22,530 (40,715) (3,279) (33,199) (5,028) (37,794) (6,463) (45,269) (2,339) (52,014) (1,929) — (3,086) (745) 7,023 256 (40,546) (8,296) 2,113 9,811 11,924 3,628 107 (1,918) 1,817 (6,008) (8,167) (3,823) (281) — (83) (50,581) (8,614) 7,158 3,903 11,061 2,447 (35) (2,810) (398) (1,218) — (759) — — 386 (44,630) (15,000) 7,155 1,826 8,981 (6,019) 381 (1,755) (7,393) — — — — — 648 (46,960) (23,938) 9,467 14,139 23,606 (332) 60 (665) (937) — — — — — 247 (53,696) (31,166) 14,548 19,720 34,268 3,102 (310) — 2,792 — $ $ $ $ (4,191) $ (1,616) $ (7,393) $ (937) $ 2,792 (0.13) $ (0.12) $ (0.17) $ (0.32) $ (0.50) 0.10 $ 0.10 $ 0.09 $ 0.31 $ 0.55 (0.03) $ (0.02) $ (0.08) $ (0.01) $ 0.05 outstanding (1) ................................................................ 124,548 102,976 93,998 70,988 57,621 AMOUNTS ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS: Loss from continuing operations ......................................... Total discontinued operations ............................................. Net (loss) income ................................................................ $ (15,829) $ (12,168) $ (15,907) $ 10,552 (1,616) $ 8,514 (7,393) $ 11,638 (4,191) $ $ (22,631) $ (28,663) 31,455 21,694 2,792 (937) $ 39 Balance Sheet Data (in thousands): Storage facilities, net ........................................ Total assets ....................................................... Unsecured senior notes ..................................... Revolving credit facility ................................... Unsecured term loan ......................................... Secured term loan ............................................. Mortgage loans and notes payable .................... Total liabilities ................................................. Noncontrolling interest in the Operating Partnership .................................................... CubeSmart shareholders’ equity ....................... Noncontrolling interests in subsidiaries ............ Total liabilities and equity ................................ Other Data: Number of facilities .......................................... Total rentable square feet (in thousands) .......... Occupancy percentage ...................................... Cash dividends declared per share (2) ............. 2012 2011 At December 31, 2010 2009 2008 $ 2,089,707 2,150,319 250,000 45,000 500,000 — 228,759 1,112,420 $ 1,788,720 1,875,979 — — 400,000 — 358,441 830,925 $ 1,428,491 1,478,819 — 43,000 200,000 — 372,457 668,266 $ 1,430,533 1,598,870 — — — 200,000 569,026 814,146 $ 1,559,958 1,597,659 — 172,000 200,000 57,419 548,085 1,028,705 47,990 989,791 118 2,150,319 49,732 955,913 39,409 1,875,979 45,145 724,216 41,192 1,478,819 45,394 695,309 44,021 1,598,870 46,026 522,928 — 1,597,659 381 25,485 84.4% 0.350 $ 370 24,420 78.4% 0.290 $ 363 23,635 76.3% 0.145 $ 367 23,749 75.2% 0.100 $ 387 24,973 78.9% 0.565 $ (1) Excludes operating partnership units issued at our IPO and in connection with the acquisition of facilities subsequent to our IPO. Operating partnership units have been excluded from the earnings per share calculations as the related income or loss is presented in Noncontrolling interests in the Operating Partnership. (2) The Company announced full quarterly dividends of $0.180 per common share on December 13, 2007, February 27, 2008, May 7, 2008, and August 6, 2008; dividends of $0.025 per common share on December 11, 2008, January 22, 2009, April 22, 2009, July 22, 2009, October 22, 2009, December 5, 2009, February 24, 2010, June 2, 2010, and August 4, 2010; dividends of $0.070 per common share on December 14, 2010, February 29, 2011, June 1, 2011, and August 3, 2011; dividends of $0.080 and $0.393 per common and preferred shares, respectively, on December 8, 2011; dividends of $0.080 and $0.484 per common and preferred shares, respectively, on February 21, 2012, May 30, 2012 and August 1, 2012, and dividends of $0.110 and $0.484 per common and preferred shares, respectively, on December 10, 2012. CUBESMART, L.P. The following table sets forth selected financial and operating data on a historical consolidated basis for the Operating Partnership. The selected financial data for the periods ended December 31, 2012, 2011, 2010, 2009 and 2008 have been derived from the historical consolidated financial statements of CubeSmart, L.P. and subsidiaries, which have been audited by KPMG LLP. The following data should be read in conjunction with the audited financial statements and notes thereto of the operating Partnership and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this report. 40 2012 For the year ended December 31, 2010 (Dollars and shares in thousands, except per unit data) 2011 2009 2008 REVENUES Rental income .................................................................... Other property related income ........................................... Property management fee income ...................................... Total revenues ................................................................ OPERATING EXPENSES Property operating expenses .............................................. Depreciation and amortization ........................................... General and administrative ................................................ Total operating expenses ................................................ OPERATING INCOME ..................................................... OTHER INCOME (EXPENSE) Interest: Interest expense on loans ............................................... Loan procurement amortization expense ....................... Loan procurement amortization expense - early repayment of debt ...................................................... Acquisition related costs .................................................... Equity in losses of real estate ventures .............................. Gain from remeasurement of investment in real estate venture ........................................................................... Other .................................................................................. Total other expense ........................................................ LOSS FROM CONTINUING OPERATIONS ................. DISCONTINUED OPERATIONS Income from discontinued operations ................................ Net gain on disposition of discontinued operations ........... Total discontinued operations ........................................ NET INCOME (LOSS) ........................................................ NET LOSS (INCOME) ATTRIBUTABLE TO NONCONROLLING INTERESTS $ 250,959 $ 202,762 $ 179,748 $ 178,669 $ 185,426 13,708 — 199,134 27,776 4,341 283,076 17,114 2,829 199,691 20,715 3,768 227,245 14,659 56 193,384 110,821 113,874 26,131 250,826 32,250 94,630 65,955 24,693 185,278 41,967 85,779 58,876 25,406 170,061 29,630 83,968 63,825 22,569 170,362 23,022 84,716 66,924 24,964 176,604 22,530 (40,715) (3,279) (33,199) (5,028) (37,794 ) (6,463 ) (45,269) (2,339) (52,014) (1,929) — (3,086) (745) 7,023 256 (40,546) (8,296) 2,113 9,811 11,924 3,628 (8,167) (3,823) (281) — (83) (50,581) (8,614) 7,158 3,903 11,061 2,447 — (759 ) — — 386 (44,630 ) (15,000 ) 7,155 1,826 8,981 (6,019 ) — — — — 648 (46,960) (23,938) 9,467 14,139 23,606 (332) — — — — 247 (53,696) (31,166) 14,548 19,720 34,268 3,102 Noncontrolling interest in subsidiaries ............................... (1,918) (2,810) (1,755 ) (665) — NET (LOSS) INCOME ATTRIBUTABLE TO CUBESMART L.P. .......................................................... Limited Partnership interest of third parties ....................... 1,710 107 (363) (35) NET (LOSS) INCOME ATTRIBUTABLE TO OPERATING PARTNER ............................................... Distribution to Preferred Shares ......................................... 1,817 (6,008) (398) (1,218) (7,774 ) 381 (7,393 ) — (997) 60 (937) — 3,102 (310) 2,792 — NET(LOSS) INCOME ATTRIBUTABLE TO COMMON UNITHOLDERS ......................................... $ (4,191) $ (1,616) $ (7,393 ) $ (937) $ 2,792 Basic and diluted loss per unit from continuing operations attributable to common unitholders ................................... $ (0.13) $ (0.12) $ (0.17 ) $ (0.32) $ (0.50) Basic and diluted earnings per unit from discontinued operations attributable to common unitholders .................. $ 0.10 $ 0.10 $ 0.09 $ 0.31 $ 0.55 Basic and diluted (loss) earnings per unit attributable to common unitholders ........................................................... $ (0.03) $ (0.02) $ (0.08 ) $ (0.01) $ 0.05 Weighted-average basic and diluted units outstanding (1) .... 124,548 102,976 93,998 70,988 57,621 AMOUNTS ATTRIBUTABLE TO COMMON UNITHOLDERS: Loss from continuing operations ............................................ Total discontinued operations ................................................ Net (loss) income ................................................................... $ $ (15,829) $ 11,638 (4,191) $ (12,168) $ 10,552 (1,616) $ (15,907 ) $ 8,514 (7,393 ) $ (22,631) $ 21,694 (937) $ (28,663) 31,455 2,792 41 2012 2011 At December 31, 2010 2009 2008 Balance Sheet Data (in thousands): Storage facilities, net ................................... Total assets .................................................. Unsecured senior notes ................................ Revolving credit facility .............................. Unsecured term loan .................................... Secured term loan ........................................ Mortgage loans and notes payable ............... Total liabilities ............................................ Limited Partnership interest of third parties ....................................................... CubeSmart L.P. Capital ............................... Noncontrolling interests in subsidiaries ....... Total liabilities and capital ........................... $ 2,089,707 $ 1,788,720 $ 1,428,491 $ 1,430,533 $ 1,559,958 1,597,659 — 172,000 200,000 57,419 548,085 1,028,705 2,150,319 250,000 45,000 500,000 — 228,759 1,112,420 1,875,979 — — 400,000 — 358,441 830,925 1,598,870 — — — 200,000 569,026 814,146 1,478,819 — 43,000 200,000 — 372,457 668,266 47,990 989,791 118 2,150,319 49,732 955,913 39,409 1,875,979 45,145 724,216 41,192 1,478,819 45,394 695,309 44,021 1,598,870 46,026 522,928 — 1,597,659 Other Data: Number of facilities ..................................... Total rentable square feet (in thousands) ..... Occupancy percentage ................................. Cash dividends declared per unit (2) ........... $ 381 25,485 84.4% 0.350 $ 370 24,420 78.4% 0.290 $ 363 23,635 76.3% 0.145 $ 367 23,749 75.2% 0.100 $ 387 24,973 78.9% 0.565 (1) Excludes operating partnership units issued at our IPO and in connection with the acquisition of facilities subsequent to our IPO. Operating partnership units have been excluded from the earnings per share calculations as the related income or loss is presented in Limited Partnership interest of third parties. (2) The Company announced full quarterly dividends of $0.180 per common unit on December 13, 2007, February 27, 2008, May 7, 2008, and August 6, 2008; dividends of $0.025 per common unit on December 11, 2008, January 22, 2009, April 22, 2009, July 22, 2009, October 22, 2009, December 5, 2009, February 24, 2010, June 2, 2010, and August 4, 2010; dividends of $0.070 per common unit on December 14, 2010, February 29, 2011, June 1, 2011, and August 3, 2011; dividends of $0.080 and $0.393 per common and preferred units, respectively, on December 8, 2011; dividends of $0.080 and $0.484 per common and preferred units, respectively, on February 21, 2012, May 30, 2012 and August 1, 2012, and dividends of $0.110 and $0.484 per common and preferred units, respectively, on December 10, 2012. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. The Company makes certain statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete 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 discussion of such risk factors, see the section in this report entitled “Risk Factors.” Overview The Company is 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 facilities. The Parent Company’s operations are conducted solely through the Operating Partnership and its subsidiaries. Effective September 14, 2011, the Parent Company changed its name from “U- Store-It Trust” to “CubeSmart” and the Operating Partnership changed its name from “U-Store-It, L.P.” to “CubeSmart, L.P.” The Parent Company has elected to be taxed as a REIT for U.S. federal income tax purposes. As of December 31, 2012 and December 31, 2011, the Company owned 381 and 370 self-storage facilities, respectively, totaling approximately 25.5 million rentable square feet and 24.4 million rentable square feet, respectively. As of December 31, 2012 the Company owned facilities in the District of Columbia and the following 22 states: Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Maryland, Massachusetts, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Utah, Virginia and Wisconsin. In addition, as of December 31, 2012, the Company managed 133 properties for third parties bringing the total number of properties we owned and/or managed to 514. As of December 31, 2012 we managed facilities in the following 27 states: Alabama, Arizona, Arkansas , California, Colorado, Connecticut, Florida, Georgia, Illinois, Louisiana, Maryland, Massachusetts, 42 Michigan, Minnesota, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, and Virginia. The Company derives revenues principally from rents received from its customers who rent cubes at its self-storage facilities 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. We have a decentralized approach to the management and operation of our facilities, which places an emphasis on local, market level oversight and control. 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. The Company typically experiences seasonal fluctuations in the occupancy levels of our facilities, which are generally slightly higher during the summer months due to increased moving activity. The United States continues to recover from an economic downturn that resulted in higher unemployment, stagnant employment growth, shrinking demand for products, large-scale business failures and tight credit markets. 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. A continuation of — or slow recovery from — ongoing adverse economic conditions affecting disposable consumer income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs, 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. In the future, the Company intends to focus on maximizing internal growth opportunities and selectively pursuing targeted acquisitions and developments of self-storage facilities. The Company has one reportable segment: we own, operate, develop, manage and acquire self-storage facilities. The Company’s self-storage facilities are located in major metropolitan and rural areas and have numerous tenants per facility. No single tenant represents a significant concentration of our revenues. The facilities in New York, Florida, California, and Texas provided approximately 16%, 15%, 10% and 10%, respectively, of total revenues for the year ended December 31, 2012. Summary of Critical Accounting Policies and Estimates Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements included in this Annual Report on Form 10-K. Certain of the accounting policies used in the preparation of these consolidated financial statements are particularly important for an understanding of the financial position and results of operations presented in the historical consolidated financial statements included in this report. A summary of significant accounting policies is also provided in the notes to our consolidated financial statements (See Note 2 to the consolidated financial statements). 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 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. 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. 43 Self-Storage Facilities The Company records self-storage facilities at cost less accumulated depreciation. Depreciation on the buildings and equipment is recorded on a straight-line basis over their estimated useful lives, which range from five to 40 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 facilities are acquired, the purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values. When a portfolio of facilities is acquired, the purchase price is allocated to the individual facilities based upon an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates, which take into account the relative size, age and location of the individual facility along with current and projected occupancy and rental rate levels or appraised values, if available. Allocations to the individual assets and liabilities are based upon comparable market sales information for land, buildings and improvements and estimates of depreciated replacement cost of equipment. In allocating the purchase price for an acquisition, the Company determines whether the acquisition includes intangible assets or liabilities. The Company allocated a portion of the purchase price to an intangible asset attributed to the value of in-place leases. This intangible is generally amortized to expense over the expected remaining term of the respective leases. Substantially all of the leases in place at acquired facilities 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. To date, no intangible asset has been recorded for the value of tenant relationships, because the Company does not have any concentrations of significant tenants and the average tenant 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 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 property’s basis is recoverable. If a property’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. 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 facility (or group of facilities), (b) the facility is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such facilities, (c) an active program to locate a buyer and other actions required to complete the plan to sell the facility have been initiated, (d) the sale of the facility is probable and transfer of the asset is expected to be completed within one year, (e) the facility 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. Properties classified as held for sale are reported at the lesser of carrying value or fair value less estimated costs to sell. Revenue Recognition Management has determined that all our leases with tenants are operating leases. Rental income is recognized in accordance with the terms of the lease agreements or contracts, which generally are month-to-month. The Company recognizes gains on disposition of properties only upon closing in accordance with the guidance on sales of real estate. Payments received from purchasers prior to closing are recorded as deposits. Profit on real estate sold is recognized using the full accrual method upon closing when the collectability of the sales price is reasonably assured and the Company is not obligated to perform significant activities after the sale. Profit may be deferred in whole or part until the sale meets the requirements of profit recognition on sales under this guidance. 44 Share Based Payments We apply the fair value method of accounting for contingently issued shares and share options issued under our equity incentive plans. Accordingly, share compensation expense was recorded ratably over the vesting period relating to such contingently issued shares and options. The Company has elected to recognize compensation expense on a straight-line method over the requisite service period. Noncontrolling Interests Noncontrolling interests are the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. The ownership interests in the subsidiary that are held by owners other than the parent are noncontrolling interests. In accordance with authoritative guidance issued on noncontrolling interests in consolidated financial statements, such noncontrolling interests are reported on the consolidated balance sheets within equity/capital, separately from the Parent Company’s equity/capital. The guidance also requires that noncontrolling interests are adjusted each period so that the carrying value equals the greater of its carrying value based on the accumulation of historical cost or its redemption value. On the consolidated statements of operations, revenues, expenses and net income or loss from less-than-wholly-owned subsidiaries are reported at the consolidated amounts, including both the amounts attributable to the Parent Company and noncontrolling interests. Presentation of consolidated equity/capital activity is included for both quarterly and annual financial statements, including beginning balances, activity for the period and ending balances for shareholders’ equity/capital, noncontrolling interests and total equity/capital. Investments in Unconsolidated Real Estate Ventures The Company accounts for its investments in unconsolidated real estate ventures under the equity method of accounting. Under the equity method, investments in unconsolidated joint 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 fair 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. To the extent impairment has occurred, the loss shall 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 impairment exists 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. Income Taxes The Company elected to be taxed as a real estate investment trust under Sections 856-860 of the Internal Revenue Code beginning with the period from October 21, 2004 (commencement of operations) through December 31, 2004. In management’s opinion, the requirements to maintain these elections are being met. Accordingly, no provision for federal income taxes has been reflected in the consolidated financial statements other than for operations conducted through our taxable REIT subsidiaries. Earnings and profits, which determine the taxability of distributions to shareholders, differ from net income reported for financial reporting purposes due to differences in cost basis, the estimated useful lives used to compute depreciation, and the allocation of net income and loss for financial versus tax reporting purposes. The Company is subject to a 4% federal excise tax if sufficient taxable income is not distributed within prescribed time limits. The excise tax equals 4% of the annual amount, if any, by which the sum of (a) 85% of the Company’s ordinary income, (b) 95% of the Company’s net capital gains and c) 100% of prior year taxable income exceeds cash distributions and certain taxes paid by the Company. Recent Accounting Pronouncements In June 2011, the FASB issued an amendment to the accounting standard for the presentation of comprehensive income. The amendment requires entities to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In addition, the amendment requires entities to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. This amendment became effective for fiscal years and interim periods beginning after December 15, 2011. The Company’s adoption of the new standard as of January 1, 2012 did not have a material impact on its consolidated financial position or results of operations as the amendment related only to changes in financial statement presentation. 45 In May 2011, the FASB issued an update to the accounting standard for measuring and disclosing fair value. The update modifies the wording used to describe the requirements for fair value measuring and for disclosing information about fair value measurements to improve consistency between U.S. GAAP and International Financial Reporting Standards (“IFRS”). This update is effective for the annual and interim periods beginning after December 15, 2011. The adoption of this guidance in 2012 did not have a material impact on our consolidated financial position or results of operations as its impact was limited to disclosure requirements. Results of Operations The following discussion of our results of operations should be read in conjunction with the consolidated financial statements and the accompanying notes thereto. Historical results set forth in the consolidated statements of operations reflect only the existing facilities and should not be taken as indicative of future operations. The Company considers its same-store portfolio to consist of only those facilities owned and operated on a stabilized basis at the beginning and at the end of the applicable years presented. We consider a property to be stabilized once it has achieved an occupancy rate representative of similar self-storage assets in the respective markets for a full year measured as of the most recent January 1 or has otherwise been placed in-service and has not been significantly damaged by natural disaster or undergone significant renovation. Same-store results are considered to be useful to investors in evaluating our performance because they provide information relating to changes in facility-level operating performance without taking into account the effects of acquisitions, developments or dispositions. At December 31, 2012, there were 313 same-store properties and 68 non same-store properties, of which 27 were 2011 acquisitions, 37 were 2012 acquisitions and four were properties that were not stabilized, damaged by natural disaster or had undergone significant renovation. For analytical presentation, all percentages are calculated using the numbers presented in the financial statements contained in this Annual Report on Form 10-K. The Company’s results of operations are affected by the acquisition and disposition activity during the 2012, 2011, and 2010 periods as described below. At December 31, 2012, 2011, and 2010, the Company owned 381, 370, and 363 self-storage facilities and related assets, respectively.    In 2012, 37 self-storage facilities were acquired for approximately $432.3 million (the “2012 Acquisitions”) and 26 self- storage facilities were sold for approximately $60.0 million (the “2012 Dispositions”). In 2011, 27 self-storage facilities were acquired for approximately $467.1 million (the “2011 Acquisitions”) and 19 self- storage facilities were sold for approximately $45.2 million (the “2011 Dispositions”). In 2010, 12 self-storage facilities were acquired for approximately $85.1 million (the “2010 Acquisitions”) and 16 self- storage facilities were sold for approximately $38.1 million (the “2010 Dispositions”). 46 Comparison of the Year Ended December 31, 2012 to the Year Ended December 31, 2011 (dollars in thousands) Same-Store Property Portfolio --------------------------------------------------------------------- 2012 2011 Increase/ (Decrease) % Change Non Same-Store Properties -------------------------------------- Other/ Eliminations --------------------------------- Total Portfolio ---------------------------------------------------------------------- 2012 2011 2012 2011 2012 2011 Increase/ (Decrease) % Change $ 196,556 20,331 - 216,887 $ 191,222 17,811 - 209,033 $ 5,334 2,520 - 7,854 3% 14% - 4% $ 54,403 5,473 - 59,876 $ 11,540 1,314 - 12,854 - $ 1,972 4,341 6,313 - $ 1,590 3,768 5,358 $ 250,959 27,776 4,341 283,076 $ 202,762 20,715 3,768 227,245 $ 48,197 7,061 573 55,831 77,466 139,421 77,518 131,515 (52) 7,906 0% 6% REVENUES: Rental income Other property related income Property management fee income Total revenues OPERATING EXPENSES: Property operating expenses NET OPERATING INCOME: Property count Total square footage Period End Occupancy (1) Period Average Occupancy (2) Realized annual rent per occupied sq ft (3) 313 20,681 84.6% 82.6% 11.51 $ 313 20,681 79.1% 79.2% 11.67 $ Depreciation and amortization General and administrative Subtotal Operating income Other Income (Expense): Interest: Interest expense on loans Loan procurement amortization expense Loan procurement amortization expense - early repayment of debt Acquisition related costs Equity in losses of real estate ventures Gain from remeasurement of investments in real estate ventures Other Total other expense LOSS FROM CONTINUING OPERATIONS DISCONTINUED OPERATIONS Income from discontinued operations Net gain on disposition of discontinued operations Total discontinued operations NET INCOME NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS Noncontrolling interests in the Operating Partnership Noncontrolling interests in subsidiaries NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY 19,511 40,365 68 4,804 84.2% 5,090 7,764 57 3,739 75.8% 13,844 (7,531) 12,022 (6,664) 110,821 172,255 381 25,485 84.4% 113,874 26,131 140,005 32,250 (40,715) (3,279) - (3,086) (745) 7,023 256 (40,546) 94,630 132,615 370 24,420 78.6% 65,955 24,693 90,648 41,967 (33,199) (5,028) (8,167) (3,823) (281) - (83) (50,581) 24% 34% 15% 25% 17% 30% 16,191 39,640 47,919 1,438 49,357 (9,717) 73% 6% 54% -23% (7,516) 1,749 8,167 737 (464) 7,023 339 10,035 -23% 35% 100% 19% -165% 100% 408% 20% (8,296) (8,614) 318 4% 2,113 7,158 (5,045) -70% 9,811 11,924 3,903 11,061 5,908 863 3,628 2,447 1,181 151% 8% 48% 107 (1,918) (35) (2,810) 142 892 406% 32% $ 1,817 $ (398) $ 2,215 557% (1) (2) (3) Represents occupancy at December 31 of the respective year. Represents the weighted average occupancy for the period. Realized annual rent per occupied square foot is computed by dividing rental income by the weighted average occupied square feet for the period. Square footage for non same-store assets acquired during 2012 are prorated based on the portion of the period the properties were owned. Revenues Rental income increased from $202.8 million in 2011 to $251.0 million in 2012, an increase of $48.2 million. This increase is primarily attributable to $42.9 million of additional income from the properties acquired in 2011 and 2012 and an increase in average occupancy on the same-store portfolio due to lowered rates which contributed to the $5.3 million increase in rental income during 2012 as compared to 2011. Other property related income increased from $20.7 million in 2011 to $27.8 million in 2012, an increase of $7.1 million, or 34%. This increase is primarily attributable to increased fee revenue and insurance commissions of $5.6 million during the year ended 47 December 31, 2012 as compared to the year ended December 31, 2011, driven by a $4.2 million increase as a result of the 2011 and 2012 acquisitions. Property management fee income increased to $4.3 million in 2012 from $3.8 million during 2011, an increase of $0.6 million. This increase is attributable to an increase in management fees related to the third party management business (133 facilities as of December 31, 2012 compared to 103 facilities as of December 31, 2011). Operating Expenses Property operating expenses increased from $94.6 million in 2011 to $110.8 million in 2012, an increase of $16.2 million, or 17%. This increase is primarily attributable to $14.4 million of increased expenses associated with newly acquired properties in 2012 as well as $1.8 million of increased expenses in other/eliminations associated with third party management contracts. Depreciation and amortization increased from $66.0 million in 2011 to $113.9 million in 2012, an increase of $47.9 million, or 73%. This increase is primarily attributable to depreciation and amortization expense related to the 2011 and 2012 acquisitions, including an increase in amortization of lease intangibles of $25.2 million recognized during the 2012 period. Other Income (Expenses) Interest expense increased from $33.2 million in 2011 to $40.7 million in 2012, an increase of $7.5 million, or 23%. The increase is attributable to higher average outstanding debt during 2012 primarily resulting from debt associated with the Storage Deluxe acquisition and other 2012 acquisitions. This increase was offset by lower interest expense related to the repayment of several fixed rate mortgages during the year. These repayments utilized proceeds from the senior note offering and had higher effective rates than the effective interest rate of the senior notes. Loan procurement amortization expense - early repayment of debt was $8.2 million for the year ended December 31, 2011, with no comparable expense during the 2012 period. This expense is related to the write-off of unamortized loan procurement costs associated with the Prior Facility. Equity in losses of real estate ventures was $0.7 million for the year ended December 31, 2012, compared to $0.3 million for the year ended December 31, 2011. This expense is related to approximately three months of earnings attributable to the HSRE Venture during the 2011 period compared to nine months of earnings during the 2012 period. Gain from remeasurement of investments in real estate ventures was $7.0 million for the year ended December 31, 2012, with no comparable gains during the 2011 period. This gain is related to the HSREV interest remeasurement discussed in Item 1, from the purchase of the remaining 50% ownership in the venture. Discontinued Operations Income from discontinued operations decreased from $7.2 million for the year ended December 31, 2011 to $2.1 million for the year ended December 31, 2012. The income during the 2012 period represents the results of operations during the year for the 26 assets sold during 2012. Income during the 2011 period represents the results of operations during the year for the 26 assets sold during 2012 and the 19 assets sold during 2011. Gains on disposition of discontinued operations increased from $3.9 million during 2011 to $9.8 million during 2012. These gains are determined on a transactional basis and accordingly are not comparable across reporting periods. Noncontrolling Interests in Subsidiaries Net income attributable to noncontrolling interests in subsidiaries decreased to $1.9 million in the 2012 period from $2.8 million in the 2011 period, primarily as a result of the Company purchasing the remaining 50% interest from Heitman in 2012. The 2011 period represents twelve months of operations of the venture, compared to 2012, which represented operations through August 13, 2012. 48 Comparison of the Year Ended December 31, 2011 to the Year Ended December 31, 2010 (dollars in thousands) REVENUES: Rental income Other property related income Property management fee income Total revenues OPERATING EXPENSES: Property operating expenses NET OPERATING INCOME: Same-Store Property Portfolio ---------------------------------------------------------------------- 2011 2010 Increase/ (Decrease) % Change $ 191,222 17,811 - 209,033 $ 179,568 14,824 - 194,392 $ 11,654 2,987 - 14,641 77,518 131,515 74,865 119,527 2,653 11,988 6% 20% - 8% 4% 10% Property count Total square footage Period End Occupancy (1) Period Average Occupancy (2) Realized annual rent per occupied sq ft (3) 313 20,681 79.1% 79.2% 11.67 $ 313 20,681 77.0% 77.2% 11.25 $ Depreciation and amortization General and administrative Subtotal Operating income Other Income (Expense): Interest: Interest expense on loans Loan procurement amortization expense Loan procurement amortization expense - early repayment of debt Acquisition related costs Equity in losses of real estate ventures Other Total other expense LOSS FROM CONTINUING OPERATIONS DISCONTINUED OPERATIONS Income from discontinued operations Net gain on disposition of discontinued operations Total discontinued operations NET INCOME (LOSS) NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS Noncontrolling interests in the Operating Partnership Noncontrolling interests in subsidiaries NET LOSS ATTRIBUTABLE TO THE COMPANY Non Same-Store Properties ---------------------------------- Other/ Eliminations --------------------------------- Total Portfolio ---------------------------------------------------------------------- 2011 2010 2011 2010 2011 2010 Increase/ (Decrease) % Change $ 11,540 1,314 - 12,854 $ 180 1,698 - 1,878 - $ 1,590 3,768 5,358 - $ 592 2,829 3,421 $ 202,762 20,715 3,768 227,245 $ 179,748 17,114 2,829 199,691 $ 23,014 3,601 939 27,554 12,022 (6,664) 9,231 (5,810) 5,090 7,764 57 3,739 75.8% 1,683 195 50 2,954 71.4% 94,630 132,615 370 24,420 78.6% 85,779 113,912 363 23,635 76.3% 8,851 18,703 13% 21% 33% 14% 10% 16% 65,955 24,693 90,648 41,967 58,876 25,406 84,282 29,630 7,079 (713) 6,366 12,337 12% -3% 8% 42% (33,199) (5,028) (8,167) (3,823) (281) (83) (50,581) (37,794) (6,463) - (759) - 386 (44,630) 4,595 1,435 (8,167) (3,064) (281) (469) (5,951) 12% 22% 100% -404% 100% 122% -13% (8,614) (15,000) 6,386 43% 7,158 7,155 3 0% 3,903 11,061 1,826 8,981 2,077 2,080 2,447 (6,019) 8,466 114% 23% 141% (35) (2,810) 381 (1,755) (416) (1,055) -109% -60% $ (398) $ (7,393) $ 6,995 95% (1) (2) (3) Represents occupancy at December 31 of the respective year. Represents the weighted average occupancy for the period. Realized annual rent per occupied square foot is computed by dividing rental income by the weighted average occupied square feet for the period. Square footage for non same-store assets acquired during 2012 are prorated based on the portion of the period the properties were owned. Revenues Rental income increased from $179.7 million in 2010 to $202.8 million in 2011, an increase of $23.0 million. This increase is primarily attributable to $11.4 million of additional income from the properties acquired in 2010 and 2011 and increases in average occupancy and scheduled annual rent per square foot on the same-store portfolio which contributed $11.7 million to the increase in rental income during 2011 as compared to 2010. Other property related income increased from $17.1 million in 2010 to $20.7 million in 2011, an increase of $3.6 million, or 21%. This increase is primarily attributable to increased fee revenue and insurance commissions of $3.7 million offset by a decrease in other property related income of $0.4 million related to the 2010 and 2011 acquisitions. 49 Property management fee income increased to $3.8 million in 2011 from $2.8 million during 2010, an increase of $1.0 million. This increase is attributable to an increase in management fees related to the third party management business (103 facilities as of December 31, 2011 compared to 93 facilities as of December 31, 2010) and 12 months of management fees earned during the 2011 period related to the addition of 85 management contracts in April 2010, compared to eight months of similar activity during the 2010 period. Operating Expenses Property operating expenses increased from $85.8 million in 2010 to $94.6 million in 2011, an increase of $8.9 million, or 10%. This increase is primarily attributable to $6.2 million of increased expenses associated with newly acquired properties and 12 months of expenses in the 2011 period related to the addition of 85 management contracts in April 2010, compared to only eight months of similar expenses in the 2010 period. In addition, we experienced a $0.4 million increase in rebranding and store upgrade related expenses during the 2011 period as compared to the 2010 period. Depreciation and amortization increased from $58.9 million in 2010 to $66.0 million in 2011, an increase of $7.1 million, or 12%. This increase is primarily attributable to depreciation and amortization expense related to the 2010 and 2011 acquisitions recognized in 2011, with no corresponding expense recognized in 2010. Other Income (Expenses) Interest expense decreased from $37.8 million in 2010 to $33.2 million in 2011, a decrease of $4.6 million, or 12%. Approximately $1.6 million of the reduced interest expense related to approximately $210 million of net mortgage loan repayments during the period from January 1, 2010 through December 31, 2011. Interest expense also decreased as a result of lower interest rates on the 2011 Credit Facility during the 2011 period as compared to the interest rates on the Prior Facility during the 2010 period, offset by increased unsecured loan borrowings during the period. Loan procurement amortization expense - early repayment of debt was $8.2 million for the year ended December 31, 2011, with no comparable expense during the 2010 period. This expense is related to the write-off of unamortized loan procurement costs associated with the Prior Facility. Acquisition related costs increased from $0.8 million during 2010 to $3.8 million during 2011 as a result of the acquisition of 27 self-storage facilities in 2011, including 16 facilities in the Storage Deluxe Acquisition, compared to 12 acquisitions during 2010. Equity in losses of real estate ventures was $0.3 million for the year ended December 31, 2011, with no comparable expense during the 2010 period. This expense is related to earnings attributable to the HSRE Venture, which was formed in September 2011. Discontinued Operations Gains on disposition of discontinued operations increased from $1.8 million in the 2010 period to $3.9 million in the 2011 period, an increase of $2.1 million. Gains during 2010 related to the sale of 16 assets during 2010, and gains during 2011 related to the sale of 19 assets during 2011. Noncontrolling Interests in Subsidiaries Noncontrolling interests in subsidiaries increased to $2.8 million in the 2011 period from $1.8 million in the 2010 period. This increase is primarily a result of increased income related to the operations of our joint venture (“HART”), which was formed in August 2009 to own and operate 22 self-storage facilities. The Company retained a 50% ownership interest in HART and accordingly presents the 50% of the related results that are allocated to the venture partner as an adjustment to net income (loss) when arriving at net income (loss) attributable to shareholders. 50 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, loan procurement amortization expense — early repayment of debt, acquisition related costs, equity in losses of real estate ventures, amounts attributable to noncontrolling interests, other expense, depreciation and amortization expense, general and administrative expense, and deducting from net income: income from discontinued operations, gains on disposition of discontinued operations, other income, gain on remeasurement of investment in real estate ventures and interest income. NOI is not a measure of performance calculated in accordance with GAAP. We use NOI as a measure of operating performance at each of our facilities, and for all of our facilities 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 facility managers to evaluate the economic productivity of our facilities, including our ability to lease our facilities, 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  We believe 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. 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, defines FFO as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property and real estate 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 the Company’s facilities. Given the nature of its business as a real estate owner and operator, the Company considers FFO a key measure of its operating performance that is not specifically defined by accounting principles generally accepted in the United States. The Company believes that FFO is useful to management and investors as a starting point in measuring its operational performance because it excludes various items included in net income that do not relate to or are not indicative of its operating performance such as gains (or losses) from sales of property, gains on remeasurement of investment 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. 51 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 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 other non-recurring items, which we believe are not indicative of the Company’s operating results. The following table presents a reconciliation of loss to FFO and FFO, as adjusted, for the year ended December 31, 2012 and 2011 (in thousands): Net loss attributable to common shareholders ........................................... $ (4,191) $ (1,616) 2012 2011 Add (deduct): Real estate depreciation and amortization: Real property - continuing operations ...................................................... Real property - discontinued operations .................................................. Company’s share of unconsolidated real estate ventures ......................... Noncontrolling interest’s share of consolidated real estate ventures ....... Gains on sale of real estate ....................................................................... Gain on remeasurement of investment in real estate venture ................... Noncontrolling interests in the Operating Partnership ............................. FFO Add (deduct): 112,449 1,504 1,540 (1,049) (9,811) (7,023) (107) 64,319 3,116 542 (1,731) (3,903) — 35 $ 93,312 $ 60,762 Loan procurement amortization expense - early repayment of debt ........ Discontinued operations - settlement proceeds ........................................ Acquisition related costs .......................................................................... — — 3,086 8,167 (1,895) 3,823 FFO, as adjusted ......................................................................................... $ 96,398 $ 70,857 Weighted-average diluted shares and units outstanding .............................. 131,021 109,085 Cash Flows Comparison of the Year Ended December 31, 2012 to the Year Ended December 31, 2011 A comparison of cash flow related to operating, investing and financing activities for the years ended December 31, 2012 and 2011 is as follows: Net cash provided by (used in): Year Ended December 31, 2011 2012 (in thousands) Change Operating activities ............................ Investing activities ............................. Financing activities ............................ $ $ $ 118,428 $ (271,936) $ $ 148,934 84,327 $ (442,100) $ $ 360,951 34,101 170,164 (212,017) Cash provided by operating activities for the years ended December 31, 2012 and 2011 were $118.4 million and $84.3 million, respectively, an increase of $34.1 million. Our increased cash flow from operating activities is primarily attributable to our 2012 acquisitions and increased net operating income levels on the same-store portfolio in the 2012 period as compared to the 2011 period. 52 Cash used in investing activities was $271.9 million in 2012 and $442.1 million in 2011. Cash used in 2012 relates to the acquisition of 28 properties purchased during the year with a purchase price totaling $330.3 million (which includes assumed debt of $107.0 million) and 9 properties purchased related to the acquisition of the remaining interest in the HSREV real estate venture during 2012. Cash used to fund these acquisitions was offset by $52.6 million in net cash proceeds from the disposition of 26 properties during the year. Cash used in 2011 relates to the acquisition of 27 properties purchased during the year with a purchase price totaling $467.1 million (which includes 16 Storage Deluxe properties acquired for $357.3 million). Cash provided by financing activities decreased to $148.9 million in 2012 from $361.0 million in 2011, a decrease of $212.0 million. During 2012 and 2011, we issued common shares for net proceeds of $102.1 million and $204.0 million, respectively. Additionally, proceeds from revolving credit facility and unsecured term loans were $503.0 million in 2012 compared to $656.7 million during 2011, and principal payments on revolving credit facility, unsecured term loans and mortgages totaled $594.3 million during 2012 compared to $539.0 million during 2011. These decreases were offset by proceeds received during 2012 relating to the unsecured senior notes of $249.6 million. The proceeds were used to fund increased acquisition activity during 2012, including $61.1 million paid to acquire the noncontrolling interest in the HART joint venture. Comparison of the Year Ended December 31, 2011 to the Year Ended December 31, 2010 A comparison of cash flow related to operating, investing and financing activities for the years ended December 31, 2011 and 2010 is as follows: Net cash provided by (used in): Year Ended December 31, 2010 2011 (in thousands) Change Operating activities ............................ Investing activities ............................. Financing activities ............................ $ $ $ $ 84,327 (442,100) $ $ 360,951 $ 71,517 (44,783) $ (123,611) $ 12,810 (397,317) 484,562 Cash provided by operating activities for the years ended December 31, 2011 and 2010 were $84.3 million and $71.5 million, respectively, an increase of $12.8 million. Our principal source of cash flows is from the operation of our properties. Our increased cash flow from operating activities is primarily attributable to our 2010 and 2011 acquisitions. Cash used in investing activities increased from $44.8 million in 2010 to $442.1 million in 2011, an increase of $397.3 million. The increase primarily relates to increased property acquisitions in 2011 (Storage Deluxe Acquisition with a purchase price totaling $357.3 million and 11 other property acquisitions with purchase prices totaling $109.8 million) compared to 2010 (12 property acquisitions with purchase price totaling $85.1 million). Cash provided by (used in) financing activities increased from ($123.6) million in 2010 to $361.0 million in 2011, an increase of $484.6 million. The increase relates to the following: (a) increased common and preferred share issuances of $231.3 million in 2011, as compared to 2010, primarily used to finance the Storage Deluxe Acquisition in November 2011, (b) a net increase in unsecured term loans of $200.0 million that was used to repay $93 million of borrowings under the revolving credit facility related to the financing of the Storage Deluxe Acquisition, and (c) a net decrease in payments on mortgage loans and notes payable of $156.9 million; offset by full repayment of revolving credit facility borrowings of $43 million during 2011, compared to prior year inflows of $43 million, and increased distributions of $19.3 million in 2011 as compared to 2010. Liquidity and Capital Resources Liquidity Overview Our cash flow from operations has historically been one of our primary sources of liquidity to fund debt service, distributions and capital expenditures. We derive substantially all of our revenue from customers who lease space from us at our facilities and fees earned from managing properties. Therefore, our ability to generate cash from operations is dependent on the rents that we are able to charge and collect from our customers. We believe that the facilities in which we invest — self-storage facilities — are less sensitive than other real estate product types to near-term economic downturns. However, prolonged economic downturns will 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 REIT taxable income, excluding capital gains, to our shareholders on an annual basis or pay federal income tax. The nature of our business, coupled with the requirement that the Parent Company 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. 53 Our short-term liquidity needs consist primarily of funds necessary to pay operating expenses associated with our facilities, refinancing of certain mortgage indebtedness, interest expense and scheduled principal payments on debt, expected distributions to limited partners and shareholders and recurring capital expenditures. These funding requirements will vary from year to year, in some cases significantly. We expect recurring capital expenditures in the 2013 fiscal year to be approximately $7 million to $10 million. Our currently scheduled principal payments on debt, including borrowings outstanding on the 2011 Credit Facility and Term Loan Facility, are approximately $30.1 million in 2013. Our most restrictive debt covenants limit the amount of additional leverage we can add; however, we believe cash flow from operations, access to our “at the market” program and access to our 2011 Credit Facility are adequate to execute our current business plan and remain in compliance with our debt covenants. Our liquidity needs beyond 2013 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 facilities; (iii) acquisitions of additional facilities; and (iv) development of new facilities. We will have to satisfy our needs through either additional borrowings, including borrowings under the revolving portion of our 2011 Credit Facility, sales of common or preferred shares and/or cash generated through facility dispositions and joint venture transactions. Notwithstanding the discussion above, we believe that, as a publicly traded REIT, we will have access to multiple sources of capital to fund 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. In addition, dislocation in the United States debt markets may significantly reduce the availability and increase the cost of long-term debt capital, including conventional mortgage financing and commercial mortgage-backed securities financing. 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 about us. As of December 31, 2012, we had approximately $4.5 million in available cash and cash equivalents. In addition, we had approximately $254.8 million of availability for borrowings under our 2011 Credit Facility. Bank Credit Facilities On June 26, 2012, the Operating Partnership issued $250 million in aggregate principal amount of unsecured senior notes due July 15, 2022 (the “senior notes”) which bear interest at a rate of 4.80%. The senior notes had an effective interest rate of 4.82% at December 31, 2012. The indenture under which the unsecured senior notes were issued restricts the ability of the Operating Partnership and its subsidiaries to incur debt unless the Operating Partnership and its consolidated subsidiaries comply with a leverage ratio not to exceed 60% and an interest coverage ratio of less than 1.5:1 after giving effect to the incurrence of the debt. The indenture also restricts the ability of the Operating Partnership and its subsidiaries to incur secured debt unless the Operating 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 the Operating Partnership and its consolidated subsidiaries. The Operating Partnership is currently in compliance with all of the financial covenants under the senior notes. On September 29, 2010, we amended the Prior Facility. The Prior Facility, as amended, consisted of a $200 million unsecured term loan and a $250 million unsecured revolving credit facility and had an outstanding balance of $43 million as of December 31, 2010. The Prior Facility, as amended had a three-year term expiring on December 7, 2013, was unsecured, and borrowings on the facility incurred interest on a borrowing spread determined by our leverage levels plus LIBOR. On June 20, 2011, we entered into an unsecured Term Loan Agreement (the “Term Loan Facility”) which consisted of a $100 million term loan with a five-year maturity and a $100 million term loan with a seven-year maturity. The Term Loan Facility permits the Company to request additional advances of five-year or seven-year loans in minimum increments of $5 million provided that the aggregate of such additional advances does not exceed $50 million. We incurred costs of $2.1 million in connection with executing the agreement and capitalized such costs as a component of loan procurement costs, net of amortization on the consolidated balance sheet. Pricing on the Term Loan Facility ranges, depending on the Company’s leverage levels, from 1.90% to 2.75% over LIBOR for the five-year loan, and from 2.05% to 2.85% over LIBOR for the seven-year loan, and each loan has no LIBOR floor. As of December 31, 2011, the Company had received two investment grade ratings, and therefore pricing on the Term Loan Facility ranges from 1.45% to 2.10% over LIBOR for the five-year loan, and from 1.60% to 2.25% over LIBOR for the seven-year loan. 54 On December 9, 2011, we entered into a new credit facility comprised of a $100 million unsecured term loan maturing in December 2014; a $200 million unsecured term loan maturing in March 2017; and a $300 million unsecured revolving facility maturing in December 2015 (the “Credit Facility”). The Credit Facility replaces in its entirety our previous facility. Pricing on the Credit Facility depends on our unsecured debt credit rating. At our current Baa3/BBB- level, amounts drawn under the revolving facility are priced at 1.48% over LIBOR, with no LIBOR floor. Amounts drawn under the term loan portion of the Credit Facility are priced at 1.75% over LIBOR, with no LIBOR floor. As of December 31, 2012, $200 million of unsecured term loan borrowings were outstanding under the Term Loan Facility, $300 million of unsecured term loan and $45 million of unsecured revolving loan borrowings were outstanding under the Credit Facility, and $254.8 million was available for borrowing on the unsecured revolving portion of the Credit Facility. We had interest rate swaps as of December 31, 2012, that fix LIBOR on $200 million of borrowings under the Credit Facility maturing in March 2017 at 1.34%. In addition, at December 31, 2012, we had interest rate swaps that fix LIBOR on both the five and seven-year term loans under the Term Loan Facility through their respective maturity dates. The interest rate swap agreements fix thirty day LIBOR over the terms of the five and seven-year term loans at 1.80% and 2.47%, respectively. As of December 31, 2012, borrowings under the Credit Facility and Term Loan Facility had a weighted average interest rate of 3.15%. The Term Loan Facility and the term loans under the Credit Facility were fully drawn at December 31, 2012, and no further borrowings may be made under those term loans. The Company’s ability to borrow under the revolving portion of the Credit Facility is subject to ongoing compliance with certain financial covenants which include:    Maximum total indebtedness to total asset value of 60.0% at any time; Minimum fixed charge coverage ratio of 1.50:1.00; and Minimum tangible net worth of $821,211,200 plus 75% of net proceeds from equity issuances after June 30, 2010. Further, under the Credit Facility and Term Loan Facility, we are restricted from paying distributions on our common shares that would exceed an amount equal to the greater of (i) 95% of our funds from operations, and (ii) such amount as may be necessary to maintain the Parent Company’s REIT status. We are currently in compliance with all of our financial covenants and anticipate being in compliance with all of our financial covenants through the terms of the Credit Facility and Term Loan Facility. At The Market Program. Pursuant to our sales agreement with Cantor Fitzgerald & Co. (the “Sales Agent”), dated April 3, 2009, as amended on January 26, 2011 and September 16, 2011 (as amended, the “Sales Agreement”), we may sell up to 20 million common shares at “at the market” prices. During the year ended December 31, 2012, we sold 7.9 million common shares with an average sales price of $13.13 per share, resulting in gross proceeds of $103.8 million under the program ($163.8 million of gross proceeds and 16.1 million shares sold with an average sales price of $10.16 since program inception in 2009). The Company incurred $1.7 million of offering costs in conjunction with the 2012 sales. The proceeds from the sales conducted during the year ended December 31, 2012 were used to fund acquisitions and pay down long-term debt. As of December 31, 2012, 3.9 million common shares remain available for issuance under the Sales Agreement. 55 Other Material Changes in Financial Position Selected Assets Storage facilities, net ............................................ Investment in real estate ventures, at equity ......... Selected Liabilities Unsecured senior notes ......................................... Revolving credit facility ...................................... Unecured term loans ............................................ Mortgage loans and notes payable ........................ Accounts payable, accrued expenses and other liabilities ........................................................... December 31, 2012 2011 (in thousands) Increase (decrease) $ $ $ $ $ $ $ 2,089,707 — 250,000 45,000 500,000 228,759 60,708 $ $ $ $ $ $ $ 1,788,720 15,181 — — 400,000 358,441 51,025 $ $ $ $ $ $ $ 300,987 (15,181) 250,000 45,000 100,000 (129,682) 9,683 Storage facilities, net increased $301.0 million during 2012 primarily as a result of the acquisition of 37 facilities and fixed asset additions, offset by the disposition of 26 properties during the same period. Investment in real estate ventures, at equity decreased by $15.2 million due to the purchase of the remaining 50% ownership in HSREV during 2012. As a result of the acquisition, these properties are now included in Storage facilities, net. Unsecured senior notes increased $250 million due to the issuance of $250 million in aggregate principal amount of unsecured senior notes due July 15, 2022 during 2012. Our borrowing under the revolving portion of the 2011 Credit Facility increased $45.0 million as a result of additional borrowings made to help fund the 2012 acquisitions and repayment of multiple mortgages during the year. Unsecured term loan borrowing increased by $100 million due to borrowings under the 2011 Credit Facility related to payments for the 2012 Acquisitions and the repayment of multiple mortgages in 2012. Mortgage loans and notes payable decreased $129.7 million due to scheduled principal payments and the repayment of several mortgages during the year. Accounts payable, accrued expenses and other liabilities increased $9.7 million primarily due to an increase in derivative liabilities during 2012. Contractual Obligations The following table summarizes our known contractual obligations as of December 31, 2012 (in thousands): Total 2013 2014 2015 2016 2017 2018 and thereafter Payments Due by Period Mortgage loans and notes payable (a)............................ $ 224,433 $ 30,136 $ 12,149 $ 86,689 $ 21,261 $ 1,863 $ 72,335 Revolving credit facility and unsecured term loans ............ Unsecured senior notes ............ Interest payments (b)................ Ground leases and third party office lease ........................... Related party office leases ....... Software and service contracts ............................... Construction commitments ...... 545,000 250,000 221,342 61,933 998 2,451 13,470 $ 1,319,627 $ — — 39,497 1,206 499 2,451 13,470 87,259 $ 100,000 — 37,105 1,192 499 — — 45,000 — 33,532 1,191 — — — 150,945 $ 166,412 $ 100,000 — 26,843 1,182 — 200,000 — 19,458 100,000 250,000 64,907 1,192 — 55,970 — — — — — 149,286 $ 222,513 $ 543,212 — — (a) Amounts do not include unamortized discounts/premiums. (b) Interest under the Credit Facility and Term Loan Facility calculated using a weighted average rate of 3.15%. 56 We expect that the contractual obligations owed in 2013 will be satisfied by a combination of cash generated from operations and from draws on the revolving portion of the 2011 Credit Facility. 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. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company’s future income, cash flows and fair values relevant to financial instruments depend upon prevailing interest rates. Market Risk Our investment policy relating to cash and cash equivalents is to preserve principal and liquidity while maximizing the return through investment of available funds. Effect of Changes in Interest Rates on our Outstanding Debt Our interest rate risk objectives are to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we manage our exposure to fluctuations in market interest rates for a portion of our borrowings through the use derivative financial instruments such as interest rate swaps or caps to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of our variable rate debt. The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market rates. The range of changes chosen reflects our view of changes which are reasonably possible over a one-year period. Market values are the present value of projected future cash flows based on the market rates chosen. As of December 31, 2012 our consolidated debt consisted of $873.3 million of outstanding mortgages, unsecured senior notes and unsecured term loans that are subject to fixed rates, including variable rate debt that is effectively fixed through our use of interest rate swaps. There was $150.4 million of outstanding credit facility borrowings subject to floating rates. Changes in interest rates have different impacts on the fixed and variable rate portions of our debt portfolio. A change in interest rates on the fixed portion of the debt portfolio impacts the net financial instrument position, but has no impact on interest incurred or cash flows. A change in interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows, but does not impact the net financial instrument position. If market rates of interest on our variable rate debt increase by 100 basis points, the increase in annual interest expense on our variable rate debt would decrease future earnings and cash flows by approximately $1.5 million a year. If market rates of interest on our variable rate debt decrease by 100 basis points, the decrease in interest expense on our variable rate debt would increase future earnings and cash flows by approximately $1.5 million a year. If market rates of interest increase by 1%, the fair value of our outstanding fixed-rate mortgage debt and unsecured term loans would decrease by approximately $29.8 million. If market rates of interest decrease by 1%, the fair value of our outstanding fixed-rate mortgage debt and unsecured term loans would increase by approximately $32.0 million. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements required by this item appear with an Index to Financial Statements and Schedules, starting on page F-1 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 57 ITEM 9A. CONTROLS AND PROCEDURES Controls and Procedures (Parent Company) Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this report, the Parent Company carried out an evaluation, under the supervision and with the participation of its management, including its chief executive officer and chief financial officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, the Parent Company’s chief executive officer and chief financial officer have concluded that the Parent Company’s disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information required to be disclosed by the Parent Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Parent Company’s management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Changes in Internal Controls Over Financial Reporting There has been no change in the Parent Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during its most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting. Management’s Report on Internal Control Over Financial Reporting Management’s report on internal control over financial reporting is set forth on page F-2 of this Annual Report on Form 10-K, and is incorporated herein by reference. The effectiveness of the Parent Company’s internal control over financial reporting as of December 31, 2012 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its report which is included herein. Controls and Procedures (Operating Partnership) Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this report, the Operating Partnership carried out an evaluation, under the supervision and with the participation of its management, including the Operating Partnership’s chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Operating Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act). Based on that evaluation, the Operating Partnership’s chief executive officer and chief financial officer have concluded that the Operating Partnership’s disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information required to be disclosed by the Operating Partnership in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Operating Partnership’s management, including the Operating Partnership’s chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Changes in Internal Controls Over Financial Reporting There has been no change in the Operating Partnership’s internal control over financial reporting (as defined in Rule 13a- 15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting. 58 Management’s Report on Internal Control Over Financial Reporting Management’s report on internal control over financial reporting is set forth on page F-2 of this Annual Report on Form 10-K, and is incorporated herein by reference. The effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2012 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its report which is included herein. ITEM 9B. OTHER INFORMATION Not applicable. ITEM 10. TRUSTEES, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE PART III We have adopted a Code of Ethics for all of our employees, officers and trustees, including our principal executive officer and principal financial officer, which is available on our website at www.cubesmart.com. We intend to disclose any amendment to, or a waiver from, a provision of our Code of Ethics on our website within four business days following the date of the amendment or waiver. The remaining information required by this item regarding trustees, executive officers and corporate governance is hereby incorporated by reference to the material appearing in the Proxy Statement for the Annual Shareholders Meeting to be held in 2012 (the “Proxy Statement”) under the captions “Proposal 1: Election of Trustees,” “Executive Officers,” “Meetings and Committees of the Board of Trustees,” and “Shareholder Proposals and Nominations for the 2014 Annual Meeting.” The information required by this item regarding compliance with Section 16(a) of the Exchange Act is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.” ITEM 11. EXECUTIVE COMPENSATION The information required by this item is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement under the captions “Compensation Committee Report,” “Meetings and Committees of the Board of Trustees — Compensation Committee Interlocks and Insider Participation,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Potential Payments Upon Termination or Change in Control,” and “Trustee Compensation.” ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS The following table sets forth certain information regarding our equity compensation plans as of December 31, 2012. Plan Category Equity compensation plans approved by shareholders ............................................ Equity compensation plans not approved by shareholders ................................... Total ........................................................ Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a) (c) 5,257,864(1) $ 10.50(2) — 5,257,864 $ — 10.50 3,191,615 — 3,191,615 (1) (2) Excludes 1,284,401 shares subject to outstanding restricted share unit awards. This number reflects the weighted-average exercise price of outstanding options and has been calculated exclusive of outstanding restricted unit awards. 59 The information regarding security ownership of certain beneficial owners and management required by this item is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement under the caption “Security Ownership of Management” and “Security Ownership of Beneficial Owners.” ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND TRUSTEE INDEPENDENCE The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the captions “Corporate Governance- Independence of Trustees,” “Policies and Procedures Regarding Review, Approval or Ratification of Transactions With Related Persons,” and “Transactions With Related Persons.” ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement under the captions “Audit Committee Matters - Fees Paid to Our Independent Registered Public Accounting Firm” and “— Audit Committee Pre-Approval Policies and Procedures.” ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES PART IV (a) Documents filed as part of this report: 1. Financial Statements. The response to this portion of Item 15 is submitted as a separate section of this report. 2. Financial Statement Schedules. The response to this portion of Item 15 is submitted as a separate section of this report. 3. Exhibits. The list of exhibits filed with this report is set forth in response to Item 15(b). The required exhibit index has been filed with the exhibits. (b) Exhibits. The following documents are filed as exhibits to this report: 3.1* 3.2* 3.3* 3.4* 3.5* 3.6* 3.7* Articles of Amendment and Restatement of Declaration of Trust of U-Store-It Trust, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on November 2, 2004. Articles of Amendment of Declaration of Trust of CubeSmart, dated September 14, 2012, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on September 16, 2012. Articles Supplementary to Declaration of Trust of CubeSmart classifying and designating CubeSmart’s 7.75% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, incorporated by reference to Exhibit 3.3 to CubeSmart’s Form 8-A, filed on October 31, 2012. Third Amended and Restated Bylaws of CubeSmart, effective September 14, 2012, incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on September 16, 2012. Certificate of Limited Partnership of U-Store-It, L.P., incorporated by reference to Exhibit 3.1 to CubeSmart, L.P.’s Registration Statement on Form 10, filed on July 15, 2012. Amendment No. 1 to Certificate of Limited Partnership of CubeSmart, L.P., dated September 14, 2012, incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K, filed on September 16, 2012. Second Amended and Restated Agreement of Limited Partnership of U-Store-It, L.P. dated as of October 27, 2004, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on November 2, 2004. 60 3.8* 3.9* 4.1* 4.2* 4.3* 4.4* 4.5* 4.6* 10.1 10.2* 10.3* 10.4* 10.5* 10.6* 10.7* Amendment No. 1 to Second Amended and Restated Agreement of Limited Partnership of CubeSmart, L.P. dated as of November 2, 2011, incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K, filed on September 16, 2011. Amendment No. 2 to Second Amended and Restated Agreement of Limited Partnership of CubeSmart, L.P. dated as of November 2, 2011, incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on November 2, 2011. Form of Common Share Certificate, incorporated by reference to Exhibit 4.1 to Amendment No. 3 to the Company’s Registration Statement on Form S-11, filed on October 20, 2004, File No. 333-117848. Form of Certificate for CubeSmart’s 7.75% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, incorporated by reference to Exhibit 4.1 to CubeSmart’s Form 8-A, filed on October 31, 2011. Indenture, dated as of September 16, 2011, among CubeSmart, L.P., CubeSmart and U.S. Bank National Association, incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-3, filed on September 16, 2011. First Supplemental Indenture, dated as of June 26, 2012, among the Company, the Operating Partnership and U.S. Bank National Association, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on June 26, 2012. Form of $250 million aggregate principal amount of 4.80% senior note due July 15, 2022, incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on June 26, 2012. Form of CubeSmart Notation of Guarantee, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on June 26, 2012. Settlement Agreement and Mutual Release, by and among U-Store-It Trust, U-Store-It, L.P., YSI Management LLC, U-Store-It Mini Warehouse Co., U-Store-It Development, LLC, Dean Jernigan, Kathleen A. Weigand, Robert J. Amsdell, Barry L. Amsdell, Todd C. Amsdell, Kyle V. Amsdell, Rising Tide Development LLC, and Amsdell and Amsdell, dated August 6, 2007, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8- K, filed on August 7, 2007. First Amendment to Lease, by and between U-Store-It, L.P. and Amsdell and Amsdell, dated August 6, 2007, amending Lease dated March 29, 2005, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed on August 7, 2007. First Amendment to Lease, by and between U-Store-It, L.P. and Amsdell and Amsdell, dated August 6, 2007, amending Lease dated December 5, 2005, incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed on August 7, 2007. First Amendment to Lease, by and between U-Store-It, L.P. and Amsdell and Amsdell, dated August 6, 2007, amending Lease dated December 5, 2005, incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K, filed on August 7, 2007. First Amendment to Lease, by and between U-Store-It, L.P. and Amsdell and Amsdell, dated August 6, 2007, amending Lease dated December 5, 2005, incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K, filed on August 7, 2007. First Amendment to Lease, by and between U-Store-It, L.P. and Amsdell and Amsdell, dated August 6, 2007, amending Lease dated December 5, 2005, incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K, filed on August 7, 2007. Lease, dated March 29, 2005, by and between Amsdell and Amsdell and U-Store-It, L.P., incorporated by reference to Exhibit 10.41 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, filed on March 31, 2005. 61 10.8* 10.9* 10.10*† 10.11*† 10.12*† 10.13*† 10.14*† 10.15*† 10.16*† 10.17*† Lease, dated June 29, 2005, by and between Amsdell and Amsdell and U-Store-It, L.P., incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, filed on August 12, 2005. Lease, dated June 29, 2005, by and between Amsdell and Amsdell and U-Store-It, L.P., incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, filed on August 12, 2005. Amended and Restated Executive Employment Agreement, dated June 29, 2010, by and between U-Store-It Trust and Dean Jernigan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on July 2, 2010. Amended and Restated Executive Employment Agreement, dated January 24, 2011, by and between U-Store-It Trust and Christopher P. Marr, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on January 27, 2011. Amended and Restated Executive Employment Agreement, dated June 29, 2010, by and between U-Store-It Trust and Timothy M. Martin, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on July 2, 2010. Indemnification Agreement, dated as of October 27, 2004, by and among U-Store-It Trust, U-Store-It, L.P. and David J. LaRue (substantially identical agreements have been entered into with Dean Jernigan, Christopher P. Marr, Timothy M. Martin, Jeffrey P. Foster, Daniel William M. Diefenderfer III, Piero Bussani, John W. Fain, B. Hurwitz, Marianne M. Keler, and John F. Remondi), incorporated by reference to Exhibit 10.19 to the Company’s Current Report on Form 8-K, filed on November 2, 2004. Amended and Restated Noncompetition Agreement, dated as of June 29, 2010, by and between U-Store-It Trust and Timothy M. Martin, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed on July 2, 2010. Amended and Restated Noncompetition Agreement, dated as of January 24, 2011, by and between U-Store-It Trust and Christopher P. Marr, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on January 27, 2011. Amended and Restated Noncompetition Agreement, dated as of June 29, 2010, by and between U-Store-It Trust and Dean Jernigan, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on July 2, 2010. Nonqualified Share Option Agreement, dated as of June 5, 2006, by and between U-Store-It Trust and Christopher P. Marr, incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, filed on August 8, 2006. 10.18*† Nonqualified Share Option Agreement, dated as of April 19, 2006, by and between U-Store-It Trust and Dean Jernigan, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed on April 24, 2006. 10.19*† 10.20*† 10.21*† Form of Restricted Share Agreement for Non-Employee Trustees under the U-Store-It Trust 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.83 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, filed on February 29, 2008. Form of Nonqualified Share Option Agreement under the U-Store-It Trust 2004 Equity Incentive Plan, incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, filed on May 10, 2007. Form of Performance-Vested Restricted Share Agreement under the U-Store-It Trust 2004 Equity Incentive Plan, incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, filed on May 10, 2007 62 10.22*† Form of Restricted Share Agreement under the U-Store-It Trust 2004 Equity Incentive Plan, incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, filed on May 10, 2007. 10.23*† Form of Nonqualified Share Option Agreement under the U-Store-It Trust 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on January 25, 2008. 10.24*† Form of Restricted Share Agreement under the U-Store-It Trust 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on January 25, 2008. 10.25*† 10.26*† U-Store-It Trust Trustees Deferred Compensation Plan, amended and restated effective January 1, 2009, incorporated by reference to Exhibit 10.78 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, filed on March 2, 2009. U-Store-It Trust Executive Deferred Compensation Plan, amended and restated effective January 1, 2009, incorporated by reference to Exhibit 10.79 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, filed on March 2, 2009. 10.27*† U-Store-It Trust Deferred Trustees Plan, effective as of May 31, 2005, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on June 6, 2005. 10.28*† Amended and Restated U-Store It Trust 2007 Equity Incentive Plan, effective June 2, 2011, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on June 4, 2011. 10.29*† 2004 Equity Incentive Plan of U-Store-It Trust, effective as of October 19, 2004, incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8- K, filed on November 2, 2004. 10.31* 10.32* Sales Agreement dated April 3, 2009, among the U-Store-It Trust, U-Store-It, L.P., and Cantor Fitzgerald & Co., incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed on April 3, 2009. Amendment No. 1 to Sales Agreement, dated January 26, 2011, by and among U-Store-It Trust, U-Store It, L.P. and Cantor Fitzgerald & Co., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed January 27, 2011. 10.33*† Amended and Restated Employment Letter Agreement, dated April 4, 2011, by and between U-Store-It Trust and Jeffrey P. Foster, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on April 6, 2011. 10.34* 10.35* 10.36* Term Loan Agreement dated as of June 20, 2011 by and among U-Store-It, L.P., as Borrower, U-Store-It Trust, and Wells Fargo Securities, LLC and PNC Capital Markets LLC, as joint lead arrangers and joint bookrunners, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on June 23, 2011. Amendment No. 2 to the Sales Agreement, dated September 16, 2011 among CubeSmart, CubeSmart, L.P. and Cantor Fitzgerald & Co., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on September 16, 2011. Agreement for Purchase & Sale, dated as of October 24, 2011, by and between CubeSmart, L.P. and 200 East 135th Street LLC, 1880 Bartow Avenue LLC, 255 Exterior St LLC, 1376 Cromwell LLC, 175th Street DE LLC, Boston Rd LLC, Bronx River LLC, Bruckner Blvd LLC, 1980 White Plains Road, 552 Van Buren LLC, 481 Grand LLC, 2047 Pitkin LLC, Sheffield Ave LLC, Cropsey Ave LLC, 9826 Jamaica Ave LLC, 179 Jamaica Avenue Realty LLC, 714 Markley St LLC, Yorktown Heights Storage, LLC, Marbledale Rd LLC, New Rochelle Storage Partners, L.L.C., Wilton Storage Partners L.L.C. and Shelton Storage LLC, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on October 24, 2011. 10.37* Registration Rights Agreement dated as of October 24, 2011 by and between CubeSmart and Wells Fargo Investment Holdings, LLC, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on October 24, 2011. 63 10.38* 10.40* 10.41* Waiver of Ownership Limitation, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on October 24, 2011. Purchase Agreement for Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, dated October 24, 2011, between CubeSmart and Wells Fargo Investment Holdings, LLC, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on October 31, 2011. Credit Agreement dated as of December 9, 2011 by and among CubeSmart, L.P., CubeSmart, Wells Fargo Securities, LLC and Merrill Lynch, Pierce Fenner & Smith Incorporated, as Revolver and Tranche A joint lead arrangers and joint bookrunners and Wells Fargo Securities, LLC, as Tranche B sole lead arranger and sole bookrunner, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on December 14, 2011. 10.42† Form of Restricted Share Agreement under the CubeSmart 2007 Equity Incentive Plan. 10.43† Form of Non-Qualified Share Option Agreement under the CubeSmart 2007 Equity Incentive Plan. 10.44* † 10.45* Form of 2012 Performance-Vested Restricted Share Unit Award Agreement under the CubeSmart 2007 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on January 31, 2012. First Amendment to Credit Agreement, dated as of April 5, 2012, by and among CubeSmart, L.P., CubeSmart, Wells Fargo Bank, National Association and each of the lenders party to the credit agreement dated December 9, 2011, incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed on May 7, 2012. 10.46* † Performance Share Unit Award and Agreement, dated May 30, 2012, between CubeSmart and Dean Jernigan, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on June 1, 2012. 10.47† Form of Restricted Share Unit Award Agreement (2-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan. 10.48† Form of Performance-Vested Restricted Share Unit Award Agreement under the CubeSmart 2007 Equity Incentive Plan. 12.1 12.2 21.1 Statement regarding Computation of Ratios of CubeSmart Statement regarding Computation of Ratios of CubeSmart, L.P. List of Subsidiaries 23.1 Consent of KPMG LLP relating to financial statements of CubeSmart 23.2 Consent of KPMG LLP relating to financial statements of CubeSmart, L.P. 31.1 31.2 31.3 31.4 32.1 Certification of Chief Executive Officer of CubeSmart required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Chief Financial Officer of CubeSmart required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Chief Executive Officer of CubeSmart, L.P. required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Chief Financial Officer of CubeSmart, L.P. required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Chief Executive Officer and Chief Financial Officer of CubeSmart pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 64 32.2 Certification of Chief Executive Officer and Chief Financial Officer of CubeSmart, L.P. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.1 Material Tax Considerations. 101 The following CubeSmart and CubeSmart, L.P. financial information for the year ended December 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statement of Equity, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements, detailed tagged and filed herewith. * Incorporated herein by reference as above indicated. † Denotes a management contract or compensatory plan, contract or arrangement. 65 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES CUBESMART By: /s/ Timothy M. Martin Timothy M. Martin Chief Financial Officer Date: February 28, 2013 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date /s/ William M. Diefenderfer III William M. Diefenderfer III Chairman of the Board of Trustees February 28, 2013 /s/ Dean Jernigan Dean Jernigan /s/ Timothy M. Martin Timothy M. Martin /s/ Piero Bussani Piero Bussani /s/ Marianne M. Keler Marianne M. Keler /s/ David J. LaRue David J. LaRue /s/ John F. Remondi John F. Remondi /s/ Jeffrey F. Rogatz Jeffrey F. Rogatz /s/ John W. Fain John W. Fain Chief Executive Officer and Trustee (Principal Executive Officer) February 28, 2013 Chief Financial Officer (Principal Financial and Accounting Officer) February 28, 2013 February 28, 2013 February 28, 2013 February 28, 2013 February 28, 2013 February 28, 2013 February 28, 2013 Trustee Trustee Trustee Trustee Trustee Trustee 66 FINANCIAL STATEMENTS INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS Consolidated Financial Statements of CUBESMART and CUBESMART L.P. (The “Company”) Management’s Report on CubeSmart Internal Control Over Financial Reporting ...................................................................... Reports of Independent Registered Public Accounting Firm ....................................................................................................... CubeSmart and Subsidiaries Consolidated Balance Sheets as of December 31, 2012 and 2011 ................................................. CubeSmart and Subsidiaries Consolidated Statements of Operations for the years ended December 31, 2012, 2011, and 2010 ...................................................................................................................................................................................... CubeSmart and Subsidiaries Consolidated Statements of Comprehensive Loss for the years ended December 31, 2012, 2011, and 2010 ............................................................................................................................................................................. Page No. F-2 F-3 F-7 F-8 F-9 CubeSmart and Subsidiaries Consolidated Statements of Equity for the years ended December 31, 2012, 2011, and 2010 ...... F-10 CubeSmart and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011, and 2010 ....................................................................................................................................................................................... F-11 CubeSmart L.P. and Subsidiaries Consolidated Balance Sheets as of December 31, 2012 and 2011 ......................................... F-12 CubeSmart L.P. and Subsidiaries Consolidated Statements of Operations for the years ended December 31, 2012, 2011, and 2010 ....................................................................................................................................................................................... CubeSmart L.P. and Subsidiaries Consolidated Statements of Comprehensive Loss for the years ended December 31, 2012, 2011, and 2010 ................................................................................................................................................................... CubeSmart L.P. and Subsidiaries Consolidated Statements of Capital for the years ended December 31, 2012, 2011, and 2010 ....................................................................................................................................................................................... CubeSmart L.P. and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011, and 2010 ....................................................................................................................................................................................... F-13 F-14 F-15 F-16 Notes to Consolidated Financial Statements ................................................................................................................................ F-17 F-1 MANAGEMENT’S REPORT ON CUBESMART INTERNAL CONTROL OVER FINANCIAL REPORTING Management of CubeSmart and CubeSmart L.P. (collectively, the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under Section 404 of the Sarbanes-Oxley Act of 2002, the Company’s management is required to assess the effectiveness of the Company’s internal control over financial reporting as of the end of each fiscal year, and report on the basis of that assessment whether the Company’s internal control over financial reporting is effective. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:    pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and the disposition of the assets of the Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that the receipts and expenditures of the Company are being made only in accordance with the authorization of the Company’s management and its Board of Trustees; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of an internal control system may vary over time. Under the supervision, and with the participation, of the Company’s management, including the principal executive officer and principal financial officer, we conducted a review, evaluation and assessment of the effectiveness of our internal control over financial reporting as of December 31, 2012, based upon the Committee of Sponsoring Organizations of the Treadway Commission (COSO) criteria. In performing its assessment of the effectiveness of internal control over financial reporting, management has concluded that, as of December 31, 2012, the Company’s internal control over financial reporting was effective based on the COSO framework. The effectiveness of our internal control over financial reporting as of December 31, 2012, has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report that appears herein. February 28, 2013 F-2 Report of Independent Registered Public Accounting Firm The Board of Trustees and Shareholders of CubeSmart: We have audited the accompanying consolidated balance sheets of CubeSmart as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss, equity, and cash flows for each of the years in the three-year period ended December 31, 2012. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of CubeSmart’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CubeSmart as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), CubeSmart’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2013, expressed an unqualified opinion on the effectiveness of CubeSmart’s internal control over financial reporting. /s/ KPMG LLP Philadelphia, Pennsylvania February 28, 2013 F-3 Report of Independent Registered Public Accounting Firm The Partners of CubeSmart, L.P.: We have audited the accompanying consolidated balance sheets of CubeSmart, L.P. as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss, capital, and cash flows for each of the years in the three-year period ended December 31, 2012. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of CubeSmart, L.P.’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CubeSmart, L.P. as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), CubeSmart, L.P.’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2013, expressed an unqualified opinion on the effectiveness of CubeSmart, L.P.’s internal control over financial reporting. /s/ KPMG LLP Philadelphia, Pennsylvania February 28, 2013 F-4 Report of Independent Registered Public Accounting Firm The Board of Trustees and Shareholders of CubeSmart: We have audited CubeSmart’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). CubeSmart’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on CubeSmart Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, CubeSmart maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of CubeSmart as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss, equity, and cash flows for each of the years in the three-year period ended December 31, 2012, and our report dated February 28, 2013 expressed an unqualified opinion on those consolidated financial statements. /s/ KPMG LLP Philadelphia, Pennsylvania February 28, 2013 F-5 Report of Independent Registered Public Accounting Firm The Partners of CubeSmart, L.P.: We have audited CubeSmart, L.P’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). CubeSmart, L.P.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on CubeSmart Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, CubeSmart, L.P. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of CubeSmart, L.P. as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss, capital, and cash flows for each of the years in the three-year period ended December 31, 2012, and our report dated February 28, 2013 expressed an unqualified opinion on those consolidated financial statements. /s/ KPMG LLP Philadelphia, Pennsylvania February 28, 2013 F-6 CUBESMART AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data) ASSETS Storage facilities ...................................................................................................................... Less: Accumulated depreciation .............................................................................................. Storage facilities, net ................................................................................................................ Cash and cash equivalents ....................................................................................................... Restricted cash ......................................................................................................................... Loan procurement costs, net of amortization ........................................................................... Investment in real estate ventures, at equity ............................................................................ Other assets, net ....................................................................................................................... Total assets ....................................................................................................................... LIABILITIES AND EQUITY Unsecured senior notes ............................................................................................................ Revolving credit facility .......................................................................................................... Unsecured term loan ................................................................................................................ Mortgage loans and notes payable ........................................................................................... Accounts payable, accrued expenses and other liabilities ........................................................ Distributions payable ............................................................................................................... Deferred revenue ...................................................................................................................... Security deposits ...................................................................................................................... Total liabilities ................................................................................................................. $ $ $ December 31, 2012 2011 $ $ $ 2,443,022 (353,315) 2,089,707 4,495 6,070 8,253 — 41,794 2,150,319 250,000 45,000 500,000 228,759 60,708 16,419 11,090 444 1,112,420 2,107,469 (318,749) 1,788,720 9,069 11,291 8,073 15,181 43,645 1,875,979 — — 400,000 358,441 51,025 11,401 9,568 490 830,925 Noncontrolling interests in the Operating Partnership ............................................................. 47,990 49,732 Commitments and contingencies ............................................................................................. Equity ....................................................................................................................................... 7.75% Series A Preferred shares $.01 par value, 3,220,000 shares authorized, 3,100,000 shares issued and outstanding at December 31, 2012 and December 31, 2011, respectively ...................................................................................................................... Common shares $.01 par value, 200,000,000 shares authorized, 131,794,547 and 122,058,919 shares issued and outstanding at December 31, 2012 and December 31, 2011, respectively ............................................................................................................ Additional paid in capital ................................................................................................... Accumulated other comprehensive loss ............................................................................... Accumulated deficit ............................................................................................................. Total CubeSmart shareholders’ equity ............................................................................. Noncontrolling interest in subsidiaries ................................................................................. Total equity .............................................................................................................................. Total liabilities and equity ....................................................................................................... 31 31 1,318 1,418,463 (19,796) (410,225) 989,791 118 989,909 2,150,319 $ 1,221 1,309,505 (12,831) (342,013) 955,913 39,409 995,322 1,875,979 $ See accompanying notes to the consolidated financial statements. F-7 CUBESMART AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) REVENUES Rental income ....................................................................................... Other property related income .............................................................. Property management fee income ......................................................... Total revenues ................................................................................... $ OPERATING EXPENSES Property operating expenses ................................................................. Depreciation and amortization .............................................................. General and administrative ................................................................... Total operating expenses ................................................................... OPERATING INCOME OTHER INCOME (EXPENSE) Interest: Interest expense on loans .................................................................. Loan procurement amortization expense .......................................... Loan procurement amortization expense - early repayment of debt ............................................................................................... Acquisition related costs ....................................................................... Equity in losses of real estate ventures ................................................. Gain from remeasurement of investment in real estate venture ............ Other ..................................................................................................... Total other expense ........................................................................... 2012 For the year ended December 31, 2011 2010 $ 250,959 27,776 4,341 283,076 110,821 113,874 26,131 250,826 32,250 (40,715) (3,279) — (3,086) (745) 7,023 256 (40,546) $ 202,762 20,715 3,768 227,245 94,630 65,955 24,693 185,278 41,967 (33,199) (5,028) (8,167) (3,823) (281) — (83) (50,581) 179,748 17,114 2,829 199,691 85,779 58,876 25,406 170,061 29,630 (37,794) (6,463) — (759) — — 386 (44,630) LOSS FROM CONTINUING OPERATIONS (8,296) (8,614) (15,000) DISCONTINUED OPERATIONS Income from discontinued operations ................................................... Gain on disposition of discontinued operations .................................... Total discontinued operations ........................................................... NET INCOME (LOSS) NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS Noncontrolling interests in the Operating Partnership .......................... Noncontrolling interest in subsidiaries .................................................. NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY Distribution to Preferred Shares ............................................................ NET LOSS ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS Basic and diluted loss per share from continuing operations attributable to common shareholders ....................................................................... Basic and diluted earnings per share from discontinued operations attributable to common shareholders .................................................... Basic and diluted loss per share attributable to common shareholders ..... Weighted-average basic and diluted shares outstanding ........................... AMOUNTS ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS: Loss from continuing operations ............................................................... Total discontinued operations ................................................................... Net loss ..................................................................................................... $ $ $ $ $ $ 2,113 9,811 11,924 3,628 107 (1,918) 1,817 (6,008) 7,158 3,903 11,061 2,447 (35) (2,810) (398) (1,218) 7,155 1,826 8,981 (6,019) 381 (1,755) (7,393) — (4,191) $ (1,616) $ (7,393) (0.13) $ (0.12) $ 0.10 $ (0.03) $ 0.10 $ (0.02) $ (0.17) 0.09 (0.08) 124,548 102,976 93,998 (15,829) $ 11,638 (4,191) $ (12,168) $ 10,552 (1,616) $ (15,907) 8,514 (7,393) See accompanying notes to the consolidated financial statements. F-8 CUBESMART AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) NET INCOME (LOSS) ............................................................................. Other comprehensive (loss) gain: Unrealized loss on interest rate swap ................................................ Unrealized gain (loss) on foreign currency translation ..................... OTHER COMPREHENSIVE LOSS ........................................................ COMPREHENSIVE LOSS ...................................................................... Comprehensive income attributable to noncontrolling interests in the Operating Partnership ....................................................................... Comprehensive loss attributable to noncontrolling interests in 2012 Year Ended December 31, 2011 2010 $ 3,628 $ 2,447 $ (6,019) (7,466) 172 (7,294) (3,666) 445 (12,394) 151 (12,243) (9,796) 503 — (268) (268) (6,287) 394 (1,747) (7,640) subsidiaries ........................................................................................ COMPREHENSIVE LOSS ATTRIBUTABLE TO THE COMPANY ... $ (1,927) (5,148) $ (2,815) (12,108) $ See accompanying notes to the consolidated financial statements. F-9 CUBESMART AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (in thousands) Balance at December 31, 2009 ............ Contributions from noncontrolling interests in subsidiaries .................... Issuance of common shares, net ............. Issuance of restricted shares ................... Conversion from units to shares ............ Exercise of stock options ....................... Amortization of restricted shares ........... Share compensation expense ................. Adjustment for noncontrolling interest in operating partnership ................... Net (loss) income ................................... Other comprehensive loss: ..................... Unrealized loss on foreign currency translation ................................. Distributions ........................................... Balance at December 31, 2010 ............ Contributions from noncontrolling interests in subsidiaries .................... Issuance of common shares, net ............. Issuance of preferred shares, net ............ Issuance of restricted shares ................... Conversion from units to shares ............ Exercise of stock options ....................... Amortization of restricted shares ........... Share compensation expense ................. Adjustment for noncontrolling interest in operating partnership ................... Net (loss) income ................................... Other comprehensive (loss) gain: .......... Unrealized loss on interest rate swap .......................................... Unrealized gain on foreign currency translation ................................. Preferred share distributions .................. Common share distributions .................. Balance at December 31, 2011 ............ Contributions from noncontrolling interests in subsidiaries .................... Issuance of common shares, net ............. Issuance of restricted shares ................... Conversion from units to shares ............ Exercise of stock options ....................... Amortization of restricted shares ........... Share compensation expense ................. Adjustment for noncontrolling interest in operating partnership ................... Acquisition of noncontrolling interest ... Net income (loss) ................................... Other comprehensive (loss) gain: .......... Unrealized loss on interest rate swap .......................................... Unrealized gain on foreign currency translation ................................. Preferred share distributions .................. Common share distributions .................. Balance at December 31, 2012 ............ Common Shares Number Amount Preferred Shares Amount Number Additional Paid in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Shareholders’ Equity Noncontrolling Interest in Subsidiaries Total Equity Noncontrolling Interests in the Operating Partnership 92,655 $ 927 — $ — $ 974,926 $ (874) $ (279,670) $ 695,309 $ 44,021 $ 739,330 $ 45,394 5,610 203 73 56 56 2 1 47,517 674 194 1,759 1,882 47,573 2 675 194 1,759 1,882 (1,510 ) (7,393 ) 15 1,755 15 47,573 2 675 194 1,759 1,882 (1,510) (5,638) (1,510) (7,393) 98,597 $ 986 — $ — $ 1,026,952 $ (1,121) $ (247) (14,028) (302,601) $ (247 ) (14,028 ) 724,216 $ (8) (4,591) 41,192 $ (255) (18,619) 765,408 $ 23,140 231 235 63 24 3 1 3,100 31 203,788 74,817 623 121 1,677 1,527 122,059 $ 1,221 3,100 $ 31 $ 1,309,505 $ (12,831) $ (11,849) 139 7,900 246 1,380 210 79 2 14 2 102,000 19,233 1,627 3,352 1,198 (18,452) (7,124) 159 131,795 $ 1,318 3,100 $ 31 $ 1,418,463 $ (19,796) $ 204,019 74,848 3 624 121 1,677 1,527 (7,082 ) (398 ) (11,849 ) 139 (1,218 ) (30,714 ) 955,913 $ 102,079 2 19,247 1,629 3,352 1,198 (19,520 ) (18,452 ) 1,817 (7,124 ) 159 (6,008 ) (44,501 ) 989,791 $ 1 1 204,019 74,848 3 624 121 1,677 1,527 2,810 (7,082) 2,412 (11,849) 144 (1,218) (35,313) 995,322 $ 5 (4,599) 39,409 $ 102,079 2 19,247 1,629 3,352 1,198 (19,520) (56,984) 3,735 (38,532) 1,918 (7,124) 168 (6,008) (47,187) 989,909 $ 9 (2,686) 118 $ (7,082) (398) (1,218) (30,714) (342,013) $ (19,520) 1,817 (6,008) (44,501) (410,225) $ See accompanying notes to the consolidated financial statements. (675) 1,510 (381) (13) (690) 45,145 (624) 7,082 35 (545) 7 (1,368) 49,732 (19,247) 19,520 (132) (107) (342) 4 (1,438) 47,990 F-10 CUBESMART AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Year Ended December 31, 2011 2010 2012 Operating Activities Net income (loss) ..................................................................................................... Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization ............................................................................. Gain on disposition of discontinued operations ................................................... Gain from remeasurement of investment in real estate venture ........................... Equity compensation expense .............................................................................. Accretion of fair market value adjustment of debt ............................................... Loan procurement amortization expense - early repayment of debt .................... Equity in losses of real estate venture .................................................................. Changes in other operating accounts: Other assets ......................................................................................................... Restricted cash ..................................................................................................... Accounts payable and accrued expenses ............................................................. Other liabilities .................................................................................................... Net cash provided by operating activities ....................................................... Investing Activities ...................................................................................................... Acquisitions, additions and improvements to storage facilities ................................ Cash paid for remaining interest in real estate ventures ........................................... Investment in real estate venture, at equity .............................................................. Cash distributed from real estate venture ................................................................. Proceeds from sales of properties, net ...................................................................... Proceeds from notes receivable ................................................................................ Decrease in restricted cash ....................................................................................... Net cash used in by investing activities ............................................................... Financing Activities Proceeds from: Unsecured senior notes ........................................................................................ Revolving credit facility ...................................................................................... Mortgage loans and notes payable ....................................................................... Unsecured term loans .......................................................................................... Principal payments on: Revolving credit facility ...................................................................................... Unsecured term loans .......................................................................................... Mortgage loans and notes payable ....................................................................... Settlement of hedge transactions .............................................................................. Proceeds from issuance of common shares, net ....................................................... Proceeds from issuance of preferred shares, net ....................................................... Exercise of stock options .......................................................................................... Contributions from noncontrolling interests in subsidiaries ..................................... Acquisition of noncontrolling interest ...................................................................... Distributions paid to common shareholders ............................................................. Distributions paid to preferred shareholders ............................................................. Distributions paid to noncontrolling interests in Operating Partnership ................... Distributions paid to noncontrolling interest in subsidiaries..................................... Loan procurement costs ........................................................................................... Net cash provided by (used in) financing activities ............................................. (Decrease) increase in cash and cash equivalents ................................................ Cash and cash equivalents at beginning of year ............................................................ Cash and cash equivalents at end of year ...................................................................... Supplemental Cash Flow and Noncash Information Cash paid for interest, net of interest capitalized ...................................................... Supplemental disclosure of noncash activities: Acquisition related contingent consideration ....................................................... Consolidation of real estate venture ..................................................................... Derivative valuation adjustment .......................................................................... Foreign currency translation adjustment .............................................................. Mortgage loan assumption - acquisition of storage facility ................................. $ 3,628 $ 2,447 $ 118,573 (9,811) (7,023) 4,550 (707) — 745 (2,125) 3,545 6,899 154 118,428 (247,413) (81,158) — 909 52,630 — 3,096 (271,936) 249,638 403,000 — 100,000 (358,000) — (236,340) (195) 102,079 — 1,629 — (61,113) (39,755) (5,724) (1,454) (2,686) (2,145) 148,934 (4,574) 9,069 4,495 33,578 — 13,527 (7,271) 172 107,011 $ $ $ $ $ $ $ $ $ $ 73,702 (3,903) — 3,204 (89) 8,167 281 (585) (853) 2,634 (678) 84,327 (471,188) — (15,462) — 44,460 — 90 (442,100) — 256,700 3,537 400,000 (299,700) (200,000) (39,321) — 204,019 74,848 121 1 — (27,849) — (1,322) (4,599) (5,484) 360,951 3,178 5,891 9,069 33,265 — — (12,394) 151 21,827 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ See accompanying notes to the consolidated financial statements. F-11 (6,019) 70,850 (1,826) — 3,641 (255) — — (427) 3,889 1,437 227 71,517 (104,441) — — — 37,304 20,112 2,242 (44,783) — 95,000 — — (52,000) — (196,205) — 47,573 — 194 15 — (9,407) — (482) (4,591) (3,708) (123,611) (96,877) 102,768 5,891 38,346 1,777 — — (268) — CUBESMART, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) ASSETS Storage facilities ...................................................................................................................... Less: Accumulated depreciation .............................................................................................. Storage facilities, net ................................................................................................................ Cash and cash equivalents ....................................................................................................... Restricted cash ......................................................................................................................... Loan procurement costs, net of amortization ........................................................................... Investment in real estate ventures, at equity ............................................................................ Other assets, net ....................................................................................................................... Total assets ....................................................................................................................... LIABILITIES AND CAPITAL Unsecured senior notes ............................................................................................................ Revolving credit facility .......................................................................................................... Unsecured term loan ................................................................................................................ Mortgage loans and notes payable ........................................................................................... Accounts payable, accrued expenses and other liabilities ........................................................ Distributions payable ............................................................................................................... Deferred revenue ...................................................................................................................... Security deposits ...................................................................................................................... Total liabilities ................................................................................................................. $ $ $ December 31, 2012 2011 $ $ $ 2,443,022 (353,315) 2,089,707 4,495 6,070 8,253 — 41,794 2,150,319 250,000 45,000 500,000 228,759 60,708 16,419 11,090 444 1,112,420 2,107,469 (318,749) 1,788,720 9,069 11,291 8,073 15,181 43,645 1,875,979 — — 400,000 358,441 51,025 11,401 9,568 490 830,925 Limited Partnership interest of third parties ............................................................................. 47,990 49,732 Commitments and contingencies Capital Operating Partner ................................................................................................................. Accumulated other comprehensive loss ............................................................................... Total CubeSmart L.P. capital ........................................................................................... Noncontrolling interests in subsidiaries ............................................................................... Total capital ............................................................................................................................. Total liabilities and capital ....................................................................................................... 1,009,587 (19,796) 989,791 118 989,909 2,150,319 $ 968,744 (12,831) 955,913 39,409 995,322 1,875,979 $ See accompanying notes to the consolidated financial statements. F-12 CUBESMART, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per common unit data) 2012 For the year ended December 31, 2011 2010 REVENUES Rental income ....................................................................................... Other property related income .............................................................. Property management fee income ......................................................... Total revenues ................................................................................... $ OPERATING EXPENSES Property operating expenses ................................................................. Depreciation and amortization .............................................................. General and administrative ................................................................... Total operating expenses ................................................................... OPERATING INCOME OTHER INCOME (EXPENSE) Interest: Interest expense on loans .................................................................. Loan procurement amortization expense .......................................... Loan procurement amortization expense - early repayment of debt ............................................................................................... Acquisition related costs ....................................................................... Equity in losses of real estate ventures ................................................. Gain from remeasurement of investment in real estate venture ............ Other ..................................................................................................... Total other expense ........................................................................... LOSS FROM CONTINUING OPERATIONS .................................... DISCONTINUED OPERATIONS Income from discontinued operations ................................................... Gain on disposition of discontinued operations .................................... Total discontinued operations ........................................................... NET INCOME (LOSS) NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS Noncontrolling interest in subsidiaries .................................................. NET INCOME (LOSS) ATTRIBUTABLE TO CUBESMART L.P. Limited Partnership interest of third parties .......................................... NET INCOME (LOSS) ATTRIBUTABLE TO OPERATING PARTNER ........................................................................................... Distribution to Preferred Units .............................................................. NET LOSS ATTRIBUTABLE TO COMMON UNITHOLDERS ..... Basic and diluted loss per unit from continuing operations attributable to common unitholders .............................................................................. Basic and diluted earnings per unit from discontinued operations attributable to common unitholders ...................................................... Basic and diluted loss per unit attributable to common unitholders ......... Weighted-average basic and diluted units outstanding ............................. AMOUNTS ATTRIBUTABLE TO COMMON UNITHOLDERS: Loss from continuing operations ............................................................... Total discontinued operations ................................................................... Net loss ..................................................................................................... $ $ $ $ $ $ $ 250,959 27,776 4,341 283,076 110,821 113,874 26,131 250,826 32,250 (40,715) (3,279) — (3,086) (745) 7,023 256 (40,546) (8,296) 2,113 9,811 11,924 3,628 (1,918) 1,710 107 $ 202,762 20,715 3,768 227,245 94,630 65,955 24,693 185,278 41,967 (33,199) (5,028) (8,167) (3,823) (281) — (83) (50,581) (8,614) 7,158 3,903 11,061 2,447 (2,810) (363) (35) 1,817 (6,008) (4,191) $ (398) (1,218) (1,616) $ (0.13) $ (0.12) $ 0.10 $ (0.03) $ 0.10 $ (0.02) $ 179,748 17,114 2,829 199,691 85,779 58,876 25,406 170,061 29,630 (37,794) (6,463) — (759) — — 386 (44,630) (15,000) 7,155 1,826 8,981 (6,019) (1,755) (7,774) 381 (7,393) — (7,393) (0.17) 0.09 (0.08) 124,548 102,976 93,998 (15,829) $ 11,638 (4,191) $ (12,168) $ 10,552 (1,616) $ (15,907) 8,514 (7,393) See accompanying notes to the consolidated financial statements. F-13 CUBESMART, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) NET INCOME (LOSS) ............................................................................. Other comprehensive (loss) gain: Unrealized loss on interest rate swap ................................................ Unrealized gain (loss) on foreign currency translation ..................... OTHER COMPREHENSIVE LOSS ........................................................ COMPREHENSIVE LOSS ...................................................................... Comprehensive income attributable to noncontrolling interests in the Operating Partnership ....................................................................... Comprehensive loss attributable to noncontrolling interests in 2012 Year Ended December 31, 2011 2010 $ 3,628 $ 2,447 $ (6,019) (7,466) 172 (7,294) (3,666) 445 (12,394) 151 (12,243) (9,796) 503 — (268) (268) (6,287) 394 (1,747) (7,640) subsidiaries ........................................................................................ COMPREHENSIVE LOSS ATTRIBUTABLE TO THE COMPANY ... $ (1,927) (5,148) $ (2,815) (12,108) $ See accompanying notes to the consolidated financial statements. F-14 Balance at December 31, 2009 ..................... Contributions from noncontrolling interests in subsidiaries ........................................... Issuance of common OP units, net .................. Issuance of restricted OP units ........................ Exercise of OP unit options ............................ Conversion from units to shares ..................... Amortization of restricted OP units ................ OP unit compensation expense ....................... Adjustment for Limited Partnership ............... interest of third parties .............................. Net (loss) income ............................................ Other comprehensive loss: .............................. Unrealized loss on foreign currency translation ........................................... Distributions .................................................... Balance at December 31, 2010 ..................... Contributions from noncontrolling interests in subsidiaries ........................................... Issuance of common OP units, net .................. Issuance of preferred OP units, net ................. Issuance of restricted OP units ........................ Exercise of OP unit options ............................ Conversion from units to shares ..................... Amortization of restricted OP units ................ OP unit compensation expense ....................... Net (loss) income ............................................ Adjustment for Limited Partnership ................ interest of third parties .............................. Other comprehensive (loss) gain: ................... Unrealized loss on interest rate swap ........ Unrealized gain on foreign currency translation ........................................... Preferred unit distributions ............................. Common unit distributions ............................. Balance at December 31, 2011 ..................... Contributions from noncontrolling interests in subsidiaries Issuance of common OP units, net .................. Issuance of restricted OP units ........................ Exercise of OP unit options ............................ Conversion from units to shares ..................... Amortization of restricted OP units ................ OP unit compensation expense ....................... Net income (loss) ............................................ Adjustment for Limited Partnership ............... interest of third parties .............................. Acquisition of noncontrolling interest ............ Other comprehensive (loss) gain: ................... Unrealized loss on interest rate swap ........ Unrealized gain on foreign currency translation ........................................... Preferred unit distributions ............................. Common unit distributions ............................. Balance at December 31, 2012 ..................... CUBESMART, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CAPITAL (in thousands) Number of Common OP Units Number of Preferred OP Units Oustanding Oustanding Operating Partner Accumulated Other Comprehensive (Loss) Income Total Cubesmart L.P. Capital Noncontrolling Interest in Subsidiaries Total Capital Operating Partnership interest of third parties 92,655 — $ 696,183 $ (874) $ 695,309 $ 44,021 $ 739,330 $ 45,394 5,610 203 56 73 47,573 2 194 675 1,759 1,882 (1,510) (7,393) 47,573 2 194 675 1,759 1,882 (1,510) (7,393) 15 1,755 15 47,573 2 194 675 1,759 1,882 (1,510) (5,638) 98,597 — $ (14,028) 725,337 $ (247) (1,121) $ (247) (14,028) 724,216 $ (8) (4,591) 41,192 $ (255) (18,619) 765,408 $ 23,140 235 24 63 3,100 122,059 3,100 $ 7,900 246 210 1,380 204,019 74,848 3 121 624 1,677 1,527 (398) (7,082) (1,218) (30,714) 968,744 $ 102,079 2 1,629 19,247 3,352 1,198 1,817 (19,520) (18,452) 1 2,810 204,019 74,848 3 121 624 1,677 1,527 (398) (7,082) (11,849) (11,849) 139 (12,831) $ 139 (1,218) (30,714) 955,913 $ 5 (4,599) 39,409 $ 102,079 2 1,629 19,247 3,352 1,198 1,817 (19,520) (18,452) 1,918 (38,532) 9 (2,686) 118 $ 1 204,019 74,848 3 121 624 1,677 1,527 2,412 (7,082) (11,849) 144 (1,218) (35,313) 995,322 102,079 2 1,629 19,247 3,352 1,198 3,735 (19,520) (56,984) (7,124) 168 (6,008) (47,187) 989,909 $ $ 131,795 3,100 $ (6,008) (44,501) 1,009,587 $ (7,124) (7,124) 159 (19,796) $ 159 (6,008) (44,501) 989,791 $ See accompanying notes to the consolidated financial statements. F-15 (675) 1,510 (381) (13) (690) 45,145 (624) 35 7,082 (545) 7 (1,368) 49,732 (19,247) (107) 19,520 (132) (342) 4 (1,438) 47,990 CUBESMART, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Year Ended December 31, 2011 2010 2012 Operating Activities Net income (loss) ..................................................................................................... Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization ............................................................................. Gain on disposition of discontinued operations ................................................... Gain from remeasurement of investment in real estate venture ........................... Equity compensation expense .............................................................................. Accretion of fair market value adjustment of debt ............................................... Loan procurement amortization expense - early repayment of debt .................... Equity in losses of real estate venture .................................................................. Changes in other operating accounts: Other assets ......................................................................................................... Restricted cash ..................................................................................................... Accounts payable and accrued expenses ............................................................. Other liabilities .................................................................................................... Net cash provided by operating activities ....................................................... Investing Activities ...................................................................................................... Acquisitions, additions and improvements to storage facilities ................................ Cash paid for remaining interest in real estate ventures ........................................... Investment in real estate venture, at equity .............................................................. Distributions from real estate venture ...................................................................... Proceeds from sales of properties, net ...................................................................... Proceeds from notes receivable ................................................................................ Decrease in restricted cash ....................................................................................... Net cash used in investing activities .................................................................... Financing Activities .................................................................................................... Proceeds from: Unsecured senior notes ........................................................................................ Revolving credit facility ...................................................................................... Mortgage loans and notes payable ....................................................................... Unsecured term loans .......................................................................................... Principal payments on: Revolving credit facility ...................................................................................... Unsecured term loans .......................................................................................... Mortgage loans and notes payable ....................................................................... Settlement of hedge transactions .............................................................................. Proceeds from issuance of common OP units, net .................................................... Proceeds from issuance of preferred OP units, net ................................................... Exercise of unit options ............................................................................................ Contributions from noncontrolling interests in subsidiaries ..................................... Acquisition of noncontrolling interest ...................................................................... Distributions paid to common unitholders ............................................................... Distributions paid to preferred unitholders ............................................................... Distributions paid to noncontrolling interest in subsidiaries..................................... Loan procurement costs ........................................................................................... Net cash provided by (used in) financing activities ............................................. (Decrease) increase in cash and cash equivalents ................................................ Cash and cash equivalents at beginning of year ............................................................ Cash and cash equivalents at end of year ...................................................................... Supplemental Cash Flow and Noncash Information Cash paid for interest, net of interest capitalized ...................................................... Supplemental disclosure of noncash activities: Acquisition related contingent consideration ....................................................... Consolidation of real estate venture ..................................................................... Derivative valuation adjustment .......................................................................... Foreign currency translation adjustment .............................................................. Mortgage loan assumption - acquisition of storage facility ................................. $ 3,628 $ 2,447 $ 118,573 (9,811) (7,023) 4,550 (707) — 745 (2,125) 3,545 6,899 154 118,428 (247,413) (81,158) — 909 52,630 — 3,096 (271,936) 249,638 403,000 — 100,000 (358,000) — (236,340) (195) 102,079 — 1,629 — (61,113) (41,209) (5,724) (2,686) (2,145) 148,934 (4,574) 9,069 4,495 33,578 — 13,527 (7,271) 172 107,011 $ $ $ $ $ $ $ $ $ $ 73,702 (3,903) — 3,204 (89) 8,167 281 (585) (853) 2,634 (678) 84,327 (471,188) — (15,462) — 44,460 — 90 (442,100) — 256,700 3,537 400,000 (299,700) (200,000) (39,321) — 204,019 74,848 121 1 — (29,171) — (4,599) (5,484) 360,951 3,178 5,891 9,069 33,265 — — (12,394) 151 21,827 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ See accompanying notes to the consolidated financial statements. F-16 (6,019) 70,850 (1,826) — 3,641 (255) — — (427) 3,889 1,437 227 71,517 (104,441) — — — 37,304 20,112 2,242 (44,783) — 95,000 — — (52,000) — (196,205) — 47,573 — 194 15 — (9,889) — (4,591) (3,708) (123,611) (96,877) 102,768 5,891 38,346 1,777 — — (268) — CUBESMART AND CUBESMART L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND NATURE OF OPERATIONS CubeSmart (the “Parent Company”) operates as a self-managed and self-administered real estate investment trust (“REIT”) with its operations conducted solely through CubeSmart, L.P. and its subsidiaries. CubeSmart, L.P., a Delaware limited partnership (the “Operating Partnership”), operates through an umbrella partnership structure, with the Parent Company, a Maryland REIT, as its sole general partner. Effective September 14, 2011, the Parent Company changed its name from “U-Store-It Trust” to “CubeSmart” and the Operating Partnership changed its name from “U-Store-It, L.P.” to “CubeSmart, L.P.” In the notes to the consolidated financial statements, we use the terms “the Company”, ‘we” or “our” to refer to the Parent Company and the Operating Partnership together, unless the context indicates otherwise. The Company’s self-storage facilities (collectively, the “Properties”) are located in 22 states throughout the United States and the District of Columbia and are presented under one reportable segment: we own, operate, develop, manage and acquire self-storage facilities. As of December 31, 2012, the Parent Company owned approximately 97.6% of the partnership interests (“OP Units”) of the Operating Partnership. The remaining OP Units, consisting exclusively of limited partner interests, are held by persons who contributed their interests in properties to us in exchange for OP Units. Under the partnership agreement, these persons have the right to tender their OP Units for redemption to the Operating Partnership at any time for cash equal to the fair value of an equivalent number of common shares of the Parent Company. In lieu of delivering cash, however, the Parent Company, as the Operating Partnership’s general partner, may, at its option, choose to acquire any OP Units so tendered by issuing common shares in exchange for the tendered OP Units. If the Parent Company so chooses, its common shares will be exchanged for OP Units on a one-for-one basis. This one-for-one exchange ratio is subject to adjustment to prevent dilution. With each such exchange or redemption, the Parent Company’s percentage ownership in the Operating Partnership will increase. In addition, whenever the Parent Company issues common or other classes of its shares, it contributes the net proceeds it receives from the issuance to the Operating Partnership and the Operating Partnership issues to the Parent Company an equal number of OP Units or other partnership interests having preferences and rights that mirror the preferences and rights of the shares issued. This structure is commonly referred to as an umbrella partnership REIT or “UPREIT.” 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying 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 consolidated. 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 on the consolidation of VIEs. When an entity is not deemed to be a VIE, the Company considers the provisions of additional 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 which the limited partners do not have the ability to dissolve or remove the Company without cause nor substantive participating rights. Noncontrolling Interests The FASB issued authoritative guidance regarding noncontrolling interests in consolidated financial statements which was effective on January 1, 2009. The guidance states that noncontrolling interests are the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. The ownership interests in the subsidiary that are held by owners other than the parent are noncontrolling interests. Under the guidance, such noncontrolling interests are reported on the consolidated balance sheets within equity, separately from the Company’s equity. On the consolidated statements of operations, revenues, expenses and net income or loss from less-than-wholly-owned subsidiaries are reported at the consolidated amounts, including both the amounts attributable to the Company and noncontrolling interests. Presentation of consolidated equity activity is included for both quarterly and annual financial statements, including beginning balances, activity for the period and ending balances for shareholders’ equity, noncontrolling interests and total equity. F-17 However, per the FASB issued authoritative guidance on the classification and measurement of redeemable securities, securities that are redeemable for cash or other assets at the option of the holder, not solely within the control of the issuer, must be classified outside of permanent equity. This would result in certain outside ownership interests being included as redeemable noncontrolling interests outside of permanent equity in the consolidated balance sheets. The Company makes this determination based on terms in applicable agreements, specifically in relation to redemption provisions. Additionally, with respect to noncontrolling interests for which the Company has a choice to settle the contract by delivery of its own shares, the Company considered the FASB issued guidance on accounting for derivative financial instruments indexed to, and potentially settled in, a Company’s own stock to evaluate whether the Company controls the actions or events necessary to issue the maximum number of shares that could be required to be delivered under share settlement of the contract. The guidance also requires that noncontrolling interests are adjusted each period so that the carrying value equals the greater of its carrying value based on the accumulation of historical cost or its redemption fair value. The consolidated results of the Company include results attributable to units of the Operating Partnership that are not owned by the Company. These interests were issued in the form of Operating Partnership units and were a component of the consideration the Company paid to acquire certain self-storage facilities. Limited partners who acquired Operating Partnership units have the right to require the Operating Partnership to redeem part or all of their Operating Partnership units for, at the Company’s option, an equivalent number of common shares of the Company or cash based upon the fair value of an equivalent number of common shares of the Company. However, the operating agreement contains certain circumstances that could result in a net cash settlement outside the control of the Company, as the Company does not have the ability to settle in unregistered shares. Accordingly, consistent with the guidance discussed above, the Company will continue to record these noncontrolling interests outside of permanent equity in the consolidated balance sheets. Net income or loss related to these noncontrolling interests is excluded from net income or loss in the consolidated statements of operations. The Company has adjusted the carrying value of its noncontrolling interests subject to redemption value to the extent applicable. Based on the Company’s evaluation of the redemption value of the redeemable noncontrolling interest, the Operating Partnership reflected these interests at their redemption value at December 31, 2012, as the estimated redemption value exceeded their carrying value. The Operating Partnership recorded an increase to OP Units owned by third parties and a corresponding decrease to capital of $19.5 million at December 31, 2012. Disclosure of such redemption provisions is provided in Note 9. Noncontrolling interests are the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. The ownership interests in the subsidiary that are held by owners other than the parent are noncontrolling interests. Noncontrolling interests are reported on the consolidated balance sheets within equity, separately from the Company’s equity. On the consolidated statements of operations, revenues, expenses and net income or loss from less-than-wholly-owned subsidiaries are reported at the consolidated amounts, including both the amounts attributable to the Company and noncontrolling interests. Presentation of consolidated equity activity is included for both quarterly and annual financial statements, including beginning balances, activity for the period and ending balances for shareholders’ equity, noncontrolling interests and total equity. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Although we believe the assumptions and estimates we made are reasonable and appropriate, as discussed in the applicable sections throughout these consolidated financial statements, different assumptions and estimates could materially impact our reported results. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions and changes in market conditions could impact our future operating results. Storage Facilities Storage facilities are carried at historical cost less accumulated depreciation and impairment losses. The cost of storage facilities reflects their purchase price or development cost. Costs incurred for the renovation of a storage facility are capitalized to the Company’s investment in that property. Acquisition costs, ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. Purchase Price Allocation When facilities are acquired, the purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values. When a portfolio of facilities is acquired, the purchase price is allocated to the individual facilities based upon the fair value determined using an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates, which take into account the relative size, age and location of the individual facility along with current and projected occupancy and rental rate levels or appraised values, if available. Allocations to the individual assets and liabilities are based upon comparable market sales information for land, buildings and improvements and estimates of depreciated replacement cost of equipment. F-18 In allocating the purchase price for an acquisition, the Company determines whether the acquisition includes intangible assets or liabilities. The Company allocated a portion of the purchase price to an intangible asset attributed to the value of in-place leases. This intangible is generally amortized to expense over the expected remaining term of the respective leases. Substantially all of the leases in place at acquired facilities 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. To date, no intangible asset has been recorded for the value of tenant relationships, because the Company does not have any concentrations of significant tenants and the average tenant turnover is fairly frequent. Depreciation and Amortization The costs of self-storage facilities and improvements are depreciated using the straight-line method based on useful lives ranging from five to 40 years. Impairment of Long-Lived Assets We evaluate long-lived assets for impairment when events and circumstances such as declines in occupancy and operating results indicate that there may be 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 property’s basis is recoverable. If a property’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. Long-Lived Assets Held for Sale We consider long-lived assets to be “held for sale” upon satisfaction of the following criteria: (a) management commits to a plan to sell a facility (or group of facilities), (b) the facility is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such facilities, (c) an active program to locate a buyer and other actions required to complete the plan to sell the facility have been initiated, (d) the sale of the facility is probable and transfer of the asset is expected to be completed within one year, (e) the facility 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. Properties classified as held for sale are reported at the lesser of carrying value or fair value less estimated costs to sell. Cash and Cash Equivalents Cash and cash equivalents are highly-liquid investments with original maturities of three months or less. The Company may maintain cash equivalents in financial institutions in excess of insured limits, but believes this risk is mitigated by only investing in or through major financial institutions. Restricted Cash Restricted cash consists of purchase deposits and cash deposits required for debt service requirements, capital replacement, and expense reserves in connection with the requirements of our loan agreements. Loan Procurement Costs Loan procurement costs related to borrowings were $11.7 million and $13.0 million at December 31, 2012 and 2011, respectively, and are reported net of accumulated amortization of $3.4 million and $4.9 million as of December 31, 2012 and 2011, respectively. The costs are amortized over the estimated life of the related debt using the effective interest method and reported as loan procurement amortization expense. F-19 Other Assets Other assets is comprised of the following as of December 31, 2012 and 2011 (in thousands): December 31, 2012 2011 Intangible assets, net of accumulated amortization ......... Deposits on future settlements ......................................... Accounts receivable ......................................................... Prepaid insurance ............................................................. Prepaid real estate taxes ................................................... Others .............................................................................. $ $ 21,670 — 10,209 1,805 1,556 6,554 23,185 9,318 3,676 1,397 1,114 4,955 Total ................................................................................. $ 41,794 $ 43,645 Environmental Costs Our practice is to conduct or obtain environmental assessments in connection with the acquisition or development of additional facilities. Whenever the environmental assessment for one of our facilities indicates that a facility is impacted by soil or groundwater contamination from prior owners/operators or other sources, we will work with our environmental consultants and where appropriate, state governmental agencies, to ensure that the facility is either cleaned up, that no cleanup is necessary because the low level of contamination poses no significant risk to public health or the environment, or that the responsibility for cleanup rests with a third party. Revenue Recognition Management has determined that all of our leases are operating leases. Rental income is recognized in accordance with the terms of the leases, which generally are month-to-month. The Company recognizes gains on disposition of properties only upon closing in accordance with the guidance on sales of real estate. Payments received from purchasers prior to closing are recorded as deposits. Profit on real estate sold is recognized using the full accrual method upon closing when the collectability of the sales price is reasonably assured and the Company is not obligated to perform significant activities after the sale. Profit may be deferred in whole or part until the sale meets the requirements of profit recognition on sales under this guidance. Advertising and Marketing Costs The Company incurs advertising and marketing costs primarily attributable to internet marketing campaigns and other media advertisements. The Company incurred $8.1 million, $6.9 million and $6.6 million in advertising and marketing expenses for the years ended 2012, 2011 and 2010, respectively. Equity Offering Costs Underwriting discounts and commissions, financial advisory fees and offering costs are reflected as a reduction to additional paid-in capital. For the year ended December 31, 2012 and 2011, the Company recognized $1.7 million and $0.8 million of equity offering costs related to the issuance of common and preferred shares during the years, respectively. Other Property Related Income Other property related income consists of late fees, administrative charges, tenant insurance commissions, sales of storage supplies and other ancillary revenues and is recognized in the period that it is earned. Capitalized Interest The Company capitalizes interest incurred that is directly associated with construction activities until the asset is placed into service. Interest is capitalized to the related assets using a weighted-average rate of the Company’s outstanding debt. The Company capitalized $0.2 million for the year ended December 31, 2012, and $0.1 million during each of the years ended 2011 and 2010. F-20 Derivative Financial Instruments The Company carries all derivatives on the balance sheet at fair value. The Company determines the fair value of derivatives by observable prices that are based on inputs not quoted on active markets, but corroborated by market data. The accounting for changes in the fair value of a derivative instrument depends on whether the derivative has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. The Company’s use of derivative instruments has been limited to cash flow hedges of certain interest rate risks. Additionally, the Company had interest rate swap agreements for notional principal amounts aggregating $400 million at December 31, 2012, which are included in accounts payable, accrued expenses and other liabilities. Income Taxes The Company elected to be taxed as a real estate investment trust under Sections 856-860 of the Internal Revenue Code beginning with the period from October 21, 2004 (commencement of operations) through December 31, 2004. In management’s opinion, the requirements to maintain these elections are being met. Accordingly, no provision for federal income taxes has been reflected in the consolidated financial statements other than for operations conducted through our taxable REIT subsidiaries. Earnings and profits, which determine the taxability of distributions to shareholders, differ from net income reported for financial reporting purposes due to differences in cost basis, the estimated useful lives used to compute depreciation, and the allocation of net income and loss for financial versus tax reporting purposes. The tax basis in the Company’s assets was $2.3 billion as of December 31, 2012 and $2.0 billion as of December 31, 2011. Distributions to shareholders are usually taxable as ordinary income, although a portion of the distribution may be designated as capital gain or may constitute a non-dividend distribution. Annually, the Company provides each of its shareholders a statement detailing the tax characterization of dividends paid during the preceding year as ordinary income, capital gain or a non-dividend distribution. The characterization of the Company’s dividends for 2012 consisted of an 81.7538% ordinary income distribution, a 14.9075% capital gain distribution, and a 3.3387% non-dividend distribution. Distributions to 7.75% Series A Cumulative Redeemable Preferred Shareholders are usually taxable as ordinary income, although a portion of the distribution may be designated as capital gain or may constitute a non-dividend distribution. Annually, we provide each of our shareholders a statement detailing preferred distributions paid during the preceding year and their characterization as ordinary income, capital gain or non-dividend distribution. The characterization of our preferred dividends for 2012 was as follows: 84.5778% ordinary income distribution and 15.4222% capital gain distribution. The Company is subject to a 4% federal excise tax if sufficient taxable income is not distributed within prescribed time limits. The excise tax equals 4% of the annual amount, if any, by which the sum of (a) 85% of the Company’s ordinary income, (b) 95% of the Company’s net capital gains and c) 100% of prior taxable income exceeds cash distributions and certain taxes paid by the Company. No excise tax was incurred in 2012, 2011, or 2010. Taxable REIT subsidiaries, such as the TRS, are subject to federal and state income taxes. Our taxable REIT subsidiaries have a net deferred tax asset related to expenses which are deductible for tax purposes in future periods of $0.7 million and $0.4 million, respectively, as of December 31, 2012 and 2011. Earnings per Share and Unit Basic earnings per share and unit is calculated based on the weighted average number of common shares and restricted shares outstanding during the period. Diluted earnings per share and unit is calculated by further adjusting for the dilutive impact of share options, unvested restricted shares and contingently issuable shares outstanding during the period using the treasury stock method. Potentially dilutive securities calculated under the treasury stock method of 2,000,000, 1,378,000 and 1,177,000 in 2012, 2011 and 2010, respectively, were not included in the calculation of diluted earnings per share and unit, as they were identified as anti-dilutive. Share Based Payments We apply the fair value method of accounting for contingently issued shares and share options issued under our incentive award plan. Accordingly, share compensation expense is recorded ratably over the vesting period relating to such contingently issued shares and options. The Company has recognized compensation expense on a straight-line method over the requisite service period. F-21 Foreign Currency The financial statements of foreign subsidiaries are translated to U.S. Dollars using the period-end exchange rate for assets and liabilities and an average exchange rate for each period for revenues, expenses, and capital expenditures. The local currency is the functional currency for the Company’s foreign subsidiaries. Translation adjustments for foreign subsidiaries are recorded as a component of accumulated other comprehensive loss in shareholders’ equity. The Company recognizes transaction gains and losses arising from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency in earnings as incurred. The Pound, which represents the functional currency used by USIFB, LLP, our joint venture in England, was translated at an end-of-period exchange rate of approximately 1.625924 and 1.54902 U.S. Dollars per Pound at December 31, 2012 and December 31, 2011, respectively, and an average exchange rate of 1.585074 and 1.60377 U.S. Dollars per Pound for the years ended December 31, 2012 and December 31, 2011, respectively. Accordingly, the Company recorded unrealized gains of $0.2 million on foreign currency translation for the years ended December 31, 2012 and 2011, respectively. Investments in Unconsolidated Real Estate Ventures The Company accounts for its investments in unconsolidated Real Estate Ventures under the equity method of accounting. Under the equity method, investments in unconsolidated joint ventures are recorded initially at cost, as Investments in Real Estate Ventures, and subsequently adjusted for equity in earnings (losses), cash contributions, less distributions. On a periodic basis, management also assesses whether there are any indicators that the value of the Company’s investments in unconsolidated Real Estate Ventures 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. To the extent impairment has occurred, the loss shall 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 impairment exists 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. Recent Accounting Pronouncements In June 2011, the Financial Accounting Standards Board (FASB) issued an amendment to the accounting standard for the presentation of comprehensive income. The amendment requires entities to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In addition, the amendment requires entities to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. This amendment is effective for fiscal years and interim periods beginning after December 15, 2011. The Company’s adoption of the new standard on January 1, 2012 did not have a material impact on its consolidated financial position or results of operations as the amendment related only to changes in financial statement presentation. In May 2011, the FASB issued an update to the accounting standard for measuring and disclosing fair value. The update modifies the wording used to describe the requirements for fair value measuring and for disclosing information about fair value measurements to improve consistency between U.S. GAAP and International Financial Reporting Standards (“IFRS”). This update is effective for the annual and interim periods beginning after December 15, 2011. The adoption of this guidance in 2012 did not have a material impact on our consolidated financial position or results of operations as its impact was limited to disclosure requirements. Concentration of Credit Risk The storage facilities are located in major metropolitan and rural areas and have numerous tenants per facility. No single tenant represents a significant concentration of our revenues. The facilities in New York, Florida, California, and Texas provided total revenues of approximately 16%, 15%, 10% and 10%, respectively, for the year ended December 31, 2012. The facilities in Florida, California, Texas and Illinois provided total revenues of approximately 17%, 12%, 10% and 7%, respectively, for the year ended December 31, 2011. F-22 3. STORAGE FACILITIES The following summarizes the real estate assets of the Company as of December 31, 2012 and December 31, 2011: December 31, 2012 December 31, 2011 (in thousands) Land ................................................... Buildings and improvements .............. Equipment .......................................... Construction in progress ..................... Total ............................................... Less accumulated depreciation .......... Storage facilities — net ...................... $ $ 462,626 1,828,388 143,836 8,172 2,443,022 (353,315) 2,089,707 $ $ 417,067 1,574,769 110,371 5,262 2,107,469 (318,749) 1,788,720 F-23 The Company completed the following acquisitions, dispositions and consolidations for the years ended December 31, 2012, 2011 and 2010: Facility/Portfolio 2012 Acquisitions: Houston Asset ............................... Dunwoody Asset ........................... Mansfield Asset ............................ Texas Assets ................................. Allen Asset ................................... Norwalk Asset .............................. Storage Deluxe Assets .................. Eisenhower Asset .......................... New Jersey Assets ........................ Georgia/ Florida Assets ................ Peachtree Asset ............................. HSREV Assets .............................. Leetsdale Asset ............................. Orlando/ West Palm Beach Assets Exton/ Cherry Hill Assets ............. Carrollton Asset ............................ 2012 Dispositions: Michigan Assets............................ Gulf Coast Assets ......................... New Mexico Assets (b) ................. San Bernardino Asset .................... Florida/ Tennessee Assets ............. Ohio Assets ................................... 2011 Acquisitions: Burke Lake Asset .......................... West Dixie Asset .......................... White Plains Asset ........................ Phoenix Asset ............................... Houston Asset ............................... Duluth Asset ................................. Atlanta Assets ............................... District Heights Asset ................... Storage Deluxe Assets .................. Leesburg Asset ............................. Washington, DC Asset .................. 2011 Dispositions: Flagship Assets ............................. Portage Asset ................................ 2010 Acquisitions: Frisco Asset .................................. New York City Assets .................. Northeast Assets ........................... Manassas Asset ............................. Apopka Asset ................................ Wyckoff Asset .............................. McLearen Asset ............................ 2010 Dispositions: Sun City Asset .............................. Inland Empire/Fayetteville Assets Location Transaction Date Number of Facilities Purchase / Sales Price (in thousands) Houston, TX Dunwoody, GA Mansfield, TX Multiple locations in TX Allen, TX Norwalk, CT Multiple locations in NY and CT Alexandria, VA Multiple locations in NJ Multiple locations in GA and FL Peachtree City, GA February 2012 February 2012 June 2012 July 2012 July 2012 July 2012 February/ April/ August 2012 August 2012 August 2012 August 2012 August 2012 Multiple locations in PA, NY, NJ, VA and FL September 2012 September 2012 November 2012 December 2012 December 2012 Denver, CO Multiple locations in FL Multiple locations in NJ and PA Carrollton, TX Multiple locations in MI Multiple locations in LA, AL and MS Multiple locations in NM San Bernardino, CA Multiple locations in FL and TN Multiple locations in OH June 2012 June 2012 August 2012 August 2012 November 2012 November 2012 Fairfax Station, VA Miami, FL White Plains, NY Phoenix, AZ Houston, TX Duluth, GA Atlanta, GA District Heights, MD Multiple locations in NY, CT and PA Leesburg, VA Washington, DC January 2011 April 2011 May 2011 May 2011 June 2011 July 2011 July 2011 August 2011 November 2011 November 2011 December 2011 Multiple locations in IN and OH Portage, MI August 2011 November 2011 Frisco, TX New York, NY Multiple locations in NJ, NY and MA Manassas, VA Orlando, FL Queens, NY McLearen, VA July 2010 September 2010 November 2010 November 2010 November 2010 December 2010 December 2010 Sun City, CA Multiple locations in CA and NC October 2010 December 2010 F-24 1 1 1 4 1 1 6 1 2 3 1 9 1 2 2 1 37 3 5 6 1 3 8 26 1 1 1 1 1 1 2 1 16 1 1 27 18 1 19 1 2 5 1 1 1 1 12 1 15 16 $ $ $ $ $ $ $ $ $ $ $ $ 5,100 6,900 4,970 18,150 5,130 5,000 201,910 19,750 10,750 13,370 3,100 102,000(a) 10,600 13,010 7,800 4,800 432,340 6,362 16,800 7,500 5,000 6,550 17,750 59,962 14,000 13,500 23,000 612 7,600 2,500 6,975 10,400 357,310 13,000 18,250 467,147 43,500 1,700 45,200 5,800 26,700 18,560 6,050 4,235 13,600 10,200 85,145 3,100 35,000 38,100 (a) Purchase price listed represents the fair value of the assets at acquisition. (b) The Company issued financing in the amount of $5.3 million to the buyer in conjunction with the New Mexico Assets disposition. 4. ACQUISITIONS Storage Deluxe Acquisition During 2012, as part of the $560 million Storage Deluxe transaction involving 22 Class A self-storage facilities located primarily in the greater New York City area, the Company acquired the final six properties with a purchase price of approximately $201.9 million. The six properties purchased are located in New York and Connecticut. In connection with the acquisitions, the Company allocated a portion of the purchase price to the intangible value of in-place leases which aggregated $12.3 million. The estimated life of these in- place leases is 12 months and the amortization expense that was recognized during 2012 was approximately $7.9 million. In connection with the six acquired facilities, the Company assumed mortgage debt, and recorded the debt at a fair value of $93.1 million, which includes an outstanding principal balance totaling $88.9 million and a net premium of $4.2 million in addition to the face value of the assumed debt to reflect the fair values of the debt at the time of assumption. On November 3, 2011, the Company acquired 16 properties from Storage Deluxe for a purchase price of approximately $357.3 million. The 16 properties purchased are located in New York, Connecticut and Pennsylvania. In connection with this acquisition, the Company allocated a portion of the purchase price to the intangible value of in-place leases which aggregated $18.1 million. The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during 2012 was approximately $15.1 million. Other 2012 Acquisitions On September 28, 2012, the Company purchased, from its joint venture partner, the remaining 50% ownership in HSREV. See note 5 — “Investment in Unconsolidated Real Estate Ventures” for additional discussion of this acquisition. During 2012, the Company acquired an additional 22 self-storage facilities located throughout the United States for an aggregate purchase price of approximately $128.4 million. In connection with these acquisitions, the Company allocated a portion of the purchase price to the intangible value of in-place leases which aggregated $13.2 million. The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during 2012 was approximately $4.8 million. In connection with two of the acquired facilities, the Company assumed mortgage debt, and recorded the debt at a fair value of $13.9 million, which includes an outstanding principal balance totaling $13.4 million and a net premium of $0.5 million in addition to the face value of the assumed debt to reflect the fair values of the debt at the time of assumption. Other 2011 Acquisitions During 2011, the Company acquired 11 self-storage facilities, in addition to the aforementioned Storage Deluxe Acquisition, located throughout the United States for an aggregate purchase price of approximately $109.8 million. In connection with these acquisitions, the Company allocated a portion of the purchase price to the intangible value of in-place leases which aggregated $7.0 million. The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during 2012 was approximately $4.2 million. In connection with three of the acquisitions, the Company assumed mortgage debt, and recorded the debt at a fair value of $21.8 million, which included an outstanding principal balance totaling $21.4 million and a net premium of $0.4 million in addition to the face value of the assumed debt to reflect the fair values of the debt at the time of assumption. 5. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES On September 26, 2011, the Company contributed $15.4 million in cash for a 50% interest in HSREV, a partnership that owned nine storage facilities in Pennsylvania, Virginia, New York, New Jersey and Florida. The other partner held the remaining 50% interest in the partnership. HSREV was not consolidated because the Company was not the primary beneficiary, the limited partners had the ability to dissolve or remove the Company without cause and the Company did not possess substantive participating rights. The Company accounts for its unconsolidated interests in its Real Estate Ventures using the equity method. The Company’s investment in HSREV was included in Investment in real estate ventures, at equity on the Company’s consolidated balance sheet and earnings attributable to HSREV were presented in Equity in losses of real estate ventures on the Company’s consolidated statements of operations. F-25 As noted in Note 4 — “Acquisitions,” on September 28, 2012, the Company purchased the remaining 50% ownership in HSREV, for cash of $21.7 million. In addition, upon taking control of these assets, the Company repaid $59.3 million of mortgage loans related to the properties. Following the acquisition, the Company wholly owns the nine storage facilities which are unencumbered and have a fair value of $102 million. In connection with this acquisition, the Company allocated a portion of the fair value to the intangible value of in-place leases which aggregated $8.3 million. The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during 2012 was approximately $2.1 million. As described above, the Company previously accounted for its investment in HSREV using the equity method. As a result of this transaction, the Company obtained control of HSREV. The Company’s original 50% interest was remeasured and as a result, during 2012, the Company recorded a gain of approximately $7.0 million, which is reflected in Gain on remeasurement of investment in real estate venture on the accompanying statements of operations. The amounts reflected in the following tables are based on the historical financial information of the real estate venture. The following is a summary of the financial position of the real estate venture as of December 31, 2011 (in thousands): December 31, 2011 Assets Net property ........................................................... Other assets ............................................................ Total Assets .................................................... Liabilities and equity Other liabilities ....................................................... Debt (a) .................................................................. Equity: CubeSmart (b) .................................................... Joint venture partner ........................................... Total Liabilities and equity ............................ $ $ $ $ 78,677 2,242 80,919 867 60,083 9,984 9,985 80,919 (a) The real estate venture’s debt was due to mature on July 31, 2014, with interest payable at 6%. HSREV’s creditors had no recourse to the general credit of the Company. (b) The difference between the Company’s share of the net assets of the unconsolidated real estate ventures and the Company’s investment in real estate ventures per the accompanying consolidated balance sheets relates primarily to purchase price adjustments that are recorded by the Company on its financial statements in accordance with GAAP, but are not reflected in the above summary of the financial position of the real estate venture. The following is a summary of results of operations of the real estate venture for the years ended December 31, 2012 and 2011 (in thousands). Year ended December 31, 2011 2012 Revenue ............................................................. Operating expenses ........................................... Interest expense, net .......................................... Depreciation and amortization .......................... Net loss .............................................................. Company’s share of loss ................................... $ $ 7,229 3,010 2,690 2,691 (1,162) (745) 9,354 3,879 3,969 4,115 (2,609) (281) The results of operations above include the periods from September 26, 2011(date of acquisition) through December 31, 2011, and January 1, 2012 through September 28, 2012 (date of disposition), the date of the Company’s acquisition of the remaining 50% interest. F-26 6. UNSECURED SENIOR NOTES On June 26, 2012, the Operating Partnership issued $250 million in aggregate principal amount of unsecured senior notes due July 15, 2022 (the “senior notes”) which bear interest at a rate of 4.80%. The senior notes had an effective interest rate of 4.82% at December 31, 2012. The indenture under which the unsecured senior notes were issued restricts the ability of the Operating Partnership and its subsidiaries to incur debt unless the Operating Partnership and its consolidated subsidiaries comply with a leverage ratio not to exceed 60% and an interest coverage ratio of less than 1.5:1 after giving effect to the incurrence of the debt. The indenture also restricts the ability of the Operating Partnership and its subsidiaries to incur secured debt unless the Operating 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 the Operating Partnership and its consolidated subsidiaries. The Operating Partnership is currently in compliance with all of the financial covenants under the senior notes. 7. REVOLVING CREDIT FACILITY AND UNSECURED TERM LOANS On September 29, 2010, the Company amended the Prior Facility. The Prior Facility, as amended, consisted of a $200 million unsecured term loan and a $250 million unsecured revolving credit facility and had an outstanding balance of $43 million as of December 31, 2010. As amended, the Prior Facility had a three-year term expiring on December 7, 2013, was unsecured, and borrowings on the facility incurred interest on a borrowing spread determined by our leverage levels plus LIBOR. On June 20, 2011, the Company entered into an unsecured Term Loan Agreement (the “Term Loan Facility”) which consisted of a $100 million term loan with a five-year maturity and a $100 million term loan with a seven-year maturity. The Term Loan Facility permits the Company to request additional advances of five-year or seven-year loans in minimum increments of $5 million provided that the aggregate of such additional advances does not exceed $50 million. The Company incurred costs of $2.1 million in connection with executing the agreement and capitalized such costs as a component of loan procurement costs, net of amortization on the consolidated balance sheet. Initially, pricing on the Term Loan Facility ranged, depending on the Company’s leverage levels, from 1.90% to 2.75% over LIBOR for the five-year loan, and from 2.05% to 2.85% over LIBOR for the seven-year loan, and each loan has no LIBOR floor. As of December 31, 2011, the Company had received two investment grade ratings, and therefore pricing on the Term Loan Facility now ranges from 1.45% to 2.10% over LIBOR for the five-year loan and from 1.60% to 2.25% over LIBOR for the seven-year loan. On December 9, 2011, the Company entered into a new credit facility comprised of a $100 million unsecured term loan maturing in December 2014; a $200 million unsecured term loan maturing in March 2017; and a $300 million unsecured revolving facility maturing in December 2015 (the “Credit Facility”). The Credit Facility replaced in its entirety the Prior Facility. Pricing on the Credit Facility depends on the Company’s unsecured debt credit rating. At our current Baa3/BBB- level, amounts drawn under the revolving facility are priced at 1.48% over LIBOR, with no LIBOR floor. Amounts drawn under the term loan portion of the Credit Facility are priced at 1.75% over LIBOR, with no LIBOR floor. As of December 31, 2012, $200 million of unsecured term loan borrowings were outstanding under the Term Loan Facility, $300 million of unsecured term loans and $45 million of unsecured revolving loan borrowings were outstanding under the Credit Facility, and $254.8 million was available for borrowing on the unsecured revolving portion of the Credit Facility. The Company had interest rate swaps as of December 31, 2012, that fix LIBOR on $200 million of borrowings under the Credit Facility maturing in March 2017 at 1.34%. In addition, at December 31, 2012, the Company had interest rate swaps that fix LIBOR on both the five and seven-year term loans under the Term Loan Facility through their respective maturity dates. The interest rate swap agreements fix thirty day LIBOR over the terms of the five and seven-year term loans at 1.80% and 2.47%, respectively. As of December 31, 2012, borrowings under the Credit Facility and Term Loan Facility had an effective weighted average interest rate of 3.15%. The Term Loan Facility and the term loans under the Credit Facility were fully drawn at December 31, 2012, and no further borrowings may be made under those term loans. The Company’s ability to borrow under the revolving portion of the Credit Facility is subject to ongoing compliance with certain financial covenants which include:    Maximum total indebtedness to total asset value of 60.0% at any time; Minimum fixed charge coverage ratio of 1.50:1.00; and Minimum tangible net worth of $821,211,200 plus 75% of net proceeds from equity issuances after June 30, 2010. F-27 Further, under the Credit Facility and Term Loan Facility, the Company is restricted from paying distributions on our common shares that would exceed an amount equal to the greater of (i) 95% of our funds from operations, and (ii) such amount as may be necessary to maintain the Parent Company’s REIT status. The Company is currently in compliance with all of its financial covenants and anticipates being in compliance with all of its financial covenants through the terms of the Credit Facility and Term Loan Facility. 8. MORTGAGE LOANS AND NOTES PAYABLE The Company’s mortgage loans and notes payable are summarized as follows: Mortgage Loan YSI 53 ...................................................................................... YSI 6 ........................................................................................ YASKY .................................................................................... YSI 14 ...................................................................................... YSI 7 ........................................................................................ YSI 8 ........................................................................................ YSI 9 ........................................................................................ YSI 17 ...................................................................................... YSI 27 ...................................................................................... YSI 30 ...................................................................................... USIFB ...................................................................................... YSI 11 ...................................................................................... YSI 5 ........................................................................................ YSI 28 ...................................................................................... YSI 37 ...................................................................................... YSI 44 ...................................................................................... YSI 41 ...................................................................................... YSI 45 ...................................................................................... YSI 48 ...................................................................................... YSI 50 ..................................................................................... YSI 10 ...................................................................................... YSI 15 ...................................................................................... YSI 52 ...................................................................................... YSI 58 ...................................................................................... YSI 29 ...................................................................................... YSI 20 ...................................................................................... YSI 59 ...................................................................................... YSI 60 ...................................................................................... YSI 51 ...................................................................................... YSI 31 ...................................................................................... YSI 35 ...................................................................................... YSI 32 ...................................................................................... YSI 33 ...................................................................................... YSI 39 ...................................................................................... YSI 47 ...................................................................................... YSI 26 ...................................................................................... YSI 57 ...................................................................................... YSI 55 ...................................................................................... YSI 24 ...................................................................................... Unamortized fair value adjustment .......................................... Carrying Value as of: December 31, December 31, 2012 2011 (in thousands) Effective Interest Rate Maturity Date $ $ — — — — 2,962 1,692 1,862 3,846 461 6,765 7,221 2,276 3,001 1,460 — — — — — — 3,928 1,784 4,721 8,974 13,060 58,524 9,603 3,725 7,325 — 4,373 — 10,930 — — 9,102 3,195 24,502 29,141 4,326 9,100 74,834 80,000 1,703 3,032 1,733 1,906 3,987 481 7,049 7,125 2,350 3,100 1,509 2,174 1,070 3,775 5,353 24,870 2,260 4,011 1,832 4,884 — — 60,551 — — 7,423 13,414 4,464 5,950 11,157 3,867 3,091 — — — — 386 5.93% 5.13% 4.96% 5.97% 6.50% 6.50% 6.50% 6.32% 5.59% 5.59% 3.49% 5.87% 5.25% 5.59% 7.25% 7.00% 6.60% 6.75% 7.25% 6.75% 5.87% 6.41% 5.44% 2.97% 3.69% 5.97% 4.82% 5.04% 6.36% 6.75% 6.90% 6.75% 6.42% 6.50% 6.63% 4.56% 4.61% 4.85% 4.64% Jul-12 Aug-12 Sep-12 Jan-13 Jun-13 Jun-13 Jun-13 Jul-13 Nov-13 Nov-13 Dec-13 Jan-14 Jan-14 Mar-14 Aug-14 Sep-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Jan-15 Jan-15 Jan-15 Aug-15 Nov-15 Mar-16 Aug-16 Oct-16 Jun-19(a) Jul-19(a) Jul-19(a) Jul-19 Sep-19(a) Jan-20(a) Nov-20 Nov-20 Jun-21 Jun-21 Total mortgage loans and notes payable .................................. $ 228,759 $ 358,441 F-28 (a) These borrowings have a fixed interest rate for the first five years of their term, which then resets and remains constant over the final five years of the loan term. As of December 31, 2012 and 2011, the Company’s mortgage loans payable were secured by certain of its self-storage facilities with net book values of approximately $440 million and $514 million, respectively. The following table represents the future principal payment requirements on the outstanding mortgage loans and notes payable at December 31, 2012 (in thousands): 2013 ................................................................................... 2014 ................................................................................... 2015 ................................................................................... 2016 ................................................................................... 2017 ................................................................................... 2018 and thereafter ........................................................... Total mortgage payments .................................................. Plus: Unamortized fair value adjustment ........................... Total mortgage indebtedness ............................................ $ $ 30,136 12,149 86,689 21,261 1,863 72,335 224,433 4,326 228,759 The Company currently intends to fund its 2013 principal payment requirements from cash provided by operating activities, new debt originations, and/or additional borrowings under our unsecured 2011 Credit Facility ($254.8 million available as of December 31, 2012). 9. NONCONTROLLING INTERESTS Variable Interests in Consolidated Real Estate Joint Ventures On August 13, 2009, the Company, through a wholly-owned affiliate, formed a joint venture (“HART”) with an affiliate of Heitman, LLC (“Heitman”) to own and operate 22 self-storage facilities, which are located throughout the United States. Upon formation, Heitman contributed approximately $51 million of cash to a newly-formed limited partnership and the Company contributed certain unencumbered wholly-owned properties with an agreed upon value of approximately $102 million to such limited partnership. In exchange for its contribution of those properties, the Company received a cash distribution from HART of approximately $51 million and retained a 50% interest in HART. The Company was the managing partner of HART and managed the properties owned by HART in exchange for a market rate management fee. The Company determined that HART was a variable interest entity, and that the Company was the primary beneficiary. Accordingly, the Company consolidated the assets, liabilities and results of operations of HART. The 50% interest that was owned by Heitman was reflected as noncontrolling interest in subsidiaries within permanent equity, separate from the Company’s equity on the consolidated balance sheets. On August 13, 2012, the Company purchased the remaining 50% interest in HART from Heitman for $61.1 million, and now owns 100% of HART. Accordingly, the Company wholly owns the properties which are unencumbered by any property-level secured debt. The Company previously consolidated HART, and therefore the acquisition of the remaining 50% interest is reflected in the equity section of the accompanying consolidated balance sheets. As a result of the transaction, the Company eliminated noncontrolling interest in subsidiaries of $38.7 million and recorded a reduction to additional paid in capital of $18.5 million. USIFB, LLP (“the Venture”) was formed to own, operate, acquire and develop self-storage facilities in England. The Company owns a 97% interest in the Venture through a wholly-owned subsidiary and the Venture commenced operations at two facilities in London, England during 2008. The Company determined that the Venture is a variable interest entity, and that the Company is the primary beneficiary. Accordingly, the Company consolidates the assets, liabilities and results of operations of the Venture. At December 31, 2012, the Venture had total assets of $11.8 million and total liabilities of $7.9 million, including two mortgage loans totaling $7.2 million secured by storage facilities with a net book value of $11.6 million. At December 31, 2012, the Venture’s creditors had no recourse to the general credit of the Company. Operating Partnership Ownership The Company follows guidance regarding the classification and measurement of redeemable securities. Under this guidance, securities that are redeemable for cash or other assets, at the option of the holder and not solely within the control of the issuer, must be classified outside of permanent equity/capital. This classification results in certain outside ownership interests being included as redeemable noncontrolling interests outside of permanent equity/capital in the consolidated balance sheets. The Company makes this determination based on terms in applicable agreements, specifically in relation to redemption provisions. F-29 Additionally, with respect to redeemable ownership interests in the Limited Partnership held by third parties for which CubeSmart has a choice to settle the redemption by delivery of its own shares, the Operating Partnership considered the guidance regarding accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own shares, to evaluate whether CubeSmart controls the actions or events necessary to presume share settlement. The guidance also requires that noncontrolling interests classified outside of permanent capital be adjusted each period to the greater of the carrying value based on the accumulation of historical cost or the redemption value. Approximately 2.4% of the outstanding OP Units as of December 31, 2012 and 3.7% of the outstanding OP Units as of December 31, 2011 were not owned by the general partner. The interests in the Operating Partnership represented by these OP Units were a component of the consideration that the Operating Partnership paid to acquire certain self-storage facilities. The holders of the OP Units are limited partners in the Operating Partnership and have the right to require CubeSmart to redeem all or part of their OP Units for, at the general partner’s option, an equivalent number of common shares of CubeSmart or cash based upon the fair value of an equivalent number of common shares of CubeSmart. However, the partnership agreement contains certain provisions that could result in a settlement outside the control of CubeSmart and the Operating Partnership, as CubeSmart does not have the ability to settle in unregistered shares. Accordingly, consistent with the guidance, the Operating Partnership will record the OP Units owned by third parties outside of permanent capital in the consolidated balance sheets. Net income or loss related to the OP Units owned by third parties is excluded from net income or loss attributable to Operating Partner in the consolidated statements of operations. The per Unit cash redemption amount would equal the average of the closing prices of the common shares of CubeSmart on the New York Stock Exchange for the 10 trading days ending prior to CubeSmart’s receipt of the redemption notice for the applicable Unit. At December 31, 2012 and 2011, 3,293,730 and 4,674,136 OP units, respectively, were outstanding and the calculated aggregate redemption value of outstanding OP units was based upon CubeSmart’s average closing share prices. Based on the Company’s evaluation of the redemption value of the redeemable noncontrolling interest, the Company has reflected these interests at their redemption value at December 31, 2012 and 2011, as the estimated redemption value exceeded their carrying value. The Operating Partnership recorded an increase to OP Units owned by third parties and a corresponding decrease to capital of $19.5 million and $7.1 million at December 31, 2012 and 2011, respectively. 10. RELATED PARTY TRANSACTIONS Corporate Office Leases Subsequent to its entry into lease agreements with related parties for office space, the Operating Partnership entered into sublease agreements with various unrelated tenants for the related office space. Each of these properties are part of Airport Executive Park, a 50-acre office and flex development located in Cleveland, Ohio, which is owned by former executives. Our independent Trustees approved the terms of, and entry into, each of the office lease agreements by the Operating Partnership. The table below shows the office space subject to these lease agreements and certain key provisions, including the term of each lease agreement, the period for which the Operating Partnership may extend the term of each lease agreement, and the minimum and maximum rents payable per month during the term. Office Space The Parkview Building — 6745 Engle Road; and 6751 Engle Road................ 6745 Engle Road — Suite 100 ............... 6745 Engle Road — Suite 110 ............... 6751 Engle Road — Suites C and D ....... Approximate Square Footage Maturity Date Period of Extension Option (1) Fixed Minimum Rent Per Month Fixed Maximum Rent Per Month 21,900 12/31/2014 Five-year 2,212 12/31/2014 Five-year 1,731 12/31/2014 Five-year 3,000 12/31/2014 Five-year $ $ $ $ 25,673 $ 3,051 $ 2,387 $ 3,137 $ 31,205 3,709 2,901 3,771 (1) Our Operating Partnership may extend the lease agreement beyond the termination date by the period set forth in this column at prevailing market rates upon the same terms and conditions contained in each of the lease agreements. In addition to monthly rent, the office lease agreements provide that our Operating Partnership reimburse for certain maintenance and improvements to the leased office space. The total amounts of lease payments incurred under the six office leases during the years ended December 31, 2012 and December 31, 2011 were approximately $0.5 million. F-30 Total future minimum rental payments due in accordance with the related party lease agreements and total future cash receipts due from our subtenants as of December 31, 2012 are as follows: 2013 .......................................... 2014 .......................................... $ $ Due to Related Party Amount Due from Subtenant Amount (in thousands) 499 499 998 $ $ 314 315 629 11. DISCONTINUED OPERATIONS For the years ended December 31, 2012, 2011 and 2010, discontinued operations relates to 26 properties that the Company sold during 2012, 19 properties that the Company sold during 2011, and 16 properties that the Company sold during 2010. Each of the sales during 2012, 2011 and 2010 resulted in the recognition of a gain, which in the aggregate totaled $9.8 million, $3.9 million, and $1.8 million, respectively. The following table summarizes the revenue and expense information for the period the Company owned the properties classified as discontinued operations during the years ended December 31, 2012, 2011 and 2010 (in thousands): REVENUES Rental income .............................................................. Other property related income ..................................... Total revenues .......................................................... OPERATING EXPENSES Property operating expenses ........................................ Depreciation and amortization ..................................... Total operating expenses ......................................... OPERATING INCOME ............................................... Income from discontinued operations .......................... Gain on disposition of discontinued operations ........... Income from discontinued operations ...................... $ $ 12. COMMITMENTS AND CONTINGENCIES 2012 For the year ended December 31, 2011 2010 $ 6,278 748 7,026 3,409 1,504 4,913 2,113 2,113 9,811 11,924 $ 13,445 3,410 16,855 6,570 3,127 9,697 7,158 7,158 3,903 11,061 $ $ 21,316 2,117 23,433 10,498 5,780 16,278 7,155 7,155 1,826 8,981 The Company currently owns five self-storage facilities subject to ground leases and four other self-storage facilities having only parcels of land that are subject to ground leases. The Company recorded ground rent expense of approximately $1.2 million, $0.3 million, and $0.2 million for the years ended December 31, 2012, 2011 and 2010, respectively. Total future minimum rental payments under non-cancelable ground leases are as follows: 2013 ...................................................... 2014 ...................................................... 2015 ...................................................... 2016 ...................................................... 2017 ...................................................... 2018 and thereafter ............................... Ground Lease Amount (in thousands) $ $ 1,206 1,192 1,191 1,182 1,192 55,970 61,933 The Company has a development agreement for the construction of a new corporate office headquarters and storage facility which will require payments of approximately $13.5 million, due in installments upon completion of certain construction milestones, during 2013. F-31 The Company has been named as a defendant in lawsuits in the ordinary course of business. In most instances, these claims are covered by the Company’s liability insurance coverage. Management believes that the ultimate settlement of the suits will not have a material adverse effect on the Company’s financial statements. 13. RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS The Company’s use of derivative instruments is limited to the utilization of interest rate agreements or other instruments to manage interest rate risk exposures and not for speculative purposes. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure, as well as to hedge specific transactions. The counterparties to these arrangements are major financial institutions with which the Company and its subsidiaries may also have other financial relationships. The Company is potentially exposed to credit loss in the event of non-performance by these counterparties. However, because of the high credit ratings of the counterparties, the Company does not anticipate that any of the counterparties will fail to meet these obligations as they come due. The Company does not hedge credit or property value market risks. The Company has entered into interest rate swap agreements that qualify and are designated as cash flow hedges designed to reduce the impact of interest rate changes on its variable rate debt. Therefore, the interest rate swaps are recorded in the consolidated balance sheet at fair value and the related gains or losses are deferred in shareholders’ equity as Accumulated Other Comprehensive Loss. These deferred gains and losses are amortized into interest expense during the period or periods in which the related interest payments affect earnings. However, to the extent that the interest rate swaps are not perfectly effective in offsetting the change in value of the interest payments being hedged, the ineffective portion of these contracts is recognized in earnings immediately. The Company formally assesses, both at inception of a hedge and on an on-going basis, whether each derivative is highly-effective in offsetting changes in cash flows of the hedged item. If management determines that a derivative is highly-effective as a hedge, then the Company accounts for the derivative using hedge accounting, pursuant to which gains or losses inherent in the derivative do not impact the Company’s results of operations. If management determines that a derivative is not highly-effective as a hedge or if a derivative ceases to be a highly-effective hedge, the Company will discontinue hedge accounting prospectively and will reflect in its statement of operations realized and unrealized gains and losses in respect of the derivative. The following table summarizes the terms and fair values of the Company’s derivative financial instruments at December 31, 2012 and December 31, 2011, respectively (dollars in thousands): Hedge Product Hedge Type Notional Amount Strike Effective Date Maturity 2012 2011 Year Ended December 31, Swap Swap Swap Swap Swap Swap Swap Swap Swap Swap Cash flow Cash flow Cash flow Cash flow Cash flow Cash flow Cash flow Cash flow Cash flow Cash flow (a) $ (a) $ (a) $ (a) $ (a) $ (a) $ (a) $ (a) $ (a) $ (a) $ $ 40,000 40,000 20,000 75,000 50,000 50,000 25,000 40,000 40,000 20,000 400,000 1.8025% 6/20/2011 1.8025% 6/20/2011 1.8025% 6/20/2011 1.3360% 12/30/2011 1.3360% 12/30/2011 1.3360% 12/30/2011 1.3375% 12/30/2011 2.4590% 6/20/2011 2.4725% 6/20/2011 2.4750% 6/20/2011 6/20/2016 $ 6/20/2016 6/20/2016 3/31/2017 3/31/2017 3/31/2017 3/31/2017 6/20/2018 6/20/2018 6/20/2018 $ (1,873) $ (1,875) (937) (2,378) (1,583) (1,583) (799) (3,433) (3,470) (1,734) (19,665) $ (1,494) (1,502) (727) (907) (484) (485) (319) (2,553) (2,628) (1,295) (12,394) (a) Hedging unsecured variable rate debt by fixing 30-day LIBOR. The Company measures its derivative instruments at fair value and records them in the balance sheet as either an asset or liability. As of December 31, 2012 and 2011, all derivative instruments were included in accounts payable, accrued expenses and other liabilities in the accompanying consolidated balance sheets. The effective portions of changes in the fair value of the derivatives are reported in accumulated other comprehensive income (loss). Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The change in unrealized loss on interest rate swap reflects a reclassification of $6.0 million of unrealized losses from accumulated other comprehensive loss as an increase to interest expense during 2012. During 2013, the Company estimates that an additional $6.1 million will be reclassified as an increase to interest expense. F-32 14. FAIR VALUE MEASUREMENTS The Company applies the methods of fair value as described in authoritative guidance, to value its financial assets and liabilities. As defined in the guidance, fair value is based on the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible, as well as considering counterparty credit risk in its assessment of fair value. Financial assets and liabilities carried at fair value as of December 31, 2012 are classified in the table below in one of the three categories described above (dollars in thousands): Interest Rate Swap Derivative Liabilities ................... Total liabilities at fair value ........................................ Level 1 Level 2 Level 3 $ $ — — $ $ 19,665 19,665 $ $ — — Financial assets and liabilities carried at fair value as of December 31, 2011 are classified in the table below in one of the three categories described above (dollars in thousands): Interest Rate Swap Derivative Liabilities ................... Total liabilities at fair value ........................................ Level 1 Level 2 Level 3 $ $ — — $ $ 12,394 12,394 $ $ — — Financial assets and liabilities carried at fair value were classified as Level 2 inputs. For financial liabilities that utilize Level 2 inputs, the Company utilizes both direct and indirect observable price quotes, including LIBOR yield curves, bank price quotes for forward starting swaps, NYMEX futures pricing and common stock price quotes. Below is a summary of valuation techniques for Level 2 financial liabilities:  Interest rate swap derivative assets and liabilities — valued using LIBOR yield curves at the reporting date. Counterparties to these contracts are most often highly rated financial institutions, none of which experienced any significant downgrades in 2012 that would reduce the amount owed by the Company. Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and the counterparties. However, as of December 31, 2012 we have assessed the significance of the effect of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. F-33 The following are fair value measurements recorded on a nonrecurring basis as of December 31, 2012. There were no nonrecurring fair value measurements as of December 31, 2011 (in thousands): Fair Value Measurements as of December 31, 2012 Balance Level 1 Level 2 Level 3 Investment in real estate ventures, at equity ...... Total assets ........................................................ $ $ — — $ $ — — $ $ — $ 20,579 — $ 20,579 Total Gains (1) $ $ 7,023 7,023 (1) Represents gain on remeasurement of investment in real estate venture. See note 5 — “Investment in Unconsolidated Real Estate Ventures” for additional discussion. Fair value for those assets measured using Level 3 inputs was determined through the use of a direct capitalization approach. The direct capitalization approach applies a projected yield for the investment to the estimated stabilized income for the property. Yield rates utilized in this approach are derived from market transactions as well as other financial and industry data. The yield rates used in determining the fair value of HSREV ranged from 6%-7%. The fair values of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximates their respective carrying values at December 31, 2012 and 2011. The Company had fixed interest rate loans with a carrying value of $873.3 million and $758.4 million at December 31, 2012 and 2011, respectively. The estimated fair values of these fixed rate loans were $866.9 million and $736.3 million at December 31, 2012 and 2011, respectively. The Company had variable interest rate loans with a carrying value of $150.4 million at December 31, 2012. The estimated fair value of the variable interest rate loan approximates its carrying value due to its floating rate nature and market spreads. This estimate is based on a discounted cash flow analysis assuming market interest rates for comparable obligations at December 31, 2012. The Company estimates the fair value of its fixed rate debt and the credit spreads over variable market rates on its variable rate debt by discounting the future cash flows of each instrument at estimated market rates or credit spreads consistent with the maturity of the debt obligation with similar credit policies, which is classified within level 2 of the fair value hierarchy. Rates and credit spreads take into consideration general market conditions and maturity. 15. SHARE-BASED COMPENSATION PLANS On June 2, 2010 the Company’s shareholders approved an amendment and restatement of the Company’s 2007 Equity Incentive Plan, a share-based employee compensation plan originally approved by shareholders on May 8, 2007 (as amended and restated, the “2007 Plan”). On October 19, 2004, the Company’s sole shareholder approved a share-based employee compensation plan, the 2004 Equity Incentive Plan (the “2004 Plan” and collectively with the 2007 Plan, the “Plans”). The purpose of the Plans is to attract and retain highly qualified executive officers, Trustees and key employees and other persons and to motivate such officers, Trustees, key employees and other persons to serve the Company and its affiliates to expend maximum effort to improve the business results and earnings of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. To this end, the Plans provide for the grant of share options, share appreciation rights, restricted shares, share units, unrestricted shares, dividend equivalent rights and cash awards. Any of these awards may, but need not, be made as performance incentives to reward attainment of annual or long-term performance goals. Share options granted under the Plans may be non-qualified share options or incentive share options. The Plans are administered by the Compensation Committee of the Company’s Board of Trustees (the “Compensation Committee”), which is appointed by the Board of Trustees. The Compensation Committee interprets the Plans and, subject to its right to delegate authority to grant awards, determines the terms and provisions of option grants and share awards. The 2007 Plan uses a “Fungible Units” methodology for computing the maximum number of common shares available for issuance under the 2007 Plan. The Fungible Units methodology assigns weighted values to different types of awards under the 2007 Plan without assigning specific numerical limits for different types of awards. Upon shareholder approval of the amendment and restatement of the 2007 plan in June 2010, a “Fungible Pool Limit” was established consisting of 4,728,561 shares plus any common shares restored to availability upon expiration or forfeiture of then-currently outstanding options or restricted share awards (consisting of 372,135 shares). F-34 The 2007 Plan provides that any common shares made the subject of awards in the form of options or share appreciation rights shall be counted against the Fungible Pool Limit as one (1) unit. Any common shares made the subject of awards under the 2007 Plan in the form of restricted shares or share units (each a “Full-Value Award”) shall be counted against the Fungible Pool Limit as 1.66 units. The Fungible Pool Limit and the computation of the number of common shares available for issuance are subject to adjustment upon certain corporate transactions or events, including share splits, reverse share splits and recapitalizations. The number of shares counted against the Fungible Pool Limit includes the full number of shares subject to the award, and is not reduced in the event shares are withheld to fund withholding tax obligations, or, in the case of options and share appreciation rights, where shares are applied to pay the exercise price. If an option or other award granted under the 2007 Plan expires, is forfeited or otherwise terminates, the common shares subject to any portion of such option or other award that expires, is forfeited or that otherwise terminates, as the case may be, will again become available for issuance under the 2007 Plan. In addition to the overall limit on the number of shares that may be subject to awards under the 2007 Plan, the 2007 Plan limits the number of shares that may be the subject of awards during the three-year period ending December 31, 2012. Specifically, the average of the following three ratios (each expressed as a percentage) shall not exceed the greater of two percent (2%) or the mean of the Company’s GICS peer group for the three-year period beginning January 1, 2010 and ending December 31, 2012. The three ratios would correspond to the three calendar years in the three-year period ending December 31, 2012, and each ratio would be computed as (i) the number of shares subject to awards granted in the applicable year divided by (ii) the sum of the number of common shares and units of the Company’s operating partnership (“OP Units”) exchangeable into common shares outstanding at the end of such year. Solely for purposes of calculating the number of shares subject to awards under this limitation, shares underlying Full-Value Awards will be taken into account in the numerator of the foregoing ratios as 1.5 shares. Subject to adjustment upon certain corporate transactions or events, a participant may not receive awards (with shares subject to awards being counted, depending on the type of award, in the proportions ranging from 1.0 to 1.66), as described above in any one calendar year covering more than 1,000,000 units. With respect to the 2004 Plan, a total of 3 million common shares are reserved for issuance under the 2004 Plan. The maximum number of common shares underlying equity awards that may be granted to an individual participant under the 2004 Plan during any calendar year is 400,000 for options or share appreciation rights and 100,000 for restricted shares or restricted share units. The maximum number of common shares that can be awarded under the Plan to any person, other than pursuant to an option, share appreciation rights or time-vested restricted shares, is 250,000 per calendar year under the 2004 Plan. To the extent that options expire unexercised or are terminated, surrendered or canceled, the options and share awards become available for future grants under the 2004 Plan, unless the 2004 Plan has been terminated. Under the Plans, the Compensation Committee determines the vesting schedule of each share award and option. The exercise price for options is equivalent to the fair value of the underlying common shares at the grant date. The Compensation Committee also determines the term of each option, which shall not exceed 10 years from the grant date. Share Options The fair values for options granted in 2012, 2011, and 2010 were estimated at the time the options were granted using the Black- Scholes option-pricing model applying the following weighted average assumptions: Assumptions: Risk-free interest rate ........................................................................... Expected dividend yield ...................................................................... Volatility (a) ......................................................................................... Weighted average expected life of the options (b) ............................... Weighted average grant date fair value of options granted per share ... 2012 2.0% 4.5% 52.22% 9.59 years 3.94 $ $ 2011 3.3% 4.8% 54.60% 9.9 years 3.40 2010 3.7% 5.4% 57.60% 9.9 years 2.60 $ (a) Expected volatility is based upon the level of volatility historically experienced. (b) Expected life is based upon our expectations of stock option recipients’ expected exercise and termination patterns. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options. In addition, option- pricing models require the input of highly subjective assumptions, including the expected stock price volatility. Volatility for the 2010, 2011, and 2012 grants was based on the trading history of the Company’s shares. F-35 In 2012, 2011, and 2010, the Company recognized compensation expense related to options issued to employees and executives of approximately $1.2 million, $1.5 million and $1.9 million, respectively, which was recorded in general and administrative expense. Approximately 222,421 share options were issued during 2012 for which the fair value of the options at their respective grant dates was approximately $0.9 million, which vest over three and five years. As of December 31, 2012, the Company had approximately $1.1 million of unrecognized option compensation cost related to all grants that will be recorded over the next five years. The table below summarizes the option activity under the Plan for the years ended December 31, 2012, 2011 and 2010: Number of Shares Weighted Average Remaining Under Option Exercise Price Contractual Term Weighted Average Balance at December 31, 2009 ............................................ Options granted................................................................ Options canceled .............................................................. Options exercised ............................................................ Balance at December 31, 2010 ............................................ Options granted................................................................ Options canceled .............................................................. Options exercised ............................................................ Balance at December 31, 2011 ............................................ Options granted................................................................ Options canceled .............................................................. Options exercised ............................................................ Balance at December 31, 2012 ............................................ Vested or expected to vest at December 31, 2012 ............... Exercisable at December 31, 2012 ...................................... 4,546,304 574,556 (50,875) (56,225) 5,013,760 346,882 (80,924) (24,000) 5,255,718 222,421 (10,375) (209,900) 5,257,864 5,257,864 4,549,227 $ $ $ $ $ $ 10.71 7.32 12.71 3.46 10.38 9.38 9.40 5.06 10.35 11.48 9.01 7.89 10.50 10.50 10.69 7.95 9.06 — 8.11 7.18 9.11 — 6.84 6.33 9.14 — 6.08 5.49 5.49 5.13 At December 31, 2012, the aggregate intrinsic value of options outstanding, of options that vested or expected to vest and of options that were exercisable was approximately $27.6 million. The aggregate intrinsic value of options exercised was approximately $2.6 million for the year ended December 31, 2012. Restricted Shares The Company applies the fair value method of accounting for contingently issued shares. As such, each grant is recognized ratably over the related vesting period. Approximately 595,000 restricted shares were issued during 2012 for which the fair value of the restricted shares at their respective grant dates was approximately $6.9 million, which vest over three and five years. During 2011, approximately 314,000 restricted shares were issued for which the fair value of the restricted shares at their respective grant dates was approximately $2.6 million. As of December 31, 2012 the Company had approximately $5.3 million of remaining unrecognized restricted share compensation costs that will be recognized over the next four years. Restricted share awards are considered to be performance awards and are valued using the stock price on the grant date. In 2012, 2011 and 2010, the Company recognized compensation expense related to restricted shares issued to employees and Trustees of approximately $3.9 million, $2.2 million, and $1.8 million, respectively; these amounts were recorded in general and administrative expense. The following table presents non-vested restricted share activity during 2012: Non-Vested at January 1, 2012 ............................................................................................... Granted ................................................................................................................................... Vested ..................................................................................................................................... Forfeited ................................................................................................................................. Non-Vested at December 31, 2012 ......................................................................................... Number of Non- Vested Restricted Shares 559,433 595,348 (299,161) (2,480) 853,140 F-36 On January 25, 2012, 49,981 restricted share units were granted to certain executives. The restricted share units were granted in the form of deferred share units with a market condition, entitling the holders thereof to receive common shares at a future date. The deferred share units will be awarded based on the Company’s total return to shareholders with respect to a specified peer group consisting of publicly traded companies over a three-year period. The fair value of the restricted share units on the grant date was approximately $0.8 million. The Company used a Monte Carlo simulation analysis to estimate the fair value of the awards. The restricted share units will cliff vest upon the third anniversary of the effective date, or December 31, 2014. On May 30, 2012, 274,668 restricted share units were granted to the Company’s chief executive officer. The restricted share units were granted in the form of deferred share units with a market condition, entitling the holder thereof to receive common shares at a future date. The deferred share units will be awarded based on the price return of the Company’s stock price over a two-year period. The fair value of the restricted share units on the grant date was approximately $3.0 million. The Company used a Monte Carlo simulation analysis to estimate the fair value of the award. The restricted share units will cliff vest on December 31, 2013. 16. EARNINGS PER SHARE AND UNIT AND SHAREHOLDERS’ EQUITY AND CAPITAL Earnings per share and Shareholders’ Equity The following is a summary of the elements used in calculating basic and diluted earnings per share: For the year ended December 31, 2011 (Dollars and shares in thousands, except per share amounts) 2012 2010 Loss from continuing operations ...................................... Noncontrolling interests in the Operating Partnership ...... Noncontrolling interest in subsidiaries .............................. Distribution to Preferred Shares (1) .................................. Loss from continuing operations attributable to the $ (8,296) $ 393 (1,918) (6,008) (8,614 ) $ 474 (2,810) (1,218) (15,000) 848 (1,755) — Company’s common shareholders ................................ $ (15,829) $ (12,168 ) $ (15,907) Total discontinued operations .......................................... Noncontrolling interests in the Operating Partnership ...... Total discontinued operations attributable to the 11,924 (286) 11,061 (509) 8,981 (467) Company’s common shareholders ................................ $ 11,638 $ 10,552 $ 8,514 Net loss attributable to the Company’s common shareholders .................................................................. $ (4,191) $ (1,616 ) $ (7,393) Weighted-average shares outstanding .............................. Share options and restricted share units (2) ...................... Weighted-average diluted shares outstanding (3) ......... 124,548 — 124,548 102,976 — 102,976 Earning (loss) per Common Share: Continuing operations .............................................. Discontinued operations ........................................... Basic and diluted loss per share ........................................ $ $ (0.13) $ 0.10 (0.03) $ (0.12 ) $ 0.10 (0.02 ) $ 93,998 — 93,998 (0.17) 0.09 (0.08) F-37 Earnings per unit and Capital The following is a summary of the elements used in calculating basic and diluted earnings per unit: Loss from continuing operations .......................... Limited Partnership interest of third parties .......... Noncontrolling interest in subsidiaries .................. Distribution to Preferred units (1) ......................... Loss from continuing operations attributable to $ For the year ended December 31, 2010 2011 (Dollars and units in thousands, except per unit amounts) 2012 (8,296) $ 393 (1,918) (6,008) (8,614) $ 474 (2,810) (1,218) (15,000) 848 (1,755) — common unitholders .......................................... $ (15,829) $ (12,168) $ (15,907) Total discontinued operations .............................. Limited Partnership interest of third parties .......... Total discontinued operations attributable to common unitholders .......................................... Net loss attributable to common unitholders ........ Weighted-average units outstanding .................... Unit options and restricted unit units (2) ............... Weighted-average diluted units outstanding (3) .............................................. Earning (loss) per Common unit: Continuing operations .................................. Discontinued operations ............................... Basic and diluted loss per unit ............................... $ $ $ $ 11,924 (286) 11,061 (509) 11,638 $ 10,552 $ 8,981 (467) 8,514 (4,191) $ (1,616) $ (7,393) 124,548 — 124,548 102,976 — 102,976 (0.13) $ 0.10 (0.03) $ (0.12) $ 0.10 (0.02) $ 93,998 — 93,998 (0.17) 0.09 (0.08) (1) For the year ended December 31, 2012, 2011 and 2010, the Company declared cash dividends per preferred share/unit of $1.936, $0.393 and $0.000, respectively. (2) For the years ended December 31, 2012, 2011 and 2010, the potentially dilutive shares/units of approximately 2,000,000, 1,378,000, and 1,177,000 respectively, were not included in the earnings per share/unit calculation as their effect is antidilutive. (3) For the years ended December 31, 2012, 2011 and 2010, the Company declared cash dividends per common share/unit of $0.350, $0.290 and $0.145, respectively. The Operating Partnership units and common units have essentially the same economic characteristics as they unit equally in the total net income or loss and distributions of the Operating Partnership. An Operating Partnership unit may be redeemed for cash, or at the Company’s option, common units on a one-for-one basis. Outstanding noncontrolling interest units in the Operating Partnership were 3,293,730, 4,674,136 and 4,737,136 as of December 31, 2012, 2011 and 2010, respectively. There were 131,794,547 and 122,058,919 common units outstanding as of December 31, 2012 and 2011, respectively. Issuance of Common and Preferred Shares On September 16, 2011, the Company amended its sales agreement with Cantor Fitzgerald & Co. (the “Sales Agent”) dated April 3, 2009 and as amended on January 26, 2011 to increase the number of common shares that the Sales Agent may sell under the Sales Agreement from 15 million to 20 million. During the year ended December 31, 2011 the Company sold 140,000 shares under the program at an average sales price of $10.75 per share resulting in gross proceeds of $1.5 million. During the year ended December 31, 2012 the Company sold 7.9 million shares under the program at an average sales price of $13.13 per share resulting in gross proceeds of $103.8 million ($163.8 million of gross proceeds and 16.1 million shares sold with an average sales price of $10.16 since program inception in 2009). F-38 On October 28, 2011, the Company completed a public offering of 23 million common shares at a public offering price of $9.20, which reflects the full exercise by the underwriters of their option to purchase 3 million shares to cover over-allotments. The Company received approximately $202.5 million in net proceeds from the offering after deducting the underwriting discount and other estimated offering expenses. During November 2011, the Company completed an underwritten public offer of 3.1 million of the Company’s Series A preferred shares at a public offering price of $25.00 per share for gross proceeds of $77.5 million. The financing provided approximately $74.8 million in net proceeds to the Company after deducting the underwriting discount and offering expenses. The Company used the net proceeds from the 2011 common and preferred public offerings to fund a portion of the cash purchase price of the Storage Deluxe Acquisition on November 3, 2011. The Company used the net proceeds from the 2012 common offerings to fund the 2012 acquisitions and pay down multiple mortgages during the year. 17. INCOME TAXES Deferred income taxes are established for temporary differences between financial reporting basis and tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance for deferred tax assets is provided if the Company believes that it is more likely than not that all or some portion of the deferred tax asset will not be realized. No valuation allowance was recorded at December 31, 2012 or 2011. The Company had net deferred tax assets of $0.7 million and $0.4 million, which are included in other assets as of December 31, 2012 and 2011, respectively. The Company believes it is more likely than not the deferred tax assets will be realized. The following table discloses the income tax rates for the periods identified below: For the year ended December 31, 2012 2011 Effective income tax rate Statutory federal income tax rate....... State and local income taxes ............. Effective income tax rate ................... 34% 4% 38% 34% 4% 38% The following table discloses the Company’s deferred tax assets and liabilities as of December 31, 2012 and 2011, which are included in other assets on the consolidated balance sheets: 2012 Assets Liabilities As of December 31, 2011 (dollars in thousands) Assets Liabilities 2010 Assets Liabilities Deferred taxes Share based compensation .. Other ................................... Deferred taxes ..................... $ $ 3,684 $ 400 4,084 $ 3,347 $ — 3,347 $ 3,349 $ 134 3,483 $ 3,045 $ — 3,045 $ 2,971 $ 34 3,005 $ 2,689 — 2,689 18. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) During the year ended December 31, 2012, the Company acquired 37 self-storage facilities for an aggregate purchase price of approximately $432.3 million (see note 3). The condensed consolidated pro forma financial information set forth below reflects adjustments to the Company’s historical financial data to give effect to each of the acquisitions and related financing activity (including the issuance of common shares) that occurred during 2012 and 2011 as if each had occurred as of January 1, 2011 and 2010, respectively. The unaudited pro forma information presented below does not purport to represent what the Company’s actual results of operations would have been for the periods indicated, nor does it purport to represent the Company’s future results of operations. F-39 The following table summarizes, on a pro forma basis, the Company’s consolidated results of operations for the year ended December 31, 2012 and 2011 based on the assumptions described above: 2012 2011 (unaudited) (in thousands, except per share data) Pro forma revenue ..................................................................................... Pro forma income (loss) from continuing operations ............................... (Loss) earnings per common share from continuing $ Basic and diluted — as reported ........................................................... Basic and diluted — as pro forma ......................................................... $ 304,564 22,248 $ 286,882 (40,638) (0.13) $ 0.16 (0.12) (0.42) The following summarizes the amounts of revenue and earnings of the 2012 and 2011 acquisitions since the acquisition dates included in the consolidated statements of operations for the years ended December 31, 2012 and 2011: Total revenue ....................................... Net loss ................................................ $ Year ended December 31, 2011 2012 (in thousands) 56,093 (27,562) $ 10,007 (4,151) 19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of quarterly financial information for the years ended December 31, 2012 and 2011 (in thousands, except per share data): March 31, 2012 June 30, 2012 September 30, December 31, 2012 2012 Three months ended Total revenues ........................................................ Total operating expenses ........................................ Net income (loss) attributable to the Company ...... Basic and diluted earnings (loss) per share ............ $ 64,602 $ 57,817 (3,843) (0.04) 67,775 $ 60,408 2,543 0.01 73,329 $ 65,339 1,636 — 77,370 67,262 1,481 — Total revenues ..................................................... Total operating expenses ..................................... Net income (loss) attributable to the Company .... Basic and diluted earnings (loss) per share ......... $ 53,228 $ 44,202 (117) 0.00 54,989 $ 45,028 902 0.01 57,700 $ 44,686 6,828 0.07 61,328 51,362 (8,011) (0.08) March 31, 2011 June 30, 2011 September 30, December 31, 2011 2011 Three months ended The summation of quarterly earnings per share amounts do not necessarily equal the full year amounts. The above information was updated to reclassify amounts to discontinued operations (see note 12). 20. SUBSEQUENT EVENTS None F-40 Description Chandler, AZ Glendale, AZ Green Valley, AZ Mesa I, AZ Mesa II, AZ Mesa III, AZ Phoenix I, AZ Phoenix II, AZ Scottsdale, AZ Tempe, AZ Tucson I, AZ Tucson II, AZ Tucson III, AZ Tucson IV, AZ Tucson V, AZ Tucson VI, AZ Tucson VII, AZ Tucson VIII, AZ Tucson IX, AZ Tucson X, AZ Tucson XI, AZ Tucson XII, AZ Tucson XIII, AZ Tucson XIV, AZ Apple Valley I, CA Apple Valley II, CA Benicia, CA Cathedral City, CA Citrus Heights, CA Diamond Bar, CA Escondido, CA Fallbrook, CA Lancaster, CA Long Beach, CA Murrieta, CA North Highlands, CA Orangevale, CA Palm Springs I, CA Palm Springs II, CA Pleasanton, CA Rancho Cordova, CA Rialto I, CA Rialto II, CA Riverside I, CA Riverside II, CA Roseville, CA Sacramento I, CA Sacramento II, CA San Bernardino I, CA San Bernardino II, CA San Bernardino III, CA San Bernardino IV, CA San Bernardino V, CA San Bernardino VII, CA San Bernardino VIII, CA San Marcos, CA Santa Ana, CA South Sacramento, CA Spring Valley, CA Temecula I, CA Temecula II, CA Thousand Palms, CA Vista I, CA Vista II, CA Square Footage 47,520 56,807 25,050 52,375 45,361 58,189 100,775 83,309 79,525 53,890 59,350 43,950 49,832 48,040 45,184 40,766 52,688 46,600 67,720 46,350 42,700 42,225 45,792 49,095 73,290 61,405 74,770 110,974 75,620 102,984 142,670 46,620 60,675 125,091 49,835 57,244 50,317 72,675 122,550 85,045 53,978 57,391 99,803 67,120 85,166 59,869 50,714 61,888 31,070 41,546 35,341 83,166 57,001 78,729 95,029 37,430 63,896 52,165 55,045 81,550 84,398 74,305 74,405 148,081 CUBESMART SCHEDULE III REAL ESTATE AND RELATED DEPRECIATION December 31, 2012 (Dollars in thousands) Initial Cost Gross Carrying Amount at December 31, 2012 Encumb- rances Land Building and Improvements Costs Subsequent to Acquisition Land Building and Improvements (A) (A) (A) (A) (A) (A) (A) (A) (A) (A) (A) 201 298 920 731 706 1,134 756 443 749 188 188 532 674 515 440 670 589 724 424 439 671 587 707 140 160 2,392 2,194 327 1,257 2,265 1,153 2,739 2,176 2,101 3,376 2,251 4,879 2,159 2,078 2,078 2,048 2,595 1,980 1,692 2,576 2,265 2,786 1,633 1,689 2,582 2,258 2,721 1,570 1,787 7,028 10,046 (A) 1,633 4,793 7,404 11,804 1,492 2,247 14,368 5,532 2,546 4,175 7,164 9,758 2,799 8,222 3,212 4,118 3,098 6,183 5,359 3,767 3,380 4,128 572 1,251 1,093 5,391 3,583 6,753 7,741 2,288 5,600 2,319 5,394 4,735 5,839 1,493 6,835 4,076 13,599 1,094 899 277 1,351 1,170 1,284 1,152 1,406 51 112 98 1,872 783 1,475 1,691 775 1,223 790 1,178 660 3,080 2,522 3,040 133 390 3,138 1,883 868 1,423 1,565 2,131 711 4,629 (A) (A) (A) (A) (A) (A) (A) 418 298 921 731 706 1,135 847 883 749 384 391 533 675 515 440 670 589 725 425 439 672 587 708 476 431 2,392 2,195 991 127 145 174 163 296 1,401 1,688 175 941 1,009 167 179 236 164 222 174 344 181 377 259 216 450 1,540 1,211 125 283 262 327 1,290 2,934 1,070 2,413 1,904 1,858 3,023 2,957 5,920 2,030 2,755 2,802 1,855 2,353 1,860 1,549 2,387 2,088 2,614 1,505 1,777 2,428 2,112 2,637 2,566 2,505 6,080 8,033 207 1,634 4,259 6,461 9,592 2,719 2,681 12,848 4,796 2,373 3,746 6,306 8,728 15 2,799 6,993 2,933 3,718 3,984 5,540 4,941 3,487 3,051 3,682 1,398 1,876 1,649 4,756 3,493 6,243 6,059 2,031 5,059 2,150 5,157 5,485 5,053 422 1,493 6,241 5,407 11,683 229 169 1,682 189 316 303 219 203 1,142 1,152 1,035 82 436 236 261 107 232 227 507 1,185 143 1,095 899 672 1,351 1,170 1,284 1,152 1,407 182 306 242 1,872 783 1,290 1,692 776 1,223 791 1,178 899 3,080 150 142 1,726 934 391 129 273 232 104 326 2,524 3,040 432 556 3,138 1,903 868 1,423 1,566 2,132 2,259 115 1,118 4,629 F-41 Accumulated Depreciation (F) 335 1,143 252 581 467 453 732 554 2,296 464 1,066 1,021 441 561 437 372 572 485 619 359 422 548 489 588 1,066 1,010 1,388 2,825 1,003 1,551 1,610 969 845 2,822 1,098 570 892 1,394 1,900 1,608 692 819 1,665 1,232 1,077 836 732 865 483 743 630 1,135 771 1,379 2,262 484 1,118 510 1,145 1,063 853 1,365 1,586 2,670 Total 1,617 3,352 1,368 3,334 2,635 2,564 4,158 3,804 6,803 2,779 3,139 3,193 2,388 3,028 2,375 1,989 3,057 2,677 3,339 1,930 2,216 3,100 2,699 3,345 3,042 2,936 8,472 10,228 5,893 8,985 12,632 3,151 3,237 15,986 6,699 3,241 5,169 7,872 10,860 9,792 4,028 4,617 4,656 6,891 6,111 4,771 4,203 5,089 1,580 2,182 1,891 6,628 4,276 7,533 7,751 2,807 6,282 2,941 6,335 6,384 8,133 7,734 6,525 16,312 Year Acquired / Developed 2005 1998 2005 2006 2006 2006 2006 2006/2011 1998 2005 1998 1998 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 1997 1997 2005 2006 2005 2005 2007 1997 2001 2006 2005 2005 2005 2006 2006 2005 2005 2006 1997 2006 2006 2005 2005 2005 1997 1997 1997 2005 2006 2006 2006 2005 2006 2005 2006 1998 2007 2006 2001 2005 Initial Cost Gross Carrying Amount at December 31, 2012 Description Walnut, CA West Sacramento, CA Westminster, CA Aurora, CO Colorado Springs I, CO Colorado Springs II, CO Denver I, CO Denver II, CO Federal Heights, CO Golden, CO Littleton, CO Northglenn, CO Bloomfield, CT Branford, CT Bristol, CT East Windsor, CT Enfield, CT Gales Ferry, CT Manchester I, CT Manchester II, CT Milford, CT Monroe, CT Mystic, CT Newington I, CT Newington II, CT Norwalk, CT Old Saybrook I, CT Old Saybrook II, CT Shelton, CT Stamford, CT South Windsor, CT Wilton, CT Washington , DC Washington , DC Boca Raton, FL Boynton Beach I, FL Boynton Beach II, FL Bradenton I, FL Bradenton II, FL Cape Coral, FL Coconut Creek, FL Dania Beach, FL Dania, FL Davie, FL Deerfield Beach, FL Delray Beach, FL Fernandina Beach, FL Ft. Lauderdale, FL Ft. Myers, FL Jacksonville I, FL Jacksonville II, FL Jacksonville III, FL Jacksonville IV, FL Jacksonville V, FL Lake Worth, FL Lakeland, FL Kendall, FL Lutz I, FL Lutz II, FL Margate I, FL Margate II, FL Merrit Island, FL Miami I, FL Miami II, FL Miami III, FL Miami IV, FL Naples I, FL Naples II, FL Naples III, FL Naples IV, FL Encumb- rances (D) (A) 1,784 (A) (A) (A) (A) 13,060 (D) (D) Square Footage 50,708 40,040 68,098 75,867 47,925 62,300 59,200 74,520 54,770 87,382 53,490 52,102 48,700 50,679 47,725 46,016 52,875 54,230 47,025 52,725 44,885 58,700 50,725 42,620 36,140 31,239 86,950 26,425 78,465 28,957 72,125 84,475 63,085 82,530 37,958 61,749 61,703 68,391 87,960 76,627 78,783 168,217 58,270 80,985 57,230 67,813 110,995 70,063 67,510 80,296 65,270 65,580 77,425 81,835 161,808 49,111 75,395 66,795 69,232 54,165 65,186 50,417 46,825 67,010 150,735 76,352 48,150 65,850 80,266 40,600 Land 1,578 1,222 1,740 1,343 771 657 673 1,430 878 1,683 1,268 862 78 217 1,819 744 424 240 540 996 87 2,004 136 1,059 911 646 3,092 1,135 1,449 1,941 90 2,409 871 3,152 529 667 1,030 1,180 1,931 472 1,189 3,584 205 1,268 Building and Improvements 4,635 3,590 5,142 2,986 1,717 2,674 2,741 7,053 1,953 3,744 2,820 1,917 880 2,433 3,161 1,294 2,424 2,697 3,096 1,730 1,050 3,483 1,645 1,840 1,584 3,187 5,374 1,973 8,221 3,374 1,127 12,261 12,759 13,612 3,054 3,796 2,968 3,324 5,561 2,769 5,863 10,324 2,068 7,183 946 2,999 4,539 4,222 3,646 3,329 5,362 950 7,004 7,409 870 8,049 8,210 6,597 896 8,106 901 2,478 992 2,868 1,763 1,473 2,983 1,999 2,544 13,185 10,494 1,010 1,652 1,561 2,980 161 132 716 179 253 4,577 1,852 90 148 139 262 798 378 937 303 1,862 1,220 183 81 2,350 860 Costs Subsequent to Acquisition Land Building and Improvements Total 148 143 277 271 282 201 184 1 232 351 164 353 2,263 1,214 75 418 384 1,413 341 210 1,085 557 1,799 154 226 1 429 213 173 73 1,095 63 388 71 1,488 1,646 257 199 731 2,476 3 1,049 1,373 759 1,595 1,222 1,743 1,343 771 656 674 1,430 879 1,684 1,268 862 360 504 1,819 744 473 489 563 996 274 2,004 410 1,059 911 646 3,092 1,135 1,449 1,941 272 2,421 894 3,154 813 958 1,030 1,180 1,931 830 1,189 3,584 481 1,373 4,044 3,184 4,535 2,723 1,657 2,388 2,432 7,053 1,791 3,425 2,476 1,857 2,571 2,863 2,772 1,441 2,216 3,437 2,664 1,633 1,665 3,356 2,720 1,700 1,536 3,188 4,950 1,858 7,311 2,911 1,811 12,384 10,465 11,909 3,635 4,352 2,790 3,003 5,197 4,311 5,866 9,876 2,745 5,678 1,983 1,311 4,492 4,184 6,911 5,407 3,398 4,725 40 950 5,488 5,971 1,007 1,651 6,981 6,766 11,573 1,319 6,493 166 901 2,258 229 992 2,587 2,933 2,671 2,780 3,054 3,151 11,951 9,782 3,079 5,209 4,294 3,277 399 383 796 484 561 4,577 1,963 270 558 598 407 1,814 1,787 533 1,738 1,423 589 848 2,443 4,247 4,039 544 883 643 1,384 328 1,862 646 3,563 2,396 688 45 1,220 183 256 2,350 265 6,929 998 160 1,670 963 5,639 4,406 6,278 4,066 2,428 3,044 3,106 8,483 2,670 5,109 3,744 2,719 2,931 3,367 4,591 2,185 2,689 3,926 3,227 2,629 1,939 5,360 3,130 2,759 2,447 3,834 8,042 2,993 8,760 4,852 2,083 14,805 11,359 15,063 4,448 5,310 3,820 4,183 7,128 5,141 7,055 13,460 3,226 7,051 5,803 5,067 7,554 6,791 3,726 6,587 6,438 7,641 8,632 7,986 11,756 1,575 8,843 3,159 3,579 3,332 3,054 3,576 3,538 3,712 16,528 11,745 3,349 5,767 4,892 3,684 Accumulated Depreciation (F) 934 726 1,099 624 376 515 574 56 396 773 556 394 935 1,501 730 374 787 1,373 1,000 420 755 914 1,268 440 391 42 1,312 501 315 766 780 326 1,618 378 1,124 1,366 663 736 1,284 1,591 47 2,412 1,269 2,297 1,468 1,379 2,160 1,800 1,268 1,010 924 1,000 1,170 1,129 4,218 749 1,083 549 632 1,279 1,102 782 1,597 1,513 2,599 539 1,243 1,978 1,918 1,334 Year Acquired / Developed 2005 2005 2005 2005 2005 2006 2006 2012 2005 2005 2005 2005 1997 1995 2005 2005 2001 1995 2002 2005 1996 2005 1996 2005 2005 2012 2005 2005 2011 2005 1996 2012 2008 2011 2001 2001 2005 2004 2004 2000 2012 2004 1996 2002 1998 2001 1996 1999 1999 2005 2007 2007 2007 2007 1998 1994 2007 2004 2004 1996 1996 2002 1996 1996 2005 2011 1996 1997 1997 1998 F-42 Initial Cost Gross Carrying Amount at December 31, 2012 Encumb- rances - Description Ocoee, FL Orange City, FL Orlando II, FL Orlando III, FL Orlando IV, FL Orlando V, FL Oviedo, FL Pembroke Pines, FL Royal Palm Beach II, FL Sanford, FL Sarasota, FL St. Augustine, FL Stuart, FL SW Ranches, FL Tampa, FL West Palm Beach I, FL West Palm Beach II, FL West Palm Beach III, FL Alpharetta, GA Atlanta, GA Austell , GA Decatur, GA Duluth I, GA Duluth II, GA Lawrenceville, GA Leisure City, GA Norcross I, GA Norcross II, GA Norcross III, GA Norcross, GA Peachtree City I, GA Peachtree City II, GA Smyrna, GA Snellville, GA Suwanee I, GA Suwanee II, GA Addison, IL Aurora, IL Bartlett, IL Hanover, IL Bellwood, IL Des Plaines, IL Elk Grove Village, IL Glenview, IL Gurnee, IL Harvey, IL Joliet, IL Kildeer, IL Lombard, IL Mount Prospect, IL Mundelein, IL North Chicago, IL Plainfield I, IL Plainfield II, IL Schaumburg, IL Streamwood, IL Warrensville, IL Waukegan, IL West Chicago, IL Westmont, IL Wheeling I, IL Wheeling II, IL Woodridge, IL Indianapolis, IN Boston I, MA Boston II, MA Leominster, MA Medford, MA Baltimore, MD California, MD District Heights, MD Square Footage 76,250 59,586 63,084 102,705 76,565 75,359 49,251 67,321 81,405 61,810 71,402 59,725 87,037 64,955 83,738 68,051 94,503 85,460 90,485 66,675 83,875 145,280 70,985 47,242 73,765 56,177 85,420 47,270 57,555 52,020 49,875 57,100 57,015 80,000 85,240 79,590 31,325 74,435 51,425 41,190 86,650 74,400 64,129 100,115 80,300 60,090 72,765 46,285 57,764 65,000 44,700 53,350 53,900 51,900 31,160 64,305 48,796 79,500 48,175 53,450 54,210 67,825 50,262 73,014 33,286 60,545 53,823 58,765 93,350 77,865 78,660 Land 1,286 1,191 1,589 1,209 633 950 337 1,640 453 333 135 324 1,390 2,670 719 2,129 804 806 822 1,635 616 373 681 546 409 514 938 576 366 435 398 750 1,660 1,737 800 428 644 931 1,126 1,012 1,564 1,446 3,740 1,521 869 547 2,102 1,305 1,701 1,498 1,073 1,770 694 Building and Improvements 3,705 3,209 4,576 7,768 3,587 4,685 440 2,824 3,772 8,607 2,911 3,656 1,515 3,625 7,598 6,249 3,420 8,671 3,962 4,720 4,053 4,711 6,776 2,044 3,355 2,903 2,018 2,930 4,625 2,839 2,025 2,532 1,963 4,271 4,781 5,010 6,942 3,531 3,652 2,493 2,197 5,768 4,327 3,535 10,367 5,440 3,635 4,704 2,187 3,938 3,114 2,782 3,006 1,715 2,000 538 645 1,662 3,072 4,363 2,249 3,873 3,213 3,816 3,397 406 3,496 3,048 8,628 1,519 7,165 5,997 4,280 8,313 1,447 1,066 1,198 1,071 1,155 857 793 943 538 1,516 90 1,330 1,050 1,486 1,527 Costs Subsequent to Acquisition Land Building and Improvements Total 85 125 135 454 92 1 1,286 1,191 1,589 1,209 633 950 953 1,640 453 529 383 685 1,390 2,670 835 2,129 804 967 822 1,643 616 373 681 546 409 632 938 576 366 529 398 750 1,660 1,737 622 428 644 931 1,126 1,012 1,564 1,446 3,740 1,521 869 547 1,997 1,305 1,701 1,498 1,073 1,740 694 3,273 2,846 4,072 6,836 3,175 4,685 500 440 2,657 5,274 7,102 2,505 4,106 4,264 5,568 5,861 4,958 3,953 7,299 3,962 4,070 4,055 4,196 6,808 1,877 3,408 2,787 2,020 2,935 4,659 2,841 1,870 2,487 1,966 3,444 4,371 4,501 5,764 3,312 3,278 2,330 2,059 5,239 4,062 3,258 9,242 4,931 3,263 4,238 2,170 3,975 2,943 2,537 2,831 1,628 1,799 538 668 1,645 2,788 4,022 2,139 3,480 3,009 3,631 3,089 214 406 3,204 2,700 7,099 3,486 5,777 5,818 3,842 7,535 2,645 156 131 1,238 3,309 2,846 126 76 1,508 260 1 949 1 140 188 157 53 300 3 735 33 1 129 584 3 203 250 186 26 281 146 219 202 769 375 251 340 254 167 193 184 637 281 167 310 206 132 159 294 148 312 248 147 269 366 168 1,447 1,066 1,198 1,071 1,155 857 793 943 538 1,516 338 1,330 1,173 1,486 1,527 75 307 2,402 90 1,244 154 347 4,559 4,037 5,661 8,045 3,808 5,635 3,097 6,227 8,742 2,958 4,635 4,647 6,253 7,251 7,628 4,788 9,428 4,766 5,037 4,877 5,839 7,424 2,250 4,089 3,333 2,429 3,567 5,597 3,417 2,236 3,016 2,364 4,194 6,031 6,238 6,386 3,740 3,922 3,261 3,185 6,251 5,626 4,704 12,982 6,452 4,132 4,785 4,167 5,280 4,644 4,035 3,904 3,368 2,493 1,206 3,092 3,854 5,220 3,210 4,635 3,866 4,424 4,032 3,610 3,238 8,615 3,824 7,107 6,991 5,328 9,062 Accumulated Depreciation (F) 752 706 933 1,271 208 12 503 2,976 1,192 463 1,499 1,687 2,276 981 837 1,292 1,863 10 1,182 43 812 2,841 88 99 129 21 1,089 123 30 87 753 21 1,010 765 806 965 800 792 556 497 1,616 981 816 2,238 1,220 794 1,029 491 992 704 614 693 387 406 155 398 635 977 517 837 735 884 749 778 184 2,142 1,498 971 1,885 929 319 Year Acquired / Developed 2005 2004 2005 2006 2010 2012 2006 1997 2007 2006 1999 1996 1997 2007 2007 2001 2004 2012 2001 2012 2006 1998 2011 2012 2011 2012 2001 2012 2012 2011 2001 2012 2001 2007 2007 2007 2004 2004 2004 2004 2001 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2005 2004 2004 2005 2004 2004 2004 2004 2004 2004 2004 2010 2002 1998 2007 2001 2004 2011 F-43 Initial Cost Gross Carrying Amount at December 31, 2012 Description Gaithersburg, MD Laurel, MD Temple Hills, MD Belmont, NC Bordentown, NJ Burlington I, NC Burlington II, NC Cary, NC Charlotte, NC Raleigh, NC Brick, NJ Cherry Hill I, NJ Cherry Hill II, NJ Clifton, NJ Cranford, NJ East Hanover, NJ Egg Harbor I, NJ Egg Harbor II, NJ Elizabeth, NJ Fairview, NJ Freehold, NJ Hamilton, NJ Hoboken, NJ Linden, NJ Lumberton, NJ Morris Township, NJ Parsippany, NJ Randolph, NJ Sewell, NJ Somerset, NJ Albuquerque I, NM Albuquerque II, NM Albuquerque III, NM Las Vegas I, NV Las Vegas II, NV Bronx I, NY Bronx II, NY Bronx III, NY Bronx IV, NY Bronx V, NY Bronx VI, NY Bronx VII, NY Bronx VIII, NY Bronx IX, NY Bronx X, NY Brooklyn I, NY Brooklyn II, NY Brooklyn III, NY Brooklyn IV, NY Brooklyn V, NY Brooklyn VI, NY Brooklyn VII, NY Jamaica I, NY Jamaica II, NY New Rochelle I, NY New Rochelle II, NY North Babylon, NY Riverhead, NY Southold, NY Tuckahoe, NY West Hempstead, NY White Plains, NY Woodhaven, NY Wyckoff, NY Yorktown, NY Cleveland I, OH Cleveland II, OH Columbus , OH Grove City, OH Hilliard, OH Lakewood, OH Encumb- rances (A) (A) (A) 9,102 3,195 24,503 29,141 8,974 Square Footage 87,045 162,792 97,200 81,600 50,600 109,396 42,305 112,086 69,000 48,675 51,725 52,600 65,050 105,550 91,250 107,679 36,025 70,425 38,830 27,875 81,495 70,550 34,200 100,425 96,025 71,776 66,325 52,465 57,830 57,585 65,927 58,598 57,536 48,596 48,850 68,813 90,270 106,065 75,580 54,683 39,495 78,575 30,550 148,470 159,830 57,020 60,945 41,625 37,467 46,945 74,415 72,710 88,415 91,325 48,434 63,295 78,188 38,340 59,745 51,688 85,281 87,705 50,665 61,960 78,615 46,050 58,425 71,905 89,290 89,690 39,287 Land 3,124 1,409 1,541 385 457 498 320 543 782 209 234 222 471 4,346 290 504 104 284 751 246 1,086 1,885 1,370 517 987 Building and Improvements 9,000 8,035 8,788 2,196 2,255 2,837 1,829 3,097 4,429 2,398 2,762 1,260 2,323 12,520 3,493 5,763 510 1,608 2,164 2,759 5,355 5,430 3,947 6,008 4,864 500 5,602 475 5,322 4,872 2,766 6,129 3,395 3,801 2,171 2,986 5,411 11,411 31,561 33,999 22,830 17,564 15,095 22,512 6,137 39,279 44,816 10,172 9,073 15,657 12,252 10,814 19,680 28,498 11,658 26,930 4,827 2,713 2,514 1,149 2,238 13,236 11,030 18,049 11,285 11,113 13,338 2,592 1,427 3,151 4,485 3,476 854 855 484 1,243 1,039 1,163 664 1,851 3,354 2,014 - 6,017 - - - - 1,245 7,967 9,090 1,795 1,601 3,195 2,500 2,207 4,016 5,816 2,043 5,496 1,673 3,167 225 1,068 2,079 1,516 2,237 3,295 2,028 1,961 2,710 525 290 1,234 1,756 1,361 405 Costs Subsequent to Acquisition Land Building and Improvements Total 3,124 1,928 1,800 451 457 498 340 543 1,068 296 485 222 471 4,340 779 1,315 104 284 751 246 1,086 1,893 1,370 1,043 987 383 3,571 2,209 691 2 457 325 476 1,427 303 1,396 73 1 168 2,258 3,865 23 162 326 417 6 217 579 2,050 1 8,123 9,502 9,151 2,207 2,257 2,661 1,722 3,301 4,661 2,496 3,369 1,151 2,324 11,009 4,587 7,710 522 1,550 2,081 2,611 5,361 4,915 3,935 6,587 4,866 2,623 1,072 6,691 1,953 844 5,992 4,825 3,207 6,129 3,067 3,417 2,091 2,941 5,120 10,273 31,109 29,736 20,258 15,565 13,107 22,668 6,185 39,413 44,956 8,934 8,168 15,774 12,401 10,904 19,834 28,737 10,553 27,129 4,443 18,713 5,852 1,083 2,044 7,586 11,030 16,373 10,031 9,737 13,395 2,325 1,338 2,710 3,992 3,137 1,245 1,108 706 1,243 1,039 1,163 664 1,851 3,355 2,014 - 6,017 - - - - 1,251 7,967 9,090 1,795 1,601 3,195 2,500 2,207 4,016 5,816 2,043 5,496 1,673 3,762 568 1,068 2,079 1,516 2,237 3,295 2,028 1,961 2,710 524 289 1,239 1,761 1,366 405 1,287 1,292 1 256 239 308 366 290 454 82 84 82 112 44 46 18 136 140 179 393 35 87 35 47 75 1,519 56 265 167 4,042 167 210 121 1 815 43 106 44 101 162 35 125 148 505 11,247 11,430 10,951 2,658 2,714 3,159 2,062 3,844 5,729 2,792 3,854 1,373 2,795 15,349 5,366 9,025 626 1,834 2,832 2,857 6,447 6,808 5,305 7,630 5,853 7,763 6,836 5,933 3,913 7,372 4,106 4,580 2,755 4,792 8,475 12,287 31,109 35,753 20,258 15,565 13,107 22,668 7,436 47,380 54,046 10,729 9,769 18,969 14,901 13,111 23,850 34,553 12,596 32,625 6,116 22,475 6,420 2,151 4,123 9,102 13,267 19,668 12,059 11,698 16,105 2,849 1,627 3,949 5,753 4,503 1,650 Accumulated Depreciation (F) 1,938 2,923 3,396 694 24 888 536 1,177 1,301 993 1,621 77 6 2,480 2,105 3,653 36 109 496 1,355 43 938 928 3,399 52 4,367 2,871 1,529 996 49 744 831 496 728 1,271 738 936 1,230 694 568 590 598 163 864 602 636 566 447 387 453 790 990 3,544 964 992 445 2,220 285 557 540 88 863 364 619 389 590 334 596 846 668 806 Year Acquired / Developed 2005 2001 2001 2001 2012 2001 2001 2001 2002 1998 1996 2010 2012 2005 1996 1996 2010 2010 2005 1997 2012 2006 2005 1996 2012 1997 1997 2002 2001 2012 2005 2005 2005 2006 2006 2010 2011 2011 2011 2011 2011 2012 2012 2012 2012 2010 2010 2011 2011 2011 2011 2011 2001 2011 2005 2012 1998 2005 2005 2011 2012 2011 2011 2010 2011 2005 2005 2006 2006 2006 1989 F-44 Initial Cost Gross Carrying Amount at December 31, 2012 Description Marblehead, OH Middleburg Heights, OH North Olmsted I, OH North Olmsted II, OH North Randall, OH Reynoldsburg, OH Strongsville, OH Warrensville Heights, OH Westlake, OH Conshohocken, PA Exton, PA Langhorne, PA Levittown, PA Montgomeryville, PA Norristown, PA Philadelphia, PA Alcoa, TN Antioch, TN Cordova I, TN Cordova II, TN Knoxville I, TN Knoxville II, TN Knoxville III, TN Knoxville V, TN Knoxville VI, TN Knoxville VII, TN Knoxville VIII, TN Memphis I, TN Memphis II, TN Memphis III, TN Memphis IV, TN Memphis V, TN Memphis VI, TN Memphis VII, TN Memphis VIII, TN Nashville I, TN Nashville II, TN Nashville III, TN Nashville IV, TN Allen, TX Austin I, TX Austin II, TX Austin III, TX Baytown, TX Bryan, TX Carrollton, TX College Station, TX Cypress, TX Dallas, TX Denton, TX El Paso I, TX El Paso II, TX El Paso III, TX El Paso IV, TX El Paso V, TX El Paso VI, TX El Paso VII, TX Fort Worth I, TX Fort Worth II, TX Frisco I, TX Frisco II, TX Frisco III, TX Frisco IV, TX Garland I, TX Garland II, TX Greenville I, TX Greenville II, TX Houston I, TX Houston II, TX Houston III, TX Houston IV, TX Square Footage 52,300 92,725 48,665 47,850 80,229 66,895 43,507 90,281 62,750 81,435 57,650 65,150 76,180 84,145 52,031 97,289 42,350 76,160 54,125 67,700 29,337 37,900 45,736 42,790 63,440 55,594 95,868 92,320 71,710 40,507 38,678 60,120 108,996 96,163 96,060 103,910 83,484 101,575 102,450 62,490 59,520 65,241 70,560 38,950 60,450 77,420 26,559 58,141 59,324 60,836 59,952 48,704 71,252 67,058 62,290 36,620 34,545 50,621 72,900 50,854 70,999 74,815 74,835 70,100 68,425 59,385 44,900 100,730 71,300 60,820 43,975 Encumb- rances (C) (C) (C) (C) 3,725 (D) (B) 1,862 (A) (A) (A) (A) 3,001 2,962 461 (B) Land 374 63 63 290 515 1,290 570 525 509 1,726 541 1,019 926 975 777 1,461 254 588 296 429 99 117 182 134 439 312 585 677 395 Building and Improvements 1,843 704 704 1,129 2,323 3,295 3,486 766 2,508 8,508 2,668 5,023 5,296 4,809 3,709 8,334 2,113 4,906 2,482 3,580 1,113 1,308 2,053 1,493 3,653 2,594 4,869 3,880 2,276 212 1,779 1,342 1,753 3,851 1,792 2,959 3,379 4,950 3,469 8,274 3,519 2,038 3,894 5,468 863 1,268 3,261 740 1,773 2,253 2,936 1,805 1,201 2,192 1,888 1,617 607 517 1,141 4,607 3,148 4,507 6,088 4,072 751 3,984 4,578 1,682 1,217 1,296 1,377 524 875 160 209 462 215 355 405 593 416 992 714 2,239 734 1,030 946 1,394 661 812 360 2,475 553 1,983 1,319 2,408 2,073 1,758 660 563 1,253 868 1,093 1,564 1,147 719 862 1,848 1,337 1,420 1,510 575 960 Costs Subsequent to Acquisition Land Building and Improvements Total 373 332 214 469 898 1,295 570 935 508 1,726 541 1,019 926 975 777 1,461 254 588 297 429 102 129 331 235 440 312 586 677 395 214 2,124 1,298 1,103 2,928 214 303 2,863 184 7 1 1 1,124 10 441 1,639 111 240 235 284 250 321 829 450 100 155 256 1,397 463 1,783 2,241 1,565 1,969 4,103 3,055 2,956 2,977 2,304 8,515 2,669 5,024 5,407 4,818 4,254 6,794 1,891 4,379 2,307 3,323 1,146 1,418 2,619 1,762 3,213 2,340 4,378 4,264 2,061 189 213 1,640 1,279 1,970 3,561 1,682 2,768 3,230 4,413 3,263 7,350 3,520 1,839 3,543 4,905 913 1,172 3,262 700 1,776 2,124 2,644 1,695 1,141 2,012 1,587 1,483 616 531 1,035 4,203 2,793 3,982 5,511 3,618 377 767 3,774 4,176 1,484 1,080 1,319 1,159 682 886 160 210 462 215 355 405 593 416 992 714 2,410 738 1,035 948 1,396 661 813 360 2,475 569 1,984 1,320 2,409 2,074 1,761 662 565 1,253 874 1,093 1,564 1,154 719 222 591 304 506 308 423 172 141 316 1 132 210 137 282 125 1 109 2 318 184 219 158 152 12 126 143 124 128 263 84 86 228 104 862 1,848 1,337 1,422 1,512 576 961 195 90 84 266 51 270 205 2,156 2,573 1,779 2,438 5,001 4,350 3,526 3,912 2,812 10,241 3,210 6,043 6,333 5,793 5,031 8,255 2,145 4,967 2,604 3,752 1,248 1,547 2,950 1,997 3,653 2,652 4,964 4,941 2,456 1,853 1,439 2,180 4,023 1,897 3,123 3,635 5,006 3,679 8,342 4,234 4,249 4,281 5,940 1,861 2,568 3,923 1,513 2,136 4,599 3,213 3,679 2,461 4,421 3,661 3,244 1,278 1,096 2,288 5,077 3,886 5,546 6,665 4,337 4,541 5,038 3,332 2,417 2,741 2,671 1,258 1,847 Accumulated Depreciation (F) 455 933 734 1,246 1,577 656 494 1,131 581 68 7 40 1,787 38 108 2,346 451 984 546 717 518 596 983 839 769 561 1,039 1,299 654 396 309 472 778 446 597 742 1,014 721 1,627 47 420 742 977 200 276 - 154 23 464 511 391 266 472 437 347 141 4 235 867 635 912 1,137 254 760 778 333 243 300 305 160 201 Year Acquired / Developed 2005 1980 1979 1988 1998 2006 2007 1996 2005 2012 2012 2012 2001 2012 2011 2001 2005 2005 2005 2006 1997 1997 1998 1998 2005 2005 2005 2001 2001 2005 2005 2005 2006 2006 2006 2005 2005 2006 2006 2012 2005 2006 2006 2005 2005 2012 2005 2012 2005 2006 2005 2005 2005 2005 2005 2005 2005 2005 2006 2005 2005 2006 2010 2006 2006 2005 2005 2005 2005 2005 2005 F-45 Initial Cost Gross Carrying Amount at December 31, 2012 Costs Subsequent to Acquisition Land Building and Improvements Total Description Houston V, TX Houston VI, TX Houston VII, TX Houston VIII, TX Keller, TX La Porte, TX Lewisville, TX Mansfield I, TX Mansfield II, TX McKinney I, TX McKinney II, TX North Richland Hills, TX Pearland, TX Roanoke, TX San Antonio I, TX San Antonio II, TX San Antonio III, TX Sherman I, TX Sherman II, TX Spring, TX Murray I, UT Murray II, UT Salt Lake City I, UT Salt Lake City II, UT Alexandria, VA Burke Lake, VA Fairfax, VA Fredericksburg I, VA Fredericksburg II, VA Leesburg, VA McLearen, VA Mannasas, VA Vienna, VA Milwaukee, WI Corporate Office USIFB Encum- brances 3,846 2,276 1,692 3,928 - (A) (A) (A) (A) 9,603 7,325 (E) (E) 4,721 Square Footage 126,180 54,680 54,882 53,630 61,885 44,850 58,140 63,075 58,400 47,020 70,050 57,200 72,249 59,500 73,305 73,230 71,775 54,975 48,425 72,751 60,280 71,221 56,446 51,676 114,650 90,927 73,650 69,475 61,207 85,503 69,240 73,045 54,318 58,500 25,485,304 Land 1,153 575 1,294 296 890 842 476 837 662 1,632 855 2,252 450 1,337 2,895 1,047 996 1,904 1,337 580 1,156 983 1,294 296 890 843 492 843 662 1,634 857 2,252 450 1,337 2,895 1,052 996 1,906 1,337 580 474 5,690 1 3 111 391 284 115 5 122 139 113 1 101 248 122 213 99 131 102 Building and Improvements 6,122 524 6,377 1,459 4,727 761 2,525 4,443 3,261 1,486 5,076 2,049 2,216 1,217 2,635 5,558 5,286 1,733 1,217 3,081 5,735 4,893 6,379 1,461 4,253 867 2,395 3,981 3,266 1,370 4,591 1,798 2,218 1,119 2,352 4,986 4,778 1,541 1,114 2,735 3,847 1,017 366 3,848 1,169 757 838 730 13,877 10,360 11,229 4,423 4,659 8,656 7,354 4,260 11,347 3,918 1,651 12,117 1,828,388 2,148 2,696 1,931 2,812 2,093 2,276 1,680 1,758 1,746 1,482 860 2,302 374 - - 462,626 349 303 347 12 1,016 9 256 289 50 109 51 6 205 1,651 12,117 219,849 567 712 548 13,865 10,940 11,220 4,840 5,062 9,894 8,400 4,872 11,340 4,333 2,147 2,695 2,074 2,812 2,093 2,276 1,680 1,757 1,746 1,482 860 2,300 375 1,846,769 440,812 Year Acquired / Developed 2006 2011 2012 2012 2006 2005 2006 2006 2012 2005 2006 2005 2012 2005 2005 2006 2007 2005 2005 2006 2005 2005 2005 2005 2012 2011 2012 2005 2005 2011 2010 2010 2012 2004 Accumulated Depreciation (F) 1,085 246 84 19 888 197 466 826 61 306 951 405 29 246 515 940 865 343 245 574 275 225 201 162 184 630 89 918 980 297 467 293 90 956 737 1,247 328,933 6,891 5,876 7,673 1,757 5,143 1,710 2,887 4,824 3,928 3,004 5,448 4,050 2,668 2,456 5,247 6,038 5,774 3,447 2,451 3,315 5,017 2,905 3,534 2,661 16,689 12,453 13,505 6,103 6,417 10,402 8,836 5,120 13,649 4,292 1,651 12,117 2,291,014 (A) This facility is part of the YSI 20 Loan portfolio, with a balance of $58,524 as of December 31, 2012. (B) This facility is part of the YSI 28 Loan portfolio, with a balance of $1,460 as of December 31, 2012. (C) This facility is part of the YSI 30 Loan portfolio, with a balance of $6,765 as of December 31, 2012. (D) This facility is part of the YSI 33 Loan portfolio, with a balance of $10,930 as of December 31, 2012. (E) This facility is part of the YSI 35 Loan portfolio, with a balance of $4,373 as of December 31, 2012. (F) Depreciation on the buildings and improvements is recorded on a straight-line basis over their estimated useful lives, which range from five to 39 years. The aggregate cost for Federal income tax purposes was approximately $2.3 billion and $2.0 billion at December 31, 2012 and 2011, respectively. F-46 Activity in real estate facilities during 2012, 2011, and 2010 was as follows (in thousands): Storage facilities* Balance at beginning of year ............................................ Acquisitions & improvements ......................................... Fully depreciated assets ................................................... Real estate venture ........................................................... Dispositions and other ...................................................... Construction in progress .................................................. Balance at end of year ...................................................... Accumulated depreciation* Balance at beginning of year ............................................ Depreciation expense ....................................................... Fully depreciated assets ................................................... Dispositions and other ...................................................... Balance at end of year ...................................................... Net Storage facility assets ................................................ 2012 2011 2010 $ $ $ $ $ 2,107,469 335,644 (25,415) 93,679 (71,265) 2,910 2,443,022 318,749 79,955 (25,415) (19,974) 353,315 2,089,707 $ $ $ $ $ 1,743,021 460,357 (43,770) — (56,458) 4,319 2,107,469 314,530 58,560 (43,770) (10,571) 318,749 1,788,720 $ $ $ $ $ 1,774,542 96,612 (79,211) — (49,865) 943 1,743,021 344,009 64,387 (79,211) (14,655) 314,530 1,428,491 * These amounts include equipment that is housed at the Company’s storage facilities. F-47  CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 31.1 I, Dean Jernigan, certify that: 1. I have reviewed this Annual Report on Form 10-K of CubeSmart; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Trustees (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 28, 2013 /s/ Dean Jernigan Dean Jernigan Chief Executive Officer CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 31.2 I, Timothy M. Martin, certify that: 1. I have reviewed this Annual Report on Form 10-K of CubeSmart; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Trustees (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 28, 2013 /s/ Timothy M. Martin Timothy M. Martin Chief Financial Officer CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 31.3 I, Dean Jernigan, certify that: 1. I have reviewed this Annual Report on Form 10-K of CubeSmart L.P.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Trustees (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 28, 2013 /s/ Dean Jernigan Dean Jernigan Chief Executive Officer CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 31.4 I, Timothy M. Martin, certify that: 1. I have reviewed this Annual Report on Form 10-K of CubeSmart L.P.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Trustees (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 28, 2013 /s/ Timothy M. Martin Timothy M. Martin Chief Financial Officer Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 32.1 The undersigned, the Chief Executive Officer and Chief Financial Officer of CubeSmart (the “Company”), each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (a) The Annual Report on Form 10-K of the Company for the year ended December 31, 2012 (the “Report”) filed on the date hereof with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 28, 2013 Date: February 28, 2013 /s/ Dean Jernigan Dean Jernigan Chief Executive Officer /s/ Timothy M. Martin Timothy M. Martin Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 32.2 The undersigned, the Chief Executive Officer and Chief Financial Officer of CubeSmart L.P. (the “Company”), each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (a) The Annual Report on Form 10-K of the Company for the year ended December 31, 2012 (the “Report”) filed on the date hereof with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 28, 2013 Date: February 28, 2013 /s/ Dean Jernigan Dean Jernigan Chief Executive Officer /s/ Timothy M. Martin Timothy M. Martin Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.   BOARD OF TRUSTEES EXECUTIVE OFFICERS CORPORATE INFORMATION Dean Jernigan Chief Executive Officer Transfer Agent Investor Relations American Stock Transfer & 460 East Swedesford Road Christopher P. Marr President, Chief Operating Officer and Chief Investment Officer Timothy M. Martin Chief Financial Officer Jeffrey P. Foster Senior Vice President, Chief Legal Officer and Secretary Trust Co., LLC Operations Center 6201 15th Avenue Brooklyn, NY 11219 877.237.6885 Stock Listing Suite 3000 Wayne, PA 19087 610.293.5700 Form 10-K The Annual Report on Form 10-K filed with the Securities CubeSmart trades on the and Exchange Commission New York Stock Exchange is available to shareholders under the symbol CUBE without charge upon written Annual Meeting request to: Investor Relations The annual meeting of 460 East Swedesford Road shareholders will be held at: Suite 3000 Four Seasons Hotel One Logan Square Philadelphia, PA 19103 on May 29, 2013 at Wayne, PA 19087 610.293.5700 Internet 8:00 a.m. Eastern Daylight Time Financial statements and other information are Corporate Headquarters available electronically on 460 East Swedesford Road CubeSmart’s web site at Suite 3000 Wayne, PA 19087 www.cubesmart.com William M. Diefenderfer III Chairman of the Board Partner, Diefenderfer, Hoover, Boyle & Wood Dean Jernigan Chief Executive Officer Piero Bussani General Counsel and Executive Vice-President, WHM, LLC Marianne M. Keler Partner, Keler-Kershow, PLLC David J. LaRue President and Chief Executive Officer, Forest City Enterprises, Inc. John F. Remondi President and Chief Operating Officer, SLM Corporation Jeffrey F. Rogatz Managing Director, Robert W. Baird & Co. John W. Fain Senior Vice President, Sales & Marketing (retired) UPS Freight CubeSmart submitted to the New York Stock Exchange the certification of the Chief Executive Officer certifying that he is not aware of any violation of the New York Stock Exchange corporate governance listing standards in effect at the time of the submission of such certificate. In addition, we have filed, as exhibits 31.1, 31.2, 31.3 and 31.4 to the Annual Report on Form 10-K for the year ended December 31, 2012, the certifications of the Chief Executive Officer and Chief Financial Officer, respectively, required by Section 302 of the Sarbanes-Oxley Act of 2002 regarding the quality of CubeSmart and CubeSmart L.P.’s public disclosure. Forward-looking Statements This Annual Report contains certain forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, future events and actual results, performance, transactions or achievements, financial and otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forwardlooking statements. Risk, uncertainties and other factors that might cause such differences, some of which could be material, include but are not limited to: national and local economic, business, real estate and other market conditions; the competitive environment in which the Company operates; the execution of the Company's business plan; financing risks, including the risk of over-leverage and the corresponding risk of default on our mortgage and other debt; increases in interest rates and operating costs; the Company's ability to maintain its status as a REIT for federal income tax purposes; acquisition and development risks; changes in real estate and zoning laws or regulations; risks related to natural disasters; potential environmental and other liabilities; and other factors affecting the real estate industry generally or the self-storage industry in particular; and other risks identified in this Annual Report and, from time to time, in other reports we file with the Securities and Exchange Commission or in other documents that we publicly disseminate. We undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise except as may be required by securities laws. (cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:5)(cid:10)(cid:11)(cid:12)(cid:13)(cid:12)(cid:8)(cid:14)(cid:15)(cid:16)(cid:13)(cid:5)(cid:17)(cid:15)(cid:7)(cid:13)(cid:5) (cid:10)(cid:18)(cid:19)(cid:9)(cid:12)(cid:5)(cid:20)(cid:4)(cid:4)(cid:4)(cid:5) (cid:21)(cid:7)(cid:22)(cid:23)(cid:12)(cid:24)(cid:5)(cid:25)(cid:26)(cid:5)(cid:27)(cid:28)(cid:4)(cid:29)(cid:30)(cid:5) (cid:5) (cid:11)(cid:11)(cid:11)(cid:31) (cid:18)!(cid:12)(cid:8)"(cid:7)(cid:16)(cid:9)(cid:31) (cid:15)"(cid:5) 

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