Section 1: ARS (ARS)
Table of Contents
2016 Annual Report
Table of Contents
Table of Contents
(NYSE: CUBE)
CubeSmart (NYSE: CUBE), headquartered in Malvern, Pennsylvania, is one of the largest owners and operators of self-storage properties in the
United States. CubeSmart is organized as a Maryland real estate investment trust (“REIT”). Our stores are designed to offer affordable, easily
accessible, and secure storage space for our residential and commercial Customers. As of December 31, 2016, we owned 475 self-storage
properties located in 23 states and the District of Columbia containing an aggregate of approximately 32.9 million rentable square feet. In addition,
as of December 31, 2016, we managed 316 stores for third parties, bringing the total number of stores we operate to 791.
In 2016, we continued to deliver on our core strategic objectives of:
· Producing robust organic growth through a deep operating platform and sound fundamental execution;
· Growing our portfolio of high-quality, well-positioned storage assets concentrated in targeted investment markets with high barriers to
entry and the most attractive long-term prospects; and
· Maintaining a conservative, unsecured balance sheet that provides an attractive long-term cost of capital and the flexibility to support
our external growth objectives.
Our focus on these core strategic objectives produced a fourth year of historically strong growth. Funds from operations per share, as adjusted,
increased 15.2% and operating cash flow growth supported a 28.6% increase in our annualized common dividend, while still maintaining the lowest
payout ratio in the sector.
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 an exceptional experience to both internal and external Customers. These efforts have resulted in external recognition for outstanding Customer
service — namely, a Stevie Award for Customer Service Department of the Year for the fifth year in a row, the 2017 People’s Choice Stevie Award
for Favorite Customer Service, and the 2016 ISS Best in Business Best Customer Service Award. Our more than 2,100 dedicated teammates serve
with passion and exceed expectations to deliver our Customer-centric service model every day.
We remain committed to building upon our exceptional operating platform, which sets us apart in an industry characterized by broad
fragmentation, generic service offerings, and relatively unsophisticated systems. In 2016, we continued to refine our digital marketing platform and
benefited from increased overall website traffic, improved conversion rates, and greater efficiency of our marketing spend. Our award-winning
National Sales Center continued to set new records for reservation conversion rates, aided by our internally designed Customer relationship
management system. Finally, we continue to enhance our revenue management process, ensuring that we maximize the revenue potential from
every Customer demand opportunity.
As a result of these initiatives, same-store net operating income (“NOI”) grew by 10.2% in 2016, driven by effective rent growth and all-time-high
occupancy levels generating 7.0% revenue growth and a 0.3% decrease in annual operating expenses due to favorable weather-related costs and
property insurance renewals. Our same-store results are even more remarkable when you consider our same-store NOI growth was 9.6% in 2015,
9.6% in 2014 and 9.3% in 2013.
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A Portfolio of High-Quality, Well-Positioned Storage Assets
CubeSmart’s portfolio is concentrated in targeted, high-barrier-to-entry investment markets, including an industry leading market share in New
York City. Our external growth strategy is focused on acquiring existing cash-flowing properties, acquiring newly constructed, purpose built stores
from merchant builders at the completion of construction, and entering into selective development opportunities with joint-venture partners. In
2016, we continued to enhance our portfolio quality through the acquisition of 25 existing stores for a total of $334.2 million. We purchased three
stores upon the completion of construction and the issuance of a certificate of occupancy for $69.4 million. Additionally, we opened for operation
two new joint venture development properties in 2016 for a total investment of $64.0 million. Going forward, we expect to selectively invest in
additional store acquisitions, new development properties, and joint ventures that generate attractive risk-adjusted returns for the Company.
Our third-party management platform has been, and continues to be, an important part of our portfolio growth and strategy. We continue to see
significant and growing interest from private owners who recognize the benefit of CubeSmart’s brand, scale advantage and sophisticated
operating platform. During the past year, the number of stores in our third-party management program grew by 39.2%, from 227 at the end of 2015
to 316 at the end of 2016.
Importantly, our third-party management platform serves as an attractive pipeline for acquisition opportunities. Since the launch of our third-party
management program in 2010, stores acquired from the program have accounted for over $570 million of acquisition volume. This platform,
combined with our deep industry relationships and disciplined investment process, provides us with a significant competitive advantage as we
pursue our external growth objectives.
A Conservative, Unsecured Balance Sheet
We have long communicated our objective of maintaining an unsecured balance sheet that affords significant financing and portfolio management
flexibility, while supporting an attractive long-term cost of capital. During 2016, both Moody’s and Standard & Poor’s maintained the Company’s
credit ratings of Baa2/BBB, respectively. The Company finished 2016 with debt to total gross assets of 38.5% and a secured debt balance that
represented just 2.8% of our total gross asset value.
CubeSmart’s financial position remains strong and we have proven access to the full array of capital resources. To support our external growth
initiatives in 2016, we prudently utilized our “at-the-market” equity program to sell common shares, raising $136.1 million in net proceeds, and
completed our fourth public offering of unsecured senior notes, raising $300.0 million. We also used a portion of the senior note proceeds to
redeem all $77.5 million of our outstanding 7.75% Series A preferred shares to lower our long-term cost of capital. Looking forward, we expect to
continue to fund growth in a manner that maintains credit metrics consistent with our investment grade ratings.
Value Creation
At CubeSmart, we are committed to enhancing our high-quality portfolio, sophisticated operating platform, and award-winning Customer service
culture. During 2016, we expanded our portfolio in targeted high-barrier markets, delivered historically strong same-store growth, and received
national recognition for our Customer service efforts. Demand for self storage remains healthy and we believe our national portfolio is well
positioned to meet the competitive challenges of new supply. We thank you for your interest and support as we continue to create long-term value
for our shareholders.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
xxxx ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2016
OR
oooo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 001-32324 (CubeSmart)
Commission file number 000-54462 (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)
5 Old Lancaster Road
Malvern, Pennsylvania
(Address of Principal Executive Offices)
20-1024732 (CubeSmart)
34-1837021 (CubeSmart, L.P.)
(IRS Employer
Identification No.)
19355
(Zip Code)
Registrant’s telephone number, including area code (610) 535-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Shares, $0.01 par value per share, of CubeSmart
Name of each exchange on which registered
New York Stock Exchange
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 x No o
Yes x No o
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 o No x
Yes o No x
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
CubeSmart
CubeSmart, L.P.
Yes x No o
Yes x No o
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 x No o
Yes x No o
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 x No o
Yes x No o
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 x
CubeSmart, L.P.:
Large accelerated filer o
Non-accelerated filer x
Non-accelerated filer o
Accelerated filer o
Accelerated filer o
Smaller reporting company o
Smaller reporting company o
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 o No x
Yes o No x
As of June 30, 2016, 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 $5,504,356,819. As of February 15, 2017, the number of common shares of CubeSmart outstanding was 180,171,863.
As of June 30, 2016, the last business day of CubeSmart, L.P.’s most recently completed second fiscal quarter, the aggregate market value of the 2,220,874
units of limited partnership (the “OP Units”) held by non-affiliates of CubeSmart, L.P. was $68,580,589 based upon the last reported sale price of $30.88 per
share on the New York Stock Exchange on June 30, 2016 of the common shares of CubeSmart, the sole general partner of CubeSmart, L.P. (For this computation,
the market value of all OP Units beneficially owned by CubeSmart has been excluded.)
Documents incorporated by reference: Portions of the Proxy Statement for the 2017 Annual Meeting of Shareholders of CubeSmart to be filed subsequently
with the SEC are incorporated by reference into Part III of this report.
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EXPLANATORY NOTE
This report combines the annual reports on Form 10-K for the year ended December 31, 2016 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, and/or the
Operating Partnership.
The Parent Company is the sole general partner of the Operating Partnership and, as of December 31, 2016, owned a 98.9% interest in the
Operating Partnership. The remaining 1.1% interest consists of common units of limited partnership interest 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 are identical, and their constituents are officers of both the Parent Company and of the Operating Partnership.
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. 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. 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 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 equity, while the Operating Partnership is a partnership with no publicly traded equity. 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). Apart from the different equity treatment, the consolidated financial statements of the Parent Company and the
Operating Partnership are nearly identical.
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, and the Parent Company does not have significant assets other than its investment in the Operating Partnership. Therefore,
the assets and liabilities of the Parent Company and the Operating Partnership are the same on their respective financial
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2
statements. 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 sections, signature pages and 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 the
Parent Company and the Chief Executive Officer and the Chief Financial Officer of the Operating Partnership have made the requisite certifications
and that the Parent Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”) and 18 U.S.C. §1350.
3
TABLE OF CONTENTS
Table of Contents
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mining Safety Disclosures
Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
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
Item 16.
Form 10-K Summary
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4
PART I
Forward-Looking Statements
5
6
12
24
24
36
36
37
37
39
44
59
59
59
60
61
61
61
61
61
61
62
62
62
67
This Annual Report on Form 10-K, or this Report, together with 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 Exchange Act. Forward-looking statements include statements concerning the Company’s plans, objectives,
goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions
and other information that is not historical information. In some cases, forward-looking statements can be identified by terminology such as
“believes”, “expects”, “estimates”, “may”, “will”, “should”, “anticipates”, or “intends” or the negative of such terms or other comparable
terminology, or by discussions of strategy. 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. As a result, you should not rely on or construe any
forward-looking statements in this Report, or which management may make orally or in writing from time to time, as predictions of future events or
as guarantees of future performance. We caution you not to place undue reliance on forward-looking statements, which speak only as of the date
of this Report or as of the dates otherwise indicated in the statements. All of our forward-looking statements, including those in this Report, are
qualified in their entirety by this statement.
There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements
contained in or contemplated by this Report. Any forward-looking statements should be considered in light of the risks and uncertainties referred
to in Item 1A. “Risk Factors” in this Report and in our other filings with the Securities and Exchange Commission (“SEC”). These risks include, but
are not limited to, the following:
· 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 occupancy and 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 REIT for federal income tax purposes;
· acquisition and development risks;
· increases in taxes, fees, and assessments from state and local jurisdictions;
· risks of investing through joint ventures;
· 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
5
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· other risks identified in this Report and, from time to time, in other reports that 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. Because of the factors referred to above, the future events
discussed in or incorporated by reference in this Report may not occur and actual results, performance or achievement could differ materially from
that anticipated or implied in the forward-looking statements.
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 properties in the United States.
As of December 31, 2016, we owned 475 self-storage properties located in 23 states and in the District of Columbia containing an aggregate of
approximately 32.9 million rentable square feet. As of December 31, 2016, approximately 89.7% of the rentable square footage at our owned stores
was leased to approximately 269,000 customers, and no single customer represented a significant concentration of our revenues. As of
December 31, 2016, we owned stores in the District of Columbia and the following 23 states: Arizona, California, Colorado, Connecticut, Florida,
Georgia, Illinois, Indiana, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania,
Rhode Island, Tennessee, Texas, Utah, and Virginia. In addition, as of December 31, 2016, we managed 316 stores for third parties (including 116
stores containing an aggregate of approximately 6.8 million rentable square feet as part of three separate unconsolidated real estate ventures)
bringing the total number of stores we owned and/or managed to 791. As of December 31, 2016, we managed stores for third parties in the
following 26 states: Alabama, Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Louisiana, Maryland, Massachusetts, Michigan,
Mississippi, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas,
Vermont, and Virginia.
Our self-storage properties 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 stores offer outside
storage areas for vehicles and boats. Our stores 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 stores have a storage associate available to assist our customers during
business hours, and 285, or approximately 60.0%, of our owned stores have a manager who resides in an apartment at the store. Our customers
can access their storage cubes during business hours, and some of our stores provide customers with 24-hour access through computer-
controlled access systems. Our goal is to provide customers with the highest standard of physical attributes and service in the industry. To that
end, 401, or approximately 84.4%, of our owned stores include climate-controlled cubes.
The Parent Company was formed in July 2004 as a Maryland REIT. The Parent Company owns its assets and conducts its business through the
Operating Partnership, and its subsidiaries. The Parent Company controls the Operating Partnership as its sole general partner and, as of
December 31, 2016, owned an approximately 98.9% interest in the Operating Partnership. The Operating Partnership was formed in July 2004 as a
Delaware limited partnership and has been engaged in virtually all aspects of the self-storage business, including the development, acquisition,
management, ownership and operation of self-storage properties.
Acquisition and Disposition Activity
As of December 31, 2016 and 2015, we owned 475 and 445 stores, respectively, that contained an aggregate of 32.9 million and 30.4 million
rentable square feet with occupancy rates of 89.7% and 90.2%, respectively. A complete listing of, and additional information about, our stores is
included in Item 2 of this Report. The following is a summary of our 2016, 2015 and 2014 acquisition and disposition activity:
6
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Asset/Portfolio
2016 Acquisitions:
Metro DC Asset
Texas Assets
New York Asset
Texas Asset
Connecticut Asset
Texas Asset
Florida Assets
Colorado Asset
Texas Asset
Texas Asset
Texas Asset
Illinois Asset
Illinois Asset
Massachusetts Asset
Nevada Assets
Arizona Asset
Minnesota Asset
Colorado Asset
Texas Asset
Texas Asset
Nevada Asset
North Carolina Asset
Arizona Asset
Nevada Asset
2015 Acquisitions:
Market
Transaction Date
Number of
Stores
Purchase / Sale
Price
(in thousands)
Baltimore / DC
Texas Markets - Major
New York / Northern NJ
Texas Markets - Major
Connecticut
Texas Markets - Major
Florida Markets - Other
Denver
Texas Markets - Major
Texas Markets - Major
Texas Markets - Major
Chicago
Chicago
Massachusetts
Las Vegas
Phoenix
Minneapolis
Denver
Texas Markets - Major
Texas Markets - Major
Las Vegas
Charlotte
Phoenix
Las Vegas
January 2016
January 2016
January 2016
January 2016
February 2016
March 2016
March 2016
April 2016
April 2016
May 2016
May 2016
May 2016
May 2016
June 2016
July 2016
August 2016
August 2016
August 2016
September 2016
September 2016
October 2016
November 2016
November 2016
December 2016
1
2
1
1
1
1
3
1
1
1
1
1
1
1
2
1
1
1
1
1
1
1
1
1
28
$
$
21,000
24,800
48,500
11,600
19,000
11,600
47,925
11,350
11,600
10,100
10,800
12,350
16,000
14,300
23,200
14,525
15,150
15,600
6,100
5,300
13,250
10,600
14,000
14,900
403,550
Texas Asset
HSRE Assets
Arizona Asset
Tennessee Asset
Texas Asset
Florida Asset
Arizona Asset
Florida Asset
Texas Asset
Maryland Asset
Maryland Asset
New York/New Jersey Assets
New Jersey Asset
PSI Assets
2015 Dispositions:
Texas Assets
Florida Asset
2014 Acquisitions:
Connecticut Asset
Florida Asset
Florida Assets
California Asset
Maryland Asset
Maryland Asset
Arizona Asset
Pennsylvania Asset
Texas Asset
Texas Asset
New York Assets
Florida Asset
Massachusetts Asset
Indiana Asset
Florida Assets
Florida Assets
Massachusetts Asset
Texas Asset
Texas Asset
Texas Asset
HSRE Assets
Texas Asset
Florida Assets
New York Asset
Texas Asset
Table of Contents
Texas Markets - Major
Chicago
Arizona / Las Vegas
Tennessee
Texas Markets - Major
Florida Markets - Other
Arizona / Las Vegas
Florida Markets - Other
Texas Markets - Major
Baltimore / DC
Baltimore / DC
New York / Northern NJ
New York / Northern NJ
Various (see note 4)
February 2015
March 2015
March 2015
March 2015
April 2015
May 2015
June 2015
June 2015
July 2015
July 2015
July 2015
August 2015
December 2015
December 2015
Texas Markets - Major
Florida Markets - Other
October 2015
October 2015
Connecticut
Miami / Ft. Lauderdale
Florida Markets - Other
Other West
Baltimore / DC
Baltimore / DC
Arizona / Las Vegas
Philadelphia / Southern NJ
Texas Markets - Major
Texas Markets - Major
New York / Northern NJ
Florida Markets - Other
Other Northeast
Other Midwest
Florida Markets - Other
Florida Markets - Other
Boston
Texas Markets - Major
Texas Markets - Major
Texas Markets - Major
Various (see note 4)
Texas Markets - Major
Florida Markets - Other
New York / Northern NJ
Texas Markets - Major
7
January 2014
January 2014
January 2014
January 2014
February 2014
February 2014
March 2014
March 2014
March 2014
April 2014
April 2014
April 2014
April 2014
May 2014
June 2014
July 2014
September 2014
October 2014
October 2014
October 2014
November 2014
December 2014
December 2014
December 2014
December 2014
1
4
1
1
1
1
1
1
1
1
1
2
1
12
29
7
1
8
1
1
2
1
1
1
1
1
1
1
2
1
1
1
3
2
1
1
1
1
22
1
3
1
1
53
$
$
$
$
$
$
7,295
27,500
7,900
6,575
15,795
7,300
10,100
10,500
14,200
17,000
19,200
24,823
14,350
109,824
292,362
28,000
9,800
37,800
4,950
14,000
14,450
8,300
15,800
15,500
14,750
7,350
8,225
6,450
55,000
11,406
11,100
8,400
35,000
15,800
23,100
7,700
8,500
7,750
195,500
18,650
18,200
38,000
4,345
568,226
The comparability of our results of operations is affected by the timing of acquisition and disposition activities during the periods reported. As
of December 31, 2016, 2015, and 2014, we owned 475, 445, and 421 self-storage properties and related assets, respectively. The following table
summarizes the change in number of owned stores from January 1, 2014 through December 31, 2016:
Balance - January 1
Stores acquired
Stores developed
Balance - March 31
Stores acquired
Stores developed
Balance - June 30
Stores acquired
Balance - September 30
2016
2015
2014
445
10
1
456
7
1
464
7
471
421
7
—
428
4
1
433
5
438
366
10
2
378
9
—
387
3
390
Stores acquired
Stores developed
Stores sold
Balance - December 31
Financing and Investing Activities
4
—
—
475
13
2
(8 )
445
31
—
—
421
The following summarizes certain financing and investing activities during the year ended December 31, 2016:
· Store Acquisitions. During 2016, we acquired 28 self-storage properties located throughout the United States for an aggregate
purchase price of approximately $403.6 million. In connection with these acquisitions, we allocated a portion of the purchase price
paid for each store to the intangible value of in-place leases which aggregated to $18.8 million.
· Development Activity. During 2016, we completed construction and opened for operation two stores developed through two
separate joint ventures. Both of the self-storage properties are located in New York. We invested a total of $64.0 million in the
development of these two stores. Subsequent to the opening of the stores, the noncontrolling members put their 49% ownership
interest in each venture to us. As of December 31, 2016, we had five joint venture development properties and two wholly-owned
development properties under construction. We anticipate investing a total of $303.5 million related to these seven projects, and
construction for all projects is expected to be completed by the fourth quarter of 2018.
· Development Commitments. During 2016, we acquired three self-storage properties in New York (1) and Texas (2) for an aggregate
purchase price of $69.4 million after the completion of construction and the issuance of the certificate of occupancy. During 2016, we
also entered into contracts to purchase one store in Florida and one store in Illinois after the completion of construction and the
issuance of the certificate of occupancy. As of December 31, 2016, we had four stores under contract, including two stores that went
under contract in 2015, for a total acquisition price of $61.1 million. These four acquisitions are subject to due diligence and other
customary closing conditions and no assurance can be provided that these acquisitions will be completed on the terms described, or
at all.
· At-The-Market Equity Program. During 2016, under our at-the-market equity program, we sold a total of 4.4 million common shares
at an average sales price of $31.25 per share, resulting in net proceeds under the program of $136.1 million, after deducting offering
costs. As of December 31, 2016, 5.8 million common shares remained available for sale under the program. The proceeds from the
sales conducted during the year ended December 31, 2016 were used to fund acquisitions of self-storage properties and for general
corporate purposes.
· Preferred Share Redemption. On November 2, 2016, we completed the redemption of all of our 3,100,000 outstanding shares of 7.75%
Series A Cumulative Redeemable Preferred Shares at a cash redemption price of $25.00 per share plus accumulated and unpaid
dividends. The redemption price of $77.5 million was paid by the Company from available cash balances.
· Debt Offering. On August 15, 2016, we completed the issuance and sale of $300.0 million in aggregate principal amount of unsecured
senior notes due September 1, 2026 which bear interest at a rate of 3.125% per annum. Net proceeds from the
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offering were used to repay outstanding indebtedness under our Revolver (defined below) and for general corporate purposes,
including acquisitions, investments in joint ventures, and repayment or repurchase of other indebtedness.
· Mortgage Loans. During 2016, we repaid five mortgage loans aggregating $34.9 million and assumed two mortgage loans with a
combined outstanding principal balance of $38.5 million as of December 31, 2016.
Business Strategy
Our business strategy consists of several elements:
· Maximize cash flow from our stores — Our operating strategy focuses on maximizing sustainable rents at our stores 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 stores within targeted markets — During 2017, 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. In the past, we have formed joint ventures with unaffiliated third parties, and in the future we may form additional joint ventures
to facilitate the funding of future developments or acquisitions.
· Dispose of stores — During 2017, we intend to continue to evaluate opportunities to reduce exposure in slower growth, lower barrier-to-
entry markets. We intend to use proceeds from these transactions to fund acquisitions within targeted markets.
· Grow our third-party management business — We intend to pursue additional third-party management opportunities. 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 properties. Our investment committee,
comprised of five senior officers and led by Christopher P. Marr, 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, the
approval of our Board of Trustees (the “Board”)), 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
stores, or where we believe that we can acquire a significant number of stores efficiently and within a short period of time. We evaluate
both the broader market and the immediate area, typically three miles around the store, 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 Mid-
Atlantic areas of the United States and areas within Georgia, Florida, Texas, Illinois, and California, and to enter additional markets should
suitable opportunities arise.
· Quality of store — We focus on self-storage properties 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 stores, 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 stores.
Segment
We have one reportable segment: we own, operate, develop, manage, and acquire self-storage properties.
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Concentration
Our self-storage properties are located in major metropolitan areas as well as suburban areas and have numerous customers per store. No single
customer represented a significant concentration of our 2016 revenues. Our stores in Florida, New York, Texas, and California provided
approximately 17%, 16%, 10% and 8%, respectively, of our total 2016 revenues and approximately 18%, 16%, 10% and 8%, respectively, of our total
2015 revenues.
Seasonality
We typically experience seasonal fluctuations in occupancy levels at our stores, with the levels generally slightly higher during the summer
months due to increased moving activity.
Financing Strategy
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, 2016, 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, preferred shares and
units of the Operating Partnership held by third parties and (b) the carrying value of our total indebtedness) was approximately 24.7% compared to
approximately 18.5% as of December 31, 2015. Our ratio of debt to the undepreciated cost of our total assets as of December 31, 2016 was
approximately 38.5% compared to approximately 33.8% as of December 31, 2015. We expect to finance additional investments in self-storage
properties through the most attractive sources of capital available at the time of the transaction, in a manner consistent with maintaining a strong
financial position and future financial flexibility, subject to limitations on incurrence of indebtedness in our unsecured credit facilities and the
indenture that governs our unsecured notes. These capital sources may include existing cash, borrowings under the Revolver, additional secured
or unsecured financings, sales of common or preferred shares of the Parent Company in public offerings or private placements, additional
issuances of debt securities, issuances of common or preferred units in our Operating Partnership in exchange for contributed properties, and
formations of joint ventures. We also may sell stores that we no longer view as core assets and use the sales proceeds to fund other acquisitions.
Competition
Self-storage properties compete based on a number of factors, including location, rental rates, security, suitability of the store’s design to
prospective customers’ needs, and the manner in which the store is operated and marketed. In particular, the number of competing self-storage
properties in a market could have a material effect on our occupancy levels, rental rates and on the overall operating performance of our stores.
We believe that the primary competition for potential customers of any of our self-storage properties comes from other self-storage properties
within a three-mile radius of that store. We believe our stores are well-positioned within their respective markets, and we emphasize customer
service, convenience, security, professionalism, and cleanliness.
Our key competitors include local and regional operators as well as the other public self-storage REITS, including Public Storage, Extra Space
Storage Inc., and Life Storage, Inc. These companies, some of which operate significantly more stores than we do and have greater resources than
we have, and other entities may be able to accept more risk than we determine is prudent for us, including risks with respect to the geographic
proximity of investments and the payment of higher acquisition prices. This competition may reduce the number of suitable acquisition
opportunities available to us, increase the price required to acquire stores, and reduce the demand for self-storage space at our stores.
Nevertheless, we believe that our experience in operating, managing, acquiring, developing, and obtaining financing for self-storage properties
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 regulations that apply generally to the ownership of real property and the operation of self-storage properties.
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 stores. 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 stores 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
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of our stores 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 stores into compliance.
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 properties 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 properties. Whenever the
environmental assessment for one of our stores indicates that a store 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 store 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, we have purchased environmental liability
insurance coverage to indemnify us 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 provide assurance,
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
stores, nor have we been notified of a claim for personal injury or property damage by a private party in connection with any of our stores relating
to environmental conditions.
We are not aware of any environmental condition with respect to any of our stores 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 provide assurance, 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 properties in our portfolio. We carry
environmental insurance coverage on certain stores 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, flood and environmental hazards, because such coverage is either not available or 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 at our stores as well as director and officer liability insurance.
Offices
Our principal executive offices are located at 5 Old Lancaster Road, Malvern, PA 19355. Our telephone number is (610) 535-5000.
Employees
As of December 31, 2016, we employed 2,136 employees, of whom 292 were corporate executive and administrative personnel and 1,844 were
property-level personnel. We believe that our relations with our employees are good. Our employees are not unionized.
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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 charge, copies of our annual report on Form 10-K, our
quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to those reports, 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 Report.
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 — 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 5 Old Lancaster Road, Malvern, PA 19355.
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 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. Adverse economic
conditions affecting disposable consumer income, such as employment levels, business conditions, interest rates, tax rates, and 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 disruptions 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 economic and other conditions of the markets in which our stores 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 stores in Florida, New York, Texas, and California accounted for
approximately 17%, 16%, 10% and 8%, respectively, of our total 2016 revenues. As a result of this geographic concentration of our stores, 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
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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 property acquisitions.
We intend to continue to acquire individual and portfolios of self-storage properties. The purchase agreements that we enter into in connection
with acquisitions typically contain closing conditions that need to be satisfied before the acquisitions can be consummated. The satisfaction of
many of these conditions is outside of our control, and we therefore cannot assure you that any of our pending or future acquisitions will be
consummated. These conditions include, among other things, satisfactory examination of the title to the properties, the ability to obtain title
insurance and customary closing conditions. Moreover, in the event we are unable to complete pending or future acquisitions, we may have
incurred significant legal, accounting, and other transaction costs in connection with such acquisitions without realizing the expected benefits.
Those acquisitions that we do consummate 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:
· acquisitions may fail to perform as expected;
· the actual costs of repositioning or redeveloping acquired properties 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; and
· there is only limited recourse, or no recourse, to the former owners of newly acquired properties for unknown or undisclosed liabilities
such as the clean-up of undisclosed environmental contamination; claims by customers, vendors, or other persons arising on account of
actions or omissions of the former owners of the properties; and claims by local governments, adjoining property owners, property owner
associations, and easement holders for fees, assessments, or taxes on other property-related changes. As a result, if a liability were
asserted against us based upon ownership of an acquired property, 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 properties (and instead rely on value determinations by our senior
management) and the consideration we pay in exchange for those properties may exceed the value determined by third-party appraisals.
We will incur costs and will face integration challenges when we acquire additional stores.
As we acquire or develop additional self-storage properties, we will be subject to risks associated with integrating and managing new stores,
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 stores that lack operating history with us will make it more difficult to predict revenue potential.
We intend to continue to acquire additional stores. 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 store up to the standards
established for our intended market position, the performance of the store may be below expectations. Acquired stores may have characteristics or
deficiencies affecting their valuation or revenue potential that we have not yet discovered. We cannot assure that the performance of stores
acquired by us will increase or be maintained under our management.
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Our development activities may be more costly or difficult to complete than we anticipate.
13
We intend to continue to develop self-storage properties where market conditions warrant such investment. Once made, these investments may
not produce results in accordance with our expectations. Risks associated with development and construction activities include:
· the unavailability of favorable financing sources in the debt and equity markets;
· construction cost overruns, including on account of rising interest rates, diminished availability of materials and labor, and increases in
the costs of materials and labor;
· construction delays and failure to achieve target occupancy levels and rental rates, resulting in a lower than projected return on our
investment; and
· complications (including building moratoriums and anti-growth legislation) in obtaining necessary zoning, occupancy, and other
governmental permits.
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 stores, satisfy our debt obligations, and/or make distributions to shareholders.
We depend on external sources of capital to fund acquisitions and 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 properties 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 stores and any other stores 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 stores 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.
We cannot assure 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. Our ability to pay dividends will depend upon, among other factors:
· the operational and financial performance of our stores;
· capital expenditures with respect to existing and newly acquired stores;
· 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 Report.
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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 properties 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.
Store 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 stores 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 customers and acquisition and development opportunities.
Actions by our competitors may decrease or prevent increases of the occupancy and rental rates of our stores. We compete with numerous
developers, owners, and operators of self-storage properties, including other REITs, some of which own or may in the future own stores similar to
ours in the same submarkets in which our stores are located and some of which may have greater capital resources. In addition, due to the
relatively low cost of each individual self-storage property, other developers, owners, and operators have the capability to build additional stores
that may compete with our stores.
If our competitors build new stores that compete with our stores or offer space at rental rates below the rental rates we currently charge our
customers, we may lose potential customers, and we may be pressured to reduce our rental rates below those we currently charge in order to retain
customers when our customers’ leases expire. As a result, our financial condition, cash flow, cash 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 stores 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 stores. 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 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 stores 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.
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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, internet domains, 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 property and the future cash flows from
the property.
We carry comprehensive liability, fire, extended coverage, and rental loss insurance covering all of the 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, 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 store that is uninsured or that exceeds policy limits, we could lose the
capital invested in that store as well as the anticipated future cash flows from that store. 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 store after it
has been damaged or destroyed. In addition, if the damaged stores are subject to recourse indebtedness, we would continue to be liable for the
indebtedness, even if these stores were irreparably damaged.
Our insurance coverage may not comply with certain loan requirements.
Certain of our stores serve as collateral for our mortgage-backed debt, some of which we assumed in connection with our acquisition of stores
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.
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 properties. 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 property 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 property or to borrow using such property as collateral.
In addition, in connection with the ownership, operation, and management of 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 stores. We
carry environmental insurance coverage on certain stores 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 stores).
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 that our environmental assessments have identified or will identify all
material environmental conditions, that any prior owner of any property 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 properties.
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16
Americans with Disabilities Act and applicable state accessibility act compliance may require unanticipated expenditures.
Under 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 properties. 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 properties 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
properties 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 properties 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 and Internet commerce, and many of our new customers
come from the telephone or over the Internet. Moreover, the nature of our business involves the receipt and retention of personal information
about our customers. We also rely extensively on third-party vendors to retain data, process transactions and provide other systems and
services. These systems, and our systems, are subject to damage or interruption from power outages, computer and telecommunications failures,
computer viruses, malware, and other destructive or disruptive security breaches and catastrophic events, such as a natural disaster or a terrorist
event or cyber-attack. In addition, experienced computer programmers and hackers may be able to penetrate our security systems and
misappropriate our confidential information, create system disruptions, or cause shutdowns. Such data security breaches as well as system
disruptions and shutdowns could result in additional costs to repair or replace such networks or information systems and possible legal liability,
including government enforcement actions and private litigation. In addition, our customers could lose confidence in our ability to protect their
personal information, which could cause them to discontinue leasing at our self-storage properties.
If we are unable to attract and retain team members or contract with third parties having the specialized skills or technologies needed to support
our systems, implement improvements to our customer-facing technology in a timely manner, allow accurate visibility to product availability when
customers are ready to rent, quickly and efficiently fulfill our customers rental and payment methods they demand, or provide a convienent and
consistent experience for our customers regardless of the ultimate sales channel, our ability to compete and our results of operations could be
adversely affected.
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 stores, 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 and increase the cost of insurance coverage for our stores, 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.
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Risks Related to the Real Estate Industry
17
Our performance and the value of our self-storage properties 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 stores 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 properties 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 real estate portfolio consists primarily of self-storage properties, 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 could be adversely affected by weakness in the national, regional, and local
economies, changes in supply of, or demand for, similar or competing self-storage properties 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.
Because real estate is illiquid, we may not be able to sell propeties when appropriate.
Real estate property investments generally cannot be sold quickly. Also, the tax laws applicable to REITs require that we hold our properties for
investment, rather than for sale in the ordinary course of business, which may cause us to forgo or defer sales of properties that otherwise would
be in our best interest. Therefore, we may not be able to dispose of properties promptly, or on favorable terms, in response to economic or other
market conditions, which may adversely affect our financial position.
18
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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 Report 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
and joint ventures 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. Changes to rules governing REITS were made by the Protecting
Americans From Tax Hikes Act of 2015, signed into law on December 18, 2015, and Congress and the IRS might make further 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.
Furthermore, as a result of our acquisition of all the issued and outstanding shares of common stock of a privately held self-storage REIT
(“PSI”), we now own a subsidiary REIT. PSI is independently subject to, and must comply with, the same REIT requirements that we must satisfy
in order to qualify as a REIT, together with all other rules applicable to REITs. If PSI fails to qualify as a REIT and certain statutory relief provisions
do not apply, as a result of a protective election made jointly by PSI and CubeSmart, PSI will be taxed as a taxable REIT subsidiary. See the section
entitled “Taxation of CubeSmart-Requirements for Qualification-Taxable REIT Subsidiaries” in Exhibit 99.1 for more information regarding taxable
REIT subsidiaries.
Failure of the Operating Partnership (or a subsidiary partnership or joint venture) 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 or joint ventures for
federal income tax purposes, the Operating Partnership or the affected subsidiary partnership or joint venture 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, a subsidiary partnership, or
joint venture 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, excluding
net capital gains, 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.
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19
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 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.
Legislative or regulatory tax changes related to REITs could materially and adversely affect our business.
At any time, the federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be
changed, possibly with retroactive effect. We cannot predict if or when any new federal income tax law, regulation or administrative interpretation,
or any amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become
effective or whether any such law, regulation or interpretation may take effect retroactively. We and our shareholders could be adversely affected
by any such change in, or any new, federal income tax law, regulation or administrative interpretation.
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
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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.
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; there
can be no assurance that we will be able to continue to 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 stores. 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 stores 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 stores foreclosed on, could threaten our
continued viability.
Our Credit Facility (defined below) 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 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
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. Similarly, the indenture under which we have issued unsecured senior notes contains customary financial covenants, including
limitations on incurrence of additional indebtedness.
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 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
our named executive officers, effective January 1, 2017, are parties to the Company’s executive severance plan, we cannot
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21
provide 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, 2016, we had 1,844 property-level personnel involved in the management and operation of our stores. The customer service,
marketing skills, and knowledge of local market demand and competitive dynamics of our store managers are contributing factors to our ability to
maximize our rental income and to achieve the highest sustainable rent levels at each of our stores. We 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 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, (2) amend our bylaws or repeal individual bylaws in a manner that provides the Board with greater authority, and (3) issue
additional equity securities. 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 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 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 by them in those
capacities on our behalf, 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.
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22
Our declaration of trust permits our Board 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 to issue up to 40,000,000 preferred shares, 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 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 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.
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23
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 fluctuation and may continue to fluctuate or decline. Between January 1,
2014 and December 31, 2016, the closing price of our common shares has ranged from a high of $33.30 (on March 31, 2016) to a low of $15.63 (on
January 27, 2014). In the past several years, REIT securities have experienced high levels of volatility and significant increases in value from their
historic lows.
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 share 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Overview
As of December 31, 2016, we owned 475 self-storage properties that contain approximately 32.9 million rentable square feet and are located in
23 states and the District of Columbia. The following table sets forth summary information regarding our stores by state as of December 31, 2016.
State
Florida
Texas
New York
California
Illinois
Arizona
New Jersey
Georgia
Ohio
Maryland
Connecticut
Virginia
Colorado
Massachusetts
North Carolina
Tennessee
Pennsylvania
Nevada
Utah
Rhode Island
Washington D.C.
New Mexico
Minnesota
Indiana
Total/Weighted Average
Number of
Stores
Cubes
Total
Rentable
Square Feet
% of Total
Rentable
Square Feet
Period-end
Occupancy
77
63
43
40
39
33
25
18
20
15
22
10
11
11
9
7
9
7
4
4
3
3
1
1
475
55,746
36,338
51,984
25,750
22,575
18,847
16,826
11,063
11,089
12,010
10,656
7,873
5,998
7,261
5,601
4,416
6,023
4,122
2,261
1,971
2,849
1,648
1,018
574
324,499
5,749,593
4,363,664
3,066,009
2,831,254
2,461,164
2,054,791
1,700,430
1,316,941
1,293,096
1,228,155
1,179,463
787,982
697,589
674,772
654,175
618,212
609,289
519,657
240,023
236,995
224,302
182,261
100,978
67,604
32,858,399
17.4 %
13.3 %
9.3 %
8.6 %
7.5 %
6.3 %
5.2 %
4.0 %
3.9 %
3.7 %
3.6 %
2.4 %
2.1 %
2.1 %
2.0 %
1.9 %
1.9 %
1.6 %
0.7 %
0.7 %
0.7 %
0.6 %
0.3 %
0.2 %
100.0 %
93.1 %
84.8 %
81.4 %
94.6 %
91.6 %
91.3 %
91.8 %
90.9 %
90.2 %
92.9 %
91.5 %
87.3 %
85.1 %
87.9 %
89.7 %
85.8 %
89.2 %
92.1 %
95.5 %
92.2 %
85.0 %
93.5 %
83.5 %
95.7 %
89.7 %
Table of Contents
Our Stores
24
The following table sets forth additional information with respect to each of our owned stores as of December 31, 2016. Our ownership of each
store consists of a fee interest in the store held by our Operating Partnership, or one of its subsidiaries, except for eight of our stores, which are
subject to ground leases. In addition, small parcels of land at two of our other stores are subject to ground leases.
Store Location
Chandler I, AZ
Chandler II, AZ
Gilbert I, AZ
Gilbert II, AZ
Glendale, AZ
Green Valley, AZ
Mesa I, AZ
Mesa II, AZ
Mesa III, AZ
Peoria, AZ
Phoenix I, AZ
Phoenix II, AZ
Phoenix III, AZ
Phoenix IV, AZ
Queen Creek, AZ
Scottsdale, AZ
Surprise, AZ
Tempe I, AZ
Tempe II, 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
Benicia, CA
Citrus Heights, CA
Corona, CA
Diamond Bar, CA
Escondido, CA
Fallbrook, CA
Fremont, CA
Lancaster, CA
Long Beach, CA
Murrieta, CA
North Highlands, CA
Ontario, CA
Table of Contents
Store Location
Orangevale, CA
Pleasanton, CA
Year
Acquired /
Developed
(1)
2005
2013
2013
2016
1998
2005
2006
2006
2006
2015
2006
2006/11
2014
2016
2015
1998
2015
2005
2013
1998
1998
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2014
2005
2007
1997
2014
2001
2006
2005
2005
2014
Year
Acquired /
Developed
(1)
2005
2005
Year Built
1985
2008
2010
2005/14
1987
1985
1985
1981
1986
2005
1987
1974
2009
2008
2013
1995
2006
1975
2007
1974
1988
1979
1982
1982
1982
1982
1979
1984
1981
1974
1974
1974
1976
1988/93/05
1987
2014
1988
2002
1985/88
1987
1987
1974
1996
1980
1986
Rentable
Square
Feet
47,680
82,889
57,300
91,505
56,807
25,050
52,575
45,511
59,629
110,835
100,875
83,160
121,731
69,660
94,462
79,525
72,575
53,890
68,409
59,800
43,950
49,832
48,040
45,134
40,814
52,688
46,650
67,496
46,350
42,900
42,275
45,800
48,995
74,770
75,620
94,975
103,309
143,645
45,976
51,243
60,450
124,571
49,785
57,094
93,590
25
Occupancy
(2)
94.3 %
93.1 %
86.8 %
84.0 %
98.4 %
89.6 %
92.1 %
88.6 %
95.1 %
94.5 %
90.7 %
95.7 %
91.0 %
89.3 %
74.3 %
95.1 %
91.6 %
91.2 %
88.8 %
95.3 %
88.3 %
92.8 %
95.2 %
92.3 %
91.3 %
94.7 %
93.3 %
93.6 %
89.8 %
95.9 %
95.7 %
85.8 %
95.4 %
95.6 %
95.0 %
93.8 %
96.4 %
94.6 %
89.4 %
93.7 %
97.0 %
95.1 %
91.9 %
96.8 %
95.6 %
Manager
Apartment
(3)
Y
N
Y
Y
Y
N
N
Y
Y
N
Y
Y
N
Y
Y
Y
N
Y
Y
Y
Y
N
Y
Y
Y
Y
Y
Y
N
Y
Y
Y
Y
Y
Y
N
Y
Y
Y
Y
Y
Y
Y
Y
Y
Cubes
454
1,172
443
679
528
266
501
410
524
925
751
809
820
705
624
654
602
407
733
496
537
496
504
421
418
601
454
605
414
408
436
493
557
720
683
971
914
1,260
446
526
358
1,371
449
472
849
% Climate
Controlled
(4)
12.5 %
73.7 %
83.6 %
37.7 %
0.0 %
9.0 %
0.0 %
16.7 %
15.8 %
35.3 %
21.8 %
6.7 %
73.8 %
99.9 %
61.0 %
20.4 %
100.0 %
18.8 %
86.4 %
0.0 %
100.0 %
0.0 %
13.4 %
11.3 %
13.6 %
7.0 %
0.0 %
5.9 %
0.0 %
0.0 %
3.9 %
0.0 %
17.9 %
0.0 %
0.0 %
6.9 %
0.0 %
11.8 %
0.0 %
0.6 %
0.0 %
0.0 %
5.1 %
0.0 %
0.0 %
Year Built
1980
2003
Rentable
Square
Feet
50,542
83,600
Occupancy
(2)
93.2 %
92.3 %
Cubes
529
762
Manager
Apartment
(3)
Y
Y
% Climate
Controlled
(4)
0.0 %
0.0 %
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
Vista I, CA
Vista II, CA
Walnut, CA
West Sacramento, CA
Westminster, CA
Aurora, CO
Centennial, CO
Colorado Springs I, CO
Colorado Springs II, CO
Denver I, CO
Denver II, CO
Denver III, 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 (6)
Manchester II, CT
Manchester III, CT
Milford, CT
Monroe, CT
Table of Contents
Store Location
Mystic, CT
Newington I, CT
Newington II, CT
Norwalk I, CT
Norwalk II, CT
Old Saybrook I, CT
Old Saybrook II, CT
Shelton, CT
South Windsor, CT
Stamford, CT
Wilton, CT
Washington I, DC
Washington II, DC
2005
2006
1997
2006
2006
2005
2005
2005
1997
1997
1997
2005
2006
2006
2006
2005
2006
2005
2006
1998
2007
2001
2005
2005
2005
2005
2005
2016
2005
2006
2006
2012
2016
2005
2005
2005
2005
1997
1995
2005
2005
2001
1995
2002
2005
2014
1996
2005
Year
Acquired /
Developed
(1)
1996
2005
2005
2012
2016
2005
2005
2011
1996
2005
2012
2008
2011
1979
1987
1980
1977
1985
1979
1979
1986
1987
1991
1985/92
2002/04
1974
1978
1977
1979
1984
1979
1980
1985/03
2003
1988
2001/02/03
1987
1984
1983/98
1981
2009
1986
2001
1997
2007
2015
1980
1985
1987
1980
1987/93/94
1986
1989/99
1986/89
1989
1987/89
1999/00/01
1984
2009
1975
1996/03
Year Built
1975/86
1978/97
1979/81
2009
1990
1982/88/00
1988/02
2007
1976
1997
1966
2002
1929/98
53,978
57,391
99,783
67,020
85,176
59,944
50,664
62,088
31,070
41,546
35,416
83,277
56,745
78,753
103,417
37,425
63,916
52,440
55,035
81,340
84,543
74,238
147,763
50,708
40,015
68,393
75,867
62,400
47,975
62,400
59,200
74,460
76,125
54,770
87,800
53,490
43,102
48,700
50,629
47,725
46,066
52,875
54,905
46,925
52,725
60,113
44,885
58,500
26
96.3 %
97.6 %
95.4 %
94.0 %
95.9 %
95.6 %
96.2 %
97.1 %
93.9 %
91.6 %
97.8 %
91.5 %
95.9 %
93.1 %
96.1 %
93.9 %
92.4 %
97.3 %
93.1 %
92.4 %
94.9 %
93.8 %
92.6 %
94.4 %
97.3 %
93.6 %
86.4 %
81.7 %
92.1 %
92.5 %
88.3 %
89.0 %
63.1 %
90.2 %
85.6 %
82.1 %
93.2 %
93.1 %
93.3 %
91.4 %
96.9 %
90.5 %
92.9 %
93.2 %
92.8 %
91.9 %
92.3 %
95.0 %
468
455
717
656
811
555
554
553
240
373
370
719
487
616
867
244
740
413
713
705
682
622
1,300
537
479
564
618
530
468
433
449
678
708
549
640
442
483
445
430
471
304
371
607
465
400
583
375
394
Y
Y
Y
Y
Y
Y
Y
Y
N
Y
N
Y
Y
Y
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
N
N
Y
N
N
N
N
Y
N
0.0 %
0.0 %
0.0 %
0.0 %
5.5 %
0.0 %
0.0 %
0.0 %
0.0 %
0.0 %
0.0 %
12.1 %
6.7 %
2.4 %
0.0 %
0.0 %
4.3 %
0.0 %
0.0 %
45.7 %
55.0 %
0.0 %
3.7 %
16.0 %
0.0 %
0.0 %
0.0 %
95.1 %
0.0 %
0.0 %
0.0 %
94.9 %
94.6 %
0.0 %
1.6 %
64.2 %
0.0 %
8.7 %
3.5 %
31.7 %
0.0 %
0.0 %
9.4 %
44.1 %
0.0 %
87.0 %
6.9 %
0.0 %
Rentable
Square
Feet
50,825
42,620
36,140
30,328
78,175
87,000
26,425
78,405
72,075
28,907
84,515
63,085
82,787
Occupancy
(2)
91.8 %
93.2 %
97.3 %
93.8 %
82.7 %
92.7 %
87.8 %
87.5 %
92.2 %
88.0 %
89.5 %
87.7 %
91.1 %
Manager
Apartment
(3)
Y
N
N
N
Y
N
N
Y
Y
N
Y
Y
N
Cubes
561
248
195
349
936
720
253
855
560
363
771
754
1,043
% Climate
Controlled
(4)
4.6 %
0.0 %
0.0 %
100.0 %
77.8 %
10.8 %
71.8 %
93.9 %
1.2 %
38.6 %
66.6 %
97.2 %
99.5 %
Washington III, DC
Boca Raton, FL
Boynton Beach I, FL
Boynton Beach II, FL
Boynton Beach III, FL
Boynton Beach IV, FL
Bradenton I, FL
Bradenton II, FL
Cape Coral I, FL
Cape Coral II, FL
Coconut Creek I, FL
Coconut Creek II, FL
Dania Beach, FL
Dania, FL
Davie, FL
Deerfield Beach, FL
Delray Beach I, FL
Delray Beach II, FL
Delray Beach III, FL
Ft. Lauderdale I, FL
Ft. Lauderdale II, FL
Ft. Myers I, FL
Ft. Myers II, FL
Ft. Myers III, FL
Jacksonville I, FL
Jacksonville II, FL
Jacksonville III, FL
Jacksonville IV, FL
Jacksonville V, FL
Jacksonville VI, FL
Kendall, FL
Lake Worth I, FL †
Lake Worth II, FL
Lake Worth III, FL
Lakeland, FL
Leisure City, FL
Lutz I, FL
Table of Contents
Store Location
Lutz II, FL
Margate I, FL †
Margate II, FL †
Merritt Island, FL
Miami I, FL
Miami II, FL
Miami III, FL
Miami IV, FL
Miramar, FL
Naples I, FL
Naples II, FL
Naples III, FL
Naples IV, FL
New Smyrna Beach, FL
Ocoee, FL
Orange City, FL
Orlando II, FL
Orlando III, FL
Orlando IV, FL
Orlando V, FL
Orlando VI, FL
Oviedo, FL
Palm Coast I, FL
2016
2001
2001
2005
2014
2015
2004
2004
2000*
2014
2012
2014
2004
1996
2001*
1998*
2001
2013
2014
1999
2013
1999
2014
2014
2005
2007
2007
2007
2007
2014
2007
1998
2014
2015
1994
2012
2004
Year
Acquired /
Developed
(1)
2004
1996
1996
2002
1996
1996
2005
2011
2013
1996
1997
1997
1998
2014
2005
2004
2005
2006
2010
2012
2014
2006
2014
1961/13
1998
1999
2001
2001
2002
1979
1996
2000
2007
2001
1999
1984
1988
2001
1998
1999
1987
2006
1999
2007
1998
2001
2002
2005
2004
2003
2006
2004
2006
2003
1998/02
2004/08
2006
1988
2005
2000
Year Built
1999
1979/81
1985
2000
1995
1989
1988/03
2007
2009
1996
1985
1981/83
1990
2001
1997
2001
2002/04
1988/90/96
2009
2008
2006
1988/91
2001
78,430
37,968
61,725
61,514
67,393
76,362
68,298
87,958
76,857
67,955
78,846
90,147
180,588
58,165
80,985
57,230
67,833
75,710
94,395
70,043
49,577
67,534
83,375
81,554
79,705
64,970
66,010
77,525
82,483
67,275
75,495
159,799
86,924
94,015
49,079
56,075
66,795
27
Rentable
Square
Feet
69,232
53,660
65,380
50,261
46,500
66,960
151,620
76,695
80,130
48,100
65,850
80,021
40,650
81,454
76,150
59,580
63,184
101,530
76,581
75,295
67,275
49,276
47,400
76.5 %
89.4 %
92.2 %
92.5 %
92.7 %
95.3 %
92.7 %
91.9 %
92.3 %
91.8 %
95.8 %
93.6 %
94.3 %
91.2 %
92.3 %
92.5 %
95.2 %
91.6 %
96.1 %
94.7 %
94.8 %
90.1 %
93.3 %
91.2 %
92.1 %
91.7 %
92.8 %
93.0 %
93.0 %
93.5 %
89.4 %
92.7 %
92.6 %
96.5 %
95.9 %
93.4 %
94.0 %
1,052
612
757
576
721
642
592
845
892
614
757
811
1,778
495
837
520
816
1,180
904
694
862
592
841
868
717
663
683
717
713
536
702
1,278
757
780
487
616
611
Y
N
Y
Y
N
N
N
Y
Y
Y
Y
N
N
Y
Y
Y
Y
N
N
Y
N
Y
Y
Y
N
N
N
N
N
Y
N
Y
Y
Y
Y
N
Y
97.5 %
70.5 %
61.7 %
88.6 %
100.0 %
84.0 %
6.6 %
46.6 %
90.7 %
71.3 %
53.0 %
79.6 %
27.4 %
53.7 %
73.8 %
55.0 %
45.5 %
96.8 %
99.6 %
54.7 %
100.0 %
84.2 %
62.8 %
89.3 %
100.0 %
100.0 %
100.0 %
100.0 %
79.9 %
71.2 %
79.4 %
72.2 %
85.3 %
42.6 %
82.6 %
69.9 %
44.0 %
Occupancy
(2)
95.9 %
95.5 %
91.4 %
90.0 %
91.7 %
94.4 %
91.8 %
97.0 %
92.7 %
92.0 %
91.9 %
91.1 %
95.1 %
95.5 %
92.5 %
94.0 %
95.8 %
90.6 %
92.0 %
90.5 %
91.8 %
93.2 %
91.6 %
Manager
Apartment
(3)
Y
Y
Y
Y
Y
Y
N
N
N
Y
Y
Y
Y
N
Y
N
N
Y
N
N
Y
Y
Y
Cubes
537
370
446
465
557
569
1,513
928
746
320
648
803
440
607
631
651
586
826
645
644
579
443
426
% Climate
Controlled
(4)
29.3 %
27.7 %
57.5 %
66.4 %
68.9 %
18.9 %
91.1 %
99.7 %
96.8 %
48.4 %
55.8 %
48.7 %
64.0 %
59.4 %
22.6 %
52.5 %
81.6 %
21.9 %
68.3 %
91.5 %
35.3 %
3.6 %
52.3 %
Palm Coast II, FL
Palm Harbor, FL
Pembroke Pines, FL
Royal Palm Beach II, FL
Sanford I, FL
Sanford II, FL
Sarasota, FL
St. Augustine, FL
St. Petersburg, FL
Stuart, FL
SW Ranches, FL
Tampa I, FL
Tampa II, FL
West Palm Beach I, FL
West Palm Beach II, FL
West Palm Beach III, FL
West Palm Beach IV, FL
Winter Park, FL
Alpharetta, GA
Atlanta, GA
Austell, GA
Decatur, GA
Duluth, GA
Lawrenceville, GA
Lithia Springs, GA
Norcross I, GA
Norcross II, GA
Table of Contents
Store Location
Norcross III, GA
Norcross IV, GA
Peachtree City I, GA
Peachtree City II, GA
Smyrna, GA
Snellville, GA
Suwanee I, GA
Suwanee II, GA
Villa Rica, GA
Addison, IL
Aurora, IL
Bartlett, IL
Bellwood, IL
Blue Island, IL
Bolingbrook, IL
Chicago I, IL
Chicago II, IL
Chicago III, IL
Chicago IV, IL
Chicago V, IL
Chicago VI, IL
Countryside, IL
Des Plaines, IL
Downers Grove, IL
Elk Grove Village, IL
Evanston, IL
Glenview, IL
Gurnee, IL
Hanover, IL
Harvey, IL
Joliet, IL
Kildeer, IL
Lombard, IL
Maywood, IL
2014
2016
1997
2007
2006
2014
1999
1996
2016
1997
2007
2007
2016
2001
2004
2012
2014
2014
2001
2012
2006
1998
2011
2011
2015
2001
2011
Year
Acquired /
Developed
(1)
2012
2012
2001
2012
2001
2007
2007
2007
2015
2004
2004
2004
2001
2015
2014
2014
2014
2014
2015
2015
2016
2014
2004
2016
2004
2013
2004
2004
2004
2004
2004
2004
2004
2015
1998/04
2001
1997
2004
1988/06
2000
1998
1985
1987
1995
2004
2001/02
1999
1997
1996
2008
2004
2005
1996
2008
2000
1986
2009
1999
2007
1997
1996
Year Built
2007
2005
1997
2005
2000
1996/97
2000/03
2005
2009
1979
1996
1987
1999
2008
2004
1935
1953
1959
2009
2008
1954/61/13
2002
1978
2015
1987
2009
1998
1987
1987
1987
1993
1988
1981
2009
28
122,490
82,685
67,321
81,274
61,810
69,755
71,142
59,725
66,050
86,756
64,990
83,913
74,790
66,906
94,353
77,440
102,892
54,356
90,501
66,625
83,655
145,440
70,885
73,740
66,750
85,420
52,595
Rentable
Square
Feet
46,955
57,505
49,875
59,950
57,015
79,950
85,125
79,590
65,365
31,575
73,985
51,395
86,350
55,125
80,915
95,745
78,585
84,990
60,495
51,775
71,785
99,856
69,600
71,625
64,079
57,850
100,085
80,300
41,190
60,090
72,865
36,585
57,691
60,225
94.7 %
93.4 %
93.0 %
92.7 %
89.6 %
93.3 %
91.3 %
91.0 %
94.9 %
93.5 %
93.3 %
93.0 %
96.0 %
93.6 %
92.6 %
91.9 %
92.2 %
94.7 %
89.4 %
89.8 %
90.9 %
92.1 %
91.6 %
90.0 %
94.8 %
91.4 %
91.5 %
1,189
740
692
757
441
667
538
722
846
967
649
787
702
974
835
907
948
539
666
629
672
1,308
590
606
582
603
401
N
N
Y
N
Y
N
Y
Y
N
Y
N
N
N
Y
Y
Y
N
N
Y
N
Y
Y
N
Y
N
Y
Y
42.9 %
73.2 %
78.1 %
90.0 %
35.7 %
62.2 %
60.6 %
26.2 %
35.0 %
60.8 %
88.8 %
34.2 %
100.0 %
52.5 %
76.6 %
90.1 %
85.3 %
58.2 %
80.1 %
100.0 %
64.2 %
2.7 %
100.0 %
27.5 %
59.9 %
66.0 %
62.0 %
Occupancy
(2)
90.0 %
92.1 %
88.4 %
89.0 %
92.5 %
91.1 %
92.5 %
89.4 %
87.5 %
93.5 %
98.2 %
94.7 %
89.1 %
93.9 %
92.0 %
95.1 %
93.3 %
90.4 %
91.3 %
92.2 %
83.5 %
92.6 %
90.7 %
78.2 %
90.2 %
88.9 %
94.6 %
88.4 %
93.3 %
92.2 %
93.7 %
96.3 %
95.4 %
91.5 %
Manager
Apartment
(3)
N
Y
N
N
Y
Y
Y
N
N
Y
Y
Y
Y
N
N
N
N
N
N
N
N
N
N
N
Y
N
Y
Y
Y
Y
Y
Y
Y
N
Cubes
500
538
453
431
502
801
692
590
499
367
558
413
736
557
728
1,086
757
1,076
613
603
715
901
578
664
621
593
738
709
417
575
532
320
536
655
% Climate
Controlled
(4)
100.0 %
88.7 %
76.3 %
43.0 %
99.0 %
20.6 %
27.4 %
66.2 %
61.3 %
0.0 %
8.6 %
31.8 %
50.8 %
100.0 %
77.1 %
94.5 %
85.4 %
99.7 %
100.0 %
99.8 %
100.0 %
98.7 %
0.0 %
100.0 %
7.2 %
100.0 %
100.0 %
37.3 %
2.1 %
2.8 %
93.6 %
0.0 %
26.0 %
100.0 %
Mount Prospect, IL
Mundelein, IL
North Chicago, IL
Plainfield I, IL
Plainfield II, IL
Schaumburg, IL
Streamwood, IL
Warrenville, IL
Waukegan, IL
West Chicago, IL
Westmont, IL
Wheeling I, IL
Wheeling II, IL
Woodridge, IL
Schererville, IN
Boston I, MA
Table of Contents
Store Location
Boston II, MA
Boston III, MA
Brockton, MA
Haverhill, MA
Lawrence, MA
Leominster, MA
Medford, MA
Stoneham, MA
Tewksbury, MA
Walpole, MA
Baltimore, MD
Beltsville, MD
California, MD
Capitol Heights, MD
Clinton, MD
District Heights, MD
Elkridge, MD
Gaithersburg I, MD
Gaithersburg II, MD
Hyattsville, MD
Laurel, MD †
Temple Hills I, MD
Temple Hills II, MD
Timonium, MD
Upper Marlboro, MD
Bloomington, MN
Belmont, NC
Burlington I, NC
Burlington II, NC
Cary, NC
Charlotte I, NC
Charlotte II, NC
Cornelius, NC
Pineville, NC
Raleigh, NC
Bordentown, NJ
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
2004
2004
2004
2004
2005
2004
2004
2005
2004
2004
2004
2004
2004
2004
2014
2010
Year
Acquired /
Developed
(1)
2002
2014
2015
2015
2015
1998
2007
2013
2014
2016
2001
2013
2004
2015
2013
2011
2013
2005
2015
2013
2001
2001
2014
2014
2013
2016
2001
2001
2001
2001
2002
2016
2015
2015
1998
2012
1996
2010
2012
2005
1996
1996
2010
2010
2005
1979
1990
1985
1998
2000
1988
1982
1977/89
1977
1979
1979
1974
1979
1987
2005
1950
65,000
44,700
53,400
53,900
51,900
31,160
64,305
48,796
79,500
48,175
53,300
54,210
67,825
50,232
67,604
33,286
29
94.0 %
94.6 %
90.0 %
89.3 %
86.4 %
87.4 %
96.3 %
93.8 %
87.9 %
92.0 %
95.6 %
91.2 %
92.3 %
90.5 %
95.7 %
87.6 %
579
486
425
402
355
317
550
380
662
435
379
491
603
463
574
584
Y
Y
N
N
N
N
N
N
Y
Y
Y
N
Y
Y
Y
N
10.3 %
12.3 %
0.0 %
8.7 %
32.5 %
5.3 %
7.6 %
0.0 %
8.1 %
0.0 %
0.0 %
0.0 %
9.9 %
17.0 %
40.1 %
99.8 %
Year Built
2001
1960
1900/70/80
1900
1966
1987/88/00
2001
2009/11
2007
1998
1999/00
2006
1998
2013
2008/10
2007
1999
1998
2008
2006
1978/99/00
2000
2010
1965/98
2006
1978
1996/97/98
1990/91/93/94/98
1991
1993/94/97
1999
2008
2000
1997/01
1994/95
2006
1981
2004
2004
2001
1987
1983
2005
2002
1925/97
Rentable
Square
Feet
60,470
108,205
65,910
61,169
34,672
54,023
58,745
61,000
62,402
74,890
93,750
63,687
77,840
79,675
84,225
78,190
63,475
87,045
74,100
52,765
162,896
97,275
84,225
66,717
62,290
100,978
81,850
109,300
42,165
112,402
69,000
53,666
59,270
77,847
48,675
50,550
51,720
51,500
65,500
105,550
91,280
107,679
36,025
70,400
38,830
Occupancy
(2)
89.8 %
90.5 %
80.3 %
89.2 %
90.7 %
94.5 %
92.0 %
91.6 %
93.8 %
71.4 %
93.0 %
90.1 %
91.0 %
94.9 %
92.3 %
94.0 %
90.4 %
90.3 %
92.8 %
93.7 %
92.0 %
94.2 %
93.4 %
89.8 %
96.1 %
83.5 %
93.2 %
87.3 %
88.3 %
88.8 %
87.9 %
93.1 %
82.7 %
95.8 %
90.3 %
96.1 %
94.2 %
95.3 %
91.4 %
91.3 %
93.1 %
90.7 %
94.7 %
93.5 %
91.7 %
Manager
Apartment
(3)
N
N
N
N
N
Y
Y
N
N
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
N
Y
Y
Y
Y
N
N
N
Y
N
Y
N
N
N
Y
N
N
Y
N
Y
Y
N
N
N
N
Cubes
628
1,102
728
609
411
507
658
589
750
695
799
648
721
945
914
957
601
789
811
602
1,013
823
1,061
662
664
1,018
592
952
395
831
746
491
526
643
425
382
433
369
613
1,004
847
970
290
692
674
% Climate
Controlled
(4)
98.7 %
25.1 %
0.0 %
93.0 %
100.0 %
50.7 %
97.1 %
99.8 %
100.0 %
31.1 %
48.9 %
9.7 %
41.1 %
98.7 %
51.6 %
96.1 %
91.2 %
45.1 %
98.9 %
9.3 %
64.3 %
70.7 %
99.3 %
95.2 %
21.6 %
73.9 %
21.7 %
7.8 %
16.4 %
11.4 %
44.3 %
95.7 %
43.0 %
13.2 %
11.7 %
27.1 %
0.0 %
0.0 %
94.5 %
93.0 %
7.9 %
3.4 %
14.7 %
19.7 %
0.0 %
Fairview, NJ
Freehold, NJ
Hamilton, NJ
Hoboken, NJ
Linden, NJ
Table of Contents
Store Location
Lumberton, NJ
Morris Township, NJ (6)
Parsippany, NJ
Rahway, NJ
Randolph, NJ
Ridgefield, NJ
Roseland, NJ
Sewell, NJ
Somerset, NJ
Whippany, NJ
Albuquerque I, NM
Albuquerque II, NM
Albuquerque III, NM
Henderson, NV
Las Vegas I, NV †
Las Vegas II, NV
Las Vegas III, NV
Las Vegas IV, NV
Las Vegas V, NV
Las Vegas VI, NV
Baldwin, NY
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
Bronx XI, NY (5)*
Bronx XII, NY (5)*
Brooklyn I, NY
Brooklyn II, NY
Brooklyn III, NY
Brooklyn IV, NY
Brooklyn V, NY
Brooklyn VI, NY
Brooklyn VII, NY
Brooklyn VIII, NY
Brooklyn IX, NY
Brooklyn X, NY *
Brooklyn XI, NY *
Holbrook, NY
Jamaica I, NY
Jamaica II, NY
Long Island City, NY *
New Rochelle I, NY
New Rochelle II, NY
Table of Contents
1997
2012
2006
2005
1996
1989
2002
1990
1945/97
1983
27,876
81,420
70,550
34,180
100,425
92.0 %
96.1 %
93.6 %
93.6 %
91.9 %
448
747
615
741
1,118
N
Y
Y
N
N
98.4 %
65.7 %
0.0 %
99.5 %
5.3 %
Year
Acquired /
Developed
(1)
2012
1997
1997
2013
2002
2015
2015
2001
2012
2013
2005
2005
2005
2014
2006
2006
2016
2016
2016
2016
2015
2010
2011
2011
2011
2011
2011
2012
2012
2012
2012
2014
2016
2010
2010
2011
2011
2011
2011
2011
2014
2014
2015
2016
2015
2001
2011
2014
2005
2012
Year Built
2004
1972
1981
2006
1998/99
1921/44
1951/04
1984/98
2000
2007
1985
1985
1986
2005
1986
1997
2005
2004
1996
2003
1974
1931/04
2006
2007
2007
2007
2011
2005
1928
1973
2001
2014
2016
1917/04
1962/03
2006
2006
2007
2007
2006
2010
2013
2015
2016
2007
2000
2010
2014
1998
1917
30
31
Rentable
Square
Feet
96,025
72,226
84,355
83,121
52,565
67,803
53,569
57,826
57,385
92,070
65,927
58,798
57,536
75,150
48,532
48,850
74,200
71,217
107,226
94,482
61,380
69,183
99,046
105,940
75,030
54,733
45,970
78,625
30,550
148,040
159,855
46,457
90,300
57,510
60,920
41,625
37,467
47,020
75,640
72,725
61,555
46,980
56,000
109,846
60,397
88,385
92,805
88,825
43,587
63,220
Occupancy
(2)
90.4 %
93.1 %
66.3 %
94.3 %
91.2 %
94.9 %
93.2 %
95.7 %
92.7 %
94.7 %
92.4 %
93.7 %
94.6 %
95.9 %
94.8 %
93.4 %
87.3 %
87.4 %
95.1 %
90.3 %
92.4 %
87.2 %
60.3 %
89.6 %
87.9 %
90.5 %
89.1 %
89.3 %
86.8 %
87.6 %
86.4 %
89.4 %
19.7 %
91.0 %
93.5 %
93.2 %
89.8 %
92.0 %
88.0 %
89.1 %
90.3 %
91.8 %
40.5 %
28.7 %
93.6 %
93.4 %
93.2 %
58.5 %
91.0 %
90.3 %
Manager
Apartment
(3)
Y
Y
N
Y
Y
Y
N
N
N
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
N
N
N
N
N
N
N
N
N
N
Y
Y
N
N
N
N
N
N
N
N
N
N
N
N
N
N
Y
N
N
N
Y
Cubes
772
560
770
983
549
684
658
461
508
938
601
527
520
529
370
531
579
566
909
638
613
1,318
1,881
2,033
1,310
1,100
1,130
1,524
544
3,008
2,665
1,085
1,847
1,055
1,146
850
793
884
1,416
1,398
1,203
1,254
1,210
2,293
620
918
1,500
1,950
545
1,026
% Climate
Controlled
(4)
32.4 %
5.7 %
49.5 %
92.1 %
91.1 %
99.9 %
98.5 %
9.3 %
83.1 %
85.9 %
13.8 %
15.1 %
11.1 %
75.5 %
13.4 %
66.2 %
92.9 %
68.0 %
84.6 %
73.5 %
99.3 %
97.4 %
99.5 %
99.1 %
99.2 %
99.5 %
94.3 %
100.0 %
100.0 %
99.6 %
74.7 %
98.7 %
100.0 %
99.8 %
18.8 %
99.9 %
99.9 %
100.0 %
97.6 %
99.9 %
92.0 %
99.9 %
100.0 %
100.0 %
82.0 %
21.3 %
99.9 %
100.0 %
47.2 %
93.9 %
Store Location
North Babylon, NY
Patchogue, NY
Queens I, NY *
Queens II, NY *
Riverhead, NY
Southold, NY
Staten Island, NY
Tuckahoe, NY
West Hempstead, NY
White Plains, NY
Woodhaven, NY
Wyckoff, NY
Yorktown, NY
Cleveland I, OH
Cleveland II, OH
Columbus I, OH
Columbus II, OH
Columbus III, OH
Columbus IV, OH
Columbus V, OH
Columbus VI, OH
Grove City, OH
Hilliard, OH
Lakewood, OH
Lewis Center, 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
Malvern, PA *
Montgomeryville, PA
Norristown, PA
Philadelphia I, PA
Philadelphia II, PA
Exeter, RI
Johnston, RI
Wakefield, RI
Woonsocket, RI
Antioch, TN
Nashville I, TN
Nashville II, TN
Nashville III, TN
Table of Contents
Store Location
Nashville IV, TN
Nashville V, TN
Nashville VI, TN
Allen, TX
Austin I, TX
Austin II, TX
Austin III, TX
Year
Acquired /
Developed
(1)
1998
2014
2015
2016
2005
2005
2013
2011
2012
2011
2011
2010
2011
2005
2005
2006
2014
2014
2014
2014
2014
2006
2006
1989
2014
1980
1979
1988
1998
2006
2007
1980
2005
2012
2012
2012
2001
2014
2012
2011
2001
2014
2014
2014
2014
2014
2005
2005
2005
2006
Year
Acquired /
Developed
(1)
2006
2015
2015
2012
2005
2006
2006
Year Built
1988/99
1982
2015
2016
1985/86/99
1989
1900/11
2007
2002
1938
2008
1910/07
2006
1997/99
2000
1999
1999
1998/05
2006
2006
2002
1997
1995
1989
1985/05
1980
1979
1988
1998/02
1979
1978
1980/82/98
2001
2003
2006
2001
2000
2014
2003
2005
1999
2005
1968/90
2000
1956
2004
1985/98
1984
1986/00
1985
Year Built
1986/00
1993
1956/01
2003
2001
2000/03
2004
Rentable
Square
Feet
78,341
47,649
74,238
91,100
38,340
59,645
96,573
50,878
83,995
85,864
50,665
60,290
78,815
46,000
58,325
71,905
36,409
51,200
60,950
74,925
63,725
89,290
89,290
39,332
77,774
93,200
48,665
47,850
80,297
67,245
43,683
90,281
62,750
81,255
57,750
65,150
76,130
18,848
84,145
61,556
96,176
68,279
41,275
77,275
45,745
72,700
75,985
107,790
83,416
101,525
32
Occupancy
(2)
96.3 %
94.1 %
43.6 %
50.5 %
90.7 %
89.2 %
97.1 %
88.8 %
95.8 %
91.2 %
92.8 %
89.4 %
93.4 %
90.2 %
88.7 %
84.3 %
79.6 %
88.4 %
92.2 %
90.1 %
88.6 %
89.9 %
94.1 %
94.3 %
92.5 %
91.7 %
87.1 %
91.1 %
92.4 %
93.8 %
91.9 %
86.6 %
91.9 %
86.8 %
86.7 %
87.5 %
91.0 %
93.1 %
88.7 %
95.0 %
89.1 %
88.2 %
90.2 %
94.6 %
88.6 %
93.1 %
88.0 %
88.7 %
92.2 %
82.5 %
Manager
Apartment
(3)
N
N
N
N
N
N
N
N
Y
N
N
N
Y
Y
Y
Y
N
N
N
N
N
Y
Y
Y
N
Y
Y
Y
N
Y
N
Y
Y
Y
N
Y
Y
N
Y
N
N
N
Y
N
N
N
Y
Y
Y
Y
Cubes
650
467
1,438
1,449
327
614
914
757
899
1,507
1,029
1,037
777
342
574
603
354
405
479
583
547
789
781
462
567
708
444
401
809
667
404
716
454
730
542
668
652
229
782
608
951
861
412
578
387
594
635
736
631
600
% Climate
Controlled
(4)
11.7 %
0.0 %
99.4 %
97.9 %
0.0 %
4.7 %
100.0 %
99.9 %
35.3 %
77.9 %
99.9 %
96.2 %
79.1 %
7.3 %
0.0 %
26.1 %
48.9 %
0.0 %
20.8 %
16.6 %
0.0 %
14.9 %
24.8 %
37.3 %
32.0 %
4.9 %
10.5 %
23.8 %
91.5 %
0.0 %
100.0 %
0.0 %
8.6 %
39.1 %
96.1 %
58.8 %
34.9 %
98.7 %
50.8 %
99.8 %
44.9 %
58.3 %
22.0 %
0.0 %
39.1 %
11.4 %
9.4 %
0.0 %
12.5 %
8.3 %
Rentable
Square
Feet
102,450
74,560
72,486
62,710
59,645
64,625
70,560
Occupancy
(2)
88.8 %
91.7 %
66.2 %
91.9 %
91.2 %
84.3 %
87.3 %
Manager
Apartment
(3)
Y
N
Y
Y
Y
Y
Y
Cubes
731
534
549
496
538
597
572
% Climate
Controlled
(4)
10.1 %
22.8 %
37.6 %
57.6 %
63.1 %
45.4 %
92.9 %
Austin IV, TX
Austin V, TX
Austin VI, TX
Austin VII, TX
Austin VIII, TX
Bryan, TX
Carrollton, TX
Cedar Park, TX
College Station, TX
Cypress, TX
Dallas I, TX
Dallas II, TX
Dallas III, TX
Dallas IV, TX *
Dallas V, TX (5)
Denton, TX
Fort Worth I, TX
Fort Worth II, TX
Fort Worth III, TX
Fort Worth IV, TX *
Frisco I, TX
Frisco II, TX
Frisco III, TX
Frisco IV, TX †
Frisco V, TX
Frisco VI, TX
Garland I, TX
Garland II, TX
Grapevine, TX *
Houston III, TX
Houston IV, TX
Houston V, TX †
Houston VI, TX
Houston VII, TX
Houston VIII, TX
Houston IX, TX
Humble, TX
Katy, TX
Keller, TX
Lewisville I, TX
Lewisville II, TX
Lewisville III, TX
Little Elm I, TX
Table of Contents
2014
2014
2014
2015
2016
2005
2012
2016
2005
2012
2005
2013
2014
2015
2015
2006
2005
2006
2015
2016
2005
2005
2006
2010
2014
2014
2006
2006
2016
2005
2005
2006
2011
2012
2012
2012
2015
2013
2006
2006
2013
2016
2016
2004
1999
2004
2003/08
2015
1994
2002
2014
1993
1998
2000
1996
1964/76
2015
2013
1996
2000
2003
2000
2016
1996
1998/02
2004
2007
2002
2004
1991
2004
2016
1984
1987
1980/97
2002
2004
1989
1992
2009/13
2009
2000
1996
2003
2002/04
2003
65,358
67,850
62,770
71,023
61,075
60,400
77,420
89,050
26,550
58,181
58,582
79,023
83,229
114,550
54,473
60,846
50,446
72,900
80,445
77,654
50,854
71,399
74,765
76,000
74,415
69,176
70,100
68,425
77,294
61,590
43,750
125,280
54,690
46,991
54,219
51,208
70,702
71,308
61,885
67,340
127,659
101,872
60,065
33
90.4 %
90.6 %
93.2 %
89.6 %
42.8 %
65.8 %
87.7 %
48.6 %
85.5 %
90.2 %
90.9 %
88.3 %
93.1 %
56.9 %
93.5 %
92.2 %
96.0 %
94.9 %
90.2 %
23.8 %
90.0 %
89.7 %
92.5 %
89.4 %
92.0 %
87.5 %
89.9 %
91.5 %
26.7 %
93.1 %
87.1 %
88.7 %
93.3 %
87.8 %
90.7 %
81.9 %
82.9 %
90.1 %
91.2 %
91.9 %
89.4 %
93.0 %
91.4 %
626
614
753
637
586
495
544
521
346
445
532
601
889
1,225
598
457
405
651
675
927
428
523
625
514
554
540
681
469
829
467
380
1,017
595
524
497
434
557
573
489
429
1,186
639
502
N
Y
Y
Y
Y
Y
Y
N
N
Y
Y
Y
Y
N
N
Y
Y
Y
N
N
Y
Y
Y
Y
Y
Y
Y
Y
N
Y
Y
Y
Y
N
N
Y
Y
Y
Y
Y
Y
Y
Y
18.8 %
34.9 %
55.1 %
38.8 %
98.8 %
0.0 %
40.5 %
27.9 %
0.0 %
45.9 %
37.8 %
27.7 %
91.2 %
93.4 %
99.6 %
3.3 %
38.6 %
68.3 %
76.7 %
94.7 %
25.6 %
28.4 %
92.5 %
21.3 %
59.7 %
54.4 %
4.3 %
53.9 %
100.0 %
9.0 %
10.2 %
60.9 %
98.7 %
100.0 %
78.0 %
47.9 %
42.2 %
88.5 %
23.0 %
21.6 %
30.6 %
39.5 %
47.6 %
Store Location
Little Elm II, TX
Mansfield I, TX
Mansfield II, TX
Mansfield III, TX
McKinney I, TX
McKinney II, TX
McKinney III, TX
North Richland Hills, TX
Pearland, TX
Richmond, TX
Roanoke, TX
San Antonio I, TX
San Antonio II, TX
San Antonio III, TX
San Antonio IV, TX
Spring, TX
Murray I, UT
Murray II, UT †
Year
Acquired /
Developed
(1)
2016
2006
2012
2016
2005
2006
2014
2005
2012
2013
2005
2005
2006
2007
2016
2006
2005
2005
Year Built
2007/14
2003
2002
2002/14
1996
1996
2014
2002
1985
1998
1996/01
2005
2005
2006
1998
1980/86
1976
1978
Rentable
Square
Feet
96,896
63,025
58,025
70,995
47,020
70,050
53,148
57,200
72,050
102,278
59,860
73,509
73,230
71,775
61,500
72,751
60,280
71,621
Occupancy
(2)
86.3 %
92.3 %
87.8 %
80.8 %
89.6 %
92.8 %
86.8 %
84.9 %
87.1 %
93.5 %
94.6 %
90.9 %
88.6 %
88.4 %
94.4 %
88.5 %
94.2 %
96.8 %
Manager
Apartment
(3)
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
N
N
Y
Y
Y
Y
Cubes
636
483
483
514
356
538
393
433
471
539
449
572
668
573
514
534
632
378
% Climate
Controlled
(4)
37.8 %
43.1 %
68.0 %
38.2 %
12.0 %
47.4 %
37.7 %
60.5 %
45.5 %
29.9 %
30.6 %
89.4 %
91.5 %
92.9 %
39.0 %
26.7 %
0.0 %
5.3 %
Salt Lake City I, UT
Salt Lake City II, UT
Alexandria, VA
Arlington, VA *
Burke Lake, VA
Fairfax, VA
Fredericksburg I, VA
Fredericksburg II, VA
Leesburg, VA
Manassas, VA
McLearen, VA
Vienna, VA
Total/Weighted Average (475
stores)
2005
2005
2012
2015
2011
2012
2005
2005
2011
2010
2010
2012
1976
1978
2000
2015
2003
1999
2001/04
1998/01
2001/04
1998
2002
2000
56,446
51,676
114,100
96,144
91,667
73,265
69,475
61,057
85,503
72,745
68,960
55,064
95.8 %
93.3 %
92.1 %
66.3 %
91.4 %
90.7 %
89.9 %
88.9 %
85.7 %
88.9 %
88.7 %
95.9 %
753
498
1,151
1,149
908
676
610
563
890
638
729
559
Y
Y
Y
N
Y
N
N
N
Y
Y
Y
Y
32,858,399
89.7 %
324,499
0.0 %
0.0 %
97.2 %
96.9 %
81.6 %
88.3 %
22.1 %
87.1 %
83.9 %
64.7 %
90.8 %
97.1 %
* Denotes stores developed by us or acquired at development completion.
† Denotes stores 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 properties and is managed by our store managers. As of December 31,
2016, properties in our owned portfolio included an aggregate of approximately 237,000 rentable square feet of commercial space.
(1) Represents the year acquired for those stores we acquired from a third party or the year of completion for those stores we developed.
(2) Represents occupied square feet as of December 31, 2016 divided by total rentable square feet.
(3) Indicates whether a store 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 properties. We lease the land pursuant to ground leases that expire between 2052 and 2064, subject to
renewal options.
(6) We have ground leases for certain small parcels of land adjacent to these properties that expire between 2018 and 2019.
Table of Contents
34
We have grown by adding stores 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 stores owned as of December 31, 2016,
and for each of the previous three years, grouped by the year during which we first owned or operated the store.
Stores by Year Acquired - Average Occupancy
Year Acquired (1)
2013 and earlier
2014
2015
2016
All Stores Owned as of December 31, 2016
Stores by Year Acquired - Annual Rent Per Occupied Square Foot (2)
Year Acquired (1)
2013 and earlier
2014
2015
2016
All Stores Owned as of December 31, 2016
Stores by Year Acquired - Average Occupied Square Feet (3)
# of Stores
Rentable Square
Feet
Average Occupancy
2015
2014
2016
358
55
32
30
475
24,235,264
3,967,203
2,268,396
2,387,536
32,858,399
92.7 %
92.0 %
82.8 %
67.8 %
90.7 %
92.2 %
88.8 %
77.2 %
—
91.3 %
90.7 %
85.6 %
—
—
90.4 %
# of Stores
2016
Rent per Square Foot
2015
2014
358 $
55
32
30
475 $
16.32 $
16.08
14.94
15.24
16.14 $
15.42 $
14.93
14.84
—
15.34 $
14.62
14.61
—
—
14.62
Year Acquired (1)
# of Stores
Average Occupied Square Feet
2015
2014
2016
2013 and earlier
2014
2015
2016
All Stores Owned as of December 31, 2016
358
55
32
30
475
22,449,843
3,649,767
1,873,761
1,692,377
29,665,748
22,314,883
3,506,012
1,694,756
—
27,515,651
21,902,608
3,269,341
—
—
25,171,949
Stores by Year Acquired - Total Revenues (dollars in thousands)
Year Acquired (1)
2013 and earlier
2014
2015
2016
All Stores Owned as of December 31, 2016
# of Stores
2016
Total Revenues
2015
2014
358 $
55
32
30
475 $
388,756 $
62,404
29,660
16,005
496,825 $
365,039 $
55,542
9,636
—
430,217 $
339,894
21,611
—
—
361,505
(1) Represents the year acquired for those stores we acquired from a third party or the year placed in service for those stores we 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 $17.4
million, $16.2 million, and $15.7 million for the periods ended December 31, 2016, 2015 and 2014, respectively.
(3) Represents the average of the aggregate month-end occupied square feet for the twelve-month period for each group of stores.
Table of Contents
Unconsolidated Real Estate Ventures
35
As of December 31, 2016, we held ownership interests ranging from 10% to 50% in three unconsolidated real estate ventures for an aggregate
investment balance of $98.7 million. We formed interests in these real estate ventures with unaffiliated third parties to acquire, own, and operate
self-storage properties in select markets. As of December 31, 2016, these three unconsolidated real estate ventures owned 116 self-storage
properties that contain an aggregate of approximately 6.8 million net rentable square feet. The self-storage properties owned by the real estate
ventures are managed by us and are located in Texas (34), South Carolina (22), Michigan (17), Massachussetts (13), Tennessee (10), Georgia (5),
North Carolina (5), Connecticut (3), Florida (3), Rhode Island (2), and Vermont (2). Each of the ventures has debt and other obligations that we do
not consolidate in our financial statements.
We account for our investments in these real estate ventures using the equity method. See note 5 to the consolidated financial statements for
further disclosure regarding the assets, liabilities, and operating results of our unconsolidated real estate ventures.
Capital Expenditures
We have a capital improvement program that includes office upgrades, adding climate control to selected cubes, construction of parking areas,
and other store upgrades. For 2017, we anticipate spending approximately $5.0 million to $10.0 million associated with these capital expenditures.
For 2017, we also anticipate spending approximately $15.0 million to $20.0 million on recurring capital expenditures and approximately $50.0 million
to $65.0 million on the development of new self-storage properties.
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.
On July 13, 2015, a putative class action was filed against the Company in the Federal District Court of New Jersey seeking to obtain declaratory,
injunctive and monetary relief for a class of New Jersey consumers based upon alleged violations by the Company of the New Jersey Truth in
Customer Contract, Warranty and Notice Act and the New Jersey Consumer Fraud Act. The Company brought a motion to partially dismiss the
complaint for failure to state a claim, which motion was granted in part and denied in part. The plaintiff has moved to file an amended complaint to
re-allege the action dismissed by the Court, which motion is presently pending decision. We intend to vigorously defend the action, and the
possibility of any adverse outcome cannot be determined at this time.
ITEM 4. MINING SAFETY DISCLOSURES
Not applicable.
Table of Contents
36
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF
EQUITY SECURITIES
Repurchase of Parent Company Common and Preferred Shares
The following table provides information about repurchases of the Parent Company’s common and preferred shares during the three months
ended December 31, 2016:
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs (1)
$
—
113 (2) $
3,100,000 (3) $
164 (2) $
$
3,100,277
—
25.14
25.00
25.45
25.00
N/A
N/A
3,100,000
N/A
N/A
3,000,000
3,000,000
—
3,000,000
3,000,000
October 1 - October 31
November 1 - November 30
December 1 - December 31
Total
(1) On September 27, 2007, the Parent Company announced that the Board of Trustees approved a share repurchase program for up to 3.0 million
of the Parent Company’s outstanding common shares. Unless terminated earlier by resolution of the Board of Trustees, the program will expire
when the number of authorized shares has been repurchased. The Parent Company has made no repurchases under this program to date.
(2) Represents common shares withheld by the Parent Company upon the vesting of restricted shares to cover employee tax obligations.
(3) Represents 7.75% Series A Cumulative Redeemable Preferred Shares redeemed by the Parent Company on November 2, 2016. On September 2,
2016, the Parent Company announced its intention to call for redemption all of its 3,100,000 issued and outstanding 7.75% Series A Cumulative
Redeemable Preferred Shares, which redemption was completed on November 2, 2016.
Market Information for and Holders of Record of Common Shares
As of December 31, 2016, there were approximately 87 registered record holders of the Parent Company’s common shares and 10 holders (other
than the Parent Company) of the Operating Partnership’s common units. These figures do not include common shares held by brokers and other
institutions on behalf of shareholders. There is no established trading market for units of the Operating Partnership. The following table shows
the high and low closing prices per common share, as reported by the New York Stock Exchange, and the cash dividends declared with respect to
such shares:
2015
First quarter
Second quarter
Third quarter
Fourth quarter
2016
First quarter
Second quarter
Third quarter
Fourth quarter
Table of Contents
High
Low
Cash Dividends
Declared per
Share
25.43
24.62
27.21
31.42
33.30
33.28
32.07
26.96
$
$
$
$
$
$
$
$
22.31
22.74
23.81
26.99
27.70
29.18
26.43
23.88
$
$
$
$
$
$
$
$
0.16
0.16
0.16
0.21
0.21
0.21
0.21
0.27
$
$
$
$
$
$
$
$
37
For each quarter in 2015 and 2016, 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.
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 the Parent Company’s common shareholders a statement detailing the tax characterization
of dividends paid during the preceding year as ordinary income, capital gain, or return of capital. The characterization of the Parent Company’s
dividends for 2016 consisted of a 98.663% ordinary income distribution and a 1.337% capital gain 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 the Parent Company’s
preferred 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 distributions for 2016 consisted of a 7.683% ordinary income distribution, a
0.104% capital gain distribution from earnings and profits, and a 92.213% cash liquidating distribution.
We intend to continue to declare quarterly distributions. However, we cannot provide any assurance as to the amount or timing of future
distributions. Under our Credit Facility, we are restricted from paying distributions on the Parent Company’s common shares in excess of 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.
Recent Sales of Unregistered Equity Securities and Use of Proceeds
Recent Sales of Unregistered Equity Securities
None.
Table of Contents
Share Performance Graph
38
The SEC requires us to present a chart comparing the cumulative total shareholder return, assuming reinvestment of dividends, 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,
2011 and ending December 31, 2016.
Period Ending
Index
CubeSmart
S&P 500
Russell 2000
NAREIT All Equity REIT Index
12/31/2011
100.00
100.00
100.00
100.00
12/31/2012
141.81
116.00
116.35
119.70
12/31/2013
159.55
153.57
161.52
123.12
12/31/2014
227.42
174.60
169.43
157.63
12/31/2015
323.91
177.01
161.95
162.08
12/31/2016
292.04
198.18
196.45
176.07
On September 27, 2007, the Parent Company announced that the Board approved a share repurchase program for up to 3.0 million of the Parent
Company’s outstanding common shares. Unless terminated earlier by resolution of the Board of Trustees, the program will expire when the
number of authorized shares has been repurchased. The Parent Company has made no repurchases under this program to date and there were no
other repurchases of the Parent Company’s common shares during the year ended December 31, 2016.
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 data as of and for each of the years in the five-year period ended December 31, 2016 are derived from the Parent Company’s
consolidated financial statements, which financial statements have been audited by KPMG LLP, an independent registered public accounting firm.
The consolidated financial statements as of December 31, 2016 and 2015, and for each of the years in
Table of Contents
39
the three-year period ended December 31, 2016, and the report thereon, are included herein. The selected data should be read in conjunction with
the consolidated financial statements for the year ended December 31, 2016, the related notes, and the independent registered public accounting
firm’s report, which refers to the Company’s change in its method for reporting discontinued operations as of January 1, 2014. The other data
presented below is not derived from the financial statements.
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.
REVENUES
Rental income
Other property related income
Property management fee income
Total revenues
OPERATING EXPENSES
Property operating expenses
Depreciation and amortization
General and administrative
Acquisition related costs
Total operating expenses
OPERATING INCOME
OTHER (EXPENSE) INCOME
Interest:
Interest expense on loans
Loan procurement amortization expense
Loan procurement amortization expense - early repayment of
debt
Equity in losses of real estate ventures
Gain from remeasurement of investment in real estate venture
Gains from sale of real estate, net
Other
Total other expense
INCOME (LOSS) FROM CONTINUING OPERATIONS
DISCONTINUED OPERATIONS
Income from discontinued operations
Gain from disposition of discontinued operations
Total discontinued operations
NET INCOME
NET (INCOME) LOSS ATTRIBUTABLE TO
NONCONTROLLING INTERESTS
Noncontrolling interests in the Operating Partnership
Noncontrolling interest in subsidiaries
NET INCOME ATTRIBUTABLE TO THE COMPANY
$
$
2016
449,601
50,255
10,183
510,039
165,847
161,865
32,823
6,552
367,087
142,952
(50,399 )
(2,577 )
—
(2,662 )
—
—
1,062
(54,576 )
88,376
—
—
—
88,376
(941 )
470
87,905
For the year ended December 31,
2013
2014
2015
(in thousands, except per share data)
$
$
392,476
45,189
6,856
444,521
153,172
151,789
28,371
3,301
336,633
107,888
(43,736 )
(2,324 )
—
(411 )
—
17,567
(228 )
(29,132 )
78,756
—
—
—
78,756
(960 )
(84 )
77,712
330,898
40,065
6,000
376,963
132,701
126,813
28,422
7,484
295,420
81,543
(46,802 )
(2,190 )
—
(6,255 )
—
475
(405 )
(55,177 )
26,366
336
—
336
26,702
(307 )
(16 )
26,379
281,250
32,365
4,780
318,395
118,222
112,313
29,563
3,849
263,947
54,448
(40,424 )
(2,058 )
(414 )
(1,151 )
—
—
8
(44,039 )
10,409
4,145
27,440
31,585
41,994
(588 )
42
41,448
$
2012
236,160
25,821
4,341
266,322
103,488
109,830
26,131
3,086
242,535
23,787
(40,318 )
(3,279 )
—
(745 )
7,023
—
256
(37,063 )
(13,276 )
7,093
9,811
16,904
3,628
107
(1,918 )
1,817
Distribution to preferred shareholders
Preferred share redemption charge
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY’S
COMMON SHAREHOLDERS
Basic earnings (loss) per share from continuing operations
attributable to common shareholders
Basic earnings per share from discontinued operations attributable
to common shareholders
Basic earnings (loss) per share attributable to common
shareholders
Diluted earnings (loss) per share from continuing operations
attributable to common shareholders
Diluted earnings per share from discontinued operations
attributable to common shareholders
Diluted earnings (loss) per share attributable to common
shareholders
Weighted-average basic shares outstanding (1)
Weighted-average diluted shares outstanding (1)
AMOUNTS ATTRIBUTABLE TO THE COMPANY’S COMMON
SHAREHOLDERS:
Income (loss) from continuing operations
Total discontinued operations
Net income (loss)
(5,045 )
(2,937 )
(6,008 )
—
(6,008 )
—
(6,008 )
—
79,923
$
71,704
$
20,371
$
35,440
$
0.45
—
0.45
0.45
—
0.45
$
$
$
$
$
$
0.43
—
0.43
0.42
—
0.42
$
$
$
$
$
$
0.13
0.01
0.14
0.13
0.01
0.14
$
$
$
$
$
$
0.03
0.23
0.26
0.03
0.23
0.26
$
$
$
$
$
$
(6,008 )
—
(4,191 )
(0.17 )
0.14
(0.03 )
(0.17 )
0.14
(0.03 )
178,246
179,533
168,640
170,191
149,107
150,863
135,191
137,742
124,548
124,548
79,923
—
79,923
$
$
71,704
—
71,704
$
$
20,040
331
20,371
$
$
4,392
31,048
35,440
$
$
(20,689 )
16,498
(4,191 )
$
$
$
$
$
$
$
$
$
40
Table of Contents
Balance Sheet Data (in thousands):
Storage properties, net
Total assets
Unsecured senior notes, net
Revolving credit facility
Unsecured term loans, net
Mortgage loans and notes payable, net
Total liabilities
Noncontrolling interests in the Operating Partnership
Total CubeSmart shareholders’ equity
Noncontrolling interests in subsidiaries
Total liabilities and equity
Other Data:
Number of stores
Total rentable square feet (in thousands)
Occupancy percentage
Cash dividends declared per common share (2)
2016
2015
At December 31,
2014
2013
2012
$
$
$
$
3,326,816
3,475,028
1,039,076
43,300
398,749
114,618
1,759,384
54,407
1,655,382
5,855
3,475,028
2,872,983
3,104,164
741,904
—
398,183
111,455
1,393,183
66,128
1,643,327
1,526
3,104,164
2,625,129
2,776,906
493,957
78,000
397,617
194,844
1,277,465
49,823
1,448,026
1,592
2,776,906
2,155,170
2,347,819
493,283
38,600
397,261
198,869
1,218,337
36,275
1,092,276
931
2,347,819
$
2,089,707
2,143,323
247,614
45,000
497,160
226,989
1,105,424
47,990
989,791
118
2,143,323
475
32,858
89.7 %
0.90
$
445
30,361
90.2 %
0.69
$
421
28,622
89.1 %
0.55
$
366
24,662
88.3 %
0.46
$
381
25,485
84.4 %
0.35
$
(1) OP 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) We announced full quarterly dividends of $0.08 and $0.484 per common and preferred shares, respectively, on February 21, 2012, May 30,
2012, and August 1, 2012; dividends of $0.11 and $0.484 per common and preferred shares, respectively, on December 10, 2012, February 21,
2013, May 29, 2013, and August 7, 2013; dividends of $0.13 and $0.484 per common and preferred shares, respectively, on December 19, 2013,
February 25, 2014, May 28, 2014, and August 5, 2014; dividends of $0.16 and $0.484 per common and preferred shares, respectively, on
December 16, 2014, February 24, 2015, May 27, 2015, and August 4, 2015; dividends of $0.21 and $0.484 per common and preferred shares,
respectively, on December 10, 2015, February 16, 2016, June 1, 2016, and August 2, 2016; dividends of $0.174 per preferred share on
September 2, 2016; and dividends of $0.27 per common share on December 15, 2016.
CUBESMART, L.P.
The following table sets forth selected financial and operating data on a historical consolidated basis for the Operating Partnership. The
selected historical financial data as of and for each of the years in the the five-year period ended December 31, 2016 are derived from the Operating
Partnership’s consolidated financial statements, which financial statements have been audited by KPMG LLP, an independent registered public
accounting firm. The consolidated financial statements as of December 31, 2016 and 2015, and for each of the years in the three-year period ended
December 31, 2016, and the report thereon, are included herein. The selected data should be read in conjunction with the consolidated financial
statements for the year ended December 31, 2016, the related notes, and the independent registered public accounting firm’s report, which refers to
the Operating Partnership’s change in its method for reporting discontinued operations as of January 1, 2014. The other data presented below is
not derived from the financial statements.
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41
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.
REVENUES
Rental income
Other property related income
Property management fee income
Total revenues
OPERATING EXPENSES
Property operating expenses
Depreciation and amortization
General and administrative
Acquisition related costs
Total operating expenses
OPERATING INCOME
OTHER (EXPENSE) INCOME
Interest:
Interest expense on loans
Loan procurement amortization expense
Loan procurement amortization expense - early repayment of debt
Equity in losses of real estate ventures
Gain from remeasurement of investment in real estate venture
Gains from sale of real estate, net
Other
Total other expense
INCOME (LOSS) FROM CONTINUING OPERATIONS
DISCONTINUED OPERATIONS
Income from discontinued operations
Gain from disposition of discontinued operations
Total discontinued operations
NET INCOME
NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING
INTERESTS
Noncontrolling interest in subsidiaries
NET INCOME ATTRIBUTABLE TO CUBESMART L.P.
Operating Partnership interests of third parties
NET INCOME ATTRIBUTABLE TO OPERATING PARTNER
Distribution to preferred unitholders
Preferred unit redemption charge
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
UNITHOLDERS
Basic earnings (loss) per unit from continuing operations attributable to
common unitholders
Basic earnings per unit from discontinued operations attributable to
common unitholders
Basic earnings (loss) per unit attributable to common unitholders
Diluted earnings (loss) per unit from continuing operations attributable
to common unitholders
Diluted earnings per unit from discontinued operations attributable to
common unitholders
Diluted earnings (loss) per unit attributable to common unitholders
2016
For the year ended December 31,
2015
2013
2014
(in thousands, except per unit data)
2012
$
449,601 $
50,255
10,183
510,039
392,476 $
45,189
6,856
444,521
330,898 $
40,065
6,000
376,963
281,250 $
32,365
4,780
318,395
165,847
161,865
32,823
6,552
367,087
142,952
(50,399 )
(2,577 )
—
(2,662 )
—
—
1,062
(54,576 )
88,376
—
—
—
88,376
470
88,846
(941 )
87,905
(5,045 )
(2,937 )
153,172
151,789
28,371
3,301
336,633
107,888
(43,736 )
(2,324 )
—
(411 )
—
17,567
(228 )
(29,132 )
78,756
—
—
—
78,756
(84 )
78,672
(960 )
77,712
(6,008 )
—
132,701
126,813
28,422
7,484
295,420
81,543
(46,802 )
(2,190 )
—
(6,255 )
—
475
(405 )
(55,177 )
26,366
336
—
336
26,702
(16 )
26,686
(307 )
26,379
(6,008 )
—
118,222
112,313
29,563
3,849
263,947
54,448
(40,424 )
(2,058 )
(414 )
(1,151 )
—
—
8
(44,039 )
10,409
4,145
27,440
31,585
41,994
42
42,036
(588 )
41,448
(6,008 )
—
$
$
$
$
$
$
$
79,923 $
71,704 $
20,371 $
35,440 $
0.45 $
— $
0.45 $
0.45 $
— $
0.45 $
0.43 $
— $
0.43 $
0.42 $
— $
0.42 $
0.13 $
0.01 $
0.14 $
0.13 $
0.01 $
0.14 $
0.03 $
0.23 $
0.26 $
0.03 $
0.23 $
0.26 $
236,160
25,821
4,341
266,322
103,488
109,830
26,131
3,086
242,535
23,787
(40,318 )
(3,279 )
—
(745 )
7,023
—
256
(37,063 )
(13,276 )
7,093
9,811
16,904
3,628
(1,918 )
1,710
107
1,817
(6,008 )
—
(4,191 )
(0.17 )
0.14
(0.03 )
(0.17 )
0.14
(0.03 )
Weighted-average basic units outstanding (1)
Weighted-average diluted units outstanding (1)
178,246
179,533
168,640
170,191
149,107
150,863
135,191
137,742
124,548
124,548
AMOUNTS ATTRIBUTABLE TO COMMON UNITHOLDERS:
Income (loss) from continuing operations
Total discontinued operations
Net income (loss)
79,923 $
—
79,923 $
71,704 $
—
71,704 $
20,040 $
331
20,371 $
4,392 $
31,048
35,440 $
(20,689 )
16,498
(4,191 )
$
$
42
Table of Contents
Balance Sheet Data (in thousands):
Storage properties, net
Total assets
Unsecured senior notes, net
Revolving credit facility
Unsecured term loans, net
Mortgage loans and notes payable, net
Total liabilities
Operating Partnership interests of third parties
Total CubeSmart L.P. Capital
Noncontrolling interests in subsidiaries
Total liabilities and capital
Other Data:
Number of stores
Total rentable square feet (in thousands)
Occupancy percentage
Cash dividends declared per common unit (2)
2016
2015
At December 31,
2014
2013
2012
$
3,326,816 $
3,475,028
1,039,076
43,300
398,749
114,618
1,759,384
54,407
1,655,382
5,855
3,475,028
2,872,983
3,104,164
741,904
—
398,183
111,455
1,393,183
66,128
1,643,327
1,526
3,104,164
$
$
2,625,129
2,776,906
493,957
78,000
397,617
194,844
1,277,465
49,823
1,448,026
1,592
2,776,906
2,155,170
2,347,819
493,283
38,600
397,261
198,869
1,218,337
36,275
1,092,276
931
2,347,819
2,089,707
2,143,323
247,614
45,000
497,160
226,989
1,105,424
47,990
989,791
118
2,143,323
475
32,858
89.7 %
0.90 $
445
30,361
90.2 %
0.69
$
421
28,622
89.1 %
0.55
$
366
24,662
88.3 %
0.46
$
381
25,485
84.4 %
0.35
$
$
(1) OP units have been excluded from the earnings per unit calculations as the related income or loss is presented in Operating Partnership
interest of third parties.
(2) We announced full quarterly dividends of $0.08 and $0.484 per common and preferred units, respectively, on February 21, 2012, May 30, 2012,
and August 1, 2012; dividends of $0.11 and $0.484 per common and preferred units, respectively, on December 10, 2012, February 21, 2013,
May 29, 2013, and August 7, 2013; dividends of $0.13 and $0.484 per common and preferred units, respectively, on December 19, 2013,
February 25, 2014, May 28, 2014, and August 5, 2014; dividends of $0.16 and $0.484 per common and preferred units, respectively, on
December 16, 2014, February 24, 2015, May 27, 2015, and August 4, 2015; dividends of $0.21 and $0.484 per common and preferred units,
respectively, on December 10, 2015, February 16, 2016, June 1, 2016, and August 2, 2016; dividends of $0.174 per preferred unit on
September 2, 2016; and dividends of $0.27 per common unit on December 15, 2016.
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43
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.
Some of the statements we make in this section 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
We are 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 properties. The Parent Company’s operations are conducted solely through the Operating
Partnership and its subsidiaries. The Parent Company has elected to be taxed as a REIT for U.S. federal income tax purposes. As of December 31,
2016 and December 31, 2015, we owned 475 and 445 self-storage properties, respectively, totaling approximately 32.9 million and 30.4 million
rentable square feet, respectively. As of December 31, 2016, we owned stores in the District of Columbia and the following 23 states: Arizona,
California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico,
New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Tennessee, Texas, Utah, and Virginia. In addition, as of December 31, 2016, we
managed 316 stores for third parties (including 116 stores containing an aggregate of approximately 6.8 million rentable square feet as part of three
separate unconsolidated real estate ventures), bringing the total number of stores we owned and/or managed to 791. As of December 31, 2016, we
managed stores for third parties in the following 26 states: Alabama, Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois,
Louisiana, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Pennsylvania,
Rhode Island, South Carolina, Tennessee, Texas, Vermont, and Virginia.
We derive revenues principally from rents received from customers who rent cubes at our self-storage properties 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. Our approach to the management and operation of our stores combines centralized marketing,
revenue management, and other operational support with local operations teams that provide 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.
We typically experience seasonal fluctuations in the occupancy levels of our stores, which are generally slightly higher during the summer
months due to increased moving activity.
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. 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.
We continue our focus on maximizing internal growth opportunities and selectively pursuing targeted acquisitions and developments of self-
storage properties.
We have one reportable segment: we own, operate, develop, manage, and acquire self-storage properties.
Our self-storage properties are located in major metropolitan and suburban areas and have numerous customers per store. No single customer
represents a significant concentration of our revenues. Our stores in Florida, New York, Texas, and California provided approximately 17%, 16%,
10%, and 8%, respectively, of total revenues for the year ended December 31, 2016.
Summary of Critical Accounting Policies and Estimates
Set forth below is a summary of the accounting policies and estimates that management believes are critical to the preparation of the
consolidated financial statements included in this Report. 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
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44
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.
Self-Storage Properties
The Company records self-storage properties 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 39 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 stores 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 stores is acquired, the purchase price is allocated to the individual stores 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 store 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 allocates a portion of the purchase price to an intangible asset attributable to the value of in-place leases. This intangible asset is
generally amortized to expense over the expected remaining term of the respective leases. Substantially all of the leases in place at acquired stores
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 customer relationships,
because the Company does not have any concentrations of significant customers and the average customer 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 an 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 store’s basis is recoverable. If a store’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. There were no impairment losses recognized in
accordance with these procedures during the years ended December 31, 2016, 2015 and 2014.
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 store (or group of stores), (b) the store is available for immediate sale in its present condition subject only to terms that are usual and
customary for sales of such stores, (c) an active program to locate a buyer and other actions required to complete the plan to sell the store have
been initiated, (d) the sale of the store is probable and transfer of the asset is expected to be completed within one year, (e) the store 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
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45
transaction from closing. However, each potential transaction is evaluated based on its separate facts and circumstances. Stores 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 customers 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 from disposition of stores 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.
Share-Based Payments
We apply the fair value method of accounting for contingently issued shares and share options issued under our equity incentive plans. The
share compensation expense is 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 carrying 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 that is other than temporary 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. Fair value
is determined through various valuation techniques, including but not limited to, discounted cash flow models, quoted market values, and third
party appraisals. There were no impairment losses related to the Company’s investments in unconsolidated real estate ventures recognized during
the years ended December 31, 2016, 2015 and 2014.
Income Taxes
The Parent 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.
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46
The Parent 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 Parent Company’s ordinary income, (b) 95% of the Parent
Company’s net capital gains, and (c) 100% of prior year taxable income exceeds cash distributions and certain taxes paid by the Parent Company.
Recent Accounting Pronouncements
In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 805): Clarifying the
Definition of a Business, which changes the defininition of a business to include an input and a substantive process that together signifianctly
contribute to the ability to create outputs. A framework is provided to evaluate when an input and a substantive process are present. The new
guidance also narrows the definition of outputs, which are defined as the results of inputs and substantive processes that provide goods or
services to customers, other revenue, or investment income. The standard is effective on January 1, 2018, however early adoption is permitted. We
are in the process of evaluating the impact of this new guidance.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires the statement of
cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or
restricted cash equivalents. The new guidance also requires entities to reconcile such total to amounts on the balance sheet and disclose the
nature of the restrictions. The standard is effective on January 1, 2018, however early adoption is permitted. The standard requires the use of the
retrospective transition method. We are in the process of evaluating the impact of this new guidance.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments, which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The eight
items that the ASU provides classification guidance on include (1) debt prepayment and extinguishment costs, (2) settlement of zero-coupon debt
instruments, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims,
(5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (6) distributions received
from equity method investments, (7) beneficial interests in securitization transactions, and (8) separately identifiable cash flows and application of
the predominance principle. The standard is effective on January 1, 2018, however early adoption is permitted. The standard requires the use of the
retrospective transition method. We are in the process of evaluating the impact of this new guidance.
In March 2016, the FASB issued ASU No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting, which is intended to simplify various aspects related to how share-based payments are accounted for and presented in the
financial statements. The new guidance allows for entities to make an entity-wide accounting policy election to either estimate the number of
awards that are expected to vest or account for forfeitures when they occur. In addition, the guidance allows employers to withhold shares to
satisfy minimum statutory tax withholding requirements up to the employees’ maximum individual tax rate without causing the award to be
classified as a liability. The guidance also stipulates that cash paid by an employer to a taxing authority when directly withholding shares for tax-
withholding purposes should be classified as a financing activity on the statement of cash flows. The standard is effective on January 1, 2017,
however early adoption is permitted. We do not expect this new guidance to have a material impact on our consolidated financial position or
results of operations.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement,
presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual
approach, classifying leases as either financing or operating leases based on the principle of whether or not the lease is effectively a financed
purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a
straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases
with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to
existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially
equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The standard is effective on January 1, 2019,
however early adoption is permitted. We are currently assessing the impact of the adoption of ASU No. 2016-02 on our consolidated financial
statements and related disclosures.
In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which amends the
current business combination guidance to require that an acquirer recognize adjustments to provisional amounts that are identified during the
measurement period in the reporting period in which the adjustment amounts are determined, as opposed to having to revise prior period
information. The standard also requires additional disclosure about the impact on current-period income statement line items of adjustments that
would have been recognized in prior periods if prior period information had been revised. The new standard became effective for the Company on
January 1, 2016. The adoption of this guidance did not have a material impact on our consolidated
Table of Contents
47
financial position or results of operations as all measurement-period adjustments recorded during 2016 relate to business combinations that took
place in the current year and do not impact the prior period. Refer to note 4 for details regarding the measurement-period adjustments made during
the year ended December 31, 2016.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, an update to the accounting standard
relating to the presentation of debt issuance costs. Under the new guidance, debt issuance costs related to a recognized debt liability will be
presented on the balance sheet as a direct deduction from the debt liability. In the event that there is not an associated debt liability recorded in
the consolidated financial statements, the debt issuance costs will continue to be recorded on the consolidated balance sheet as an asset until the
debt liability is recorded. The new standard became effective for the Company on January 1, 2016. The adoption of this guidance did not have a
material impact on our consolidated financial position or results of operations as the update only related to changes in financial statement
presentation as discussed in note 7 and in the “Reclassifications” section of the consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation — Amendments to the Consolidation Analysis, which amends the current
consolidation guidance affecting both the variable interest entity (“VIE”) and voting interest entity (“VOE”) consolidation models. The standard
does not add or remove any of the characteristics in determining if an entity is a VIE or VOE, but rather enhances the way the Company assesses
some of these characteristics. The new standard became effective for the Company on January 1, 2016. The adoption of this guidance did not have
a material impact on our consolidated financial position or results of operations as none of its existing consolidation conclusions were changed.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of
revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue
recognition guidance under GAAP when it becomes effective. The new standard will be effective for the Company beginning on January 1, 2018,
however early application beginning on January 1, 2017 is permitted. The standard permits the use of either the retrospective or cumulative effect
transition method. The Company has not yet selected a transition method. We are currently assessing the impact of the adoption of ASU
No. 2014-09 on our consolidated financial statements and related disclosures.
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 stores and should
not be taken as indicative of future operations. We consider our same-store portfolio to consist of only those stores owned and operated on a
stabilized basis at the beginning and at the end of the applicable years presented. We consider a store to be stabilized once it has achieved an
occupancy rate that we believe, based on our assessment of market-specific data, is representative of similar self-storage assets in the applicable
market for a full year measured as of the most recent January 1 and has not been significantly damaged by natural disaster or undergone
significant renovation. We believe that same-store results are useful to investors in evaluating our performance because they provide information
relating to changes in store-level operating performance without taking into account the effects of acquisitions, developments or dispositions. As
of December 31, 2016, we owned 407 same-store properties and 68 non-same-store properties. All of the non-same-store properties were 2015 and
2016 acquisitions, dispositions, developed stores, or stores with a significant portion taken out of service. For analytical presentation, all
percentages are calculated using the numbers presented in the financial statements contained in this Report.
The comparability of our results of operations is affected by the timing of acquisition and disposition activities during the periods reported. As
of December 31, 2016, 2015 and 2014, we owned 475, 445 and 421 self-storage properties and related assets, respectively.
48
Table of Contents
The following table summarizes the change in number of owned stores from January 1, 2014 through December 31, 2016:
Balance - January 1
Stores acquired
Stores developed
Balance - March 31
Stores acquired
Stores developed
2016
2015
2014
445
10
1
456
7
1
421
7
—
428
4
1
366
10
2
378
9
—
Balance - June 30
Stores acquired
Balance - September 30
Stores acquired
Stores developed
Stores sold
Balance - December 31
464
7
471
4
—
—
475
433
5
438
13
2
(8 )
445
387
3
390
31
—
—
421
Comparison of the Year Ended December 31, 2016 to the Year Ended December 31, 2015 (dollars in thousands)
Same-Store Property Portfolio
Non Same-Store
Properties
Other/
Eliminations
%
Change
Increase/
(Decrease)
27,090
$
1,978
—
29,068
2016
7.2 % $ 47,362
5,091
4.9 %
—
0.0 %
52,453
7.0 %
2015
$ 17,327
2,039
—
19,366
2016
$ —
2,992
10,183
13,175
2015
$ —
2,956
6,856
9,812
(385 )
29,453
(0.3 )%
10.2 %
18,545
(5,370 )
17,753
(7,941 )
20,478
31,975
68
5,030
78.3 %
8,210
11,156
38
2,533
75.4 %
REVENUES:
Rental income
Other property related income
Property management fee income
Total revenues
OPERATING EXPENSES:
Property operating expenses
NET OPERATING INCOME (LOSS):
Store count
Total square footage
Period End Occupancy (1)
Period Average Occupancy (2)
Realized annual rent per occupied sq. ft. (3)
2016
$ 402,239
42,172
—
444,411
2015
$ 375,149
40,194
—
415,343
126,824
317,587
407
27,828
91.8 %
92.9 %
$ 15.56
127,209
288,134
407
27,828
91.6 %
92.1 %
$ 14.63
Subtotal
Depreciation and amortization
General and administrative
Acquisition related costs
OPERATING INCOME
OTHER (EXPENSE) INCOME
Interest:
Interest expense on loans
Loan procurement amortization expense
Equity in losses of real estate ventures
Gains from sale of real estate, net
Other
Total other expense
NET INCOME
NET (INCOME) LOSS ATTRIBUTABLE TO
NONCONTROLLING INTERESTS
Noncontrolling interests in the Operating Partnership
Noncontrolling interests in subsidiaries
NET INCOME ATTRIBUTABLE TO THE COMPANY
Distribution to preferred shareholders
Preferred share redemption charge
COMMON SHAREHOLDERS
NET INCOME ATTRIBUTABLE TO THE COMPANY’S
(1) Represents occupancy as of December 31 of the respective year.
(2) Represents the weighted average occupancy for the period.
(3) Realized annual rent per occupied square foot is computed by dividing rental income by the weighted average occupied square feet for the period.
49
Table of Contents
Revenues
Total Portfolio
Increase/
%
(Decrease) Change
2015
2016
$ 449,601 $ 392,476 $
50,255
10,183
510,039
45,189
6,856
444,521
165,847
344,192
475
32,858
89.7 %
153,172
291,349
445
30,361
90.2 %
161,865
32,823
6,552
201,240
142,952
151,789
28,371
3,301
183,461
107,888
(50,399 )
(2,577 )
(2,662 )
—
1,062
(54,576 )
88,376
(43,736 )
(2,324 )
(411 )
17,567
(228 )
(29,132 )
78,756
(960 )
(84 )
$ 87,905 $ 77,712 $
(6,008 )
—
(941 )
470
(5,045 )
(2,937 )
$ 79,923 $ 71,704 $
57,125
5,066
3,327
65,518
12,675
52,843
14.6 %
11.2 %
48.5 %
14.7 %
8.3 %
18.1 %
10,076
4,452
3,251
17,779
35,064
(6,663 )
(253 )
(2,251 )
(17,567 )
1,290
(25,444 )
9,620
19
554
10,193
963
(2,937 )
8,219
6.6 %
15.7 %
98.5 %
9.7 %
32.5 %
(15.2 )%
(10.9 )%
(547.7 )%
(100.0 )%
565.8 %
(87.3 )%
12.2 %
2.0 %
659.5 %
13.1 %
16.0 %
(100.0 ) %
11.5 %
Rental income increased from $392.5 million during 2015 to $449.6 million during 2016, an increase of $57.1 million, or 14.6%. The increase in
same-store revenue was due primarily to an increase in average occupancy of 80 basis points and higher rental rates. Realized annual rent per
square foot on our same-store portoflio increased 6.4% as a result of higher asking rates for new and existing customers during 2016 as compared
to 2015. The remaining increase is primarily attributable to $30.0 million of additional income from the stores acquired in 2015 and 2016 included in
our non-same store portfolio.
Other property related income consists of late fees, administrative charges, customer insurance fees, sales of storage supplies and other
ancillary revenues. Other property related income increased from $45.2 million in 2015 to $50.3 million in 2016, an increase of $5.1 million, or 11.2%.
This increase is primarily attributable to increased fee revenue and insurance fees of $3.5 million on the stores acquired in 2015 and 2016 and a $2.0
million increase in same-store property related income mainly attributable to increased insurance participation and higher average occupancy,
offset by a decrease of $0.4 million of additional income relating to the disposals of nine stores in 2015.
Property management fee income increased to $10.2 million in 2016 from $6.9 million during 2015, an increase of $3.3 million, or 48.5%. This
increase is attributable to an increase in management fees related to the third-party management business resulting from more stores under
management and higher revenue at managed stores (316 stores as of December 31, 2016 compared to 227 stores as of December 31, 2015).
Operating Expenses
Property operating expenses increased from $153.2 million in 2015 to $165.8 million in 2016, an increase of $12.7 million, or 8.3%, which is primarily
attributable to $12.3 million of increased expenses associated with newly acquired stores.
Depreciation and amortization increased from $151.8 million in 2015 to $161.9 million in 2016, an increase of $10.1 million, or 6.6%. This increase
is primarily attributable to depreciation and amortization expense related to the 2015 and 2016 acquisitions.
General and administrative expenses increased from $28.4 million in 2015 to $32.8 million in 2016, an increase of $4.5 million, or 15.7%. The change
is primarily attributable to $4.1 million of increased payroll expenses resulting from additional employee headcount to support our growth.
Acquisition related costs increased from $3.3 million during 2015 to $6.6 million during 2016, an increase of $3.3 million, or 98.5%. Acquisition-
related costs are non-recurring and fluctuate based on periodic investment activity.
Other (expense) income
Interest expense on loans increased from $43.7 million during the year ended December 31, 2015 to $50.4 million during the year ended
December 31, 2016, an increase of $6.7 million, or 15.2%. The increase is primarily attributable to a higher amount of outstanding debt during 2016
as compared to 2015. The average debt balance increased $234.6 million to $1.4 billion during 2016 as compared to $1.2 billion during 2015 as the
result of borrowings to fund a portion of the Company’s acquisition acitivity.
Equity in losses of real estate ventures increased from $0.4 million during the year ended December 31, 2015 to $2.7 million during the year ended
December 31, 2016, an increase of $2.3 million, or 547.7%. The increase is mainly driven by our share of the losses attributable to HVP, a real estate
venture in which we own a 10% interest. The loss incurred in 2016 was primarily the result of amortization expense associated with the in-place
lease intangible that was recorded in connection with HVP’s acquisition of 68 properties. The amortization expense did not exist in 2015 as the
acquisitions took place during the fourth quarter of 2015 and throughout 2016.
Gains from sale of real estate, net were $17.6 million for the year ended December 31, 2015 with no comparable amounts for the year ended
December 31, 2016. These gains are determined on a transactional basis and, accordingly, are not comparable across reporting periods.
Other income (expense) increased $1.3 million from 2015 to 2016 primarily due to acquisition fees earned in conjunction with HVP’s acquisition of
68 self-storage properties.
Table of Contents
Comparison of the Year Ended December 31, 2015 to the Year Ended December 31, 2014 (dollars in thousands)
50
REVENUES:
Rental income
Other property related income
Property management fee income
Total revenues
OPERATING EXPENSES:
Property operating expenses
NET OPERATING INCOME (LOSS):
Store count
Total square footage
Period End Occupancy (1)
Period Average Occupancy (2)
Realized annual rent per occupied sq. ft. (3)
Subtotal
Depreciation and amortization
General and administrative
Acquisition related costs
OPERATING INCOME
OTHER (EXPENSE) INCOME
Interest:
Interest expense on loans
Loan procurement amortization expense
Equity in losses of real estate ventures
Gains from sale of real estate, net
Other
Total other expense
INCOME FROM CONTINUING OPERATIONS
DISCONTINUED OPERATIONS
Income from discontinued operations
Total discontinued operations
NET INCOME
NET (INCOME) LOSS ATTRIBUTABLE TO
NONCONTROLLING INTERESTS
Noncontrolling interests in the Operating Partnership
Noncontrolling interests in subsidiaries
Same-Store Property Portfolio
2015
2014
$ 324,314 $ 301,833 $
34,990
—
359,304
33,089
—
334,922
Increase/
(Decrease)
22,481
1,901
—
24,382
%
Change
Non Same-Store
Properties
2015
2014
Other/
Eliminations
2015
2014
2015
Total Portfolio
2014
Increase/
(Decrease) Change
%
7.4 % $ 68,162 $ 29,065 $
7,243
5.7 %
0.0 %
—
7.3 %
75,405
4,120
—
33,185
— $
2,956
6,856
9,812
— $ 392,476 $ 330,898 $
2,856
6,000
8,856
45,189
6,856
444,521
40,065
6,000
376,963
108,399
250,905
353
23,808
91.7 %
92.3 %
14.76 $
105,945
228,977
353
23,808
90.1 %
90.8 %
13.96
$
2,454
21,928
2.3 %
9.6 %
17,753
(7,941 )
15,316
(6,460 )
27,020
48,385
92
6,553
84.9 %
11,440
21,745
60
4,313
84.1 %
153,172
291,349
445
30,361
90.2 %
132,701
244,262
413
28,121
89.1 %
151,789
28,371
3,301
183,461
107,888
126,813
28,422
7,484
162,719
81,543
(43,736 )
(2,324 )
(411 )
17,567
(228 )
(29,132 )
78,756
—
—
78,756
(46,802 )
(2,190 )
(6,255 )
475
(405 )
(55,177 )
26,366
336
336
26,702
61,578
5,124
856
67,558
20,471
47,087
18.6 %
12.8 %
14.3 %
17.9 %
15.4 %
19.3 %
24,976
(51 )
(4,183 )
20,742
26,345
3,066
(134 )
5,844
17,092
177
26,045
52,390
(336 )
(336 )
52,054
19.7 %
(0.2 )%
(55.9 )%
12.7 %
32.3 %
6.6 %
(6.1 )%
93.4 %
3,598.3 %
43.7 %
47.2 %
198.7 %
(100.0 )%
(100.0 )%
194.9 %
(960 )
(84 )
(307 )
(16 )
(653 )
(68 )
(212.7 )%
(425.0 )%
NET INCOME ATTRIBUTABLE TO THE COMPANY
Distribution to preferred shareholders
COMMON SHAREHOLDERS
NET INCOME ATTRIBUTABLE TO THE COMPANY’S
$ 77,712 $ 26,379 $
(6,008 )
(6,008 )
$ 71,704 $ 20,371 $
51,333
—
51,333
194.6 %
— %
252.0 %
(1) Represents occupancy as of December 31 of each respective year.
(2) Represents the weighted average occupancy for the period.
(3) Realized annual rent per occupied square foot is computed by dividing rental income by the weighted average occupied square feet for the period.
Revenues
Rental income increased from $330.9 million in 2014 to $392.5 million in 2015, an increase of $61.6 million, or 18.6%. This increase is primarily
attributable to $40.3 million of additional income from the stores acquired in 2014 and 2015, offset by a decrease of $1.2 million of additional income
relating to the disposal of nine stores in 2015. Also, increases in net rental rates for new and existing customers, lower levels of promotional
discounts, and an increase in average occupancy of 150 basis points on the same-store portfolio provided a $22.5 million increase in rental income
during 2015 as compared to 2014.
Other property related income consists of late fees, administrative charges, customer insurance fees, sales of storage supplies and other
ancillary revenues. Other property related income increased from $40.1 million in 2014 to $45.2 million in 2015, an increase of $5.1 million, or 12.8%.
This increase is primarily attributable to increased fee revenue and insurance fees of $3.2 million on the stores acquired in 2014 and 2015 and a $1.9
million increase in same-store property related income mainly attributable to increased insurance participation and higher average occupancy.
Property management fee income increased to $6.9 million in 2015 from $6.0 million during 2014, an increase of $0.9 million, or 14.3%. This
increase is attributable to an increase in management fees related to the third-party management business resulting from more stores under
management and higher revenue at managed stores (227 stores as of December 31, 2015, compared to 174 stores as of December 31, 2014).
51
Table of Contents
Operating Expenses
Property operating expenses increased from $132.7 million in 2014 to $153.2 million in 2015, an increase of $20.5 million, or 15.4%. This increase is
primarily attributable to $15.6 million of increased expenses associated with newly acquired stores in 2015 and 2014. Additionally, property
operating expenses on the same-store portfolio increased $2.5 million primarily due to an increase of $1.2 million in property taxes and $1.0 million
in payroll.
Depreciation and amortization increased from $126.8 million in 2014 to $151.8 million in 2015, an increase of $25.0 million, or 19.7%. This increase
is primarily attributable to depreciation and amortization expense related to the 2014 and 2015 acquisitions.
Acquisition related costs decreased from $7.5 million during 2014 to $3.3 million during 2015, a decrease of $4.2 million, or 55.9%. Acquisition
related costs are non-recurring and fluctuate based on periodic investment activity.
Other (expense) income
Interest expense decreased from $46.8 million during the year ended December 31, 2014 to $43.7 million during the year ended December 31, 2015,
a decrease of $3.1 million, or 6.6%. The decrease is attributable to lower rates on the credit facility and term loan facility compared to 2014 as a
result of our improved credit ratings and credit facility amendment. The weighted average effective interest rate of our outstanding debt decreased
from 4.02% for the year ended December 31, 2014 to 3.88% for the year ended December 31, 2015 due to the previously discussed changes in the
term loan facility and credit facility pricing and the repayment of $84.9 million in secured loans with a weighted average effective interest rate of
4.75%, while the average debt balances for the years ended December 31, 2015 and 2014 were constant at $1.2 billion.
Equity in losses of real estate ventures decreased from $6.3 million during the year ended December 31, 2014 to $0.4 million during the year
ended December 31, 2015, a decrease of $5.9 million, or 93.4%. This expense is related to our share of the losses attributable to HHF (defined
below), a partnership in which we own a 50% interest, and HVP (defined below), a new partnership in which we entered into in December 2015 and
in which we own a 10% interest. The decrease is primarily attributable to HHF’s increased net operating income levels in 2015 as compared to 2014
as well as a decrease in amortization expense related to intangible assets from 2014 to 2015.
Gains from sale of real estate, net were $17.6 million and and $0.5 million for the years ended December 31, 2015 and 2014, respectively. These
gains are determined on a transactional basis and, accordingly, are not comparable across reporting periods.
Discontinued Operations
Income from discontinued operations was $0.3 million for the year ended December 31, 2014 with no comparable amount for the year ended
December 31, 2015. The income during the 2014 period represents real estate tax refunds received as a result of appeals of previous tax
assessments on six self-storage properties that we sold in prior years.
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, other expense, depreciation and
amortization expense, general and administrative expense, and deducting from net income (loss): gains from sale of real estate, net, income from
discontinued operations, gains from disposition of discontinued operations, other income, gains from remeasurement of investments 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 stores, and for all of our stores 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.
Table of Contents
We believe NOI is useful to investors in evaluating our operating performance because:
52
· it is one of the primary measures used by our management and our store managers to evaluate the economic productivity of our stores,
including our ability to lease our stores, 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, as amended,
defines FFO as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of real estate and 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 our stores. Given the nature of our business as a real
estate owner and operator, we consider FFO a key measure of our operating performance that is not specifically defined by accounting principles
generally accepted in the United States. We believe that FFO is useful to management and investors as a starting point in measuring our
operational performance because FFO excludes various items included in net income that do not relate to or are not indicative of our operating
performance such as gains (or losses) from sales of real estate, gains from remeasurement of investments 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.
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 non-recurring items, which we believe are not indicative of the Company’s operating results. We present FFO, as adjusted because
we believe it is a helpful measure in understanding our results of operations insofar as we believe that the items noted above that are included in
FFO, but excluded from FFO, as adjusted are not indicative of our ongoing operating results. We also believe that the analyst community
considers our FFO, as adjusted (or similar measures using different terminology) when evaluating us. Because other REITs or real estate
companies may not compute FFO, as adjusted in the same manner as we do, and may use different terminology, our computation of FFO, as
adjusted may not be comparable to FFO, as adjusted reported by other REITs or real estate companies.
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53
The following table presents a reconciliation of net income to FFO and FFO, as adjusted, for the years ended December 31, 2016 and 2015 (in
thousands):
For the Year Ended December 31,
2016
2015
Net income attributable to the Company’s common shareholders
$
79,923
$
71,704
Add:
Real estate depreciation and amortization:
Real property
Company’s share of unconsolidated real estate ventures
Gains from sale of real estate, net
Noncontrolling interests in the Operating Partnership
FFO attributable to common shareholders and OP unitholders
Add:
Acquisition related costs (1)
Preferred share redemption charge
FFO attributable to common shareholders and OP unitholders, as adjusted
Weighted-average diluted shares outstanding
Weighted-average diluted units outstanding
Weighted-average diluted shares and units outstanding
$
$
159,495
11,016
—
941
251,375
6,932
2,937
261,244
179,533
2,158
181,691
$
$
150,030
7,323
(17,567)
960
212,450
3,508
—
215,958
170,191
2,239
172,430
(1) Years ended December 31, 2016 and 2015 include $0.4 million and $0.2 million, respectively, of acquisition related costs that are included in the
Company’s share of equity in losses of real estate ventures.
Cash Flows
Comparison of the Year Ended December 31, 2016 to the Year Ended December 31, 2015
A comparison of cash flow related to operating, investing and financing activities for the years ended December 31, 2016 and 2015 is as follows:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Year Ended December 31,
2015
2016
(in thousands)
Change
$
$
$
$
263,526
(544,471) $
$
221,049
$
215,705
(374,608) $
$
218,871
47,821
(169,863)
2,178
Cash provided by operating activities for the years ended December 31, 2016 and 2015 was $263.5 million and $215.7 million, respectively, an
increase of $47.8 million. Our increased cash flow from operating activities is primarily attributable to our 2015 and 2016 acquisitions and increased
net operating income levels on the same-store portfolio in the 2016 period as compared to the 2015 period.
Cash used in investing activities was $544.5 million in 2016 and $374.6 million in 2015, an increase of $169.9 million driven by an increase in cash
used for acquisitions of self-storage properties. Cash used during 2016 relates to the acquisition of 28 stores for an aggregate purchase price of
$403.6 million, inclusive of $6.5 million of assumed debt, while cash used in investing activities during 2015 relates to the acquisition of 29 stores
for an aggregate purchase price of $292.4 million, inclusive of $2.7 million of assumed debt. The change is also driven by a $62.4 million increase in
cash used for development costs, resulting primarily from the acquisition of a development property by a consolidated joint venture in the second
quarter of 2016 for $67.2 million, inclusive of $35.0 million of assumed debt.
Cash provided by financing activities was $221.0 million in 2016 and $218.9 million in 2015, an increase of $2.2 million. From 2015 to 2016,
proceeds from the issuance of unsecured senior notes increased $49.2 million and net proceeds in revolving credit facility borrowings increased
$121.3 million. A $47.6 million decrease in principal payments on mortgage loans, resulting primarily from the repayment of five secured loans
during 2016 for $34.9 million compared to four repayments during 2015 for $82.6 million also contributed to the increase in net cash inflows
provided by financing activities from 2015 to 2016. These increases were offset by a $43.1
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54
million increase in cash distributions paid to common shareholders, preferred shareholders and noncontrolling interests in the Operating
Partnership during 2016 compared to 2015, resulting primarily from the increase in the common dividend per share and number of shares
outstanding. The increases were also offset by $77.6 million paid to redeem our 7.75% Series A Preferred shares in November 2016 with no similar
transaction in 2015 and a $97.9 million decrease in proceeds from the issuance of common shares in 2016 as compared to 2015.
Comparison of the Year Ended December 31, 2015 to the Year Ended December 31, 2014
A comparison of cash flow related to operating, investing and financing activities for the years ended December 31, 2015 and 2014 is as follows:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Year Ended December 31,
2014
2015
(in thousands)
Change
$
$
$
$
215,705
(374,608) $
$
218,871
$
166,032
(522,699) $
$
356,392
49,673
148,091
(137,521)
Cash provided by operating activities for the years ended December 31, 2015 and 2014 was $215.7 million and $166.0 million, respectively, an
increase of $49.7 million. Our increased cash flow from operating activities is primarily attributable to our 2014 and 2015 acquisitions and increased
net operating income levels on the same-store portfolio in the 2015 period as compared to the 2014 period.
Cash used in investing activities was $374.6 million in 2015 and $522.7 million in 2014, a decrease of $148.1 million driven by a decrease in cash
used for acquisitions of self-storage properties. Cash used in 2015 relates to the acquisition of 29 stores for an aggregate purchase price of $292.4
million, net of $2.7 million of assumed debt, while cash used in investing activities in 2014 relates to the acquisition of 53 stores for an aggregate
purchase price of $568.2 million, net of $27.5 million of assumed debt. This decrease in cash used for acquisitions is offset by an increase of $57.7
million in cash used for development activities. Additionally, cash distributed from real estate ventures was $6.5 million in 2015 compared to $56.9
million in 2014.
Cash provided by financing activities was $218.9 million in 2015 and $356.4 million in 2014, a decrease of $137.5 million. Proceeds from the
issuance of common shares decreased $181.9 million from $416.0 million in 2014 to $234.1 million in 2015, and net proceeds from the Revolver
decreased $117.4 million from net proceeds of $39.4 million in 2014 to net repayments of $78.0 million in 2015. Additionally, principal payments on
our mortgage loans totaled $84.9 million in 2015 compared to $30.1 million in 2014. These decreases in cash provided by financing activities were
offset by $249.3 million in net proceeds received from our issuance of unsecured senior notes in 2015, with no similar transaction in 2014.
Liquidity and Capital Resources
Liquidity Overview
Our cash flow from operations has historically been one of our primary sources of liquidity used to fund debt service, distributions and capital
expenditures. We derive substantially all of our revenue from customers who lease space from us at our stores and fees earned from managing
stores. 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 properties in which we invest, self-storage properties, 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 its shareholders on an annual basis or pay federal income tax. The nature of our business, coupled with the requirement
that we 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.
Our short-term liquidity needs consist primarily of funds necessary to pay operating expenses associated with our stores, refinancing of certain
mortgage indebtedness, interest expense and scheduled principal payments on debt, expected distributions to limited partners and shareholders,
capital expenditures, and the development of new stores. These funding requirements will vary from year to year, in some cases significantly. In
the 2017 fiscal year, we expect recurring capital expenditures to be approximately $15.0 million to $20.0 million, planned capital improvements and
store upgrades to be approximately $5.0 million to $10.0 million and costs associated with the
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55
development of new stores to be approximately $50.0 million to $65.0 million. Our currently scheduled principal payments on debt, including
borrowings outstanding on the Credit Facility and Term Loan Facility, are approximately $8.6 million in 2017.
Our most restrictive financial covenants limit the amount of additional leverage we can add; however, we believe cash flows from operations,
access to equity financing, including through our “at-the-market” equity program, and available borrowings under our Credit Facility provide
adequate sources of liquidity to enable us to execute our current business plan and remain in compliance with our covenants.
Our liquidity needs beyond 2017 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 stores; (iii) acquisitions of
additional stores; and (iv) development of new stores. We will have to satisfy the portion of our needs not covered by cash flow from operations
through additional borrowings, including borrowings under our Credit Facility, sales of common or preferred shares of the Parent Company and
common or preferred units of the Operating Partnership and/or cash generated through store dispositions and joint venture transactions.
We believe that, as a publicly traded REIT, we will have access to multiple sources of capital to fund our 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, 2016, we had approximately $3.0 million in available cash and cash equivalents. In addition, we had approximately $456.0
million of availability for borrowings under our Credit Facility.
Unsecured Senior Notes
Our unsecured senior notes are summarized as follows (collectively referred to as the “Senior Notes”):
Unsecured Senior Notes
$250M 4.800% Guaranteed Notes due 2022
$250M 4.375% Guaranteed Notes due 2023
$250M 4.000% Guaranteed Notes due 2025
$300M 3.125% Guaranteed Notes due 2026
Principal balance outstanding
Less: Discount on issuance of unsecured senior
notes, net
Less: Loan procurement costs, net
Total unsecured senior notes, net
(3,971)
(6,953)
$
1,039,076
$
December 31,
2016
December 31,
2015
$
(in thousands)
$
250,000
250,000
250,000
300,000
1,050,000
250,000
250,000
250,000
—
750,000
(2,888)
(5,208)
741,904
Effective
Interest Rate
Issuance
Date
Maturity
Date
4.82%
4.50%
4.03%
3.18%
Jun-12
Dec-13
Oct-15
Aug-16
Jul-22
Dec-23
Nov-25
Sep-26
The indenture under which the 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
more 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. As of and for the year ended December 31, 2016, the Operating Partnership was in compliance with all of the
financial covenants under the Senior Notes.
Revolving Credit Facility and Unsecured Term Loans
On June 20, 2011, we entered into an unsecured term loan agreement (the “Term Loan Facility”) which consisted of a $100.0 million term loan
with a five-year maturity (“Term Loan A”) and a $100.0 million term loan with a seven-year maturity (“Term Loan B”). On December 9, 2011, we
entered into a credit facility (the “Credit Facility”) comprised of a $100.0 million unsecured term loan maturing in
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56
December 2014 (“Term Loan C”); a $200.0 million unsecured term loan maturing in March 2017 (“Term Loan D”); and a $300.0 million unsecured
revolving facility maturing in December 2015 (“Revolver”).
On June 18, 2013, we amended both the Term Loan Facility and Credit Facility. With respect to the Term Loan Facility, among other things, the
amendment extended the maturity date to June 2018 and decreased the pricing of Term Loan A, while Term Loan B remained unchanged by the
amendment. With respect to the Credit Facility, among other things, the amendment extended the maturity date to January 2019 and decreased the
pricing of Term Loan D. On August 5, 2014, we further amended the Term Loan Facility to extend the maturity date to January 2020 and decrease
the pricing of Term Loan B. On December 17, 2013, we repaid the $100.0 million balance under Term Loan C that was scheduled to mature in
December 2014.
Pricing on the Term Loan Facility depends on our unsecured debt credit ratings. At our current Baa2/BBB level, amounts drawn under Term
Loan A are priced at 1.30% over LIBOR, while amounts drawn under Term Loan B are priced at 1.15% over LIBOR.
On April 22, 2015, we further amended the Credit Facility with respect to the Revolver. Among other things, the amendment increased the
aggregate amount of the Revolver from $300.0 million to $500.0 million, decreased the facility fee from 0.20% to 0.15% and extended the maturity
date from June 18, 2017 to April 22, 2020.
Pricing on the Credit Facility depends on our unsecured debt credit ratings. At our current Baa2/BBB level, amounts drawn under the Revolver
are priced at 1.25% over LIBOR, inclusive of a facility fee of 0.15%, while amounts drawn under Term Loan D are priced at 1.30% over LIBOR.
We incurred costs of $2.3 million in 2015 in connection with amending the Credit Facility and capitalized such costs as a component of loan
procurement costs, net of amortization on the consolidated balance sheet. Additionally, in connection with the amendment, $0.1 million of
unamortized costs were written-off. All remaining unamortized costs, along with costs incurred in connection with the amendment, are amortized as
an adjustment to interest expense over the remaining term of the modified facilities.
As of December 31, 2016, $200.0 million of unsecured term loan borrowings were outstanding under the Term Loan Facility, $200.0 million of
unsecured term loan borrowings were outstanding under the Credit Facility and $456.0 million was available for borrowing under the unsecured
revolving portion of the Credit Facility. The available balance under the unsecured revolving portion of the Credit Facility is reduced by an
outstanding letter of credit of $0.7 million. In connection with a portion of the unsecured borrowings, we had interest rate swaps as of
December 31, 2016 that fix 30-day LIBOR (see note 10). As of December 31, 2016, borrowings under the Credit Facility and Term Loan Facility, as
amended and after giving effect to the interest rate swaps, had an effective weighted average interest rate of 2.67%.
The Term Loan Facility and the term loan under the Credit Facility were fully drawn as of December 31, 2016 and no further borrowings may be
made under the term loans. Our 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 the Parent Company’s common shares
in excess of the greater of (i) 95% of funds from operations, and (ii) such amount as may be necessary to maintain the Parent Company’s REIT
status.
As of December 31, 2016, we were 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.
Issuance of Common Shares
Pursuant to a previous sales agreement, we had an “at-the-market” equity program that enabled us to sell common shares through a sales agent.
On May 7, 2013, we terminated the previous sales agreement with our previous sales agent and entered into separate equity distribution
agreements (the “Equity Distribution Agreements”) with a group of sales agents (collectively, the “Sales Agents”). The Equity Distribution
Agreements replaced the previous sale agreement and were amended on May 5, 2014, October 2, 2014, and December
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57
30, 2015 to increase the number of common shares authorized for sale through “at-the-market” equity offerings. Pursuant to the Equity
Distribution Agreements, as amended, we may sell, from time to time, up to 40.0 million common shares of beneficial interest through the Sales
Agents.
During 2016, we sold a total of 4.4 million common shares under the Equity Distribution Agreements at an average sales price of $31.25 per share,
resulting in net proceeds of $136.1 million after deducting offering costs. The proceeds from the sales conducted during the year ended
December 31, 2016 were used to fund acquisitions of self-storage properties and for general corporate purposes. As of December 31, 2016, 5.8
million common shares remained available for issuance under the Equity Distribution Agreements.
During 2015, we sold a total of 9.0 million common shares under the Equity Distribution Agreements at an average sales price of $26.35 per share,
resulting in net proceeds of $234.2 million after deducting offering costs. The proceeds from the sales conducted during the year ended
December 31, 2015 were used to fund acquisitions of self-storage properties and for general corporate purposes.
Redemption of Preferred Shares
On November 2, 2016, we completed the redemption of all of our 3,100,000 outstanding shares of 7.75% Series A Cumulative Redeemable
Preferred Shares at a cash redemption price of $25.00 per share plus accumulated and unpaid dividends. The redemption price of $77.5 million was
paid by the Company from available cash balances. In connection with the redemption, we recognized a charge of $2.9 million related to excess
redemption costs over the original net proceeds.
Other Material Changes in Financial Position
Selected Assets
Storage properties, net
Restricted cash
Selected Liabilities
Unsecured senior notes, net
Revolving credit facility
2016
December 31,
2015
(in thousands)
Change
$
$
$
$
3,326,816
7,893
1,039,076
43,300
$
$
$
$
2,872,983
24,600
$
$
453,833
(16,707)
741,904
$
— $
297,172
43,300
Storage properties, net of accumulated depreciation, increased $453.8 million primarily as a result of the acquisition of 28 self-storage properties,
fixed asset additions, and development costs incurred during the year. Restricted cash decreased $16.7 million primarily as a result of a portion of
the proceeds from the sale of the El Paso, TX assets in the prior year, which were held in escrow as of December 31, 2015, being used to fund
acquisitions in 2016 under a tax free like kind exchange.
The increase in Unsecured senior notes, net of $297.2 million is a result of the issuance of our 3.125% senior notes due September 1, 2026 during
the year.
Revolving credit facility increased $43.3 million primarily as a result of the acquisition of 28 stores, fixed asset additions, and development costs
incurred during the year.
Contractual Obligations
The following table summarizes our known contractual obligations as of December 31, 2016 (in thousands):
Mortgage loans and notes payable (a)
Revolving credit facility and unsecured
term loans
Unsecured senior notes
Interest payments
Ground leases
Software and service contracts
Development commitments
Total
111,586 $
$
2017
8,576 $
2018
2,490 $
2019
11,485 $
2020
12,616 $
Payments Due by Period
2021
44,873 $
2022 and
thereafter
31,546
443,300
1,050,000
375,757
124,076
3,064
79,658
2,187,441 $
$
—
—
59,749
2,137
2,804
56,833
130,099 $
58
100,000
—
58,491
2,355
260
22,825
186,421 $
200,000
—
52,245
2,365
—
—
266,095 $
143,300
—
47,389
2,430
—
—
205,735 $
—
—
45,004
2,476
—
—
92,353 $
—
1,050,000
112,879
112,313
—
—
1,306,738
Table of Contents
(a) Amounts do not include unamortized discounts/premiums.
We expect to satisfy contractual obligations owed in 2017 through a combination of cash generated from operations and from draws on the
revolving portion of our 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
Our future income, cash flows, and fair values relevant to financial instruments depend upon prevailing market 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 of 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 interest 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 interest rates chosen.
As of December 31, 2016 our consolidated debt consisted of $1.5 billion 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. Borrowings under
our revolving credit facility are subject to floating rates. Changes in market interest rates have different impacts on the fixed and variable rate
portions of our debt portfolio. A change in market 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 market 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 interest rates increase by 100 basis points, the fair value of our outstanding fixed-rate mortgage debt, unsecured senior notes, and
unsecured term loans would decrease by approximately $78.8 million. If market interest rates decrease by 100 basis points, the fair value of our
outstanding fixed-rate mortgage debt, unsecured senior notes, and unsecured term loans would increase by approximately $87.4 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.
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ITEM 9A. CONTROLS AND PROCEDURES
Controls and Procedures (Parent Company)
Evaluation of Disclosure Controls and Procedures
59
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 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 Control 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 of the Parent Company is set forth on page F-2 of this Report, and is
incorporated herein by reference. The effectiveness of the Parent Company’s internal control over financial reporting as of December 31, 2016 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 Control 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.
Management’s Report on Internal Control Over Financial Reporting
Management’s report on internal control over financial reporting of the Operating Partnership is set forth on page F-3 of this Report, and is
incorporated herein by reference. The effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2016
has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its report which is included herein.
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ITEM 9B. OTHER INFORMATION
Not applicable.
60
PART III
ITEM 10. TRUSTEES, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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 Parent Company’s Proxy Statement for the Annual Shareholders Meeting to be held in 2017 (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 2017 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, 2016.
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)
1,939,690(1) $
12.94(2)
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities
reflected in column(a))
(c)
—
1,939,690
$
12.94
5,471,377
5,471,377
(1) Excludes 512,788 shares subject to outstanding restricted share unit awards.
(2) This number reflects the weighted-average exercise price of outstanding options and has been calculated exclusive of outstanding restricted
unit awards.
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 Parent Company’s 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.”
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
61
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*
3.8*
3.9*
Articles of Amendment to the Declaration of Trust of CubeSmart, incorporated by reference to Exhibit 99.1 to the Company’s
Current Report on Form 8-K, filed on May 28, 2015.
Articles of Restatement of the Declaration of Trust of CubeSmart, incorporated by reference to Exhibit 99.2 to the Company’s
Current Report on Form 8-K, filed on May 28, 2015.
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, 2011.
Articles of Amendment to the Declaration of Trust of CubeSmart, incorporated by reference to Exhibit 3.1 to the Company’s Current
Report on Form 8-K, filed on November 3, 2016.
Third Amended and Restated Bylaws of CubeSmart, effective September 14, 2011, incorporated by reference to Exhibit 3.2 to the
Company’s Current Report on Form 8-K, filed on September 16, 2011.
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, 2011.
Amendment No. 1 to Certificate of Limited Partnership of CubeSmart, L.P., dated September 14, 2011, incorporated by reference to
Exhibit 3.3 to the Company’s Current Report on Form 8-K, filed on September 16, 2011.
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.
Amendment No. 1 to Second Amended and Restated Agreement of Limited Partnership of CubeSmart, L.P. dated as of
September 14, 2011, incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K, filed on September 16,
2011.
Table of Contents
62
3.10*
4.1*
4.2*
4.3*
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.
4.4*
4.5*
4.6*
4.7*
4.8*
4.9*
4.10*
4.11*
4.12*
4.13*
4.14*
10.1*†
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.
Second Supplemental Indenture, dated as of December 17, 2013, 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
December 17, 2013.
$250 million aggregate principal amount of 4.375% senior notes due December 15, 2023, incorporated herein by reference to
Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on December 17, 2013.
CubeSmart Guarantee, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on
December 17, 2013.
Third Supplemental Indenture, dated as of October 26, 2015, among CubeSmart, CubeSmart, L.P. and U.S. Bank National
Association, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on October 26, 2015.
Form of $250 million aggregate principal amount of 4.000% senior note due November 15, 2025, incorporated by reference to
Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on October 26, 2015.
Fourth Supplemental Indenture, dated as of August 15, 2016, among CubeSmart, CubeSmart, L.P. 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 August 15, 2016.
Form of $300 million aggregate principal amount of 3.125% senior notes due September 1, 2026, incorporated herein by reference to
Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on August 15, 2016.
Form of CubeSmart Guarantee, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed
on August 15, 2016.
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, William M. Diefenderfer III, Piero Bussani, John W. Fain, Marianne M. Keler, John F. Remondi, Jeffrey F. Rogatz, and
Deborah R. Salzberg), incorporated by reference to Exhibit 10.19 to the Company’s Current Report on Form 8-K, filed on
November 2, 2004.
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63
10.2*†
10.3*†
10.4*†
10.5*†
10.6*†
10.7*†
10.8*†
10.9*†
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.
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.
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 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.
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.
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.
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.
10.10*†
10.11*†
10.12*
10.13*
10.14*†
10.15*†
10.16*†
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.
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.
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.
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.
Form of Restricted Share Agreement under the CubeSmart 2007 Equity Incentive Plan, incorporated herein by reference to
Exhibit 10.42 to the Company’s Annual Report on Form 10-K, filed on February 28, 2013.
Form of Non-Qualified Share Option Agreement under the CubeSmart 2007 Equity Incentive Plan, incorporated herein by reference
to Exhibit 10.43 to the Company’s Annual Report on Form 10-K, filed on February 28, 2013.
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.
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64
10.17*
10.18*†
10.19*†
10.20*
10.21*
10.22*
10.23*
10.24*†
10.25*†
10.26*†
10.27*†
10.28*†
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 for the quarter ended March 31, 2012, filed on May 7,
2012.
Form of Restricted Share Unit Award Agreement (2-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, incorporated
herein by reference to Exhibit 10.47 to the Company’s Annual Report on Form 10-K, filed on February 28, 2013.
Form of Performance-Vested Restricted Share Unit Award Agreement under the CubeSmart 2007 Equity Incentive Plan, incorporated
herein by reference to Exhibit 10.48 to the Company’s Annual Report on Form 10-K, filed on February 28, 2013.
Waiver of Ownership Limitation, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2013, filed on May 6, 2013.
Form of Equity Distribution Agreement, dated May 7, 2013, by and among CubeSmart, CubeSmart, L.P. and each of Wells Fargo
Securities, LLC, BMO Capital Markets Corp., Jefferies LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and RBC Capital
Markets, LLC, incorporated by reference to Exhibit 1.1. to the Company’s Current Report on Form 8-K, filed on May 7, 2013.
Second Amendment to Credit Agreement dated as of June 18, 2013 by and among CubeSmart, L.P., CubeSmart, Wells Fargo Bank,
National Association, as Administrative Agent and each of the lenders, incorporated by reference to Exhibit 99.1 to the Company’s
Current Report on Form 8-K, filed on June 18, 2013.
Second Amendment to Term Loan Agreement dated as of June 18, 2013 by and among CubeSmart, L.P., CubeSmart, Wells Fargo
Bank, National Association, as Administrative Agent and each of the lenders, incorporated by reference to Exhibit 99.2 to the
Company’s Current Report on Form 8-K, filed on June 18, 2013.
Advisory Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2013, filed on November 8, 2013.
Executive Employment Agreement, entered into as of January 24, 2014 and effective as of January 1, 2014, by and between
CubeSmart and Christopher P. Marr, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed
on January 28, 2014.
Form of Non-Qualified Share Option Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive
Plan, incorporated by reference to Exhibit 10.58 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.
Form of Non-Qualified Share Option Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, incorporated by
reference to Exhibit 10.59 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.
Form of Performance Share Award Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive
10.29*†
10.30*†
10.31*†
Plan, incorporated by reference to Exhibit 10.60 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.
Form of Performance Share Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, incorporated by
reference to Exhibit 10.61 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.
Form of Restricted Share Award Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan,
incorporated by reference to Exhibit 10.63 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.
Form of Restricted Share Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, incorporated by
reference to Exhibit 10.64 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.
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65
10.32*†
10.33*
10.34*
10.35*
10.36*
10.37*
10.38*
10.39*†
10.40*†
10.41*†
10.42†
10.43†
10.44†
10.45†
10.46†
10.47†
10.48†
Form of Restricted Share Award Agreement (5-Year Vesting) under the CubeSmart 2004 Equity Incentive Plan, incorporated by
reference to Exhibit 10.65 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.
Form of Amendment No. 1 to Equity Distribution Agreement, dated May 5, 2014, by and among CubeSmart, CubeSmart, L.P. and
each of the Sales Agents (as defined therein), incorporated by reference to Exhibit 1.1. to the Company’s Current Report on Form 8-
K, filed on May 5, 2014.
Form of Amendment No. 2 to Equity Distribution Agreement, dated October 2, 2014, by and among CubeSmart, CubeSmart, L.P. and
each of the Sales Agents (as defined therein), incorporated by reference to Exhibit 1.1. to the Company’s Current Report on Form 8-
K, filed on October 2, 2014.
Third Amendment to Credit Agreement, dated as of April 22, 2015, by and among CubeSmart, L.P., CubeSmart, Wells Fargo Bank,
National Association, as Administrative Agent and each of the lenders party thereto, incorporated by reference to Exhibit 99.1 to
the Company’s Current Report on Form 8-K, filed on April 27, 2015.
Fourth Amendment to Term Loan Agreement, dated as of April 22, 2015, by and among CubeSmart, L.P., CubeSmart, Wells Fargo
Bank, National Association, as Administrative Agent and each of the lenders party thereto, incorporated by reference to Exhibit 99.2
to the Company’s Current Report on Form 8-K, filed on April 27, 2015.
Equity Distribution Agreement, dated December 30, 2015, by and among CubeSmart, CubeSmart, L.P. and Barclays Capital Inc.,
incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed on December 30, 2015.
Form of Amendment No. 3 to Equity Distribution Agreement, dated December 30, 2015, by and among CubeSmart, CubeSmart, L.P.
and each of the Initial Sales Agents (as defined therein), incorporated by reference to Exhibit 1.2 to the Company’s Current Report
on Form 8-K, filed on December 30, 2015.
Amended and Restated CubeSmart 2007 Equity Incentive Plan, effective June 1, 2016, incorporated by reference to Appendix A to
the Company’s Definitive Proxy Statement, filed on April 14, 2016.
First Amendment to Executive Employment Agreement, dated as of September 30, 2016, by and between CubeSmart and Chistopher
P. Marr, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed on September 30, 2016.
CubeSmart Executive Severance Plan, effective January 1, 2017, incorporated by reference to Exhibit 99.1 to the Company’s Current
Report on Form 8-K, filed on November 4, 2016.
Form of Non-Qualified Share Option Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive
Plan, as amended and restated, effective June 1, 2016.
Form of Non-Qualified Share Option Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and
restated, effective June 1, 2016.
Form of Restricted Share Award Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan,
as amended and restated, effective June 1, 2016.
Form of Restricted Share Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and
restated, effective June 1, 2016.
Form of Restricted Share Award Agreement (5-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and
restated, effective June 1, 2016.
Form of Restricted Share Unit Award Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive
Plan, as amended and restated, effective June 1, 2016.
Form of Restricted Share Unit Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and
restated, effective June 1, 2016.
66
Table of Contents
10.49†
10.50†
10.51†
10.52†
12.1
12.2
21.1
23.1
23.2
31.1
31.2
31.3
31.4
32.1
32.2
99.1
101
Form of Performance-Vested Restricted Share Award Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007
Equity Incentive Plan, as amended and restated, effective June 1, 2016.
Form of Performance-Vested Restricted Share Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan,
as amended and restated, effective June 1, 2016.
Form of Performance-Vested Restricted Share Unit Award Agreement for Executive Officers (3-Year Vesting) under the CubeSmart
2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016.
Form of Performance-Vested Restricted Share Unit Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive
Plan, as amended and restated, effective June 1, 2016.
Statement regarding Computation of Ratios of CubeSmart.
Statement regarding Computation of Ratios of CubeSmart, L.P.
List of Subsidiaries.
Consent of KPMG LLP relating to financial statements of CubeSmart.
Consent of KPMG LLP relating to financial statements of CubeSmart, L.P.
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.
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.
Material Tax Considerations.
The following CubeSmart and CubeSmart, L.P. financial information for the year ended December 31, 2016, 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.
ITEM 16. FORM 10-K SUMMARY
We have opted not to provide a summary.
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67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
CUBESMART
By:
/s/ Timothy M. Martin
Timothy M. Martin
Chief Financial Officer
Date: February 17, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, 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
/s/ William M. Diefenderfer III
William M. Diefenderfer III
Chairman of the Board of Trustees
Title
/s/ Christopher P. Marr
Christopher P. Marr
/s/ Timothy M. Martin
Timothy M. Martin
/s/ Piero Bussani
Piero Bussani
/s/ John W. Fain
John W. Fain
/s/ Marianne M. Keler
Marianne M. Keler
/s/ John F. Remondi
John F. Remondi
/s/ Jeffrey F. Rogatz
Jeffrey F. Rogatz
/s/ Deborah Ratner Salzberg
Deborah Ratner Salzberg
Table of Contents
Chief Executive Officer and Trustee
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
68
FINANCIAL STATEMENTS
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Date
February 17, 2017
February 17, 2017
February 17, 2017
February 17, 2017
February 17, 2017
February 17, 2017
February 17, 2017
February 17, 2017
February 17, 2017
Consolidated Financial Statements of CUBESMART and CUBESMART, L.P. (the “Company”)
Management’s Report on CubeSmart Internal Control Over Financial Reporting
Management’s Report on CubeSmart, L.P. Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
CubeSmart and Subsidiaries Consolidated Balance Sheets as of December 31, 2016 and 2015
CubeSmart and Subsidiaries Consolidated Statements of Operations for the years ended December 31, 2016, 2015, and 2014
CubeSmart and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2016, 2015,
and 2014
CubeSmart and Subsidiaries Consolidated Statements of Equity for the years ended December 31, 2016, 2015, and 2014
CubeSmart and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015, and 2014
Page No.
F-2
F-3
F-4
F-8
F-9
F-10
F-11
F-12
CubeSmart, L.P. and Subsidiaries Consolidated Balance Sheets as of December 31, 2016 and 2015
CubeSmart, L.P. and Subsidiaries Consolidated Statements of Operations for the years ended December 31, 2016, 2015, and 2014
CubeSmart, L.P. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2016,
2015, and 2014
CubeSmart, L.P. and Subsidiaries Consolidated Statements of Capital for the years ended December 31, 2016, 2015, and 2014
CubeSmart, L.P. and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015, and 2014
Notes to Consolidated Financial Statements
F-1
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F-13
F-14
F-15
F-16
F-17
F-18
MANAGEMENT’S REPORT ON CUBESMART INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of CubeSmart (the “REIT”) 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 REIT’s management is
required to assess the effectiveness of the REIT’s internal control over financial reporting as of the end of each fiscal year, and report on the basis
of that assessment whether the REIT’s internal control over financial reporting is effective.
The REIT’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
REIT’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 REIT;
· 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 REIT are being made only in
accordance with the authorization of the REIT’s management and its Board of Trustees; and
· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the REIT’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 REIT’s management, including the principal executive officer and principal financial
officer, management conducted a review, evaluation, and assessment of the effectiveness of our internal control over financial reporting as of
December 31, 2016, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). In performing its assessment of the effectiveness of internal control over financial reporting,
management has concluded that, as of December 31, 2016, the REIT’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, 2016, has been audited by KPMG LLP, an independent
registered public accounting firm, as stated in their report that appears herein.
February 17, 2017
Table of Contents
F-2
MANAGEMENT’S REPORT ON CUBESMART, L.P. INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of CubeSmart, L.P. (the “Partnership”) 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
Partnership’s management is required to assess the effectiveness of the Partnership’s internal control over financial reporting as of the end of each
fiscal year, and report on the basis of that assessment whether the Partnership’s internal control over financial reporting is effective.
The Partnership’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 Partnership’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 Partnership;
· 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 Partnership are being made only in
accordance with the authorization of the Partnership’s management and its Board of Trustees; and
· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Partnership’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 Partnership’s management, including the principal executive officer and principal
financial officer, management conducted a review, evaluation, and assessment of the effectiveness of our internal control over financial reporting
as of December 31, 2016, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). In performing its assessment of the effectiveness of internal control over
financial reporting, management has concluded that, as of December 31, 2016, the Partnership’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, 2016, has been audited by KPMG LLP, an independent
registered public accounting firm, as stated in their report that appears herein.
February 17, 2017
Table of Contents
The Board of Trustees and Shareholders of
CubeSmart:
F-3
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of CubeSmart and subsidiaries as of December 31, 2016 and 2015, and the related
consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended
December 31, 2016. In connection with our audits of the consolidated financial statements, we have also audited financial statement Schedule
III. 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
and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2016, 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.
As discussed in Note 18 to the consolidated financial statements, the Company changed its method for reporting discontinued operations as of
January 1, 2014.
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, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 17, 2017, expressed an
unqualified opinion on the effectiveness of CubeSmart’s internal control over financial reporting.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 17, 2017
F-4
Report of Independent Registered Public Accounting Firm
Table of Contents
The Partners of
CubeSmart, L.P.:
We have audited the accompanying consolidated balance sheets of CubeSmart, L.P. and subsidiaries as of December 31, 2016 and 2015, and the
related consolidated statements of operations, comprehensive income (loss), capital, and cash flows for each of the years in the three-year period
ended December 31, 2016. In connection with our audits of the consolidated financial statements, we have also audited financial statement
Schedule III. 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. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-
year period ended December 31, 2016, 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.
As discussed in Note 18 to the consolidated financial statements, the Company changed its method for reporting discontinued operations as of
January 1, 2014.
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, 2016, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 17, 2017, expressed an
unqualified opinion on the effectiveness of CubeSmart, L.P.’s internal control over financial reporting.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 17, 2017
Table of Contents
The Board of Trustees and Shareholders of
CubeSmart:
F-5
Report of Independent Registered Public Accounting Firm
We have audited CubeSmart’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control -
Integrated Framework (2013) 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, 2016, based on
criteria established in Internal Control - Integrated Framework (2013) 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 and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of operations,
comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2016, and our report dated
February 17, 2017 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 17, 2017
Table of Contents
The Partners of
CubeSmart, L.P.:
F-6
Report of Independent Registered Public Accounting Firm
We have audited CubeSmart, L.P.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal
Control - Integrated Framework (2013) 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, L.P. 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, 2016,
based on criteria established in Internal Control - Integrated Framework (2013) 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. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of operations,
comprehensive income (loss), capital, and cash flows for each of the years in the three-year period ended December 31, 2016, and our report dated
February 17, 2017 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 17, 2017
Table of Contents
F-7
CUBESMART AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Storage properties
Less: Accumulated depreciation
Storage properties, net (including VIE assets of $208,048 and $136,274, respectively)
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, net
Revolving credit facility
Unsecured term loans, net
Mortgage loans and notes payable, net
Accounts payable, accrued expenses and other liabilities
Distributions payable
Deferred revenue
Security deposits
Total liabilities
Noncontrolling interests in the Operating Partnership
Commitments and contingencies
Equity
7.75% Series A Preferred shares $.01 par value, 0 and 3,220,000 shares authorized at December 31, 2016
and December 31, 2015, respectively, 0 and 3,100,000 shares issued and outstanding at
December 31, 2016 and December 31, 2015, respectively
Common shares $.01 par value, 400,000,000 shares authorized, 180,083,111 and 174,667,870 shares
issued and outstanding at December 31, 2016 and December 31, 2015, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total CubeSmart shareholders’ equity
Noncontrolling interests in subsidiaries
Total equity
Total liabilities and equity
December 31,
2016
December 31,
2015
$
$
$
$
$
$
$
3,998,180
(671,364)
3,326,816
2,973
7,893
2,150
98,682
36,514
3,475,028
1,039,076
43,300
398,749
114,618
93,764
49,239
20,226
412
1,759,384
3,467,032
(594,049)
2,872,983
62,869
24,600
2,800
97,281
43,631
3,104,164
741,904
—
398,183
111,455
85,034
38,685
17,519
403
1,393,183
54,407
66,128
—
31
1,801
2,314,014
(1,850)
(658,583)
1,655,382
5,855
1,661,237
3,475,028
$
1,747
2,231,181
(4,978)
(584,654)
1,643,327
1,526
1,644,853
3,104,164
Table of Contents
REVENUES
Rental income
Other property related income
Property management fee income
See accompanying notes to the consolidated financial statements.
F-8
CUBESMART AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the year ended December 31,
2015
2014
2016
$
$
449,601
50,255
10,183
$
392,476
45,189
6,856
330,898
40,065
6,000
Total revenues
OPERATING EXPENSES
Property operating expenses
Depreciation and amortization
General and administrative
Acquisition related costs
Total operating expenses
OPERATING INCOME
OTHER (EXPENSE) INCOME
Interest:
Interest expense on loans
Loan procurement amortization expense
Equity in losses of real estate ventures
Gains from sale of real estate, net
Other
Total other expense
INCOME FROM CONTINUING OPERATIONS
DISCONTINUED OPERATIONS
Income from discontinued operations
Total discontinued operations
NET INCOME
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Noncontrolling interests in the Operating Partnership
Noncontrolling interest in subsidiaries
NET INCOME ATTRIBUTABLE TO THE COMPANY
Distribution to preferred shareholders
Preferred share redemption charge
NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON
SHAREHOLDERS
Basic earnings per share from continuing operations attributable to common
shareholders
Basic earnings per share from discontinued operations attributable to common
shareholders
Basic earnings per share attributable to common shareholders
Diluted earnings per share from continuing operations attributable to common
shareholders
Diluted earnings per share from discontinued operations attributable to common
shareholders
Diluted earnings per share attributable to common shareholders
Weighted-average basic shares outstanding
Weighted-average diluted shares outstanding
AMOUNTS ATTRIBUTABLE TO THE COMPANY’S COMMON
SHAREHOLDERS:
Income from continuing operations
Total discontinued operations
Net income
510,039
165,847
161,865
32,823
6,552
367,087
142,952
(50,399)
(2,577)
(2,662)
—
1,062
(54,576)
88,376
—
—
88,376
(941)
470
87,905
(5,045)
(2,937)
444,521
153,172
151,789
28,371
3,301
336,633
107,888
(43,736)
(2,324)
(411)
17,567
(228)
(29,132)
78,756
—
—
78,756
(960)
(84)
77,712
(6,008)
—
79,923
$
71,704
$
0.45
$
— $
$
0.45
0.45
$
— $
$
0.45
0.43
$
— $
$
0.43
0.42
$
— $
$
0.42
376,963
132,701
126,813
28,422
7,484
295,420
81,543
(46,802)
(2,190)
(6,255)
475
(405)
(55,177)
26,366
336
336
26,702
(307)
(16)
26,379
(6,008)
—
20,371
0.13
0.01
0.14
0.13
0.01
0.14
178,246
179,533
168,640
170,191
149,107
150,863
79,923
—
79,923
$
$
71,704
—
71,704
$
$
20,040
331
20,371
$
$
$
$
$
$
$
$
$
See accompanying notes to the consolidated financial statements.
F-9
Table of Contents
CUBESMART AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
NET INCOME
Other comprehensive income (loss):
For the year ended December 31,
2015
2014
2016
$
88,376
$
78,756
$
26,702
Unrealized losses on interest rate swaps
Reclassification of realized losses on interest rate swaps
Unrealized loss on foreign currency translation
Reclassification of realized loss on foreign currency translation
OTHER COMPREHENSIVE INCOME
COMPREHENSIVE INCOME
Comprehensive income attributable to noncontrolling interests in the Operating
Partnership
(1,247)
4,412
—
—
3,165
91,541
(978)
(3,409)
6,263
(249)
1,199
3,804
82,560
(992)
Comprehensive loss (income) attributable to noncontrolling interest in
subsidiaries
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY
$
470
91,033
$
(75)
81,493
$
(3,944)
6,408
(175)
—
2,289
28,991
(338)
(19)
28,634
Table of Contents
See accompanying notes to the consolidated financial statements.
F-10
CUBESMART AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
Common
Shares
Number Amount
139,328 $
1,393
Preferred
Shares
Number Amount
3,100 $
31 $
Additional
Paid-in
Capital
1,542,703 $
22,704
482
18
1,425
227
5
—
14
415,774
308
13,788
182
1,553
163,957 $
1,639
3,100 $
31 $
1,974,308 $
8,978
161
118
1,454
91
1
2
14
233,970
3,273
17,475
1,166
989
174,668 $
1,747
3,100 $
31 $
2,231,181 $
4,408
123
188
696
44
1
2
7
136,077
4,874
13,276
1,952
1,260
Balance at December 31, 2013
Contributions from noncontrolling interest
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 interests in
the Operating Partnership
Net income
Other comprehensive income (loss), net:
Preferred share distributions
Common share distributions
Balance at December 31, 2014
Contributions from noncontrolling interest
in subsidiaries
subsidiaries
Distributions to noncontrolling interests in
Issuance of common shares, net
Issuance of restricted shares
Issuance of OP Shares
Conversion from units to shares
Exercise of stock options
Amortization of restricted shares
Share compensation expense
Adjustment for noncontrolling interests in
the Operating Partnership
Net income
Other comprehensive income (loss), net:
Preferred share distributions
Common share distributions
Balance at December 31, 2015
in subsidiaries
Contributions from noncontrolling interest
Issuance of common shares, net
Issuance of restricted shares
Issuance of OP Shares
Conversion from units to shares
Exercise of stock options
Amortization of restricted shares
Share compensation expense
the Operating Partnership
Adjustment for noncontrolling interests in
Net income (loss)
Other comprehensive income (loss), net:
Preferred share distributions
Preferred share redemption
Common share distributions
Balance at December 31, 2016
Accumulated Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Total
Shareholders’
Equity
Noncontrolling
Interests in
Subsidiaries
(11,014)$
(440,837)$
1,092,276 $
931 $
Noncontrolling
Interests
in the
Operating
Partnership
36,275
Total
Equity
1,093,207 $
416,001
5
308
13,802
182
1,553
(14,761)
26,379
(6,008)
(83,966)
(519,193)$
(14,761)
26,379
2,255
(6,008)
(83,966)
1,448,026 $
2,255
(8,759)$
234,061
1
3,275
17,489
1,166
989
(19,619)
77,712
(6,008)
(117,546)
(584,654)$
(19,619)
77,712
3,781
(6,008)
(117,546)
1,643,327 $
3,781
(4,978)$
136,121
1
4,876
13,283
1,952
1,260
642
16
3
1,592 $
178
(319)
84
(9)
1,526 $
4,799
642
416,001
5
308
13,802
182
1,553
(14,761)
26,395
2,258
(6,008)
(83,966)
1,449,618 $
178
(319)
234,061
1
3,275
17,489
1,166
989
(19,619)
77,796
3,772
(6,008)
(117,546)
1,644,853 $
4,799
136,121
1
4,876
13,283
1,952
1,260
(308)
14,761
307
31
(1,243)
49,823
500
(3,275)
19,619
960
32
(1,531)
66,128
1,500
(4,876)
(7,388)
941
37
(1,935)
54,407
(3,100)
(31)
(74,606)
180,083 $
1,801
— $
— $
2,314,014 $
(1,850)$
3,128
7,388
87,905
(5,045)
(2,937)
(161,240)
(658,583)$
7,388
87,905
3,128
(5,045)
(77,574)
(161,240)
1,655,382 $
(470)
5,855 $
7,388
87,435
3,128
(5,045)
(77,574)
(161,240)
1,661,237 $
See accompanying notes to the consolidated financial statements.
F-11
Table of Contents
CUBESMART AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating Activities
Net income
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization
Equity in losses of real estate ventures
Gains from sale of real estate, net
Equity compensation expense
Accretion of fair market value adjustment of debt
Changes in other operating accounts:
Restricted cash
Other assets
Accounts payable and accrued expenses
Other liabilities
Net cash provided by operating activities
Investing Activities
Acquisitions of storage properties
Additions and improvements to storage properties
Development costs
Investment in real estate ventures, at equity
Cash distributed from real estate ventures
Proceeds from sale of real estate, net
Fundings of notes receivable
Proceeds from notes receivable
Change in restricted cash
Net cash used in investing activities
Financing Activities
Proceeds from:
Unsecured senior notes
Revolving credit facility
Principal payments on:
Revolving credit facility
Mortgage loans and notes payable
Loan procurement costs
Proceeds from issuance of common shares, net
Redemption of preferred shares
Exercise of stock options
Contributions from noncontrolling interests in subsidiaries
Distributions paid to noncontrolling interests in subsidiaries
Distributions paid to common shareholders
Distributions paid to preferred shareholders
Distributions paid to noncontrolling interests in Operating Partnership
Net cash provided by financing activities
Change 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:
Restricted cash - acquisition of storage properties
Restricted cash - disposition of real estate
Accretion of liability
Derivative valuation adjustment
Foreign currency translation adjustment
Discount on issuance of unsecured senior notes
Mortgage loan assumptions
Preferred share redemption
For the year ended December 31,
2015
2014
2016
$
88,376
$
78,756
$
26,702
164,442
2,662
—
3,212
(1,138)
591
(3,930)
7,862
1,449
263,526
$
(366,666)
(30,971)
(143,713)
(12,176)
8,113
—
—
—
942
(544,471) $
298,512
958,200
(914,900)
(37,260)
(2,467)
136,122
(77,574)
13,283
4,799
—
(149,280)
(6,545)
(1,841)
221,049
(59,896)
62,869
2,973
53,085
$
$
$
31,426
3,165
(22,019) $
— $
$
$
— $
$
$
$
1,488
41,513
2,863
154,113
411
(17,567)
2,155
(1,429)
743
(2,519)
(438)
1,480
215,705
$
(275,726)
(24,695)
(81,315)
(8,433)
6,451
9,041
(4,100)
4,100
69
(374,608) $
249,338
731,320
(809,320)
(84,905)
(4,433)
234,062
—
17,489
178
(319)
(107,093)
(6,008)
(1,438)
218,871
59,968
2,901
62,869
46,216
$
$
$
(14,353) $
$
36,372
$
16,929
$
2,854
(249) $
$
662
$
2,695
— $
129,003
6,255
(475)
1,735
(1,685)
411
808
2,699
579
166,032
(547,515)
(19,967)
(23,566)
(2,550)
56,896
13,475
—
—
528
(522,699)
—
712,500
(673,100)
(30,149)
(274)
416,006
—
13,802
642
—
(75,849)
(6,008)
(1,178)
356,392
(275)
3,176
2,901
50,024
—
—
8,977
2,464
(175)
—
27,467
—
$
$
$
$
$
$
$
$
$
$
$
$
$
See accompanying notes to the consolidated financial statements.
F-12
Table of Contents
CUBESMART, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
Storage properties
Less: Accumulated depreciation
Storage properties, net (including VIE assets of $208,048 and $136,274, respectively)
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, net
Revolving credit facility
Unsecured term loans, net
Mortgage loans and notes payable, net
Accounts payable, accrued expenses and other liabilities
Distributions payable
Deferred revenue
Security deposits
Total liabilities
Limited Partnership interests of third parties
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
Table of Contents
See accompanying notes to the consolidated financial statements.
F-13
CUBESMART, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per common unit data)
December 31,
2015
2016
$
$
$
3,998,180
(671,364)
3,326,816
2,973
7,893
2,150
98,682
36,514
3,475,028
1,039,076
43,300
398,749
114,618
93,764
49,239
20,226
412
1,759,384
3,467,032
(594,049)
2,872,983
62,869
24,600
2,800
97,281
43,631
3,104,164
741,904
—
398,183
111,455
85,034
38,685
17,519
403
1,393,183
54,407
66,128
1,657,232
(1,850)
1,655,382
5,855
1,661,237
3,475,028
$
1,648,305
(4,978)
1,643,327
1,526
1,644,853
3,104,164
$
$
$
$
REVENUES
Rental income
Other property related income
Property management fee income
Total revenues
OPERATING EXPENSES
Property operating expenses
Depreciation and amortization
General and administrative
Acquisition related costs
Total operating expenses
OPERATING INCOME
OTHER (EXPENSE) INCOME
Interest:
Interest expense on loans
For the year ended December 31,
2015
2014
2016
$
$
449,601
50,255
10,183
510,039
165,847
161,865
32,823
6,552
367,087
142,952
$
392,476
45,189
6,856
444,521
153,172
151,789
28,371
3,301
336,633
107,888
330,898
40,065
6,000
376,963
132,701
126,813
28,422
7,484
295,420
81,543
(50,399)
(43,736)
(46,802)
Loan procurement amortization expense
Equity in losses of real estate ventures
Gains from sale of real estate, net
Other
Total other expense
INCOME FROM CONTINUING OPERATIONS
DISCONTINUED OPERATIONS
Income from discontinued operations
Total discontinued operations
NET INCOME
NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Noncontrolling interest in subsidiaries
NET INCOME ATTRIBUTABLE TO CUBESMART L.P.
Operating Partnership interests of third parties
NET INCOME ATTRIBUTABLE TO OPERATING PARTNER
Distribution to preferred unitholders
Preferred unit redemption charge
NET INCOME ATTRIBUTABLE TO COMMON UNITHOLDERS
Basic earnings per unit from continuing operations attributable to common
unitholders
Basic earnings per unit from discontinued operations attributable to common
unitholders
Basic earnings per unit attributable to common unitholders
Diluted earnings per unit attributable to common unitholders
Diluted earnings per unit from discontinued operations attributable to common
unitholders
Diluted earnings per unit attributable to common unitholders
Weighted-average basic units outstanding
Weighted-average diluted units outstanding
AMOUNTS ATTRIBUTABLE TO COMMON UNITHOLDERS:
Income from continuing operations
Total discontinued operations
Net income
(2,577)
(2,662)
—
1,062
(54,576)
88,376
—
—
88,376
470
88,846
(941)
87,905
(5,045)
(2,937)
79,923
$
0.45
$
— $
$
0.45
0.45
$
— $
$
0.45
(2,324)
(411)
17,567
(228)
(29,132)
78,756
—
—
78,756
(84)
78,672
(960)
77,712
(6,008)
—
71,704
$
0.43
$
— $
$
0.43
0.42
$
— $
$
0.42
178,246
179,533
168,640
170,191
79,923
—
79,923
$
$
71,704
—
71,704
$
$
(2,190)
(6,255)
475
(405)
(55,177)
26,366
336
336
26,702
(16)
26,686
(307)
26,379
(6,008)
—
20,371
0.13
0.01
0.14
0.13
0.01
0.14
149,107
150,863
20,040
331
20,371
$
$
$
$
$
$
$
$
$
See accompanying notes to the consolidated financial statements.
F-14
Table of Contents
CUBESMART, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
NET INCOME
Other comprehensive income (loss):
Unrealized losses on interest rate swaps
Reclassification of realized losses on interest rate swaps
Unrealized loss on foreign currency translation
Reclassification of realized loss on foreign currency translation
OTHER COMPREHENSIVE INCOME
COMPREHENSIVE INCOME
Comprehensive income attributable to Operating Partnership interests of third
parties
Comprehensive loss (income) attributable to noncontrolling interest in
subsidiaries
COMPREHENSIVE INCOME ATTRIBUTABLE TO OPERATING PARTNER
For the year ended December 31,
2015
2014
2016
$
88,376
$
78,756
$
(1,247)
4,412
—
—
3,165
91,541
(978)
$
470
91,033
$
(3,409)
6,263
(249)
1,199
3,804
82,560
(992)
(75)
81,493
$
26,702
(3,944)
6,408
(175)
—
2,289
28,991
(338)
(19)
28,634
See accompanying notes to the consolidated financial statements.
Table of Contents
F-15
CUBESMART, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL
(in thousands)
Number of
Common
OP
Units
Outstanding
Number of
Preferred
OP
Units
Outstanding
139,328 $
3,100 $
Operating
Partner
1,103,290 $
Accumulated
Other
Comprehensive
(Loss) Income
Total
CubeSmart L.P.
Capital
Noncontrolling
Interest in
Subsidiaries
(11,014) $
1,092,276 $
931 $
Operating
Partnership
Interests
of Third Parties
36,275
Total
Capital
1,093,207 $
642
16
3
1,592 $
178
(319)
84
(9)
1,526 $
4,799
642
416,001
5
308
13,802
182
1,553
(14,761)
26,395
2258
(6,008)
(83,966)
1,449,618 $
178
(319)
234,061
1
3,275
17,489
1,166
989
(19,619)
77,796
3,772
(6,008)
(117,546)
1,644,853 $
4,799
136,121
1
4,876
13,283
1,952
1,260
(470)
5,855 $
7,388
87,435
3,128
(5,045)
(77,574)
(161,240)
1,661,237 $
(308)
14,761
307
31
(1,243)
49,823
500
(3,275)
19,619
960
32
(1,531)
66,128
1,500
(4,876)
(7,388)
941
37
(1,935)
54,407
22,704
482
18
1,425
416,001
5
308
13,802
182
1,553
(14,761)
26,379
163,957 $
3,100 $
(6,008)
(83,966)
1,456,785 $
2,255
(8,759) $
8,978
161
118
1,454
234,061
1
3,275
17,489
1,166
989
(19,619)
77,712
174,668 $
3,100 $
(6,008)
(117,546)
1,648,305 $
3,781
(4,978) $
4,408
123
188
696
136,121
1
4,876
13,283
1,952
1,260
7,388
87,905
(3,100)
180,083 $
— $
(5,045)
(77,574)
(161,240)
1,657,232 $
3,128
(1,850) $
416,001
5
308
13,802
182
1,553
(14,761)
26,379
2,255
(6,008)
(83,966)
1,448,026 $
234,061
1
0
3,275
17,489
1,166
989
(19,619)
77,712
3,781
(6,008)
(117,546)
1,643,327 $
136,121
1
4,876
13,283
1,952
1,260
7,388
87,905
3,128
(5,045)
(77,574)
(161,240)
1,655,382 $
See accompanying notes to the consolidated financial statements.
F-16
CUBESMART, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the year ended December 31,
2015
2014
2016
Balance at December 31, 2013
Contributions from noncontrolling
interest in subsidiaries
Issuance of common OP units, net
Issuance of restricted OP units
Conversion from OP units to shares
Exercise of OP unit options
Amortization of restricted OP units
OP unit compensation expense
Adjustment for Operating Partnership
interests of third parties
Net income
Other comprehensive income (loss), net:
Preferred OP unit distributions
Common OP unit distributions
Balance at December 31, 2014
Contributions from noncontrolling
interest in subsidiaries
Distributions to noncontrolling
interests in subsidiaries
Issuance of common OP units, net
Issuance of restricted OP units
Issuance of OP Shares
Conversion from OP units to shares
Exercise of OP unit options
Amortization of restricted OP units
OP unit compensation expense
Adjustment for Operating Partnership
interests of third parties
Net income
Other comprehensive income (loss), net:
Preferred OP unit distributions
Common OP unit distributions
Balance at December 31, 2015
Contributions from noncontrolling
interest in subsidiaries
Issuance of common OP units, net
Issuance of restricted OP units
Issuance of OP Shares
Conversion from OP units to shares
Exercise of OP unit options
Amortization of restricted OP units
OP unit compensation expense
Adjustment for Operating Partnership
interests of third parties
Net income (loss)
Other comprehensive income (loss), net:
Preferred OP unit distributions
Preferred OP unit redemption
Common OP unit distributions
Balance at December 31, 2016
Table of Contents
Operating Activities
Net income
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization
Equity in losses of real estate ventures
Gains from sale of real estate, net
Equity compensation expense
Accretion of fair market value adjustment of debt
Changes in other operating accounts:
Restricted cash
Other assets
Accounts payable and accrued expenses
Other liabilities
Net cash provided by operating activities
Investing Activities
Acquisitions of storage properties
Additions and improvements to storage properties
Development costs
Investment in real estate ventures, at equity
Cash distributed from real estate ventures
Proceeds from sale of real estate, net
Fundings of notes receivable
Proceeds from notes receivable
Change in restricted cash
Net cash used in investing activities
Financing Activities
Proceeds from:
Unsecured senior notes
Revolving credit facility
Principal payments on:
Revolving credit facility
Mortgage loans and notes payable
Loan procurement costs
Proceeds from issuance of common OP units
Redemption of preferred units
Exercise of OP unit options
Contributions from noncontrolling interests in subsidiaries
Distributions paid to noncontrolling interests in subsidiaries
Distributions paid to common OP unitholders
Distributions paid to preferred OP unitholders
Net cash provided by financing activities
Change 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:
Restricted cash - acquisition of storage properties
Restricted cash - disposition of real estate
Accretion of liability
Derivative valuation adjustment
Foreign currency translation adjustment
Discount on issuance of unsecured senior notes
Mortgage loan assumptions
Preferred unit redemption
$
88,376
$
78,756
$
26,702
164,442
2,662
—
3,212
(1,138)
591
(3,930)
7,862
1,449
263,526
$
(366,666)
(30,971)
(143,713)
(12,176)
8,113
—
—
—
942
(544,471) $
298,512
958,200
(914,900)
(37,260)
(2,467)
136,122
(77,574)
13,283
4,799
—
(151,121)
(6,545)
221,049
(59,896)
62,869
2,973
53,085
$
$
$
31,426
3,165
(22,019) $
— $
$
$
— $
$
$
$
1,488
41,513
2,863
154,113
411
(17,567)
2,155
(1,429)
743
(2,519)
(438)
1,480
215,705
$
(275,726)
(24,695)
(81,315)
(8,433)
6,451
9,041
(4,100)
4,100
69
(374,608) $
249,338
731,320
(809,320)
(84,905)
(4,433)
234,062
—
17,489
178
(319)
(108,531)
(6,008)
218,871
59,968
2,901
62,869
46,216
$
$
$
(14,353) $
$
36,372
$
16,929
$
2,854
(249) $
$
662
$
2,695
— $
129,003
6,255
(475)
1,735
(1,685)
411
808
2,699
579
166,032
(547,515)
(19,967)
(23,566)
(2,550)
56,896
13,475
—
—
528
(522,699)
—
712,500
(673,100)
(30,149)
(274)
416,006
—
13,802
642
—
(77,027)
(6,008)
356,392
(275)
3,176
2,901
50,024
—
—
8,977
2,464
(175)
—
27,467
—
$
$
$
$
$
$
$
$
$
$
$
$
$
See accompanying notes to the consolidated financial statements.
F-17
Table of Contents
1. ORGANIZATION AND NATURE OF OPERATIONS
CUBESMART AND CUBESMART L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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. As of December 31, 2016, the Company owned self-storage properties located in 23 states
throughout the United States and in the District of Columbia which are presented under one reportable segment: the Company owns, operates,
develops, manages, and acquires self-storage properties.
As of December 31, 2016, the Parent Company owned approximately 98.9% 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.
The Company adopted Accounting Standard Update (“ASU”) No. 2015-02, Consolidation — Amendments to the Consolidation Analysis, as of
January 1, 2016. The Company evaluated the application of this guidance and concluded that there were no changes to any previous conclusions
with respect to consolidation accounting for any of its interests in less than wholly owned joint ventures. However, the Operating Partnership now
meets the criteria as a VIE. The Parent Company’s sole significant asset is its investment in the Operating Partnership. As a result, substantially all
of the Parent Company’s assets and liabilities represent those assets and liabilities of the Operating Partnership. All of the Parent Company’s debt
is an obligation of the Operating Partnership.
Noncontrolling Interests
The Financial Accounting Standards Board (“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
controlled or consolidated entities that are less than wholly owned are reported at the consolidated
Table of Contents
F-18
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.
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 OP units and were a component of the consideration the Company paid to acquire certain self-storage
properties. Limited partners who acquired OP units have the right to require the Operating Partnership to redeem part or all of their OP 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 interests, the Operating Partnership reflected these
interests at their redemption value as of December 31, 2016, as the estimated redemption value exceeded their carrying value. The Operating
Partnership recorded a decrease to OP Units owned by third parties and a corresponding increase to capital of $7.4 million as of December 31,
2016. Disclosure of such redemption provisions is provided in note 12.
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.
Self-Storage Properties
Self-storage properties are carried at historical cost less accumulated depreciation and impairment losses. The cost of self-storage properties
reflects their purchase price or development cost. Costs incurred for the renovation of a store are capitalized to the Company’s investment in that
store. Acquisition costs and 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. The costs to develop self-storage properties are
capitalized to construction in progress while the project is under development.
Purchase Price Allocation
When stores 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 stores is acquired, the purchase price is allocated to the individual stores 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 store along with current and projected occupancy and rental rate levels or appraised values, if
available. Allocations to land, building and improvements, and equipment are recorded based upon their respective fair values as estimated by
management.
Table of Contents
F-19
In allocating the purchase price for an acquisition, the Company determines whether the acquisition includes intangible assets or liabilities. The
Company allocates 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 stores 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 customer relationships, because the
Company does not have any concentrations of significant customers and the average customer turnover is fairly frequent.
Depreciation and Amortization
The costs of self-storage properties and improvements are depreciated using the straight-line method based on useful lives ranging from five to
39 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 an 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 store’s basis is recoverable. If a store’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 store
(or group of stores), (b) the store is available for immediate sale in its present condition subject only to terms that are usual and customary for
sales of such stores, (c) an active program to locate a buyer and other actions required to complete the plan to sell the store have been initiated,
(d) the sale of the store is probable and transfer of the asset is expected to be completed within one year, (e) the store 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. Stores 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 $24.7 million and $20.7 million as of December 31, 2016 and 2015, respectively, and are
reported net of accumulated amortization of $9.7 million and $7.3 million as of December 31, 2016 and 2015, respectively. In accordance with ASU
No. 2015-03, Loan procurement costs, net are presented as a direct deduction from the carrying amount of the related debt liability. If there is not
an associated debt liability recorded on the consolidated balance sheets, the costs are recorded as an asset net of accumulated amortization. Loan
procurement costs associated with the Company’s revolving credit facility remain in Loan procurement costs, net of amortization on the
Company’s consolidated balance sheets. The costs are amortized over the estimated life of the related debt using the effective interest method and
are reported as Loan procurement amortization expense on the Company’s consolidated statements of operations.
F-20
Table of Contents
Other Assets
Other assets are comprised of the following as of December 31, 2016 and 2015 (in thousands):
Intangible assets, net of accumulated amortization of $8,109 and $7,220
Accounts receivable
Deposits on future acquisitions
Prepaid real estate taxes
Prepaid insurance
Other
Total other assets, net
Environmental Costs
December 31,
2015
2016
$
$
8,280
5,284
5,106
3,640
1,053
13,151
36,514
$
$
12,814
5,049
12,106
2,800
1,140
9,722
43,631
Our practice is to conduct or obtain environmental assessments in connection with the acquisition or development of additional stores.
Whenever the environmental assessment for one of our stores indicates that a store 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 store 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 from disposition of stores 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 $9.4 million, $8.6 million, and $7.7 million in advertising and marketing expenses for the years ended December 31, 2016, 2015
and 2014, respectively, which are included in property operating expenses on the Company’s consolidated statements of operations.
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 years ended December 31, 2016, 2015 and 2014, the Company recognized $1.6 million, $2.5 million, and $6.0 million of equity offering costs
related to the issuance of common shares during the years, respectively.
Other Property Related Income
Other property related income consists of late fees, administrative charges, customer insurance fees, 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. For the years ended December 31, 2016, 2015
and 2014, the Company capitalized $4.6 million, $2.6 million, and $1.3 million, respectively, of interest incurred that is directly associated with
construction activities.
F-21
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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. The Company had
interest rate swap agreements for notional principal amounts aggregating $300 million and $400 million as of December 31, 2016 and 2015,
respectively, the fair value of which are included in accounts payable, accrued expenses and other liabilities.
Income Taxes
The Company has elected to be taxed as a real estate investment trust under Sections 856-860 of the Internal Revenue Code since the
Company’s commencement of operations in 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 net tax basis in the Company’s assets was $3.2 billion and $2.7 billion as of December 31, 2016 and
2015, respectively.
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, 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 return of capital. The characterization of the Company’s dividends
for 2016 consisted of a 98.663% ordinary income distribution and a 1.337% capital gain 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, the Company provides each of its
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 distributions for 2016 consisted of a 7.683% ordinary income distribution, a 0.104%
capital gain distribution from earnings and profits, and a 92.213% cash liquidating 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 2016,
2015, or 2014.
Taxable REIT subsidiaries (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 $1.3 million and $1.7 million as of December 31, 2016 and 2015, respectively.
The Protecting Americans from Tax Hikes Act (PATH Act) was enacted in December 2015, and included numerous law changes applicable to
REITs. The provisions have various effective dates. We expect that the changes will not materially impact our operations, but will continue to
monitor as regulatory guidance is issued.
Earnings per Share and Unit
Basic earnings per share and unit are 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 were 1,287,000; 1,551,000, and 1,756,000 in 2016, 2015, and 2014, respectively.
F-22
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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, which is included in general and
administrative expense on the Company’s consolidated statement of operations.
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 (“USIFB”), our joint venture in England, was translated at October 2, 2015, the date that the venture’s
remaining asset was sold. The exchange rate was approximately 1.521600 U.S Dollars per Pound on October 2, 2015 and approximately 1.558642 U.S
Dollars per Pound on December 31, 2014. The Pound was translated at an average exchange rate of 1.529755 for the period from January 1, 2015 to
October 2, 2015. It was translated at an average exchange rate of 1.643106 and 1.588598 U.S. Dollars per Pound for the year ended December 31,
2014. The Company recorded an unrealized loss on foreign currency translation of $0.2 million for the year ended December 31, 2014. In
connection with the sale of the remaining asset, the Company recorded a realized loss on foreign currency exchange of $1.2 million, which is
included in Gains on sale of real estate in the Company’s consolidated statement of operations.
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 is less than the carrying value of the investment and the decline is other than
temporary. To the extent impairment that is other than temporary 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.
Reclassifications
During the first quarter of 2016, the Company adopted ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires
the Company to reclassify debt financing costs, which were previously included in loan procurement costs, net of amortization on the Company’s
consolidated balance sheets, and present them as a direct deduction from the carrying amount of the related debt liability. Net costs of $10.7
million have been reclassified in the December 31, 2015 consolidated balance sheets from the loan procurement costs line and netted against the
related debt liability. See Recent Accounting Pronouncements below for revisions to the accounting guidance for debt issuance costs.
Recent Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which changes the
definition of a business to include an input and a substantive process that together significantly contribute to the ability to create outputs. A
framework is provided to evaluate when an input and a substantive process are present. The new guidance also narrows the definition of outputs,
which are defined as the results of inputs and substantive processes that provide goods or services to customers, other revenue, or investment
income. The standard is effective on January 1, 2018, however early adoption is permitted. The Company is in the process of evaluating the impact
of this new guidance.
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F-23
In November 2016, the FASB issued ASU No.2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires the statement of
cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or
restricted cash equivalents. The new guidance also requires entities to reconcile such total to amounts on the balance sheet and disclose the
nature of the restrictions. The standard is effective on January 1, 2018, however early adoption is permitted. The standard requires the use of the
retrospective transition method. The Company is in the process of evaluating the impact of this new guidance.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments, which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The eight
items that the ASU provides classification guidance on include (1) debt prepayment and extinguishment costs, (2) settlement of zero-coupon debt
instruments, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims,
(5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (6) distributions received
from equity method investments, (7) beneficial interests in securitization transactions, and (8) separately identifiable cash flows and application of
the predominance principle. The standard is effective on January 1, 2018, however early adoption is permitted. The standard requires the use of the
retrospective transition method. The Company is in the process of evaluating the impact of this new guidance.
In March 2016, the FASB issued ASU No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting, which is intended to simplify various aspects related to how share-based payments are accounted for and presented in the
financial statements. The new guidance allows for entities to make an entity-wide accounting policy election to either estimate the number of
awards that are expected to vest or account for forfeitures when they occur. In addition, the guidance allows employers to withhold shares to
satisfy minimum statutory tax withholding requirements up to the employees’ maximum individual tax rate without causing the award to be
classified as a liability. The guidance also stipulates that cash paid by an employer to a taxing authority when directly withholding shares for tax-
withholding purposes should be classified as a financing activity on the statement of cash flows. The standard is effective on January 1, 2017,
however early adoption is permitted. The Company does not expect this new guidance to have a material impact on the Company’s consolidated
financial position or results of operations.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement,
presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual
approach, classifying leases as either financing or operating leases based on the principle of whether or not the lease is effectively a financed
purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a
straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases
with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to
existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially
equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The standard is effective on January 1, 2019,
however early adoption is permitted. The Company is currently assessing the impact of the adoption of ASU No. 2016-02 on the Company’s
consolidated financial statements and related disclosures.
In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which amends the
current business combination guidance to require that an acquirer recognize adjustments to provisional amounts that are identified during the
measurement period in the reporting period in which the adjustment amounts are determined, as opposed to having to revise prior period
information. The standard also requires additional disclosure about the impact on current-period income statement line items of adjustments that
would have been recognized in prior periods if prior period information had been revised. The new standard became effective for the Company on
January 1, 2016. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position or results of
operations as all measurement-period adjustments recorded during 2016 relate to business combinations that took place in the current year and do
not have prior period impact. Refer to note 4 for details regarding the measurement-period adjustments made during the year ended December 31,
2016.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, an update to the accounting standard
relating to the presentation of debt issuance costs. Under the new guidance, debt issuance costs related to a recognized debt liability will be
presented on the balance sheet as a direct deduction from the debt liability. In the event that there is not an associated debt liability recorded in
the consolidated financial statements, the debt issuance costs will continue to be recorded on the consolidated balance sheet as an asset until the
debt liability is recorded. The new standard became effective for the Company on January 1, 2016. The adoption of this guidance did not have a
material impact on the Company’s consolidated financial position or results of operations as the update only related to changes in financial
statement presentation as discussed in note 7 and in “Reclassifications” above.
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F-24
In February 2015, the FASB issued ASU No. 2015-02, Consolidation — Amendments to the Consolidation Analysis, which amends the current
consolidation guidance affecting both the variable interest entity (“VIE”) and voting interest entity (“VOE”) consolidation models. The standard
does not add or remove any of the characteristics in determining if an entity is a VIE or VOE, but rather enhances the way the Company assesses
some of these characteristics. The new standard became effective for the Company on January 1, 2016. As discussed under Basis of Presentation
above, the adoption of this guidance did not have a material impact on the Company’s consolidated financial position or results of operations as
none of its existing consolidation conclusions were changed.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of
revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue
recognition guidance under GAAP when it becomes effective. The new standard will be effective for the Company beginning on January 1, 2018,
however early application beginning on January 1, 2017 is permitted. The standard permits the use of either the retrospective or cumulative effect
transition method. The Company has not yet selected a transition method. The Company is currently assessing the impact of the adoption of ASU
No. 2014-09 on the Company’s consolidated financial statements and related disclosures.
Concentration of Credit Risk
The Company’s stores are located in major metropolitan and rural areas and have numerous customers per store. No single customer represents
a significant concentration of our revenues. The stores in Florida, New York, Texas, and California provided total revenues of approximately 17%,
16%, 10%, and 8%, respectively, for the year ended December 31, 2016 and approximately 18%, 16%, 10%, and 8%, respectively, for the year ended
December 31, 2015. The stores in Florida, New York, Texas, and California provided total revenues of approximately 17%, 17%, 10%, and 8%,
respectively, for the year ended December 31, 2014.
3. STORAGE PROPERTIES
The book value of the Company’s real estate assets is summarized as follows:
Land
Buildings and improvements
Equipment
Construction in progress
Storage properties
Less: Accumulated depreciation
Storage properties, net
$
$
649,744
2,928,275
217,867
202,294
3,998,180
(671,364)
3,326,816
$
$
588,503
2,534,193
243,442
100,894
3,467,032
(594,049)
2,872,983
December 31,
2016
December 31,
2015
(in thousands)
The following table summarizes the Company’s acquisition and disposition activity for the years ended December 31, 2016, 2015 and 2014:
F-25
Table of Contents
Asset/Portfolio
2016 Acquisitions:
Metro DC Asset
Texas Assets
New York Asset
Texas Asset
Connecticut Asset
Texas Asset
Florida Assets
Colorado Asset
Texas Asset
Texas Asset
Texas Asset
Illinois Asset
Illinois Asset
Massachusetts Asset
Nevada Assets
Arizona Asset
Minnesota Asset
Colorado Asset
Texas Asset
Texas Asset
Nevada Asset
North Carolina Asset
Arizona Asset
Nevada Asset
2015 Acquisitions:
Texas Asset
HSRE Assets
Arizona Asset
Tennessee Asset
Texas Asset
Florida Asset
Arizona Asset
Florida Asset
Market
Transaction Date
Number of
Stores
Purchase / Sale Price
(in thousands)
Baltimore / DC
Texas Markets - Major
New York / Northern NJ
Texas Markets - Major
Connecticut
Texas Markets - Major
Florida Markets - Other
Denver
Texas Markets - Major
Texas Markets - Major
Texas Markets - Major
Chicago
Chicago
Massachusetts
Las Vegas
Phoenix
Minneapolis
Denver
Texas Markets - Major
Texas Markets - Major
Las Vegas
Charlotte
Phoenix
Las Vegas
Texas Markets - Major
Chicago
Arizona / Las Vegas
Tennessee
Texas Markets - Major
Florida Markets - Other
Arizona / Las Vegas
Florida Markets - Other
January 2016
January 2016
January 2016
January 2016
February 2016
March 2016
March 2016
April 2016
April 2016
May 2016
May 2016
May 2016
May 2016
June 2016
July 2016
August 2016
August 2016
August 2016
September 2016
September 2016
October 2016
November 2016
November 2016
December 2016
February 2015
March 2015
March 2015
March 2015
April 2015
May 2015
June 2015
June 2015
$
$
$
1
2
1
1
1
1
3
1
1
1
1
1
1
1
2
1
1
1
1
1
1
1
1
1
28
1
4
1
1
1
1
1
1
21,000
24,800
48,500
11,600
19,000
11,600
47,925
11,350
11,600
10,100
10,800
12,350
16,000
14,300
23,200
14,525
15,150
15,600
6,100
5,300
13,250
10,600
14,000
14,900
403,550
7,295
27,500
7,900
6,575
15,795
7,300
10,100
10,500
Texas Asset
Maryland Asset
Maryland Asset
New York/New Jersey Assets
New Jersey Asset
PSI Assets
Texas Markets - Major
Baltimore / DC
Baltimore / DC
New York / Northern NJ
New York / Northern NJ
Various (see note 4)
July 2015
July 2015
July 2015
August 2015
December 2015
December 2015
2015 Dispositions:
Texas Assets
Florida Asset
2014 Acquisitions:
Connecticut Asset
Florida Asset
Florida Assets
California Asset
Maryland Asset
Maryland Asset
Arizona Asset
Pennsylvania Asset
Texas Asset
Texas Asset
New York Assets
Florida Asset
Massachusetts Asset
Indiana Asset
Florida Assets
Florida Assets
Massachusetts Asset
Texas Asset
Texas Asset
Texas Asset
HSRE Assets
Texas Asset
Florida Assets
New York Asset
Texas Asset
Table of Contents
4. INVESTMENT ACTIVITY
2016 Acquisitions
Texas Markets - Major
Florida Markets - Other
October 2015
October 2015
Connecticut
Miami / Ft. Lauderdale
Florida Markets - Other
Other West
Baltimore / DC
Baltimore / DC
Arizona / Las Vegas
Philadelphia / Southern NJ
Texas Markets - Major
Texas Markets - Major
New York / Northern NJ
Florida Markets - Other
Other Northeast
Other Midwest
Florida Markets - Other
Florida Markets - Other
Boston
Texas Markets - Major
Texas Markets - Major
Texas Markets - Major
Various (see note 4)
Texas Markets - Major
Florida Markets - Other
New York / Northern NJ
Texas Markets - Major
F-26
January 2014
January 2014
January 2014
January 2014
February 2014
February 2014
March 2014
March 2014
March 2014
April 2014
April 2014
April 2014
April 2014
May 2014
June 2014
July 2014
September 2014
October 2014
October 2014
October 2014
November 2014
December 2014
December 2014
December 2014
December 2014
1
1
1
2
1
12
29
7
1
8
1
1
2
1
1
1
1
1
1
1
2
1
1
1
3
2
1
1
1
1
22
1
3
1
1
53
$
$
$
$
$
14,200
17,000
19,200
24,823
14,350
109,824
292,362
28,000
9,800
37,800
4,950
14,000
14,450
8,300
15,800
15,500
14,750
7,350
8,225
6,450
55,000
11,406
11,100
8,400
35,000
15,800
23,100
7,700
8,500
7,750
195,500
18,650
18,200
38,000
4,345
568,226
During the year ended December 31, 2016, the Company acquired 28 stores, including three stores upon completion of construction and the
issuance of a certificate of occupancy, located throughout the United States for an aggregate purchase price of approximately $403.6 million. In
connection with these acquisitions, the Company allocated a portion of the purchase price to the tangible and intangible assets acquired based on
fair value. Intangible assets consist of in-place leases, which aggregated $18.8 million at the time of the acquisitions and prior to any amortization
of such amounts. The estimated life of these in-place leases was 12 months, and the amortization expense that was recognized during 2016 was
approximately $10.5 million. In connection with one of the acquired stores, the Company assumed mortgage debt that was recorded at a fair value
of $6.5 million, which fair value includes an outstanding principal balance totaling $6.3 million and a net premium of $0.2 million to reflect the
estimated fair value of the debt at the time of assumption.
During the fourth quarter of 2016, the Company received additional information regarding the fair value of each of the assets acquired during the
first three quarters of 2016. As a result, the Company has refined its purchase price allocation estimates resulting in an aggregate $14.7 million
reclassification from land to buildings and improvements.
As of December 31, 2016, the Company was under contract and had made aggregate deposits of $1.8 million associated with four stores under
construction for a total purchase price of $61.1 million. In connection with one of the storess, the Company provided a $4.1 million loan, which was
repaid to the Company in full in December 2015, for the purpose of acquiring the premises on which the store will be built. The deposits are
reflected in Other assets, net on the Company’s consolidated balance sheets. The purchase of these four stores is expected to occur by the fourth
quarter of 2017 after the completion of construction and the issuance of a certificate of occupancy. These acquisitions are subject to due diligence
and other customary closing conditions and no assurance can be provided that these acquisitions will be completed on the terms described, or at
all.
Development
As of December 31, 2016, the Company had five contracts through joint ventures for the construction of five self-storage properties located in
New York (see note 12). As part of the PSI Assets discussed below, the Company also acquired a self-storage property that is under construction
in North Palm Beach, FL. Additionally, during the second quarter of 2016, the Company issued 61,224 OP Units, valued at approximately $1.5
million, to pay the remaining consideration on its store that is under construction in Washington, D.C. and was previously owned by a joint
venture. Construction for all projects is expected to be completed by the fourth quarter of 2018. As of December 31, 2016, development costs for
these projects totaled $181.0 million. Total construction costs for these projects is expected to be $312.7 million. These costs are capitalized to
construction in progress while the projects are under development and are reflected in Storage properties on the Company’s consolidated balance
sheets.
The Company has completed the construction and opened for operation the following stores since January 1, 2014. The costs associated with
the construction of these stores are capitalized to land, building, and improvements as well as equipment and are reflected in Storage properties on
the Company’s consolidated balance sheets.
Store Location
Bronx, NY (1) (2)
Queens, NY (1)
Brooklyn, NY
Queens, NY
Arlington, VA
Bronx, NY (2)
Malvern, PA (3)
Number of
Stores
Date Opened
CubeSmart
Ownership
Interest
1
1
1
1
1
1
1
7
Q2 2016
Q1 2016
Q4 2015
Q4 2015
Q2 2015
Q1 2014
Q1 2014
100% $
100%
90%
90%
90%
100%
100%
$
Total
Construction Costs
(in thousands)
32,200
31,800
14,800
17,400
17,100
17,200
25,100
155,600
(1) These stores were previously owned through two separate consolidated joint ventures, of which the Company owned a 51% interest in
each. On April 5, 2016, the noncontrolling member in the venture that owned the Queens, NY store put its 49% interest in the venture to the
Company for $12.5 million. On August 12, 2016, the noncontrolling member in the venture that owned the Bronx, NY store put its 49%
interest in the venture to the Company for $17.0 million.
(2) These stores are subject to ground leases.
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Table of Contents
(3) During the fourth quarter of 2013, the Company completed the construction of the portion of a mixed-use property comprised of office space
and relocated its corporate headquarters. During the first quarter of 2014, construction was completed on the portion of the building
comprised of rentable storage space and the store opened for operation.
2015 Acquisitions
On December 15, 2015, the Company acquired all of the issued and outstanding uncertificated shares of common stock of a privately held self-
storage REIT (“PSI”) for $115.8 million. As of the date of the acquisition, PSI owned real property consisting of 12 fully operational self-storage
properties which were acquired for $109.8 million, and one self-storage property that is under construction, which was acquired for $6.0 million (the
“PSI Assets”). The PSI Assets are located in Arizona, Florida, Georgia, Massachusetts, New York, North Carolina, Tennessee, and Texas. In
connection with this acquisition, the Company allocated a portion of the purchase price to the intangible value of in-place leases, which
aggregated to $6.7 million at the time of the acquisition and prior to any amortization of such amounts. The estimated life of these in-place leases
was 12 months, and the amortization expense that was recognized during the years ended December 31, 2016 and 2015 was approximately $6.1
million and $0.6 million, respectively.
During 2014, the Operating Partnership entered into an Agreement for Purchase and Sale with certain limited liability companies controlled by
HSRE REIT I and HSRE REIT II, both Maryland real estate investment trusts, to acquire (the “HSRE Acquisition”) 26 self-storage properties for an
aggregate purchase price of $223.0 million plus customary closing costs. During 2014, the Company closed on the first tranche of 22 stores
comprising the HSRE Acquisition, for an aggregate purchase price of $195.5 million. On March 18, 2015, the Company closed on the second
tranche of the remaining four stores comprising the HSRE Acquisition, for an aggregate purchase price of $27.5 million. The four stores purchased
in the second tranche are located in Illinois. In connection with this acquisition, the Company allocated a portion of the purchase price to the
intangible value of in-place leases, which aggregated to $2.7 million at the time of the acquisition and prior to any amortization of such amounts.
The estimated life of these in-place leases was 12 months, and the amortization expense that was recognized during the years ended December 31,
2016 and 2015 was approximately $0.7 million and $2.0 million, respectively.
During the year ended December 31, 2015, the Company acquired 13 additional self-storage properties, including one store upon completion of
construction and the issuance of a certificate of occupancy, located throughout the United States for an aggregate purchase price of
approximately $155.0 million. In connection with these acquisitions, the Company allocated a portion of the purchase price to the tangible and
intangible assets acquired based on fair value. Intangible assets consist of in-place leases, which aggregated $10.7 million at the time of the
acquisitions and prior to any amortization of such amounts. The estimated life of these in-place leases was 12 months, and the amortization
expense that was recognized during the years ended December 31, 2016 and 2015 was approximately $6.0 million and $4.7 million, respectively. In
connection with one of the acquired stores, the Company assumed mortgage debt that was recorded at a fair value of $2.7 million, which fair value
includes an outstanding principal balance totaling $2.5 million and a net premium of $0.2 million to reflect the estimated fair value of the debt at the
time of assumption.
2015 Dispositions
On October 8, 2015, the Company sold seven stores in Texas and one store in Florida for an aggregate sales price of approximately $37.8 million.
In connection with these sales, the Company recorded gains that totaled $14.4 million. The proceeds from these sales were held in escrow to fund
future acquisitions under a tax free like kind exchange. The total net proceeds of $36.4 million were subsequently applied to three separate
acquisitions, of which one closed in December 2015 and two closed in Janaury 2016.
On October 2, 2015, USIFB, a consolidated real estate joint venture in which the Company owned a 97% interest, sold its remaining asset in
London, England, for an aggregate sales price of £6.5 million (approximately $9.9 million). In connection with the sale, the Company recorded a gain
of $3.0 million net of a foreign currency translation loss of $1.2 million.
2014 Acquisitions
On August 25, 2014, the Operating Partnership entered into an Agreement for Purchase and Sale with certain limited liability companies
controlled by HSRE REIT I and HSRE REIT II, each Maryland real estate investment trusts, to acquire (the “HSRE Acquisition”) 26 self-storage
properties for an aggregate purchase price of $223.0 million plus customary closing costs. On November 3, 2014, the Company closed on the first
tranche of 22 stores comprising the HSRE Acquisition, for an aggregate purchase price of $195.5 million. The 22 stores purchased are located in
California, Florida, Illinois, Nevada, New York, Ohio, and Rhode Island. In connection with this acquisition, the Company allocated a portion of the
purchase price to the intangible value of in-place leases, which aggregated $14.5 million at the time of the acquisition and prior to any amortization
of such amounts. The estimated life of these in-place leases was 12 months and the
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F-28
amortization expense that was recognized during the years ended December 31, 2015 and 2014 was approximately $12.1 million and $2.4 million,
respectively.
During 2014, the Company acquired an additional 31 self-storage properties located throughout the United States for an aggregate purchase
price of approximately $372.7 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 $23.8 million at the time of such acquisitions and prior to any amortization of such amounts.
The estimated life of these in-place leases was 12 months, and the amortization expense that was recognized during the years ended December 31,
2015 and 2014 was approximately $10.4 million and $13.4 million, respectively. In connection with four of the acquired stores, the Company
assumed mortgage debt and recorded the debt at a fair value of $27.5 million, which included an outstanding principal balance totaling $26.0 million
and a net premium of $1.5 million to reflect the estimated fair value of the debt at the time of assumption.
2014 Disposition
On June 30, 2014, the Company sold one asset in London, England owned by USIFB, for an aggregate sales price of £4.1 million (approximately
$7.0 million). The Company received net proceeds of $7.0 million, a portion of which were used to repay the loan the Company made to USIFB, and
recorded a gain of $0.5 million as a result of the transaction.
The following table summarizes the Company’s results of operations of the 2016, 2015, and 2014 acquisitions from the respective acquisition
dates in the year they were acquired, included in the consolidated statements of operations for the years ended December 31, 2016, 2015, and 2014:
Total revenue
Net loss
$
5. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES
CUBE HHF Northeast Venture LLC (“HHFNE”)
2016
Year ended December 31,
2015
(in thousands)
9,110
(6,563)
$
$
15,270
(9,804)
2014
21,156
(12,350)
On December 15, 2016, the Company invested a 10% ownership interest in a newly-formed joint venture that acquired 13 self-storage properties
located in Connecticut (3), Massachusetts (6), Rhode Island (2), and Vermont (2). HHFNE paid $87.5 million for these stores, of which $6.0 million
was allocated to the value of the in-place lease intangible. The acquisition was funded primarily through an advance totaling $44.5 million on the
venture’s loan facility. The remainder of the purchase price was contributed pro-rata by the Company and its unaffiliated joint venture partner. The
Company’s total contribution to HHFNE related to this portfolio acquisition was $3.8 million. The loan bears interest at LIBOR plus 1.90% and
matures on December 15, 2019 with options to extend the maturity date through December 15, 2021, subject to satisfaction of certain conditions
and payment of the extension fees as stipulated in the loan agreement.
191 III CUBE LLC (“HVP”)
During the fourth quarter of 2015, the Company invested a 10% ownership interest in a newly-formed joint venture that agreed to acquire a
property portfolio comprised of 37 self-storage properties located in Michigan (17), Tennessee (10), Massachusetts (7), and Florida (3). HVP paid
$242.5 million for these 37 stores, of which $18.9 million was allocated to the value of the in-place lease intangible. HVP acquired 30 of the stores on
December 8, 2015 for $193.7 million, one of the stores on January 26, 2016 for $5.7 million, five of the stores on April 21, 2016 for $36.1 million, and
one store on June 15, 2016 for $7.0 million. In connection with six of the acquired stores, HVP assumed mortgage debt that was recorded at a fair
value of $25.3 million, which includes an outstanding principal balance totaling $23.7 million and a net premium of $1.6 million to reflect the
estimated fair value of the debt at the time of assumption. The remainder of the purchase price was funded through advances totaling $116.0
million on the venture’s $122.0 million loan facility and amounts contributed pro-rata by the Company and its unaffiliated joint venture partner. The
Company’s total contribution to HVP related to this portfolio acquisition was $10.7 million. The loan facility bears interest at LIBOR plus 2.00% per
annum and matures on December 7, 2018 with options to extend the maturity date through December 7, 2020, subject to satisfaction of certain
conditions and payment of the extension fees as stipulated in the loan agreement.
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F-29
During the first quarter of 2016, HVP agreed to acquire a portfolio comprised of 31 self-storage properties located in South Carolina (22), Georgia
(5), and North Carolina (4) that were previously managed by the Company. HVP paid $115.5 million for these 31 stores, of which $10.6 million was
allocated to the value of the in-place lease intangible. HVP acquired 30 of the stores on March 30, 2016 for $112.8 million and one of the stores on
November 29, 2016 for $2.7 million. In conjunction with the acquisitions, HVP refinanced its existing loan facility by entering into an increased
amended and restated loan facility not to exceed $185.5 million. The acquisitions were funded primarily through advances totaling $63.5 million on
the venture’s amended and restated loan facility. The remainder of the purchase price was contributed pro-rata by the Company and its unaffiliated
joint venture partner. The Company’s total contribution to HVP related to this portfolio acquisition was $5.4 million, bringing its total investment in
HVP to $16.1 million as of December 31, 2016. The amended and restated loan facility bears interest at LIBOR plus 2.00% per annum. The initial
maturity date was extended to March 30, 2019 with options to extend through March 30, 2021, subject to satisfaction of certain conditions and
payment of the extension fees as stipulated in the amended and restated loan agreement.
CUBE HHF Limited Partnership (“HHF”)
On December 10, 2013, the Company invested a 50% ownership interest in a newly-formed joint venture that acquired 35 self-storage properties
located in Texas (34) and North Carolina (1). HHF paid $315.7 million for these stores, of which $12.1 million was allocated to the value of the in-
place lease intangible. The Company and the unaffiliated joint venture partner, collectively the “HHF Partners,” each contributed cash equal to
50% of the capital required to fund the acquisition. On May 1, 2014, HHF obtained a $100.0 million loan secured by the 34 self-storage properties
located in Texas that are owned by the venture. There is no recourse to the Company, subject to customary exceptions to non-recourse
provisions. The loan bears interest at 3.59% per annum and matures on April 30, 2021. This financing completed the planned capital structure of
HHF and proceeds (net of closing costs) of $99.2 million were distributed proportionately to the partners.
Based upon the facts and circumstances at formation of HHFNE, HVP, and HHF (the “Ventures”), the Company determined that the Ventures are
not VIEs in accordance with the accounting standard for the consolidation of VIEs. As a result, the Company used the voting interest model under
the accounting standard for consolidation in order to determine whether to consolidate the Ventures. Based upon each member’s substantive
participating rights over the activities of each entity as stipulated in the operating agreements, the Ventures are not consolidated by the Company
and are accounted for under the equity method of accounting. The Company’s investments in the Ventures are included in Investment in real
estate ventures, at equity on the Company’s consolidated balance sheets and the Company’s earnings from its investments in the Ventures are
presented in Equity in losses of real estate ventures on the Company’s consolidated statements of operations.
The amounts reflected in the following table are based on the historical financial information of the Ventures. The following is a summary of the
financial position of the Ventures as of December 31, 2016 and 2015 (in thousands):
Table of Contents
F-30
Assets
Storage properties, net
Other assets
Total assets
Liabilities and equity
Other liabilities
Debt
Equity
CubeSmart
December 31,
2016
December 31,
2015
$
$
$
$
$
$
667,975
17,003
684,978
6,516
345,631
98,682
456,452
17,536
473,988
4,470
210,525
97,281
Joint venture partners
Total liabilities and equity
$
234,149
684,978
$
161,712
473,988
The following is a summary of results of operations of the Ventures for the years ended December 31, 2016, 2015 and 2014 (in thousands):
Total revenues
Operating expenses
Interest expense, net
Depreciation and amortization
Net loss
Company’s share of net loss
2016
Year ended December 31,
2015
2014
$
$
64,931
29,900
9,432
53,701
(28,102)
(2,662)
$
31,249
15,042
3,846
16,214
(3,853)
(411)
26,852
11,754
2,522
25,086
(12,510)
(6,255)
The results of operations above include the periods from December 15, 2016 (date of acquisition) through December 31, 2016 for HHFNE and
December 8, 2015 (date of acquisition) through December 31, 2016 for HVP.
6. UNSECURED SENIOR NOTES
The Company’s unsecured senior notes are summarized as follows (collectively referred to as the “Senior Notes”):
Unsecured Senior Notes
December 31,
2016
December 31,
2015
(in thousands)
$250M 4.800% Guaranteed Notes due 2022
$250M 4.375% Guaranteed Notes due 2023
$250M 4.000% Guaranteed Notes due 2025
$300M 3.125% Guaranteed Notes due 2026
Principal balance outstanding
Less: Discount on issuance of unsecured senior notes, net
Less: Loan procurement costs, net
Total unsecured senior notes, net
$
$
250,000
250,000
250,000
300,000
1,050,000
(3,971)
(6,953)
1,039,076
$
$
250,000
250,000
250,000
—
750,000
(2,888)
(5,208)
741,904
Effective
Interest Rate
Issuance
Date
Maturity
Date
4.82%
4.50%
4.03%
3.18%
Jun-12
Dec-13
Oct-15
Aug-16
Jul-22
Dec-23
Nov-25
Sep-26
The indenture under which the 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
more 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. As of and for the year ended December 31, 2016, the Operating Partnership was in compliance with all of the financial
covenants under the Senior Notes.
Table of Contents
7. REVOLVING CREDIT FACILITY AND UNSECURED TERM LOANS
F-31
On June 20, 2011, the Company entered into an unsecured term loan agreement (the “Term Loan Facility”) which consisted of a $100.0 million
term loan with a five-year maturity (“Term Loan A”) and a $100.0 million term loan with a seven-year maturity (“Term Loan B”). On December 9,
2011, the Company entered into a credit facility (the “Credit Facility”) comprised of a $100.0 million unsecured term loan maturing in December 2014
(“Term Loan C”); a $200.0 million unsecured term loan maturing in March 2017 (“Term Loan D”); and a $300.0 million unsecured revolving facility
maturing in December 2015 (“Revolver”).
On June 18, 2013, the Company amended both the Term Loan Facility and Credit Facility. With respect to the Term Loan Facility, among other
things, the amendment extended the maturity date to June 2018 and decreased the pricing of Term Loan A, while Term Loan B remained unchanged
by the amendment. With respect to the Credit Facility, among other things, the amendment extended the maturity date to January 2019 and
decreased the pricing of Term Loan D. On August 5, 2014, the Company further amended the Term Loan Facility to extend the maturity date to
January 2020 and decrease the pricing of Term Loan B. On December 17, 2013, the Company repaid the $100.0 million balance under Term Loan C
that was scheduled to mature in December 2014.
Pricing on the Term Loan Facility depends on the Company’s unsecured debt credit ratings. At the Company’s current Baa2/BBB level,
amounts drawn under Term Loan A are priced at 1.30% over LIBOR, while amounts drawn under Term Loan B are priced at 1.15% over LIBOR.
On April 22, 2015, the Company further amended the Credit Facility with respect to the Revolver. Among other things, the amendment increased
the aggregate amount of the Revolver from $300.0 million to $500.0 million, decreased the facility fee from 0.20% to 0.15%, and extended the
maturity date from June 18, 2017 to April 22, 2020.
Pricing on the Credit Facility depends on the Company’s unsecured debt credit ratings. At the Company’s current Baa2/BBB level, amounts
drawn under the Revolver are priced at 1.25% over LIBOR, inclusive of a facility fee of 0.15%, while amounts drawn under Term Loan D are priced
at 1.30% over LIBOR.
The Company incurred costs of $2.3 million in 2015 in connection with amending the Credit Facility and capitalized such costs as a component of
loan procurement costs, net of amortization on the consolidated balance sheet. Additionally, in connection with the amendment, $0.1 million of
unamortized costs were written-off. All remaining unamortized costs, along with costs incurred in connection with the amendment, are amortized as
an adjustment to interest expense over the remaining term of the modified facilities.
During the first quarter of 2016, the Company adopted ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires the
Company to reclassify debt financing costs, which were previously included in loan procurement costs, net of amortization on the Company’s
consolidated balance sheets, and present them as a direct deduction from the carrying amount of the related debt liability. As of December 31, 2016
and 2015, unsecured term loans are presented net of unamortized loan procurement costs of $1.3 million and $1.8 million, respectively, on the
Company’s consolidated balance sheets. Deferred financing costs associated with the Revolver remain in loan procurement costs, net of
amortization on the Company’s consolidated balance sheets.
As of December 31, 2016, $200.0 million of unsecured term loan borrowings were outstanding under the Term Loan Facility, $200.0 million of
unsecured term loan borrowings were outstanding under the Credit Facility, and $456.0 million was available for borrowing under the unsecured
revolving portion of the Credit Facility. The available balance under the unsecured revolving portion of the Credit Facility is reduced by an
outstanding letter of credit of $0.7 million. In connection with a portion of the unsecured borrowings, the Company had interest rate swaps as of
December 31, 2016 that fix 30-day LIBOR (see note 10). As of December 31, 2016, borrowings under the Credit Facility and Term Loan Facility, as
amended and after giving effect to the interest rate swaps, had an effective weighted average interest rate of 2.67%.
The Term Loan Facility and the term loan under the Credit Facility were fully drawn as of December 31, 2016 and no further borrowings may be
made under the term loans. Our 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-32
Table of Contents
Further, under the Credit Facility and Term Loan Facility, the Company is restricted from paying distributions on the Parent Company’s common
shares in excess of the greater of (i) 95% of funds from operations, and (ii) such amount as may be necessary to maintain the Parent Company’s
REIT status.
As of December 31, 2016, the Company was in compliance with all of its financial covenants and it 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 Loans and Notes Payable
YSI 59
YSI 60
YSI 51
YSI 64
YSI 62
YSI 67
YSI 33
YSI 26
YSI 57
YSI 55
YSI 24
YSI 65
YSI 66
Principal balance outstanding
Plus: Unamortized fair value adjustment
Less: Loan procurement costs, net
Total mortgage loans and notes payable, net
$
Carrying Value as of:
December 31,
2016
December 31,
2015
$
(in thousands)
— $
—
—
—
—
6,216
9,860
8,423
2,957
22,952
26,464
2,457
32,257
111,586
3,742
(710)
114,618
$
9,012
3,546
6,984
7,781
7,835
—
10,154
8,606
3,021
23,369
27,185
2,500
—
109,993
2,219
(757)
111,455
Effective
Interest Rate
Maturity
Date
4.82%
5.04%
5.15%
3.54%
3.54%
2.55%
6.42%
4.56%
4.61%
4.85%
4.64%
3.85%
3.51%
Mar-16
Aug-16
Sep-16
Oct-16
Dec-16
Mar-17
Jul-19
Nov-20
Nov-20
Jun-21
Jun-21
Jun-23
Jun-23
As of December 31, 2016 and 2015, the Company’s mortgage loans payable were secured by certain of its self-storage properties with net book
values of approximately $233.1 million and $195.4 million, respectively. The following table represents the future principal payment requirements on
the outstanding mortgage loans and notes payable as of December 31, 2016 (in thousands):
2017
2018
2019
2020
2021
2022 and thereafter
Total mortgage payments
Plus: Unamortized fair value adjustment
Less: Loan procurement costs, net
Total mortgage loans and notes payable, net
Table of Contents
9. ACCUMULATED OTHER COMPREHENSIVE LOSS
F-33
$
$
8,576
2,490
11,485
12,616
44,873
31,546
111,586
3,742
(710)
114,618
The following table summarizes the changes in accumulated other comprehensive loss by component for the year ended December 31, 2016 (in
thousands):
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current-period other comprehensive income
Balance at December 31, 2015
Balance at December 31, 2016
(a) See note 10 for additional information about the effects of the amounts reclassified.
10. RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS
Unrealized losses
on interest rate
swaps
$
$
(1,231)
4,359(a)
3,128
(4,978)
(1,850)
The Company’s use of derivative instruments is limited to the utilization of interest rate swap 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 as of December 31, 2016 and
December 31, 2015, respectively (in thousands):
Hedge
Product
Hedge
Type (a)
Notional Amount
December 31, 2016 December 31, 2015
Strike
Effective Date Maturity December 31, 2016 December 31, 2015
Fair Value
Swap
Cash flow $
— $
40,000
1.8025% 6/20/2011
6/20/2016 $
— $
(243)
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
$
—
—
75,000
50,000
50,000
25,000
40,000
40,000
20,000
300,000 $
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
1.3360% 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
3/31/2017
3/31/2017
3/31/2017
3/31/2017
6/20/2018
6/20/2018
6/20/2018
$
—
—
(103)
(69)
(69)
(34)
(797)
(804)
(404)
(2,280) $
(243)
(122)
(540)
(360)
(360)
(180)
(1,350)
(1,364)
(683)
(5,445)
(a) Hedging unsecured variable rate debt by fixing 30-day LIBOR.
F-34
Table of Contents
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, 2016 and 2015, 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 income (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 losses on interest rate swaps
reflects a reclassification of $4.4 million of unrealized losses from accumulated other comprehensive loss as an increase to interest expense during
2016. The Company estimates that $1.8 million will be reclassified as an increase to interest expense in 2017.
11. FAIR VALUE MEASUREMENTS
The Company applies the methods of determining 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, 2016 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
$
$
— $
— $
2,280
2,280
$
$
Financial assets and liabilities carried at fair value as of December 31, 2015 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
$
$
— $
— $
5,445
5,445
$
$
—
—
—
—
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 2016 that would
reduce the amount owed by the Company. Although the Company has determined that the majority of the inputs used to value its
derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company’s derivatives
utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by
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F-35
the Company and the counterparties. However, as of December 31, 2016, the Company has assessed the significance of the effect of the
credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments
are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in
their entirety are classified in Level 2 of the fair value hierarchy.
The fair values of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximate their
respective carrying values as of December 31, 2016 and 2015. The aggregate carrying value and estimated fair value of the Company’s debt was
$1.6 billion and $1.3 billion as of December 31, 2016 and 2015, respectively. These estimates were based on a discounted cash flow analysis
assuming market interest rates for comparable obligations as of December 31, 2016 and 2015. 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.
12. NONCONTROLLING INTERESTS
Interests in Consolidated Real Estate Joint Ventures
Noncontrolling interests in subsidiaries represent the ownership interests of third parties in the Company’s consolidated real estate ventures.
The Company has determined that these ventures are variable interest entities, and that the Company is the primary beneficiary. Accordingly, the
Company consolidates the assets, liabilities, and results of operations of the real estate ventures in the table below (dollars in thousands):
Development Ventures
Number of
Stores
Location
Date Opened /
Estimated
Opening
CubeSmart
Ownership
Interest
December 31, 2016
Total Assets
Total Liabilities
2225 46th St, LLC (“46th St”) (1)
CS SJM E 92nd Street, LLC (“92nd St”)
2880 Exterior St, LLC (“Exterior St”) (1)
3068 Cropsey Avenue, LLC (“Cropsey
Ave”) (1)
th
(2)
(3)
444 55 Street Holdings, LLC (“55th St”)
CS SNL New York Ave, LLC (“SNL I”)
186 Jamaica Avenue, LLC (“SNL II”) (3)
Shirlington Rd, LLC (“SRLLC”) (3)
1
1
1
1
1
1
1
1
8
Queens, NY
New York, NY
Bronx, NY
Q4 2018 (est.)
Q2 2018 (est.)
Q2 2018 (est.)
Brooklyn, NY
Q4 2017 (est.)
New York, NY
Q3 2017 (est.)
Brooklyn, NY
Brooklyn, NY
Arlington, VA
Q4 2015
Q4 2015
Q2 2015
51% $
90%
51%
51%
90%
90%
90%
90%
$
15,328
452
35,010
23,814
81,100
14,135
17,959
16,303
204,101
$
$
1,859
315
14,875
12,475
35,819
9,897
12,316
12,886
100,442
th
(1) The noncontrolling members of 46 St, Exterior St, and Cropsey Ave have the option to put their ownership interest in the ventures to the
Company for $14.2 million, $37.8 million, and $20.4 million, respectively, within the one-year period after construction of each store is
substantially complete. Additionally, the Company has a one-year option to call the ownership interest of the noncontrolling members of
46 St, Exterior St, and Cropsey Ave for $14.2 million, $37.8 million, and $20.4 million, respectively, beginning on the second anniversary
of the respective store’s construction being substantially complete. The Company is accreting the respective liabilities during the
development periods and, as of December 31, 2016, has accrued $1.8 million, $14.7 million, and $11.3 million related to 46 St, Exterior St,
and Cropsey Ave, respectively.
th
th
(2) In connection with the acquired property, 55 St assumed mortgage debt that was recorded at a fair value of $35.0 million, which fair value
th
includes an outstanding principal balance totaling $32.5 million and a net premium of $2.5 million to reflect the estimated fair value of the
debt at the time of assumption. The loan accrues interest at a fixed rate of 4.68%, matures on June 7, 2023, and is fully guaranteed by the
Company.
(3) The Company has a related party commitment to these ventures to fund all or a portion of the construction costs. As of December 31,
2016, the Company has provided $9.7 million of a total $9.8 million loan commitment to SNL I, $12.2 million of a total $12.8 million loan
commitment to SNL II, and $12.8 million of a total $14.6 million loan commitment to SRLLC, which are included in the total liability amounts
within the table above. These loans and related interest were eliminated during consolidation.
USIFB was formed to own, operate, acquire, and develop self-storage properties in England. The Company owned a 97% interest in USIFB
through a wholly-owned subsidiary, and USIFB commenced operations at two stores in London, England during 2008. The Company determined
that USIFB 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 USIFB. On December 31, 2013 the Company provided a $6.8
F-36
Table of Contents
million (£4.1 million) loan secured by a mortgage on real estate assets of USIFB. On June 30, 2014, one of the assets was sold for net proceeds of
$7.0 million and the loan was repaid with proceeds from the sale. The loan and any related interest were eliminated during consolidation. On
October 2, 2015, USIFB sold its remaining asset in London, England, for an aggregate sales price of £6.5 million (approximately $9.9 million). In
connection with the sale, the Company recorded a gain of $3.0 million net of a foreign currency translation loss of $1.2 million.
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.
Additionally, with respect to redeemable ownership interests in the Operating 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 1.1% and 1.2% of the outstanding OP Units as of December 31, 2016 and December 31, 2015, respectively, were not owned by
CubeSmart, the sole 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 properties. 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 cash 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 records 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.
On May 14, 2015, the Company closed on the acquisition of real property that will be developed into a self-storage property in Washington, D.C.
In conjunction with the closing, the Company issued 20,408 OP Units, valued at approximately $0.5 million to pay a portion of the consideration.
On April 16, 2016, upon completion of certain milestones, the Company issued 61,224 additional OP Units, valued at approximately $1.5 million, to
pay the remaining consideration. The store is expected to commence operations during the first quarter of 2017.
As of December 31, 2016 and 2015, 2,032,394 and 2,159,650 OP Units, respectively, were held by third parties. The per unit cash redemption
amount of the outstanding OP Units was calculated based upon the average of the closing prices of the common shares of CubeSmart on the New
York Stock Exchange for the final 10 trading days of the year. Based on the Company’s evaluation of the redemption value of the redeemable
noncontrolling interests, the Company has reflected these interests at their redemption value as of December 31, 2016 and 2015, as the estimated
redemption value exceeded their carrying value. As of December 31, 2016, the Operating Partnership recorded a decrease to OP units owned by
third partieis and a corresponding increase to capital of $7.4 million. As of December 31, 2015, the Operating Partnership recorded an increase to
OP Units owned by third parties and a corresponding decrease to capital of $19.6 million.
13. RELATED PARTY TRANSACTIONS
Affiliated Real Estate Investments
The Company provides management services to certain joint ventures and other related parties. Management agreements provide generally for
management fees of between 5-6% of total revenues earned on a cash basis at the managed stores. Total management fees for unconsolidated
joint ventures or other entities in which the Company held an ownership interest for the years ending December 31, 2016, 2015 and 2014 were $2.9
million, $1.0 million and $0.9 million, respectively.
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F-37
The management agreements for certain joint ventures, other related parties and third-party stores provide for the reimbursement to the
Company for certain expenses incurred to manage the stores. These amounts consist of amounts due for management fees, payroll and other store
expenses. The amounts due to the Company were $3.3 million and $1.9 million as of December 31, 2016 and 2015, respectively. Additionally, as
discussed in note 12 the Company has outstanding mortgage loans receivable from consolidated joint ventures of $34.7 million and $29.6 million as
of December 31, 2016 and 2015, respectively, which are eliminated for consolidation purposes. The Company believes that all of these related-
party receivables are fully collectible.
The HVP operating agreement provides for an acquisition fee payable from HVP to the Company in an amount equal to 0.5% of the purchase
price upon closing of an acquisition by HVP or any of its subsidiaries. During the year ended December 31, 2016, the Company recognized $1.8
million in acquisition fees in conjunction with HVP’s acquisition of 68 self storage properties, which are included in Other income on the
consolidated statement of operations. The Company did not recognize any acquisition fees from HVP during the years ended December 31, 2015
and 2014.
14. COMMITMENTS AND CONTINGENCIES
The Company currently owns seven operating self-storage properties and one self-storage property currently under development that are
subject to ground leases, and two other operating self-storage properties that have portions of land that are subject to ground leases. The
Company recorded ground rent expense of approximately $2.7 million, $2.4 million, and $2.0 million for the years ended December 31, 2016, 2015 and
2014, respectively. Total future minimum rental payments under non-cancelable ground leases are as follows:
2017
2018
2019
2020
2021
2022 and thereafter
Ground Lease
Amount
(in thousands)
$
$
2,137
2,355
2,365
2,430
2,476
112,313
124,076
The Company has development agreements for the construction of seven new self-storage properties (see note 4), which will require payments
of approximately $79.7 million, due in installments upon completion of certain construction milestones, during 2017 and 2018.
On July 13, 2015, a putative class action was filed against the Company in the Federal District Court of New Jersey seeking to obtain declaratory,
injunctive and monetary relief for a class of New Jersey consumers based upon alleged violations by the Company of the New Jersey Truth in
Customer Contract, Warranty and Notice Act and the New Jersey Consumer Fraud Act. The Company brought a motion to partially dismiss the
complaint for failure to state a claim, which motion was granted in part and denied in part. The plaintiff has moved to file an amended complaint to
re-allege the action dismissed by the Court, which motion is presently pending decision. The Company intends to vigorously defend the action,
and the possibility of any adverse outcome cannot be determined at this time.
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.
15. SHARE-BASED COMPENSATION PLANS
On June 1, 2016 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 and subsequently amended with shareholder approval on
June 2, 2010 (as amended and restated, the “2007 Plan”). The purpose of the 2007 Plan 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 2007 Plan
provides for the grant of share options, share appreciation rights, restricted shares, restricted share units, performance awards, which may be
denominated in cash or shares, included restricted shares and restricted share units, and other share-based awards, including unrestricted common
shares or awards denominated or payable in, or valued in whole or part by reference to, common shares. Any of these awards may, but need not,
be made as performance incentives to reward attainment of
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F-38
annual or long-term performance goals. Share options granted under the 2007 Plan may be non-qualified share options or incentive share options.
Upon shareholder approval of the amendment and restatement of the 2007 Plan in June 2016, 4,500,000 additional common shares were made
available for award under the 2007 Plan. As a result, these 4,500,000 additional shares, together with the 991,117 shares that remained available for
future awards under the 2007 Plan at the time of the shareholder approval, plus any common shares that are restored to availability upon expiration
or forfeiture of outstanding options or restricted share awards, would constitute the “Aggregate Share Reserve”. As of December 31, 2016:
(i) 5,471,377 common shares remained available for future awards under the 2007 Plan; (ii) 498,228 unvested restricted share awards were
outstanding under the 2007 Plan; and (iii) 1,934,255 common shares were subject to outstanding options under the 2007 Plan (with the outstanding
options having a weighted average exercise price of $12.93 per share and a weighted average term to maturity of 4.84 years).
Prior to the June 2016 amendments, the 2007 Plan used a “Fungible Units” methodology for computing the maximum number of common shares
available for issuance under the 2007 Plan. The Fungible Units methodology assigned weighted values to different types of awards under the 2007
Plan without assigning specific numerical limits for different types of awards. As amended in June 2016, the 2007 Plan provides that any common
shares made the subject of awards under the 2007 Plan will count against the Aggregate Share Reserve as one (1) unit. The Aggregate Share
Reserve and the computation of the number of common shares available for issuance is subject to adjustment upon certain corporate transactions
or events, including share splits, reverse share splits and recapitalizations. The number of shares counted against the Aggregate Share Reserve
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 the award that expires, is forfeited or that
otherwise terminates, as the case may be, again becomes available for issuance under the 2007 Plan.
The 2007 Plan is 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 2007 Plan and, subject to its right to delegate authority to grant
awards, determines the terms and provisions of option grants and share awards.
Subject to adjustment upon certain corporate transactions or events, a participant (other than a non-employee trustee) may not receive awards
under the 2007 Plan in any one calendar year covering more than 1,000,000 shares. Subject to adjustment upon certain corporate transactions or
events, a non-employee trustee may not receive awards under the 2007 Plan in any one calendar year covering more than 250,000 shares.
Under the 2007 Plan, the Compensation Committee determines the vesting schedule of each share award and option, subject to a one-year
minimum vesting requirement, but with permitted acceleration of vesting in the event of a participant’s death or disability, or in the event of a
change in control or certain changes in our capital structure. Notwithstanding the foregoing one-year minimum vesting limitation, up to five
percent of the shares subject to the Aggregate Share Reserve may be subject to awards that are not subject to such limitation. 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.
On October 19, 2004, the Company’s sole shareholder approved a share-based employee compensation plan, the 2004 Equity Incentive Plan (the
“2004 Plan”). The 2004 Plan expired in October 2014. Prior to its expiration, a total of 3.0 million common shares were reserved for issuance under
the 2004 Plan. Subsequent to its expiration, no new equity awards may be granted under the 2004 Plan, and to the extent that options expire
unexercised or are terminated, surrendered or canceled, the options and share awards no longer become available for future grants under the 2004
Plan. As of December 31, 2016, there were approximately 20 thousand shares outstanding under the 2004 Plan.
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Table of Contents
Share Options
The fair values for options granted in 2016, 2015, and 2014 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
2016
1.8%
2.7%
33.00%
2015
1.5%
2.6%
33.00%
2014
1.9%
3.2%
37.98%
$
6.0 years
7.61
$
6.0 years
6.23
$
6.0 years
4.33
(a) Expected volatility is based upon the level of volatility historically experienced.
(b) Expected life is based upon our expectations of share 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 share price volatility. Volatility for the 2016, 2015 and 2014 grants was
based on the trading history of the Company’s shares.
In 2016, 2015, and 2014, the Company recognized compensation expense related to options issued to employees and executives of approximately
$1.3 million, $1.0 million and $0.9 million, respectively, which was recorded in general and administrative expense. Approximately 213,008 share
options were issued during 2016 for which the fair value of the options at their respective grant dates was approximately $1.6 million, which vest
over three years. As of December 31, 2016, the Company had approximately $1.6 million of unrecognized option compensation cost related to all
grants that will be recorded over the next three years.
The table below summarizes the option activity under the 2004 Plan and the 2007 Plan for the years ended December 31, 2016, 2015 and 2014:
Balance at December 31, 2013
Options granted
Options canceled
Options exercised
Balance at December 31, 2014
Number of Shares
Under Option
4,904,613
223,590
(10,731)
(1,425,171)
3,692,301
$
$
Weighted Average
Strike Price
Weighted Average
Remaining
Contractual Term
4.66
9.08
—
3.21
4.16
10.99
15.73
17.38
9.69
11.76
Options granted
Options canceled
Options exercised
Balance at December 31, 2015
Options granted
Options exercised
Balance at December 31, 2016
Vested or expected to vest at December 31, 2016
Exercisable at December 31, 2016
202,485
(18,230)
(1,454,612)
2,421,944
213,008
(695,262)
1,939,690
1,939,690
1,520,731
$
$
$
$
25.00
19.75
11.31
13.07
30.32
18.69
12.94
12.94
9.35
9.08
—
2.38
4.08
9.07
0.29
4.85
4.85
3.87
As of December 31, 2016, 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 $8.5 million for the year
ended December 31, 2016.
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 155,000 restricted shares and share units were issued during 2016 for which the fair value of the restricted
shares and share units at their respective grant dates was approximately $5.2 million, which vest over three to five years. During
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F-40
2015, approximately 115,000 restricted shares and share units were issued for which the fair value of the restricted shares and share units at their
respective grant dates was approximately $3.2 million. As of December 31, 2016 the Company had approximately $4.7 million of remaining
unrecognized restricted share and share unit compensation costs that will be recognized over the next five years. Restricted share awards are
considered to be performance awards and are valued using the share price on the grant date. The compensation expense recognized related to
these awards and remaining unrecognized compensation costs are included in the amounts disclosed above.
In 2016, 2015 and 2014, the Company recognized compensation expense related to restricted shares and share units issued to employees and
Trustees of approximately $3.6 million, $2.7 million, and $3.5 million, respectively; these amounts were recorded in general and administrative
expense. The following table presents non-vested restricted share and share unit activity during 2016:
Non-Vested at January 1, 2016
Granted
Vested
Forfeited
Non-Vested at December 31, 2016
Number of Non-
Vested Restricted
Shares and Share Units
301,824
154,561
(130,340)
(3,023)
323,022
On January 22, 2016, 37,008 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 REITs over a
three-year period. The fair value of the restricted share units on the grant date was approximately $1.6 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, 2018. The compensation expense recognized related to these awards and remaining unrecognized compensation costs are
included in the amounts disclosed above.
On January 23, 2015, 35,614 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 REITs over a
three-year period. The fair value of the restricted share units on the grant date was approximately $1.3 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, 2017. The compensation expense recognized related to these awards and remaining unrecognized compensation costs are
included in the amounts disclosed above.
On January 24, 2014, 47,487 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 REITs over a
three-year period. The fair value of the restricted share units on the grant date was approximately $0.9 million. The Company used a Monte Carlo
simulation analysis to estimate the fair value of the awards. The restricted share units cliff vested on December 31, 2016. The compensation
expense recognized related to these awards is included in the amounts disclosed above.
F-41
Table of Contents
16. EARNINGS PER SHARE AND UNIT AND SHAREHOLDERS’ EQUITY AND CAPITAL
Earnings per common share and shareholders’ equity
The following is a summary of the elements used in calculating basic and diluted earnings per common share:
Income from continuing operations
Noncontrolling interests in the Operating Partnership
Noncontrolling interest in subsidiaries
Distribution to preferred shares (1)
Preferred share redemption charge
Income from continuing operations attributable to the Company’s
common shareholders
Total discontinued operations
Noncontrolling interests in the Operating Partnership
Total discontinued operations attributable to the Company’s
common shareholders
Net income attributable to the Company’s common shareholders
Weighted-average shares outstanding
Share options and restricted share units
Weighted-average diluted shares outstanding (2)
Basic earnings per share from continuing operations attributable to
common shareholders
Basic earnings per share from discontinued operations attributable to
common shareholders
Basic earnings per share attributable to common shareholders
Diluted earnings per share from continuing operations attributable to
common shareholders
Diluted earnings per share from discontinued operations attributable
to common shareholders
Diluted earnings per share attributable to common shareholders
For the year ended December 31,
2015
(Dollars and shares in thousands, except per share amounts)
2014
2016
$
88,376
(941)
470
(5,045)
(2,937)
$
78,756
(960)
(84)
(6,008)
—
79,923
$
71,704
$
—
—
— $
—
—
— $
79,923
$
71,704
$
178,246
1,287
179,533
168,640
1,551
170,191
0.45
—
0.45
0.45
—
0.45
$
$
$
$
0.43
—
0.43
0.42
—
0.42
$
$
$
$
26,366
(302)
(16)
(6,008)
—
20,040
336
(5)
331
20,371
149,107
1,756
150,863
0.13
0.01
0.14
0.13
0.01
0.14
$
$
$
$
$
$
$
$
F-42
Table of Contents
Earnings per common unit and capital
The following is a summary of the elements used in calculating basic and diluted earnings per common unit:
For the year ended December 31,
2016
2014
2015
(Dollars and units in thousands, except per unit amounts)
Income from continuing operations
Operating Partnership interests of third parties
Noncontrolling interest in subsidiaries
Distribution to preferred unitholders (1)
Preferred unit redemption charge
Income from continuing operations attributable to common
unitholders
Total discontinued operations
Operating Partnership interests of third parties
Total discontinued operations attributable to common unitholders
Net income attributable to common unitholders
$
$
$
$
$
88,376
(941)
470
(5,045)
(2,937)
$
78,756
(960)
(84)
(6,008)
—
79,923
$
71,704
$
—
—
— $
—
—
— $
26,366
(302)
(16)
(6,008)
—
20,040
336
(5)
331
79,923
$
71,704
$
20,371
Weighted-average units outstanding
Unit options and restricted share units
Weighted-average diluted units outstanding (2)
178,246
1,287
179,533
168,640
1,551
170,191
Basic earnings per unit from continuing operations attributable to
common unitholders
Basic earnings per unit from discontinued operations attributable to
common unitholders
Basic earnings per unit attributable to common unitholders
Diluted earnings per unit attributable to common unitholders
Diluted earnings per unit from discontinued operations attributable to
common unitholders
Diluted earnings per unit attributable to common unitholders
$
$
$
$
0.45
—
0.45
0.45
—
0.45
$
$
$
$
0.43
—
0.43
0.42
—
0.42
$
$
$
$
149,107
1,756
150,863
0.13
0.01
0.14
0.13
0.01
0.14
(1) For the year ended December 31, 2016, the Company declared cash dividends per preferred share/unit of $1.626 prior to redemption of the
preferred shares on November 2, 2016. For each of the years ended December 31, 2015 and 2014, the Company declared cash dividends per
preferred share/unit of $1.938.
(2) For the years ended December 31, 2016, 2015 and 2014, the Company declared cash dividends per common share/unit of $0.90, $0.69, and $0.55,
respectively.
The OP units and common units have essentially the same economic characteristics as they share 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 2,032,394; 2,159,650 and 2,257,486 as of
December 31, 2016, 2015 and 2014, respectively. There were 180,083,111; 174,667,870 and 163,956,675 common units outstanding as of December 31,
2016, 2015 and 2014, respectively.
F-43
Table of Contents
Common and Preferred Shares
On November 2, 2016, the Company redeemed all 3.1 million outstanding shares of 7.75% Series A Cumulative Redeemable Preferred Shares (the
“Series A Preferred Shares”) at a cash redemption price of $25.00 per share plus accumulated and unpaid dividends up to and including the date of
redemption of $0.17374 per share. The redemption price of $77.5 million for the redemption of the Series A Preferred Shares was paid by the
Company from available cash balances. In connection with the redemption, the Company recognized a charge of $2.9 million related to excess
redemption costs over the original net proceeds.
Pursuant to a previous sales agreement, the company had an “at-the-market” equity program that enabled it to sell common shares through a
sales agent. On May 7, 2013, the Company terminated the previous sales agreement with its previous sales agent and entered into separate equity
distribution agreements (the “Equity Distribution Agreements”) with a group of sales agents (collectively, the “Sales Agents”). The Equity
Distribution Agreements replaced the previous sale agreement and were amended on May 5, 2014, October 2, 2014, and December 30, 2015 to
increase the number of common shares authorized for sale through “at-the-market” equity offerings. Pursuant to the Equity Distribution
Agreements, as amended, the Company may sell, from time to time, up to 40.0 million common shares of beneficial interest through the Sales
Agents.
During 2016, the Company sold a total of 4.4 million common shares under the agreements at an average sales price of $31.25 per share, resulting
in net proceeds of $136.1 million after deducting offering costs. The proceeds from the sales conducted during the year ended December 31, 2016
were used to fund acquisitions of storage properties and for general corporate purposes. As of December 31, 2016, 5.8 million common shares
remained available for issuance under the Equity Distribution Agreements.
During 2015, the Company sold a total of 9.0 million common shares under the agreements at an average sales price of $26.35 per share, resulting
in net proceeds of $234.2 million after deducting offering costs. The proceeds from the sales conducted during the year ended December 31, 2015
were used to fund acquisitions of storage properties and for general corporate purposes. As of December 31, 2015, 10.2 million common shares
remained available for issuance under the Equity Distribution Agreements.
On October 20, 2014, the Parent Company completed its public offering of 7,475,000 common shares at a public offering price of $19.33, inclusive
of the full exercise by the underwriters of their option to purchase 975,000 shares to cover over-allotments. The Company received approximately
$143.0 million in net proceeds from the offering after deducting the underwriting discount and other offering expenses. The proceeds combined
with the proceeds raised from the program were used for general corporate purposes including funding a portion of the Company’s investment
activity.
During 2014, the Company sold a total of 15.2 million common shares under the previous sales agreement and the Equity Distribution
Agreements at an average sales price of $18.22 per share, resulting in net proceeds of $273.0 million after deducting offering costs. The proceeds
from the sales conducted during the year ended December 31, 2014 were used to fund acquisitions of storage properties and for general corporate
purposes. As of December 31, 2014, 9.2 million common shares remained available for issuance under the Equity Distribution Agreements.
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 as of December 31, 2016 or 2015. The Company had net deferred tax assets of $1.3 million and $1.7 million, which are included in other
assets on the Company’s consolidated balance sheets as of December 31, 2016 and 2015, respectively. The Company recorded $0.7 million in tax
benefits associated with share based compensation during the year, which is included in additional paid-in capital on the Company’s consolidated
balance sheets. The Company believes it is more likely than not the deferred tax assets will be realized.
18. DISCONTINUED OPERATIONS
In April 2014, the FASB issued an update to the accounting standard for the reporting of discontinued operations. The update redefined
discontinued operations, changing the criteria for determining which disposals can be presented as discontinued operations and modified related
disclosure requirements. The Company elected to adopt this guidance in 2014. None of the Company’s dispositions during 2014 or 2015 met the
criteria for discontinued operations under the new guidance.
Table of Contents
F-44
For the year ended December 31, 2014, income from discontinued operations relates to real estate tax refunds received as a result of appeals of
previous tax assessments on six self-storage properties the Company sold in prior years.
The following table summarizes the revenue and expense information for the period the Company owned the stores classified as discontinued
operations during the years ended December 31, 2016, 2015 and 2014 (in thousands):
REVENUES
Rental income
Other property related income
Total revenues
OPERATING EXPENSES
Property operating expenses
Depreciation and amortization
Total operating expenses
OPERATING INCOME
OTHER (EXPENSE) INCOME
Interest expense on loans
Gain from dispositions of discontinued operations
Income from discontinued operations
19. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
For the year ended December 31,
2015
2014
2016
$
$
— $
—
—
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
—
— $
—
—
—
(336)
—
(336)
336
—
—
336
During the year ended December 31, 2016, the Company acquired 28 self-storage properties for an aggregate purchase price of approximately
$403.6 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 2016 and 2015
as if each had occurred as of January 1, 2015 and 2014, 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.
The following table summarizes, on a pro forma basis, the Company’s consolidated results of operations for the year ended December 31, 2016
and 2015 based on the assumptions described above:
Pro forma revenue
Pro forma net income from continuing operations
Earnings per common share from continuing operations:
Basic - as reported
Diluted - as reported
Year ended December 31,
2015
2016
(in thousands, except per share data)
$
$
$
$
520,341
120,248
0.45
0.45
$
$
$
$
428,234
90,559
0.43
0.42
Basic - as pro forma
Diluted - as pro forma
Table of Contents
$
$
0.63
0.62
$
$
0.50
0.49
F-45
20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly financial information for the years ended December 31, 2016 and 2015 (in thousands, except per share
data):
Total revenues
Total operating expenses
Net income attributable to the Company
Basic earnings per share
Diluted earnings per share
Total revenues
Total operating expenses
Net income attributable to the Company
Basic earnings per share
Diluted earnings per share
$
$
March 31,
2016
118,871
90,145
15,750
0.08
0.08
March 31,
2015
103,688
83,009
8,434
0.04
0.04
$
$
Three months ended
June 30,
2016
September 30,
2016
$
$
126,526
93,509
20,424
0.11
0.11
109,871
84,163
13,724
0.07
0.07
$
$
December 31,
2016
132,546
90,848
26,847
0.13
0.13
December 31,
2015
114,992
83,196
37,116
0.21
0.20
132,096
92,585
24,884
0.13
0.13
115,970
86,265
18,438
0.10
0.10
Three months ended
June 30,
2015
September 30,
2015
The sum 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 18).
Table of Contents
Description
Chandler I, AZ
Chandler II, AZ
Gilbert I, AZ
Gilbert II, AZ
Glendale, AZ
Green Valley, AZ
Mesa I, AZ
Mesa II, AZ
Mesa III, AZ
Peoria, AZ
Phoenix I, AZ
Phoenix II, AZ
Phoenix III, AZ
Phoenix IV, AZ
Queen Creek, AZ
Scottsdale, AZ
Surprise , AZ
Tempe I, AZ
Tempe II, 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
F-46
CUBESMART
SCHEDULE III
REAL ESTATE AND RELATED DEPRECIATION
December 31, 2016
(Dollars in thousands)
Encumbrances
Square
Footage
47,680
82,889
57,300
91,505
56,807
25,050
52,575
45,511
59,629
110,835
100,875
83,160
121,731
69,660
94,462
79,525
72,575
53,890
68,409
59,800
43,950
49,832
48,040
45,134
40,814
52,688
46,650
Land
327
1,518
951
1,199
201
298
920
731
706
1,436
1,134
756
2,115
930
1,159
443
584
749
588
188
188
532
674
515
440
670
589
Initial Cost
Buildings
&
Costs
Subsequent
to
Improvements Acquisition
357
83
30
—
1,085
173
234
231
246
213
476
1,578
124
21
80
1,753
44
522
2,140
1,050
1,068
254
317
350
223
314
333
1,257
7,485
4,688
11,846
2,265
1,153
2,739
2,176
2,101
7,082
3,376
2,251
10,429
12,277
5,716
4,879
3,761
2,159
2,898
2,078
2,078
2,048
2,595
1,980
1,692
2,576
2,265
Gross Carrying Amount at
December 31, 2016
Buildings
&
Improvements
1,439
7,568
4,718
11,846
2,798
1,116
2,526
2,089
1,963
7,295
3,201
3,130
10,553
12,298
5,796
5,516
3,805
2,371
5,038
2,624
2,662
1,941
2,492
1,974
1,617
2,476
2,247
Land
327
1,518
951
1,199
418
298
921
731
706
1,436
1,135
847
2,115
930
1,159
883
584
749
588
384
391
533
675
515
430
670
589
Total
1,766
9,086
5,669
13,045
3,216
1,414
3,447
2,820
2,669
8,731
4,336
3,977
12,668
13,228
6,955
6,399
4,389
3,120
5,626
3,008
3,053
2,474
3,167
2,489
2,047
3,146
2,836
Accumulated
Depreciation
(B)
544
801
576
29
1,271
397
938
782
731
352
1,191
1,075
953
112
324
2,482
131
755
524
1,175
1,160
703
896
714
592
907
803
Year
Acquired/
Developed
2005
2013
2013
2016
1998
2005
2006
2006
2006
2015
2006
2006/2011
2014
2016
2015
1998
2015
2005
2013
1998
1998
2005
2005
2005
2005
2005
2005
Tucson IX, AZ
Tucson X, AZ
Tucson XI, AZ
Tucson XII, AZ
Tucson XIII, AZ
Tucson XIV, AZ
Benicia, CA
Citrus Heights, CA
Corona, CA
Diamond Bar, CA
Escondido, CA
Fallbrook, CA
Fremont, CA
Lancaster, CA
Long Beach, CA
Murrieta, CA
North Highlands, CA
Ontario, CA
Orangevale, 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
Vista I, CA
Vista II, CA
Walnut, CA
West Sacramento, CA
Westminster, CA
Aurora, CO
Centennial, CO
Colorado Springs I, CO
Colorado Springs II, CO
Denver I, CO
Denver II, CO
Denver III, CO
Federal Heights, CO
Golden, CO
Littleton, CO
Northglenn, CO
Bloomfield, CT
Table of Contents
Description
Branford, CT
Bristol, CT
East Windsor, CT
Enfield, CT
Gales Ferry, CT
Manchester I, CT
Manchester II, CT
Manchester III, CT
Milford, CT
Monroe, CT
Mystic, CT
Newington I, CT
Newington II, CT
Norwalk I, CT
Norwalk II, CT
Old Saybrook I, CT
Old Saybrook II, CT
67,496
46,350
42,900
42,275
45,800
48,995
74,770
75,620
94,975
103,309
143,645
45,976
51,243
60,450
124,571
49,785
57,094
93,590
50,542
83,600
53,978
57,391
99,783
67,020
85,176
59,944
50,664
62,088
31,070
41,546
35,416
83,277
56,745
78,753
103,417
37,425
63,916
52,440
55,035
81,340
84,543
74,238
147,763
50,708
40,015
68,393
75,867
62,400
47,975
62,400
59,200
74,460
76,125
54,770
87,800
53,490
43,102
48,700
Square
Footage
50,629
47,725
46,066
52,875
54,905
46,925
52,725
60,113
44,885
58,500
50,825
42,620
36,140
30,328
78,175
87,000
26,425
724
424
439
671
587
707
2,392
1,633
2,107
2,522
3,040
133
1,158
390
3,138
1,883
868
1,705
1,423
2,799
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
711
4,629
1,578
1,222
1,740
1,343
1,281
771
657
673
1,430
1,828
878
1,683
1,268
862
78
462
243
413
331
342
463
300
231
59
234
201
1,801
161
1,052
855
246
420
307
305
208
321
209
1,751
573
369
397
317
244
1,185
1,274
1,316
212
509
305
594
169
370
334
760
997
561
2,330
167
319
212
375
474
45
372
251
223
109
15
271
517
360
386
2,397
725
425
439
672
587
708
2,392
1,634
2,107
2,524
3,040
432
1,158
556
3,138
1,903
868
1,705
1,423
2,799
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
1,118
4,629
1,595
1,222
1,743
1,343
1,281
771
656
646
1,430
1,828
879
1,684
1,268
662
360
2,786
1,633
1,689
2,582
2,258
2,721
7,028
4,793
10,385
7,404
11,804
1,492
5,711
2,247
14,368
5,532
2,546
8,401
4,175
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
4,076
13,599
4,635
3,590
5,142
2,986
8,958
1,717
2,674
2,741
7,053
12,109
1,953
3,744
2,820
1,917
880
F-47
2,727
1,567
1,811
2,484
2,231
2,637
6,244
4,250
10,444
6,546
9,646
2,784
5,872
2,564
13,287
4,913
2,508
8,708
3,807
7,187
2,991
3,755
4,057
5,924
4,937
3,565
3,138
3,708
1,429
1,983
1,913
4,887
3,566
6,311
6,382
2,087
5,191
2,234
5,410
5,167
5,471
5,097
11,706
4,216
3,235
4,630
2,919
9,003
1,746
2,417
2,486
7,162
12,124
1,828
3,589
2,672
2,089
2,700
3,452
1,992
2,250
3,156
2,818
3,345
8,636
5,884
12,551
9,070
12,686
3,216
7,030
3,120
16,425
6,816
3,376
10,413
5,230
9,986
4,086
4,654
4,729
7,275
6,107
4,849
4,290
5,115
1,611
2,289
2,155
6,759
4,349
7,601
8,074
2,863
6,414
3,025
6,588
6,066
8,551
6,215
16,335
5,811
4,457
6,373
4,262
10,284
2,517
3,073
3,132
8,592
13,952
2,707
5,273
3,940
2,751
3,060
978
571
697
879
802
964
2,213
1,576
719
2,423
2,832
1,234
548
959
4,541
1,743
927
606
1,414
2,547
1,094
1,310
1,914
2,023
1,733
1,330
1,156
1,370
615
886
817
1,728
1,263
2,229
2,277
762
1,806
810
1,876
2,156
1,547
1,922
4,204
1,496
1,165
1,719
1,004
190
618
847
921
979
123
642
1,241
891
667
1,131
2005
2005
2005
2005
2005
2005
2005
2005
2014
2005
2007
1997
2014
2001
2006
2005
2005
2014
2005
2005
2005
2006
1997
2006
2006
2005
2005
2005
1997
1997
1997
2005
2006
2006
2006
2005
2006
2005
2006
1998
2007
2001
2005
2005
2005
2005
2005
2016
2005
2006
2006
2012
2016
2005
2005
2005
2005
1997
(A)
Encumbrances
Land
217
1,819
744
424
240
540
996
671
87
2,004
136
1,059
911
646
1,171
3,092
1,135
Initial Cost
Buildings
&
Costs
Subsequent
to
Improvements Acquisition
1,415
88
499
456
1,508
415
321
154
1,184
642
2,021
216
265
54
82
656
251
2,433
3,161
1,294
2,424
2,697
3,096
1,730
3,308
1,050
3,483
1,645
1,840
1,584
3,187
15,422
5,374
1,973
Gross Carrying Amount at
December 31, 2016
Buildings
&
Improvements
3,135
2,785
1,523
2,111
3,522
2,738
1,744
3,462
1,740
3,441
2,923
1,762
1,575
3,241
15,504
5,177
1,896
Land
504
1,819
744
473
489
563
996
671
274
2,004
410
1,059
911
646
1,171
3,092
1,135
Total
3,639
4,604
2,267
2,584
4,011
3,301
2,740
4,133
2,014
5,445
3,333
2,821
2,486
3,887
16,675
8,269
3,031
Accumulated
Depreciation
(B)
1,475
1,113
616
837
1,781
1,170
672
329
792
1,425
1,320
697
624
463
355
2,051
779
Year
Acquired/
Developed
1995
2005
2005
2001
1995
2002
2005
2014
1996
2005
1996
2005
2005
2012
2016
2005
2005
(A)
(A)
Shelton, CT
South Windsor, CT
Stamford, CT
Wilton, CT
Washington I, DC
Washington II, DC
Washington III, DC
Boca Raton, FL
Boynton Beach I, FL
Boynton Beach II, FL
Boynton Beach III, FL
Boynton Beach IV, FL
Bradenton I, FL
Bradenton II, FL
Cape Coral I, FL
Cape Coral II, FL
Coconut Creek I, FL
Coconut Creek II, FL
Dania Beach, FL
Dania, FL
Davie, FL
Deerfield Beach, FL
Delray Beach I, FL
Delray Beach II, FL
Delray Beach III, FL
Ft. Lauderdale I, FL
Ft. Lauderdale II, FL
Ft. Myers I, FL
Ft. Myers II, FL
Ft. Myers III, FL
Jacksonville I, FL
Jacksonville II, FL
Jacksonville III, FL
Jacksonville IV, FL
Jacksonville V, FL
Jacksonville VI, FL
Kendall, FL
Lake Worth I, FL
Lake Worth II, FL
Lake Worth III, FL
Lakeland, FL
Leisure City, FL
Lutz I, FL
Lutz II, FL
Margate I, FL
Margate II, FL
Merritt Island, FL
Miami I, FL
Miami II, FL
Miami III, FL
Miami IV, FL
Miramar, FL
Naples I, FL
Naples II, FL
Naples III, FL
Naples IV, FL
New Smyrna Beach, FL
Ocoee, FL
Orange City, FL
Orlando II, FL
Orlando III, FL
Orlando IV, FL
Orlando V, FL
Orlando VI, FL
Oviedo, FL
Palm Coast I, FL
Palm Coast II, FL
Palm Harbor, FL
Pembroke Pines, FL
Royal Palm Beach II, FL
Sanford I, FL
Sanford II, FL
Sarasota, FL
St. Augustine, FL
St. Petersburg, FL
Stuart, FL
SW Ranches, FL
Tampa I, FL
Tampa II, FL
West Palm Beach I, FL
West Palm Beach II, FL
West Palm Beach III, FL
West Palm Beach IV, FL
Winter Park, FL
Alpharetta, GA
Atlanta, GA
78,405
72,075
28,907
84,515
63,085
82,787
78,430
37,968
61,725
61,514
67,393
76,362
68,298
87,958
76,857
67,955
78,846
90,147
180,588
58,165
80,985
57,230
67,833
75,710
94,395
70,043
49,577
67,534
83,375
81,554
79,705
64,970
66,010
77,525
82,483
67,275
75,495
159,799
86,924
94,015
49,079
56,075
66,795
69,232
53,660
65,380
50,261
46,500
66,960
151,620
76,695
80,130
48,100
65,850
80,021
40,650
81,454
76,150
59,580
63,184
101,530
76,581
75,295
67,275
49,276
47,400
122,490
82,685
67,321
81,274
61,810
69,755
71,142
59,725
66,050
86,756
64,990
83,913
74,790
66,906
94,353
77,440
102,892
54,356
90,501
66,625
1,613
90
1,941
2,409
871
3,152
4,469
529
667
1,030
1,225
1,455
1,180
1,931
472
1,093
1,189
1,937
3,584
205
1,268
946
798
957
2,086
937
862
303
1,030
1,148
1,862
950
860
870
1,220
755
2,350
183
1,552
957
81
409
901
992
161
132
716
179
253
4,577
1,852
1,206
90
148
139
262
1,261
1,286
1,191
1,589
1,209
633
950
640
440
555
1,511
2,457
337
1,640
453
1,003
333
135
2,721
324
1,390
2,670
2,291
719
2,129
804
1,499
866
806
822
9,032
1,127
3,374
12,261
12,759
13,612
15,438
3,054
3,796
2,968
6,037
7,171
3,324
5,561
2,769
5,387
5,863
9,549
10,324
2,068
7,183
2,999
4,539
4,718
10,286
3,646
4,250
3,329
5,080
5,658
5,362
7,004
7,409
8,049
8,210
3,725
8,106
6,597
7,654
4,716
896
2,018
2,478
2,868
1,763
1,473
2,983
1,999
2,544
13,185
10,494
5,944
1,010
1,652
1,561
2,980
6,215
3,705
3,209
4,576
7,768
3,587
4,685
3,154
2,824
2,735
7,450
16,178
3,772
8,607
2,911
4,944
3,656
1,515
10,173
3,625
7,598
6,249
10,262
3,420
8,671
3,962
7,392
4,268
4,720
4,053
205
1,398
120
374
496
179
48
1,590
1,920
404
245
49
240
1,104
2,570
76
167
170
1,365
1,516
1,219
2,144
818
213
151
2,485
87
913
132
153
148
164
1,007
1,050
359
109
271
7,456
148
212
1,233
156
251
376
2,155
1,829
648
1,835
1,594
862
924
77
2,598
4,405
4,193
609
104
191
222
179
701
163
113
139
586
106
336
84
2,796
292
189
140
1,368
3,407
251
3,166
269
251
104
1,660
429
68
314
87
1,029
55
1,613
272
1,941
2,421
894
3,154
4,469
813
958
1,030
1,225
1,455
1,180
1,931
830
1,093
1,189
1,937
3,584
481
1,373
1,311
883
957
2,086
1,384
862
328
1,030
1,148
1,862
950
1,670
1,651
1,220
755
2,350
354
1,552
957
256
409
901
992
399
383
796
484
561
4,577
1,963
1,206
270
558
598
407
1,261
1,286
1,191
1,589
1,209
633
950
640
440
555
1,511
2,457
953
1,640
453
1,003
529
383
2,721
685
1,390
2,670
2,291
835
2,129
804
1,499
866
967
822
8,153
2,133
2,954
12,696
10,533
12,016
15,486
3,541
4,393
2,935
6,282
7,220
3,043
5,570
4,036
5,463
6,030
9,719
10,151
2,886
6,131
4,634
4,077
4,931
10,437
5,456
4,337
3,243
5,212
5,811
4,827
5,620
6,014
7,024
6,833
3,834
6,604
11,361
7,802
4,928
1,544
2,174
2,344
2,749
3,243
2,687
2,893
2,839
3,309
12,223
9,858
6,021
3,067
5,363
4,134
2,996
6,319
3,379
2,944
4,116
7,081
3,247
4,798
3,293
2,739
2,841
7,786
16,262
5,425
7,238
2,534
5,084
3,827
4,319
10,424
5,808
6,005
5,147
10,366
3,841
7,795
4,030
7,706
4,355
4,004
4,108
9,766
2,405
4,895
15,117
11,427
15,170
19,955
4,354
5,351
3,965
7,507
8,675
4,223
7,501
4,866
6,556
7,219
11,656
13,735
3,367
7,504
5,945
4,960
5,888
12,523
6,840
5,199
3,571
6,242
6,959
6,689
6,570
7,684
8,675
8,053
4,589
8,954
11,715
9,354
5,885
1,800
2,583
3,245
3,741
3,642
3,070
3,689
3,323
3,870
16,800
11,821
7,227
3,337
5,921
4,732
3,403
7,580
4,665
4,135
5,705
8,290
3,880
5,748
3,933
3,179
3,396
9,297
18,719
6,378
8,878
2,987
6,087
4,356
4,702
13,145
6,493
7,395
7,817
12,657
4,676
9,924
4,834
9,205
5,221
4,971
4,930
1,348
936
1,168
1,935
2,981
1,915
446
1,364
1,672
1,044
507
345
1,119
2,027
1,861
366
830
908
3,742
1,337
2,214
1,980
1,596
572
834
2,338
418
1,396
419
466
1,592
1,639
1,771
2,067
2,007
256
1,936
5,118
667
255
682
309
851
984
1,485
1,206
1,125
1,287
1,545
4,144
1,806
687
1,373
2,454
1,906
1,390
439
1,173
1,081
1,437
2,175
626
643
222
868
269
738
332
2,470
2,121
770
353
1,640
1,995
208
2,591
1,741
1,488
209
1,499
2,874
524
624
302
1,513
572
2011
1996
2005
2012
2008
2011
2016
2001
2001
2005
2014
2015
2004
2004
2000
2014
2012
2014
2004
1996
2001
1998
2001
2013
2014
1999
2013
1999
2014
2014
2005
2007
2007
2007
2007
2014
2007
1998
2014
2015
1994
2012
2004
2004
1996
1996
2002
1996
1996
2005
2011
2013
1996
1997
1997
1998
2014
2005
2004
2005
2006
2010
2012
2014
2006
2014
2014
2016
1997
2007
2006
2014
1999
1996
2016
1997
2007
2007
2016
2001
2004
2012
2014
2014
2001
2012
Table of Contents
Description
Austell, GA
Decatur, GA
Duluth, GA
Lawrenceville, GA
Lithia Springs, GA
Norcross I, GA
Norcross II, GA
Norcross III, GA
Norcross IV, GA
Peachtree City I, GA
Peachtree City II, GA
Smyrna, GA
Snellville, GA
Suwanee I, GA
Suwanee II, GA
Villa Rica, GA
Addison, IL
Aurora, IL
Bartlett, IL
Bellwood, IL
Blue Island, IL
Bolingbrook, IL
Chicago I, IL
Chicago II, IL
Chicago III, IL
Chicago IV, IL
Chicago V, IL
Chicago VI, IL
Countryside, IL
Des Plaines, IL
Downers Grove, IL
Elk Grove Village, IL
Evanston, IL
Glenview, IL
Gurnee, IL
Hanover, IL
Harvey, IL
Joliet, IL
Kildeer, IL
Lombard, IL
Maywood, IL
Mount Prospect, IL
Mundelein, IL
North Chicago, IL
Plainfield I, IL
Plainfield II, IL
Schaumburg, IL
Streamwood, IL
Warrenville, IL
Waukegan, IL
West Chicago, IL
Westmont, IL
Wheeling I, IL
Wheeling II, IL
Woodridge, IL
Schererville, IN
Boston I, MA
Boston II, MA
Boston III, MA
Brockton, MA
Haverhill, MA
Lawrence, MA
Leominster, MA
Medford, MA
Stoneham, MA
Tewksbury, MA
Walpole, MA
Baltimore, MD
Beltsville, MD
California, MD
Capitol Heights, MD
Clinton, MD
District Heights, MD
Elkridge, MD
Gaithersburg I, MD
Gaithersburg II, MD
Square
Footage
83,655
145,440
70,885
73,740
66,750
85,420
52,595
46,955
57,505
49,875
59,950
57,015
79,950
85,125
79,590
65,365
31,575
73,985
51,395
86,350
55,125
80,915
95,745
78,585
84,990
60,495
51,775
71,785
99,856
69,600
71,625
64,079
57,850
100,085
80,300
41,190
60,090
72,865
36,585
57,691
60,225
65,000
44,700
53,400
53,900
51,900
31,160
64,305
48,796
79,500
48,175
53,300
54,210
67,825
50,232
67,604
33,286
60,470
108,205
65,910
61,169
34,672
54,023
58,745
61,000
62,402
74,890
93,750
63,687
77,840
79,675
84,225
78,190
63,475
87,045
74,100
F-48
Initial Cost
Buildings
&
Costs
Subsequent
to
Encumbrances
6,216
Land
1,635
616
373
546
748
514
366
938
576
435
398
750
1,660
1,737
800
757
428
644
931
1,012
633
1,675
2,667
833
2,427
1,296
1,044
1,596
2,607
1,564
1,498
1,446
1,103
3,740
1,521
1,126
869
547
2,102
1,305
749
1,701
1,498
1,073
1,770
694
538
1,447
1,066
1,198
1,071
1,155
857
793
943
1,134
538
1,516
3,211
577
669
585
90
1,330
1,558
1,537
634
1,050
1,277
1,486
2,704
2,182
1,527
1,155
3,124
2,383
Improvements Acquisition
311
356
184
390
81
916
193
61
80
759
116
279
340
296
75
113
466
200
293
909
44
168
877
69
778
26
38
27
141
733
11
293
195
571
301
269
241
246
226
828
15
599
358
422
335
239
212
396
414
594
431
291
441
475
213
42
256
392
182
13
35
39
2,469
131
74
71
267
1,382
52
279
41
103
534
232
427
66
4,711
6,776
2,044
2,903
5,552
2,930
2,025
4,625
2,839
2,532
1,963
4,271
4,781
5,010
6,942
5,616
3,531
3,652
2,493
5,768
3,120
8,254
13,118
4,035
11,962
6,385
5,144
9,535
12,684
4,327
13,153
3,535
5,440
10,367
5,440
2,197
3,635
4,704
2,187
3,938
3,689
3,114
2,782
3,006
1,715
2,000
645
1,662
3,072
4,363
2,249
3,873
3,213
3,816
3,397
5,589
3,048
8,628
15,829
4,394
6,610
4,737
1,519
7,165
7,679
7,579
13,069
5,997
6,295
4,280
13,332
10,757
8,313
5,695
9,000
11,750
Gross Carrying Amount at
December 31, 2016
Buildings
&
Improvements
4,366
6,175
1,904
2,876
5,633
2,938
1,933
4,686
2,919
2,512
2,079
3,448
4,458
4,606
5,813
5,729
3,496
3,332
2,404
4,942
3,164
8,422
13,995
4,104
12,740
6,411
5,182
9,562
12,825
4,420
13,164
3,298
5,635
9,472
4,977
2,127
3,334
4,291
2,211
4,161
3,704
3,261
2,725
2,943
1,757
1,906
720
1,747
3,054
4,304
2,322
3,623
3,182
3,739
3,135
5,631
2,880
7,180
16,011
4,407
6,645
4,776
3,348
5,805
7,753
7,650
13,336
5,251
6,356
3,968
13,373
10,860
7,722
5,927
8,165
11,816
Land
1,643
616
373
546
748
632
366
938
576
529
398
750
1,660
1,737
622
757
428
644
931
1,012
633
1,675
2,667
833
2,427
1,296
1,044
1,596
2,607
1,564
1,498
1,446
1,103
3,740
1,521
1,126
869
547
1,997
1,305
749
1,701
1,498
1,073
1,740
694
538
1,447
1,066
1,198
1,071
1,155
857
793
943
1,134
538
1,516
3,211
577
669
585
338
1,330
1,558
1,537
634
1,173
1,268
1,486
2,704
2,182
1,527
1,155
3,124
2,383
Total
6,009
6,791
2,277
3,422
6,381
3,570
2,299
5,624
3,495
3,041
2,477
4,198
6,118
6,343
6,435
6,486
3,924
3,976
3,335
5,954
3,797
10,097
16,662
4,937
15,167
7,707
6,226
11,158
15,432
5,984
14,662
4,744
6,738
13,212
6,498
3,253
4,203
4,838
4,208
5,466
4,453
4,962
4,223
4,016
3,497
2,600
1,258
3,194
4,120
5,502
3,393
4,778
4,039
4,532
4,078
6,765
3,418
8,696
19,222
4,984
7,314
5,361
3,686
7,135
9,311
9,187
13,970
6,424
7,624
5,454
16,077
13,042
9,249
7,082
11,289
14,199
Accumulated
Depreciation
(B)
1,342
2,960
336
513
194
1,086
345
724
405
917
278
1,333
1,332
1,387
1,708
196
1,250
1,205
884
1,856
177
583
969
283
890
357
289
192
885
1,546
271
1,241
658
3,419
1,844
788
1,212
1,567
796
1,534
206
1,131
958
1,081
606
638
260
637
1,005
1,520
824
1,289
1,146
1,383
1,145
464
550
3,006
1,151
152
231
165
1,463
1,611
892
653
215
1,972
731
1,427
601
1,066
1,321
591
2,957
533
Year
Acquired/
Developed
2006
1998
2011
2011
2015
2001
2011
2012
2012
2001
2012
2001
2007
2007
2007
2015
2004
2004
2004
2001
2015
2014
2014
2014
2014
2015
2015
2016
2014
2004
2016
2004
2013
2004
2004
2004
2004
2004
2004
2004
2015
2004
2004
2004
2004
2005
2004
2004
2005
2004
2004
2004
2004
2004
2004
2014
2010
2002
2014
2015
2015
2015
1998
2007
2013
2014
2016
2001
2013
2004
2015
2013
2011
2013
2005
2015
Hyattsville, MD
Laurel, MD
Temple Hills I, MD
Temple Hills II, MD
Timonium, MD
Upper Marlboro, MD
Bloomington, MN
Belmont, NC
Burlington I, NC
Burlington II, NC
Cary, NC
Charlotte I, NC
Charlotte II, NC
Cornelius, NC
Pineville, NC
Raleigh, NC
Bordentown, NJ
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
Table of Contents
Description
Hamilton, NJ
Hoboken, NJ
Linden, NJ
Lumberton, NJ
Morris Township, NJ
Parsippany, NJ
Rahway, NJ
Randolph, NJ
Ridgefield, NJ
Roseland, NJ
Sewell, NJ
Somerset, NJ
Whippany, NJ
Albuquerque I, NM
Albuquerque II, NM
Albuquerque III, NM
Henderson, NV
Las Vegas I, NV
Las Vegas II, NV
Las Vegas III, NV
Las Vegas IV, NV
Las Vegas V, NV
Las Vegas VI, NV
Baldwin, NY
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
Bronx XI, NY
Bronx XII, NY
Brooklyn I, NY
Brooklyn II, NY
Brooklyn III, NY
Brooklyn IV, NY
Brooklyn V, NY
Brooklyn VI, NY
Brooklyn VII, NY
Brooklyn VIII, NY
Brooklyn IX, NY
Brooklyn X, NY
Brooklyn XI, NY
52,765
162,896
97,275
84,225
66,717
62,290
100,978
81,850
109,300
42,165
112,402
69,000
53,666
59,270
77,847
48,675
50,550
51,720
51,500
65,500
105,550
91,280
107,679
36,025
70,400
38,830
27,876
81,420
Square
Footage
70,550
34,180
100,425
96,025
72,226
84,355
83,121
52,565
67,803
53,569
57,826
57,385
92,070
65,927
58,798
57,536
75,150
48,532
48,850
74,200
71,217
107,226
94,482
61,380
69,183
99,046
105,940
75,030
54,733
45,970
78,625
30,550
148,040
159,855
46,457
90,300
57,510
60,920
41,625
37,467
47,020
75,640
72,725
61,555
46,980
56,000
109,846
1,113
1,409
1,541
2,229
2,269
1,309
1,598
385
498
320
543
782
821
2,424
2,490
209
457
234
222
471
4,346
290
504
104
284
751
246
1,086
65
3,668
2,466
50
181
83
95
911
842
389
780
1,494
1
4
125
384
50
1,453
157
105
293
2,492
4,037
63
245
544
580
193
1,113
1,928
1,800
2,229
2,269
1,309
1,598
451
498
340
543
1,068
821
2,424
2,490
296
457
485
222
471
4,340
779
1,315
104
284
751
246
1,086
5,485
8,035
8,788
10,988
11,184
6,455
12,298
2,196
2,837
1,829
3,097
4,429
8,764
4,991
9,169
2,398
2,255
2,762
1,260
2,323
12,520
3,493
5,763
510
1,608
2,164
2,759
5,355
F-49
5,550
8,866
8,801
11,038
11,365
6,538
12,393
2,293
2,878
1,677
3,198
4,729
8,765
4,995
9,294
2,307
2,305
3,390
1,235
2,428
11,133
4,800
7,875
562
1,633
2,385
2,740
5,548
6,663
10,794
10,601
13,267
13,634
7,847
13,991
2,744
3,376
2,017
3,741
5,797
9,586
7,419
11,784
2,603
2,762
3,875
1,457
2,899
15,473
5,579
9,190
666
1,917
3,136
2,986
6,634
638
3,409
3,363
1,024
1,057
754
113
864
1,130
655
1,257
1,847
40
173
319
1,036
320
1,641
253
331
3,835
2,213
3,739
106
336
827
1,256
760
2013
2001
2001
2014
2014
2013
2016
2001
2001
2001
2001
2002
2016
2015
2015
1998
2012
1996
2010
2012
2005
1996
1996
2010
2010
2005
1997
2012
Initial Cost
Buildings
&
Costs
Subsequent
to
Encumbrances
8,423
2,957
22,952
26,464
Land
1,885
1,370
517
987
500
475
1,486
855
1,810
1,844
484
1,243
2,153
1,039
1,163
664
1,246
1,851
3,354
1,171
1,116
1,460
1,386
1,559
2,014
—
6,459
—
—
—
—
1,245
7,967
9,090
—
—
1,795
1,601
2,772
2,283
2,374
4,210
5,604
4,982
2,966
3,739
10,093
Improvements Acquisition
363
770
2343
136
2,849
5,648
127
1,344
262
118
1,411
165
127
280
263
360
93
537
373
58
10
24
1
589
988
1,685
162
116
184
356
173
157
1,245
417
203
—
308
485
137
159
92
87
158
81
64
2,805
21
5,430
3,947
6,008
4,864
5,602
5,322
7,326
4,872
8,925
9,759
2,766
6,129
10,615
3,395
3,801
2,171
6,143
2,986
5,411
10,034
8,575
9,560
12,299
7,685
11,411
28,289
36,180
22,074
17,556
16,803
22,512
6,137
39,279
44,816
17,130
31,603
10,172
9,073
13,570
11,184
11,636
20,638
27,452
24,561
14,620
7,703
35,385
Gross Carrying Amount at
December 31, 2016
Buildings
&
Improvements
5,025
4,083
6,827
5,000
6,815
9,646
7,453
4,877
9,187
9,877
3,114
6,294
10,742
3,091
3,441
2,140
6,236
3,112
5,203
10,092
8,585
9,584
12,300
8,274
10,807
29,439
31,995
19,535
15,628
15,127
22,794
6,324
40,524
45,233
17,333
31,602
9,064
8,260
13,790
11,406
11,782
20,832
27,774
24,642
14,684
9,362
35,406
Land
1,893
1,370
1,043
987
1,072
844
1,486
1,108
1,810
1,844
706
1,243
2,153
1,039
1,163
664
1,246
1,851
3,355
1,171
1,116
1,460
1,386
1,559
2,014
—
6,460
—
—
—
—
1,251
7,967
9,090
—
—
1,795
1,601
2,772
2,284
2,374
4,211
5,604
4,982
2,966
4,885
10,093
Total
6,918
5,453
7,870
5,987
7,887
10,490
8,939
5,985
10,997
11,721
3,820
7,537
12,895
4,130
4,604
2,804
7,482
4,963
8,558
11,263
9,701
11,044
13,686
9,833
12,821
29,439
38,455
19,535
15,628
15,127
22,794
7,575
48,491
54,323
17,333
31,602
10,859
9,861
16,562
13,690
14,156
25,043
33,378
29,624
17,650
14,247
45,499
Accumulated
Depreciation
(B)
1,557
1,476
3,121
701
3,083
2,817
859
2,036
393
343
1,186
849
1,233
1,178
1,312
807
431
1,224
2,058
115
103
65
27
338
2,164
4,665
5,239
3,211
2,572
2,466
3,496
974
6,041
6,382
1,269
517
1,800
1,666
2,269
1,883
1,930
3,411
4,558
2,094
1,249
280
1,031
Year
Acquired/
Developed
2006
2005
1996
2012
1997
1997
2013
2002
2015
2015
2001
2012
2013
2005
2005
2005
2014
2006
2006
2016
2016
2016
2016
2015
2010
2011
2011
2011
2011
2011
2012
2012
2012
2012
2014
2016
2010
2010
2011
2011
2011
2011
2011
2014
2014
2015
2016
60,397
88,385
92,805
88,825
43,587
63,220
78,341
47,649
74,238
91,100
38,340
59,645
96,573
50,878
83,995
85,864
50,665
60,290
78,815
46,000
58,325
71,905
36,409
51,200
60,950
74,925
63,725
89,290
89,290
39,332
77,774
93,200
48,665
47,850
80,297
67,245
43,683
90,281
62,750
81,255
57,750
65,150
76,130
18,848
84,145
61,556
96,176
68,279
41,275
77,275
45,745
72,700
75,985
107,790
83,416
101,525
102,450
Holbrook, NY
Jamaica I, NY
Jamaica II, NY
Long Island City, NY
New Rochelle I, NY
New Rochelle II, NY
North Babylon, NY
Patchogue, NY
Queens I, NY
Queens II, NY
Riverhead, NY
Southold, NY
Staten Island, NY
Tuckahoe, NY
West Hempstead, NY
White Plains, NY
Woodhaven, NY
Wyckoff, NY
Yorktown, NY
Cleveland I, OH
Cleveland II, OH
Columbus I, OH
Columbus II, OH
Columbus III, OH
Columbus IV, OH
Columbus V, OH
Columbus VI, OH
Grove City, OH
Hilliard, OH
Lakewood, OH
Lewis Center, 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
Malvern, PA
Montgomeryville, PA
Norristown, PA
Philadelphia I, PA
Philadelphia II, PA
Exeter, RI
Johnston, RI
Wakefield, RI
Woonsocket, RI
Antioch, TN
Nashville I, TN
Nashville II, TN
Nashville III, TN
Nashville IV, TN
Table of Contents
2,029
2,043
5,391
5,700
1,673
3,167
225
1,141
5,158
6,208
1,068
2,079
1,919
2,363
2,237
3,295
2,015
1,961
2,382
525
290
1,234
769
326
443
838
701
1,756
1,361
405
1,056
63
63
290
515
1,290
570
525
509
1,726
541
1,019
926
2,959
975
662
1,461
1,012
547
1,061
823
1,049
588
405
593
416
992
50
2,256
328
33
1,168
412
4,178
42
752
1
201
302
316
262
135
992
74
307
175
265
221
134
121
104
86
79
81
277
255
617
129
2,275
1,517
1,219
3,213
295
406
3,218
224
162
117
289
1,258
1,600
210
773
1,830
160
106
75
35
114
347
755
210
265
374
2,029
2,043
5,391
5,700
1,673
3,762
568
1,141
5,158
6,208
1,068
2,079
1,919
2,363
2,237
3,295
2,015
1,961
2,382
524
289
1,239
769
326
443
838
701
1,761
1,366
405
1,056
332
214
469
898
1,295
570
935
508
1,726
519
1,019
926
2,959
975
638
1,461
1,012
547
1,061
823
1,049
588
405
593
416
992
10,737
11,658
26,413
28,101
4,827
2,713
2,514
5,624
12,339
25,815
1,149
2,238
9,463
17,411
11,030
18,049
11,219
11,113
11,720
2,592
1,427
3,151
3,788
1,607
2,182
4,128
3,454
4,485
3,476
854
5,206
704
704
1,129
2,323
3,295
3,486
766
2,508
8,508
2,668
5,023
5,296
18,198
4,809
3,142
8,334
4,990
2,697
5,229
4,058
5,172
4,906
3,379
4,950
3,469
8,274
F-50
10,787
11,192
26,884
28,134
5,347
18,958
5,544
5,666
13,091
25,816
1,105
2,136
9,779
11,902
11,165
16,549
9,995
9,938
11,909
2,508
1,397
2,809
3,909
1,711
2,268
4,207
3,535
4,144
3,243
1,315
5,335
2,353
1,734
2,023
4,288
3,135
3,059
3,386
2,344
8,670
2,807
5,312
4,853
19,797
5,019
4,045
6,820
5,150
2,803
5,304
4,093
5,286
4,486
3,545
4,466
3,401
7,406
12,816
13,235
32,275
33,834
7,020
22,720
6,112
6,807
18,249
32,024
2,173
4,215
11,698
14,265
13,402
19,844
12,010
11,899
14,291
3,032
1,686
4,048
4,678
2,037
2,711
5,045
4,236
5,905
4,609
1,720
6,391
2,685
1,948
2,492
5,186
4,430
3,629
4,321
2,852
10,396
3,326
6,331
5,779
22,756
5,994
4,683
8,281
6,162
3,350
6,365
4,916
6,335
5,074
3,950
5,059
3,817
8,398
372
4,059
4,391
1,864
1,674
2,898
2,455
392
454
755
475
869
1,090
1,935
1,526
2,983
1,640
1,894
1,957
920
525
981
274
119
158
291
244
1,407
1,117
949
368
1,017
757
1,550
1,892
1,098
910
1,394
904
1,192
379
715
1,833
1,634
699
694
2,618
463
195
368
281
367
1,580
1,210
1,608
1,202
2,610
2015
2001
2011
2014
2005
2012
1998
2014
2015
2016
2005
2005
2013
2011
2012
2011
2011
2010
2011
2005
2005
2006
2014
2014
2014
2014
2014
2006
2006
1989
2014
1980
1979
1988
1998
2006
2007
1980
2005
2012
2012
2012
2001
2013
2012
2011
2001
2014
2014
2014
2014
2014
2005
2005
2005
2006
2006
Encumbrances
2,457
(A)
Description
Nashville V, TN
Nashville VI, TN
Allen, TX
Austin I, TX
Austin II, TX
Austin III, TX
Austin IV, TX
Austin V, TX
Austin VI, TX
Austin VII, TX
Austin VIII, TX
Bryan, TX
Carrollton, TX
Cedar Park, TX
College Station, TX
Cypress, TX
Dallas I, TX
Dallas II, TX
Square
Footage
74,560
72,486
62,710
59,645
64,625
70,560
65,358
67,850
62,770
71,023
61,075
60,400
77,420
89,050
26,550
58,181
58,582
79,023
Initial Cost
Buildings
&
Improvements
4,311
8,443
3,519
2,038
3,894
5,468
4,250
5,175
5,669
6,263
7,007
1,268
3,261
7,950
740
1,773
2,253
4,635
Land
895
2,749
714
2,239
734
1,030
862
1,050
1,150
1,429
2,935
1,394
661
3,350
812
360
2,475
940
Costs
Subsequent
to
Acquisition
104
85
98
255
355
265
197
208
160
79
42
359
124
27
196
140
401
199
Gross Carrying Amount at
December 31, 2016
Buildings
&
Improvements
4,415
8,528
3,617
1,944
3,687
5,074
4,447
5,383
5,829
6,342
7,049
1,390
3,385
7,977
749
1,913
2,207
4,834
Land
895
2,749
714
2,239
738
1,035
862
1,050
1,150
1,429
2,935
1,396
661
3,350
813
360
2,475
940
Total
5,310
11,277
4,331
4,183
4,425
6,109
5,309
6,433
6,979
7,771
9,984
2,786
4,046
11,327
1,562
2,273
4,682
5,774
Accumulated
Depreciation
(B)
238
293
511
668
1,199
1,623
397
389
406
218
170
448
431
206
247
273
780
481
Year
Acquired/
Developed
2015
2015
2012
2005
2006
2006
2014
2014
2014
2015
2016
2005
2012
2016
2005
2012
2005
2013
Dallas III, TX
Dallas IV, TX
Dallas V, TX
Denton, TX
Fort Worth I, TX
Fort Worth II, TX
Fort Worth III, TX
Fort Worth IV, TX
Frisco I, TX
Frisco II, TX
Frisco III, TX
Frisco IV, TX
Frisco V, TX
Frisco VI, TX
Garland I, TX
Garland II, TX
Grapevine, TX
Houston III, TX
Houston IV, TX
Houston V, TX
Houston VI, TX
Houston VII, TX
Houston VIII, TX
Houston IX, TX
Humble, TX
Katy, TX
Keller, TX
Lewisville I, TX
Lewisville II, TX
Lewisville III, TX
Little Elm I, TX
Little Elm II, TX
Mansfield I, TX
Mansfield II, TX
Mansfield III, TX
McKinney I, TX
McKinney II, TX
McKinney III, TX
North Richland
Hills, TX
Pearland, TX
Richmond, TX
Roanoke, TX
San Antonio I, TX
San Antonio II, TX
San Antonio III, TX
San Antonio IV, TX
Spring, TX
Murray I, UT
Murray II, UT
Salt Lake City I, UT
Salt Lake City II, UT
Alexandria, VA
Arlington, VA
Burke Lake, VA
Fairfax, VA
Fredericksburg I, VA
Fredericksburg II,
VA
Leesburg, VA
Manassas, VA
McLearen, VA
Vienna, VA
Divisional Offices
83,229
114,550
54,473
60,846
50,446
72,900
80,445
77,654
50,854
71,399
74,765
76,000
74,415
69,176
70,100
68,425
77,294
61,590
43,750
125,280
54,690
46,991
54,219
51,208
70,702
71,308
61,885
67,340
127,659
101,872
60,065
96,896
63,025
58,025
70,995
47,020
70,050
53,148
57,200
72,050
102,278
59,860
73,509
73,230
71,775
61,500
72,751
60,280
71,621
56,446
51,676
114,100
96,144
91,667
73,265
69,475
61,057
85,503
72,745
68,960
55,064
2,608
2,369
—
553
1,253
868
1,000
1,274
1,093
1,564
1,147
719
1,159
1,064
751
862
1,211
575
960
1,153
575
681
1,294
296
706
1,329
890
476
1,464
1,307
892
1,219
837
662
947
1,632
855
652
2,252
450
1,437
1,337
2,895
1,047
996
829
580
3,847
2,147
2,695
2,074
2,812
6,836
2,093
2,276
1,680
1,757
1,746
860
1,482
2,300
12,857
11,850
11,604
2,936
1,141
4,607
4,928
7,693
3,148
4,507
6,088
4,072
5,714
5,247
3,984
4,578
8,559
524
875
6,122
524
3,355
6,377
1,459
5,727
6,552
4,727
2,525
7,217
15,025
5,529
9,864
4,443
3,261
4,703
1,486
5,076
3,213
2,049
2,216
7,083
1,217
2,635
5,558
5,286
3,891
3,081
1,017
567
712
548
13,865
9,843
10,940
11,220
4,840
5,062
9,894
4,872
8,400
11,340
32,858,399
628,399
2,895,211
179
57
81
224
262
362
66
26
178
163
549
266
116
114
532
250
109
337
557
1,042
5,733
140
307
107
62
72
240
379
291
126
85
57
258
139
154
193
184
61
234
198
175
166
352
197
277
71
259
482
521
519
402
224
95
1,155
289
316
348
168
188
176
132
404
264,975
2,608
2,369
—
569
1,253
874
1,000
1,274
1,093
1,564
1,154
719
1,159
1,064
767
862
1,211
576
961
991
983
681
1,294
296
706
1,329
890
492
1,464
1,307
892
1,219
843
662
947
1,634
857
652
2,252
450
1,437
1,337
2,895
1,052
996
829
580
3,848
2,147
2,696
1,937
2,812
6,836
2,093
2,276
1,680
1,758
1,746
860
1,482
2,300
649,744
13,036
11,907
11,685
2,665
1,167
4,301
4,994
7,719
2,868
4,056
5,831
3,780
5,830
5,361
3,925
4,231
8,668
749
1,231
6,439
4,936
3,495
6,684
1,566
5,789
6,624
4,351
2,468
7,508
15,151
5,614
9,921
4,121
3,400
4,857
1,439
4,635
3,274
1,905
2,414
7,258
1,157
2,456
5,062
4,841
3,962
2,849
1,283
917
1,045
785
14,089
9,938
10,499
11,509
4,483
15,644
14,276
11,685
3,234
2,420
5,175
5,994
8,993
3,961
5,620
6,985
4,499
6,989
6,425
4,692
5,093
9,879
1,325
2,192
7,430
5,919
4,176
7,978
1,862
6,495
7,953
5,241
2,960
8,972
16,458
6,506
11,140
4,964
4,062
5,804
3,073
5,492
3,926
4,157
2,864
8,695
2,494
5,351
6,114
5,837
4,791
3,429
5,131
3,064
3,741
2,722
16,901
16,774
12,592
13,785
6,163
859
674
527
838
398
1,407
291
168
987
1,405
1,857
760
514
375
1,269
1,310
183
281
377
1,923
881
549
943
225
200
647
1,418
780
799
409
157
257
1,344
495
47
497
1,531
209
648
338
721
394
839
1,566
1,468
36
929
487
324
378
298
2,008
609
1,971
1,569
1,460
4,718
8,774
4,396
7,421
11,472
404
2,928,275
6,476
10,520
5,256
8,903
13,772
404
3,578,019
1,557
1,414
860
1,420
1,571
68
558,191
2014
2015
2015
2006
2005
2006
2015
2016
2005
2005
2006
2010
2014
2014
2006
2006
2016
2005
2005
2006
2011
2012
2012
2012
2015
2013
2006
2006
2013
2016
2016
2016
2006
2012
2016
2005
2006
2014
2005
2012
2013
2005
2005
2006
2007
2016
2006
2005
2005
2005
2005
2012
2015
2011
2012
2005
2005
2011
2010
2010
2012
(A) This store is part of the YSI 33 Loan portfolio, with a balance of $9,860 as of December 31, 2016.
(B) 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.
Activity in storage properties during 2016 and 2015 was as follows (in thousands):
Storage properties*
Balance at beginning of year
Acquisitions & improvements
Fully depreciated assets
Dispositions and other
Construction in progress
Balance at end of year
Accumulated depreciation*
Balance at beginning of year
2016
2015
$
$
$
3,467,032
490,980
(61,232)
—
101,400
3,998,180
594,049
$
$
$
3,117,198
344,775
(13,493)
(33,921)
52,473
3,467,032
492,069
Depreciation expense
Fully depreciated assets
Dispositions and other
Balance at end of year
Storage properties, net
138,547
(61,232)
—
671,364
3,326,816
$
$
122,076
(13,493)
(6,603)
594,049
2,872,983
$
$
* These amounts include equipment that is housed at the Company’s stores which is excluded from Schedule III above.
F-51
CubeSmart
Computation of Ratio of Earnings to Fixed Charges
(dollars in thousands)
2012
Year Ended December 31,
2014
2015
2013
Exhibit 12.1
2016
Earnings before fixed charges:
Add:
(Loss) income from continuing operations
Fixed charges - per below
Less:
Capitalized interest
Earnings before fixed charges
Fixed charges:
Interest expense (including amortization of premiums and discounts
related to indebtedness) *
Capitalized interest
Estimate of interest within rental expense
Total Fixed Charges
$
(13,276) $
44,329
10,409
44,109
$
26,366
50,470
$
78,756
48,760
$
88,376
57,689
(185)
(851)
(1,328)
(2,550)
(4,563)
30,868
53,667
75,508
124,966
141,502
43,994
185
150
43,108
851
150
48,992
1,328
150
46,060
2,550
150
52,976
4,563
150
44,329
44,109
50,470
48,760
57,689
Income allocated to preferred shareholders
Total combined fixed charges and preferred distributions
6,008
50,337
6,008
50,117
6,008
56,478
6,008
54,768
5,045
62,734
Ratio of earnings to fixed charges (a)
0.61
1.07
1.34
2.28
2.26
* Includes amounts reported in discontinued operations
(a) In fiscal 2012, earnings were insufficient to cover combined fixed charges and preferred distributions. The Company must generate additional
earnings of $19.5 million to achieve a fixed charge coverage ratio of 1:1 in fiscal 2012.
CubeSmart L.P.
Computation of Ratio of Earnings to Fixed Charges
(dollars in thousands)
2012
Year Ended December 31,
2014
2015
2013
Exhibit 12.2
2016
$
(13,276) $
44,329
10,409
44,109
$
26,366
50,470
$
78,756
48,760
$
88,376
57,689
(185)
(851)
(1,328)
(2,550)
(4,563)
30,868
53,667
75,508
124,966
141,502
Earnings before fixed charges:
Add:
(Loss) income from continuing operations
Fixed charges - per below
Less:
Capitalized interest
Earnings before fixed charges
Fixed charges:
Interest expense (including amortization of premiums and discounts
related to indebtedness) *
43,994
43,108
48,992
46,060
52,976
Capitalized interest
Estimate of interest within rental expense
Total Fixed Charges
185
150
851
150
1,328
150
2,550
150
4,563
150
44,329
44,109
50,470
48,760
57,689
Income allocated to preferred shareholders
Total combined fixed charges and preferred distributions
6,008
50,337
6,008
50,117
6,008
56,478
6,008
54,768
5,045
62,734
Ratio of earnings to fixed charges (a)
0.61
1.07
1.34
2.28
2.26
* Includes amounts reported in discontinued operations
(a) In fiscal 2012, earnings were insufficient to cover combined fixed charges and preferred distributions. The Company must generate additional
earnings of $19.5 million to achieve a fixed charge coverage ratio of 1:1 in fiscal 2012.
Jurisdiction of Organization
Exhibit 21.1
Subsidiary
186 Jamaica Ave TRS, LLC
186 JAMAICA AVE, LLC
191 III CUBE 2 LLC
191 III CUBE BORDEAUX SUB, LLC
191 III CUBE CHATTANOOGA SUB, LLC
191 III CUBE FL SUB LLC
191 III CUBE GA SUB LLC
191 III CUBE GOODLETTSVILLE I SUB, G.P.
191 III CUBE GOODLETTSVILLE II SUB, G.P.
191 III CUBE GRANDVILLE SUB, LLC
191 III CUBE KNOXVILLE I SUB, G.P.
191 III CUBE KNOXVILLE II SUB, G.P.
191 III CUBE KNOXVILLE III SUB, G.P.
191 III Cube LLC
191 III CUBE MA SUB LLC
191 III CUBE MI SUB LLC
191 III CUBE MURFREESBORO SUB, LLC
191 III CUBE NC SUB LLC
191 III CUBE NEW BEDFORD SUB, LLC
191 III CUBE OLD HICKORY SUB, LLC
191 III CUBE SC SUB LLC
191 III CUBE SUB HOLDINGS 1 LLC
191 III CUBE SUB HOLDINGS 2 LLC
191 III CUBE SUB HOLDINGS 3 LLC
191 III CUBE SUB HOLDINGS 4 LLC
191 III CUBE SUB HOLDINGS 5 LLC
191 III CUBE SUB HOLDINGS 6 LLC
191 III CUBE SUB HOLDINGS 7 LLC
191 III CUBE SUB HOLDINGS 8 LLC
191 III CUBE TN SUB LLC
191 III CUBE TRINITY SUB, LLC
2225 46TH ST, LLC
2301 TILLOTSON AVE, LLC
251 JAMAICA AVE, LLC
2880 Exterior St, LLC
3068 CROPSEY AVENUE, LLC
444 55TH STREET HOLDINGS TRS, LLC
444 55TH STREET HOLDINGS, LLC
444 55TH STREET VENTURE, LLC
444 55TH STREET, LLC
5 Old Lancaster Associates, LLC
CONSHOHOCKEN GP II, LLC
CS FLORIDA AVENUE, LLC
CS SDP EVERETT BORROWER, LLC
CS SDP Everett, LLC
CS SDP WALTHAM BORROWER, LLC
CS SDP WALTHAM, LLC
CS SJM E 92ND STREET OWNER, LLC
CS SJM E 92ND STREET, LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Pennsylvania
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
CS SNL New York Ave TRS, LLC
CS SNL NEW YORK AVE, LLC
CS SNL OPERATING COMPANY, LLC
CS VENTURE I, LLC
Subsidiary
CS WALPOLE, LLC
CUBE HHF Limited Partnership
CUBE HHF NORTHEAST CT, LLC
CUBE HHF NORTHEAST MA, LLC
CUBE HHF NORTHEAST RI, LLC
CUBE HHF NORTHEAST SUB HOLDINGS LLC
CUBE HHF NORTHEAST TRS, LLC
CUBE HHF NORTHEAST VENTURE LLC
CUBE HHF NORTHEAST VT, LLC
CUBE HHF TRS, LLC
CUBE III TN ASSET MANAGEMENT, LLC
CUBE III TRS 2 LLC
CUBE III TRS LLC
CUBE VENTURE GP, LLC
CubeSmart
CubeSmart Asset Management, LLC
CUBESMART BARTOW, LLC
CUBESMART BOSTON ROAD, LLC
CUBESMART CLINTON, LLC
CUBESMART CYPRESS, LLC
CUBESMART EAST 135TH, LLC
CubeSmart Management, LLC
CUBESMART SOUTHERN BLVD, LLC
CUBESMART SWISS AVE, LLC
CUBESMART TEMPLE HILLS, LLC
CUBESMART TIMONIUM BORROWER, LLC
CubeSmart Timonium, LLC
CubeSmart TRS, Inc.
CubeSmart, L.P.
EAST COAST GP, LLC
EAST COAST STORAGE PARTNERS, L.P.
FREEHOLD MT, LLC
LANGHORNE GP II, LLC
Lantana Property Owner’s Association, Inc.
MONTGOMERYVILLE GP II, LLC
Old Lancaster Venture, L.P.
PSI Atlantic Austin TX, LLC
PSI Atlantic Brockton MA, LLC
PSI Atlantic Cornelius NC, LLC
PSI Atlantic Haverhill MA, LLC
PSI Atlantic Holbrook NY, LLC
PSI Atlantic Humble TX, LLC
PSI Atlantic Lawrence MA, LLC
PSI Atlantic Lithia Springs GA, LLC
PSI Atlantic Nashville TN, LLC
PSI Atlantic NPB FL, LLC
PSI Atlantic Pineville NC, LLC
PSI Atlantic REIT, Inc.
PSI Atlantic Surprise AZ, LLC
PSI Atlantic TRS, LLC
PSI Atlantic Villa Rica GA, LLC
PSI Atlantic Villa Rica Parcel Owner, LLC
R STREET STORAGE ASSOCIATES, LLC
SHIRLINGTON RD II, LLC
Subsidiary
SHIRLINGTON RD TRS, LLC
SHIRLINGTON RD, LLC
SOMERSET MT, LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Ohio
Delaware
Delaware
Delaware
Delaware
Delaware
Florida
Delaware
Pennsylvania
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Delaware
Jurisdiction of Organization
Jurisdiction of Organization
STORAGE PARTNERS OF CONSHOHOCKEN, L.P.
Storage Partners of Freehold II, LLC
Storage Partners of Langhorne II, LP
STORAGE PARTNERS OF MONTGOMERYVILLE, L.P.
STORAGE PARTNERS OF SOMERSET, LLC
UNITED-HSRE I, L.P.
U-Store-It Development LLC
U-Store-It Trust Luxembourg S.ar.l.
Wider Reach, LLC
YSI HART TRS, INC
YSI I LLC
YSI II LLC
YSI X GP LLC
YSI X LP
YSI X LP LLC
YSI XV LLC
YSI XX GP LLC
YSI XX LP
YSI XX LP LLC
YSI XXX LLC
YSI XXXI, LLC
YSI XXXIII, LLC
YSI XXXIIIA, LLC
YSI XXXVII, LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Luxembourg
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Trustees and Shareholders of
CubeSmart:
We consent to the incorporation by reference in the registration statements (No. 333-194661) on Form S-3 of CubeSmart and CubeSmart, L.P. and
(Nos. 333-211787, 333-167623, 333-143126, 333-143125, 333-143124 and 333-119987) on Form S-8 of CubeSmart of our reports dated February 17,
2017, with respect to the consolidated balance sheets of CubeSmart and subsidiaries as of December 31, 2016 and 2015, and the related
consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended
December 31, 2016, and the related financial statement schedule, and the effectiveness of internal control over financial reporting as of
December 31, 2016, which reports appear in the accompanying Form 10-K of CubeSmart and CubeSmart, L.P. Our report dated February 17, 2017,
contains an explanatory paragraph that states that the Company changed its method for reporting discontinued operations as of January 1, 2014.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 17, 2017
The Partners of
CubeSmart, L.P.:
Consent of Independent Registered Public Accounting Firm
Exhibit 23.2
We consent to the incorporation by reference in the registration statements (No. 333-194661-01) on Form S-3 of CubeSmart and CubeSmart, L.P.
and (Nos. 333-211787, 333-167623, 333-143126, 333-143125, 333-143124 and 333-119987) on Form S-8 of CubeSmart of our reports dated February 17,
2017, with respect to the consolidated balance sheets of CubeSmart, L.P. and subsidiaries as of December 31, 2016 and 2015, and the related
consolidated statements of operations, comprehensive income (loss), capital, and cash flows for each of the years in the three-year period ended
December 31, 2016, and the related financial statement schedule, and the effectiveness of internal control over financial reporting as of
December 31, 2016, which reports appear in the accompanying Form 10-K of CubeSmart and CubeSmart, L.P. Our report dated February 17, 2017,
contains an explanatory paragraph that states that the Company changed its method for reporting discontinued operations as of January 1, 2014.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 17, 2017
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Christopher P. Marr, 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 17, 2017
/s/ Christopher P. Marr
Christopher P. Marr
Chief Executive Officer
1
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 17, 2017
/s/ Timothy M. Martin
Timothy M. Martin
Chief Financial Officer
1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.3
I, Christopher P. Marr, 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 17, 2017
/s/ Christopher P. Marr
Christopher P. Marr
Chief Executive Officer
1
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 17, 2017
/s/ Timothy M. Martin
Timothy M. Martin
Chief Financial Officer
1
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, 2016 (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 17, 2017
Date: February 17, 2017
/s/ Christopher P. Marr
Christopher P. Marr
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.
1
Exhibit 32.2
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
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, 2016 (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 17, 2017
/s/ Christopher P. Marr
Christopher P. Marr
Chief Executive Officer
/s/ Timothy M. Martin
Date: February 17, 2017
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.
Timothy M. Martin
Chief Financial Officer
1
Exhibit 99.1
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material U.S. federal income tax considerations relating to the purchase, ownership and
disposition of common shares and preferred shares of CubeSmart and debt securities of CubeSmart, L.P. (the “Operating Partnership”), and the
qualification and taxation of CubeSmart as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”).
This discussion is not exhaustive of all possible tax considerations and does not provide a detailed discussion of any state, local
or foreign tax considerations. The discussion does not address all aspects of taxation that may be relevant to particular investors in light of their
personal investment or tax circumstances, or to certain types of investors that are subject to special treatment under the U.S. federal income tax
laws, such as insurance companies, regulated investment companies, REITs, tax-exempt organizations (except to the limited extent discussed below
under “Taxation of Tax-Exempt Shareholders”), financial institutions or broker-dealers, non-U.S. individuals and foreign corporations (except to the
limited extent discussed below under “Taxation of Non-U.S. Shareholders”), an entity treated as a U.S, corporation on account of the inversion
rules, and other persons subject to special tax rules. This summary deals only with investors who hold common shares or preferred shares of
CubeSmart or debt securities of the Operating Partnership as “capital assets” within the meaning of Section 1221 of the Code. This discussion is
not intended to be, and should not be construed as, tax advice.
The information in this summary is based on the Code, current, temporary and proposed Treasury regulations, the legislative
history of the Code, current administrative interpretations and practices of the Internal Revenue Service (the “IRS”), including its practices and
policies as endorsed in private letter rulings, which are not binding on the IRS, and existing court decisions. Future legislation, regulations,
administrative interpretations and court decisions could change current law or adversely affect existing interpretations of current law. Any change
could apply retroactively. We have not obtained any rulings from the IRS concerning the tax treatment of the matters discussed in this summary.
Therefore, it is possible that the IRS could challenge the statements in this summary, which do not bind the IRS or the courts, and that a court
could agree with the IRS.
We urge you to consult your own tax advisor regarding the specific tax consequences to you of ownership of common shares or
preferred shares of CubeSmart and debt securities of the Operating Partnership, and of CubeSmart’s election to be taxed as a REIT.
Specifically, you should consult your own tax advisor regarding the federal, state, local, foreign, and other tax consequences of such ownership
and election, and regarding potential changes in applicable tax laws.
Taxation of CubeSmart
Qualification of CubeSmart as a REIT
CubeSmart elected to be taxed as a REIT under the U.S. federal income tax laws beginning with its short taxable year ended
December 31, 2004. CubeSmart believes that, beginning with such short taxable year, it has been organized and has operated in such a manner as
to qualify for taxation as a REIT under the Code and intends to continue to operate in such a manner. However, there can be no assurance that
CubeSmart has qualified or will remain qualified as a REIT.
CubeSmart’s continued qualification and taxation as a REIT depend upon its ability to meet on a continuing basis, through
actual annual operating results, certain qualification tests set forth in the U.S. federal income tax laws. Those qualification tests involve the
percentage of income that CubeSmart earns from specified sources, the percentage of its assets that falls within specified categories, the diversity
of its share ownership, and the percentage of its earnings that CubeSmart distributes. Accordingly, no assurance can be given that the actual
results of CubeSmart’s operations for any particular taxable year will satisfy such requirements. For a discussion of the tax consequences of its
failure to qualify as a REIT, see “Requirements for Qualification — Failure to Qualify” below.
Pursuant to CubeSmart’s declaration of trust, CubeSmart’s board of trustees has the authority to make any tax elections on its
behalf that, in its sole judgment, are in CubeSmart’s best interest. This authority includes the ability to revoke or otherwise terminate CubeSmart’s
status as a REIT. CubeSmart’s board of trustees has the authority
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under its declaration of trust to make these elections without the necessity of obtaining the approval of CubeSmart’s shareholders. In addition,
CubeSmart’s board of trustees has the authority to waive any restrictions and limitations contained in its declaration of trust that are intended to
preserve CubeSmart’s status as a REIT during any period in which its board of trustees has determined not to pursue or preserve CubeSmart’s
status as a REIT.
Taxation of CubeSmart as a REIT
The sections of the Code relating to qualification and operation as a REIT, and the U.S. federal income taxation of a REIT, are
highly technical and complex. The following discussion sets forth only the material aspects of those sections. This summary is qualified in its
entirety by the applicable Code provisions and the related rules and regulations.
If CubeSmart qualifies as a REIT, it generally will not be subject to federal income tax on the taxable income that it distributes to
its shareholders. The benefit of that tax treatment is that it avoids the “double taxation,” or taxation at both the corporate and shareholder levels,
that generally results from owning shares in a corporation. However, CubeSmart will be subject to federal tax in the following circumstances:
· CubeSmart is subject to the corporate federal income tax on any taxable income, including net capital gain that it does not
distribute to shareholders during, or within a specified time period after, the calendar year in which the income is earned.
· CubeSmart may be subject to the corporate “alternative minimum tax” on any items of tax preference, including any deductions
of net operating losses.
· CubeSmart is subject to tax, at the highest corporate rate, on net income from the sale or other disposition of property acquired
through foreclosure (“foreclosure property”) that it holds primarily for sale to customers in the ordinary course of business, and
other non-qualifying income from foreclosure property.
· CubeSmart is subject to a 100% tax on net income from sales or other dispositions of property, other than foreclosure property,
that it holds primarily for sale to customers in the ordinary course of business.
· If CubeSmart fails to satisfy one or both of the 75% gross income test or the 95% gross income test, as described below under
“Requirements for Qualification — Gross Income Tests,” but nonetheless continues to qualify as a REIT because it meets other
requirements, CubeSmart will be subject to a 100% tax on: the greater of the amount by which it fails the 75% gross income test
or the 95% gross income test multiplied, in either case, by a fraction intended to reflect its profitability.
· If CubeSmart fails to distribute during a calendar year at least the sum of: (1) 85% of its REIT ordinary income for the year,
(2) 95% of its REIT capital gain net income for the year, and (3) any undistributed taxable income required to be distributed from
earlier periods, then CubeSmart will be subject to a 4% nondeductible excise tax on the excess of the required distribution over
the amount it actually distributed.
· If CubeSmart fails any of the asset tests, as described below under “Requirements for Qualification — Asset Tests,” other than
certain de minimis failures, but its failure was due to reasonable cause and not to willful neglect, and it nonetheless maintains its
REIT qualification because of specified cure provisions, CubeSmart will pay a tax equal to the greater of $50,000 or 35% of the
net income from the nonqualifying assets during the period in which it failed to satisfy the asset tests.
The amount of gain on which CubeSmart will pay tax generally is the lesser of the amount of gain that it recognizes at the time of
the sale or disposition, and the amount of gain that it would have recognized if it had sold the asset at the time CubeSmart
acquired it.
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· If CubeSmart fails to satisfy one or more requirements for REIT qualification, other than the gross income tests and the asset
tests, and such failure is due to reasonable cause and not to willful neglect, it will be required to pay a penalty of $50,000 for each
such failure.
· CubeSmart may elect to retain its net long-term capital gain and pay income tax on such gain.
· CubeSmart will be subject to a 100% excise tax on transactions with a taxable REIT subsidiary that are not conducted on an
arm’s-length basis.
· If CubeSmart acquires any asset from a C corporation (a corporation that generally is subject to full corporate-level tax) in a
transaction in which the adjusted basis of the assets in CubeSmart’s hands is determined by reference to the adjusted tax basis
of the asset in the hands of the C corporation, CubeSmart will pay tax at the highest regular corporate rate then applicable if it
recognizes gain on the sale or disposition of the asset during the 5-year period after it acquires the asset, unless the C
corporation elects to treat the assets as if they were sold for their fair market value at the time of CubeSmart’s acquisition.
· CubeSmart may be required to pay monetary penalties to the IRS in certain circumstances, including if it fails to meet record-
keeping requirements intended to monitor its compliance with rules relating to the composition of a REIT’s shareholders, as
described below in “Requirements for Qualification - Recordkeeping Requirements.”
· The earnings of CubeSmart’s lower-tier entities that are subchapter C corporations, including taxable REIT subsidiaries, are
subject to federal corporate income tax.
In addition, we may be subject to a variety of taxes, including payroll taxes and state, local and foreign income, property and
other taxes on our assets and operations. We could also be subject to tax in situations and on transactions not presently contemplated.
Requirements for Qualification
requirements, (b) gross income tests, (c) asset tests, and (d) annual distribution requirements.
To qualify as a REIT, CubeSmart must elect to be treated as a REIT, and CubeSmart must meet various (a) organizational
Organizational Requirements. A REIT is a corporation, trust or association that meets each of the following requirements:
1) It is managed by one or more trustees or directors;
2) Its beneficial ownership is evidenced by transferable shares, or by transferable certificates of beneficial interest;
3) It would be taxable as a domestic corporation, but for Sections 856 through 860 of the Code;
4) It is neither a financial institution nor an insurance company subject to special provisions of the U.S. federal income tax laws;
5) At least 100 persons are beneficial owners of its shares or ownership certificates (determined without reference to any rules of
attribution);
individuals, which the U.S. federal income tax laws define to include certain entities, during the last half of any taxable year;
6) Not more than 50% in value of its outstanding shares or ownership certificates is owned, directly or indirectly, by five or fewer
satisfies all relevant filing and other administrative requirements established by the IRS that must be met to elect and maintain REIT status;
7) It elects to be a REIT, or has made such election for a previous taxable year which has not been revoked or terminated, and
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federal income tax laws; and
8) It uses a calendar year for U.S. federal income tax purposes and complies with the recordkeeping requirements of the U.S.
of its income.
9) It meets certain other qualifications, tests described below, regarding the nature of its income and assets and the distribution
CubeSmart must meet requirements 1 through 4, 8 and 9 during its entire taxable year and must meet requirement 5 during at least
335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. CubeSmart’s declaration of trust
provides for restrictions regarding the ownership and transfer of its shares of beneficial interest that are intended to assist CubeSmart in
continuing to satisfy requirements 5 and 6. However, these restrictions may not ensure that CubeSmart will, in all cases, be able to satisfy these
requirements. The provisions of the declaration of trust restricting the ownership and transfer of its shares of beneficial interest are described in
“Description of Our Shares — Restrictions on Ownership and Transfer.”
For purposes of determining share ownership under requirement 6, an “individual” generally includes a supplemental
unemployment compensation benefits plan, a private foundation, or a portion of a trust permanently set aside or used exclusively for charitable
purposes. An “individual,” however, generally does not include a trust that is a qualified employee pension or profit sharing trust under the U.S.
federal income tax laws, and beneficiaries of such a trust will be treated as holding CubeSmart’s shares in proportion to their actuarial interests in
the trust for purposes of requirement 6. CubeSmart believes it has issued sufficient shares of beneficial interest with enough diversity of
ownership to satisfy requirements 5 and 6 set forth above.
To monitor compliance with the share ownership requirements, CubeSmart is required to maintain records regarding the actual
ownership of its shares. To do so, CubeSmart must demand written statements each year from the record holders of certain percentages of its
shares in which the record holders are to disclose the actual owners of the shares (the persons required to include in gross income the dividends
paid by us). A list of those persons failing or refusing to comply with this demand must be maintained as part of CubeSmart’s records. Failure by
CubeSmart to comply with these record-keeping requirements could subject CubeSmart to monetary penalties. If CubeSmart satisfies these
requirements and has no reason to know that condition (6) is not satisfied, CubeSmart will be deemed to have satisfied such condition. A
shareholder that fails or refuses to comply with the demand is required by Treasury Regulations to submit a statement with its tax return disclosing
the actual ownership of the shares and other information.
Qualified REIT Subsidiaries. A corporation that is a “qualified REIT subsidiary” is not treated as a corporation separate from its
parent REIT. A “qualified REIT subsidiary” is a corporation, all of the capital stock of which is owned by the REIT and that has not elected to be a
taxable REIT subsidiary. All assets, liabilities, and items of income, deduction, and credit of a “qualified REIT subsidiary” are treated as assets,
liabilities, and items of income, deduction, and credit of the REIT. Thus, in applying the requirements described herein, any “qualified REIT
subsidiary” that CubeSmart owns will be ignored, and all assets, liabilities, and items of income, deduction, and credit of such subsidiary will be
treated as its assets, liabilities, and items of income, deduction, and credit.
Partnership Subsidiaries. An unincorporated domestic entity, such as a partnership or limited liability company that has a
single owner, generally is not treated as an entity separate from its parent for U.S. federal income tax purposes. An unincorporated domestic entity
with two or more owners is generally treated as a partnership for U.S. federal income tax purposes. In the case of a REIT that is a partner in a
partnership, the REIT is treated as owning its proportionate share of the assets of the partnership and as earning its allocable share of the gross
income of the partnership for purposes of the applicable REIT qualification tests. Thus, CubeSmart’s proportionate share of the assets, liabilities
and items of income of the Operating Partnership and any other partnership, joint venture, or limited liability company that is treated as a
partnership for U.S. federal income tax purposes in which CubeSmart acquires an interest, directly or indirectly (“Partnership Subsidiary”), is
treated as CubeSmart’s assets and gross income for purposes of applying the various REIT qualification requirements.
Taxable REIT Subsidiaries. A REIT is permitted to own up to 100% of the stock of one or more “taxable REIT subsidiaries.” A
taxable REIT subsidiary is a corporation subject to U.S. federal income tax, and state and local income tax where applicable, as a regular “C”
corporation. The subsidiary and the REIT must jointly elect to treat the subsidiary as a taxable REIT subsidiary. In addition, if a taxable REIT
subsidiary owns, directly or indirectly, securities representing 35% or more of the vote or value of a subsidiary corporation, that subsidiary will
also be treated as a taxable REIT subsidiary. Several provisions regarding the arrangements between a REIT and its taxable REIT
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subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of U.S. federal income taxation. For example, the taxable
REIT subsidiary rules limit the deductibility of interest paid or accrued by a taxable REIT subsidiary to its parent REIT. Further, the rules impose a
100% excise tax on transactions between a taxable REIT subsidiary and its parent REIT or the REIT’s tenants that are not conducted on an arm’s-
length basis, and, effective for taxable years beginning after December 31, 2015, on income imputed to a taxable REIT subsidiary, for services
rendered to or on behalf of CubeSmart, the Operating Partnership, any qualified REIT subsidiary, or a Partnership Subsidiary. CubeSmart may
engage in activities indirectly through a taxable REIT subsidiary that would jeopardize its REIT status if CubeSmart engaged in the activities
directly. For example, a taxable REIT subsidiary of CubeSmart may provide services to unrelated parties which might produce income that does not
qualify under the gross income tests described below. A taxable REIT subsidiary may also engage in other activities that, if conducted by
CubeSmart directly, could result in the receipt of non-qualified income or the ownership of non-qualified assets or the imposition of the 100% tax
on income from prohibited transactions. See description below under “Prohibited Transactions.”
Gross Income Tests. CubeSmart must satisfy two gross income tests annually to maintain its qualification as a REIT. First, at
least 75% of its gross income for each taxable year must consist of defined types of income that CubeSmart derives, directly or indirectly, from
investments relating to real property or mortgages on real property or qualified temporary investment income. Qualifying income for purposes of
that 75% gross income test generally includes:
· rents from real property;
· interest on debt secured by mortgages on real property or on interests in real property (including certain types of mortgage-
backed securities);
· for taxable years beginning after December 31, 2015, interest on mortgage loans secured by both real and personal property if the
fair market value of such personal property does not exceed 15% of the total fair market value of all property securing the loans;
· dividends or other distributions on, and gain from the sale of, shares in other REITs (excluding dividends from its taxable REIT
subsidiaries);
· gain from the sale of real estate assets, except effective for taxable years beginning after December 31, 2015, for gain from a
nonqualified publicly offered REIT debt instrument (as defined below);
· income and gain derived from foreclosure property; and
· income derived from the temporary investment of new capital that is attributable to the issuance of CubeSmart’s shares of
beneficial interest or a public offering of its debt with a maturity date of at least five years and that CubeSmart receives during
the one-year period beginning on the date on which it receives such new capital.
Second, in general, at least 95% of CubeSmart’s gross income for each taxable year must consist of income that is qualifying
income for purposes of the 75% gross income test, other types of interest and dividends (including dividends from its taxable REIT subsidiaries),
gain from the sale or disposition of stock or securities, or any combination of these.
Gross income from the sale of property that CubeSmart holds primarily for sale to customers in the ordinary course of business is
excluded from both the numerator and the denominator in both income tests. See “Prohibited Transactions.” In addition, certain gains from
hedging transactions and certain foreign currency gains will be excluded from both the numerator and the denominator for purposes of one or both
of the income tests. See “Hedging Transactions,” and “Foreign Currency Gain.”
qualifying income for purposes of the 75% and 95% gross income tests, only if the following conditions are met:
Rents from Real Property. Rent that CubeSmart receives from its real property will qualify as “rents from real property,” which is
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First, the rent must not be based in whole or in part on the income or profits of any person. Participating rent, however, will
qualify as “rents from real property” if it is based on percentages of receipts or sales and the percentages are fixed at the time the leases are
entered into, are not renegotiated during the term of the leases in a manner that has the effect of basing percentage rent on income or profits, and
conform with normal business practice.
Second, CubeSmart must not own, actually or constructively, 10% or more of the stock of any corporate tenant or the assets or
net profits of any tenant, referred to as a related party tenant, other than a taxable REIT subsidiary. The constructive ownership rules generally
provide that, if 10% or more in value of its shares is owned, directly or indirectly, by or for any person, CubeSmart is considered as owning the
stock owned, directly or indirectly, by or for such person. CubeSmart does not own any stock or any assets or net profits of any tenant directly.
However, because the constructive ownership rules are broad and it is not possible to monitor continually direct and indirect transfers of its
shares, no absolute assurance can be given that such transfers or other events of which CubeSmart has no knowledge will not cause CubeSmart to
own constructively 10% or more of a tenant (or a subtenant, in which case only rent attributable to the subtenant is disqualified) other than a
taxable REIT subsidiary at some future date.
Under an exception to the related-party tenant rule described in the preceding paragraph, rent that CubeSmart receives from a
taxable REIT subsidiary will qualify as “rents from real property” as long as (1) at least 90% of the leased space in the property is leased to persons
other than taxable REIT subsidiaries and related-party tenants, and (2) the amount paid by the taxable REIT subsidiary to rent space at the
property is substantially comparable to rents paid by other tenants of the property for comparable space. The “substantially comparable”
requirement must be satisfied when the lease is entered into, when it is extended, and when the lease is modified, if the modification increases the
rent paid by the taxable REIT subsidiary. If the requirement that at least 90% of the leased space in the related property is rented to unrelated
tenants is met when a lease is entered into, extended, or modified, such requirement will continue to be met as long as there is no increase in the
space leased to any taxable REIT subsidiary or related party tenant. Any increased rent attributable to a modification of a lease with a taxable REIT
subsidiary in which CubeSmart owns directly or indirectly more than 50% of the voting power or value of the stock (a “controlled taxable REIT
subsidiary”) will not be treated as “rents from real property.”
Third, the rent attributable to the personal property leased in connection with a lease of real property must not be greater than
15% of the total rent received under the lease. The rent attributable to personal property under a lease is the amount that bears the same ratio to
total rent under the lease for the taxable year as the average of the fair market values of the leased personal property at the beginning and at the
end of the taxable year bears to the average of the aggregate fair market values of both the real and personal property covered by the lease at the
beginning and at the end of such taxable year (the “personal property ratio”). With respect to each of its leases, CubeSmart believes that the
personal property ratio generally is less than 15%. Where that is not, or may in the future not be, the case, CubeSmart believes that any income
attributable to personal property will not jeopardize its ability to qualify as a REIT. There can be no assurance, however, that the IRS would not
challenge CubeSmart’s calculation of a personal property ratio, or that a court would not uphold such assertion. If such a challenge were
successfully asserted, CubeSmart could fail to satisfy the 75% or 95% gross income test and thus lose its REIT status.
Fourth, CubeSmart cannot furnish or render non-customary services to the tenants of its properties, or manage or operate its
properties, other than through an independent contractor who is adequately compensated and from whom CubeSmart does not derive or receive
any income. However, CubeSmart need not provide services through an “independent contractor,” but instead may provide services directly to its
tenants, if the services are “usually or customarily rendered” in connection with the rental of space for occupancy only and are not considered to
be provided for the tenants’ convenience. In addition, CubeSmart may provide a minimal amount of “non-customary” services to the tenants of a
property, other than through an independent contractor, as long as its income from the services does not exceed 1% of its income from the related
property.
Finally, CubeSmart may own up to 100% of the stock of one or more taxable REIT subsidiaries, which may provide non-customary services to
CubeSmart’s tenants without tainting CubeSmart’s rents from the related properties. CubeSmart has not performed, and does not intend to
perform, any services other than customary ones for its tenants, other than services provided through independent contractors or taxable REIT
subsidiaries.
Tenants may be required to pay, in addition to base rent, reimbursements for certain amounts CubeSmart is obligated to pay to
third parties (such as a lessee’s proportionate share of a property’s operational or capital expenses), penalties for nonpayment or late payment of
rent or additions to rent. These and other similar
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payments should qualify as “rents from real property.” To the extent they do not, they should be treated as interest that qualifies for the 95%
gross income test.
If a portion of the rent CubeSmart receives from a property does not qualify as “rents from real property” because the rent
attributable to personal property exceeds 15% of the total rent for a taxable year, the portion of the rent attributable to personal property will not be
qualifying income for purposes of either the 75% or 95% gross income test. Thus, if rent attributable to personal property, plus any other income
that is nonqualifying income for purposes of the 95% gross income test, during a taxable year exceeds 5% of its gross income during the year,
CubeSmart would lose its REIT status, unless CubeSmart qualified for certain statutory relief provisions. By contrast, in the following
circumstances, none of the rent from a lease of property would qualify as “rents from real property”: (1) the rent is considered based on the income
or profits of the tenant; (2) the lessee is a related party tenant or fails to qualify for the exception to the related-party tenant rule for qualifying
taxable REIT subsidiaries; or (3) CubeSmart furnishes non-customary services to the tenants of the property, or manages or operates the property,
other than through a qualifying independent contractor or a taxable REIT subsidiary. In any of these circumstances, CubeSmart could lose its REIT
status, unless CubeSmart qualified for certain statutory relief provisions, because it would be unable to satisfy either the 75% or 95% gross income
test.
determination of the amount depends in whole or in part on the income or profits of any person. However, an amount received or accrued generally
Interest. The term “interest” generally does not include any amount received or accrued, directly or indirectly, if the
will not be excluded from the term “interest” solely because it is based on a fixed percentage or percentages of receipts or sales. Furthermore, to
the extent that interest from a loan that is based on the profit or net cash proceeds from the sale of the property securing the loan constitutes a
“shared appreciation provision,” income attributable to such participation feature will be treated as gain from the sale of the secured property.
Prohibited Transactions. A REIT will incur a 100% tax on the net income derived from any sale or other disposition of property,
other than foreclosure property, that the REIT holds primarily for sale to customers in the ordinary course of a trade or business. Whether a REIT
holds an asset “primarily for sale to customers in the ordinary course of a trade or business” depends, however, on the facts and circumstances in
effect from time to time, including those related to a particular asset. A safe harbor to the characterization of the sale of property by a REIT as a
prohibited transaction and the 100% prohibited transaction tax is available if the following requirements are met:
· the REIT has held the property for not less than four years;
· the aggregate expenditures made by the REIT, or any partner of the REIT, during the four-year period preceding the date of the
sale that are includable in the basis of the property do not exceed 30% of the selling price of the property;
· either (1) during the year in question, the REIT did not make more than seven sales of property other than foreclosure property
or sales to which Section 1033 of the Code applied, (2) the aggregate adjusted bases of all such properties sold by the REIT
during the year did not exceed 10% of the aggregate bases of all of the assets of the REIT at the beginning of the year, (3) the
aggregate fair market value of all such properties sold by the REIT during the year did not exceed 10% of the aggregate fair
market value of all of the assets of the REIT at the beginning of the year, (4) (i) for taxable years beginning after December 31,
2015, the aggregate adjusted bases of all such properties sold by the REIT during the year did not exceed 20% of the aggregate
bases of all of the assets of the REIT at the beginning of the year and (ii) the average annual percentage of such properties sold
by the REIT compared to all the REIT’s assets (measured by adjusted tax bases) in the current and two prior years did not
exceed 10%, or (5) (i) the aggregate fair market value of all such properties sold by the REIT during the year did not exceed 20%
of the aggregate fair market value of all assets of the REIT at the beginning of the year and (ii) the average annual percentage of
such properties sold by the REIT compared to all the REIT’s assets (measured by fair market value) in the current and two prior
years did not exceed 10%;
· in the case of property not acquired through foreclosure or lease termination, the REIT has held the property for at least four
years for the production of rental income; and
· if the REIT has made more than seven sales of non-foreclosure property during the taxable year, substantially all of the
marketing and development expenditures with respect to the property were
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made through an independent contractor (or, for taxable years beginning after December 31, 2015, a taxable REIT subsidiary)
from whom the REIT derives no income.
CubeSmart intends to hold properties for investment with a view to long-term appreciation, to engage in the business of
acquiring, developing, owning and operating properties, and to make occasional sales of properties as are consistent with its investment objective.
CubeSmart cannot assure you, however, that it can comply with the safe-harbor provisions that would prevent the imposition of the 100% tax or
that it will avoid owning property that may be characterized as property held “primarily for sale to customers in the ordinary course of a trade or
business.” The 100% tax does not apply to gains from the sale of property that is held through a taxable REIT subsidiary or other taxable
corporation, although such income will be subject to tax in the hands of that corporation at regular corporate tax rates. CubeSmart may, therefore,
form or acquire a taxable REIT subsidiary to hold and dispose of those properties it concludes may not fall within the safe-harbor provisions.
Foreclosure Property. CubeSmart will be subject to tax at the maximum corporate rate on any net income from foreclosure
property, other than income that otherwise would be qualifying income for purposes of the 75% gross income test. “Foreclosure property” is any
real property, including interests in real property, and any personal property incident to such real property:
· that is acquired by a REIT as the result of the REIT having bid on such property at foreclosure, or having otherwise reduced
such property to ownership or possession by agreement or process of law, after there was a default or default was imminent on a
lease of such property or on indebtedness that such property secured;
· for which the related loan or leased property was acquired by the REIT at a time when the default was not imminent or
anticipated; and
· for which the REIT makes a proper election to treat the property as foreclosure property.
A REIT will not be considered to have foreclosed on a property where the REIT takes control of the property as a mortgagee-in-
possession and cannot receive any profit or sustain any loss except as a creditor of the mortgagor. Property generally ceases to be foreclosure
property at the end of the third taxable year following the taxable year in which the REIT acquired the property (or longer if an extension is granted
by the Secretary of the Treasury). This period (as extended, if applicable) terminates, and foreclosure property ceases to be foreclosure property
on the first day:
· on which a lease is entered into for the property that, by its terms, will give rise to income that does not qualify for purposes of
the 75% gross income test, or any amount is received or accrued, directly or indirectly, pursuant to a lease entered into on or
after such day that will give rise to income that does not qualify for purposes of the 75% gross income test;
· on which any construction takes place on the property, other than completion of a building or, any other improvement, where
more than 10% of the construction was completed before default became imminent; or
· which is more than 90 days after the day on which the REIT acquired the property and the property is used in a trade or business
which is conducted by the REIT, other than through an independent contractor from whom the REIT itself does not derive or
receive any income.
Any gain from the sale of property for which a foreclosure property election has been made will not be subject to the 100% tax
on gains from prohibited transactions described above, even if the property is held primarily for sale to customers in the ordinary course of a trade
or business. Income and gain from foreclosure property are qualifying income for the 75% and 95% gross income tests.
Hedging Transactions. From time to time, CubeSmart enters into hedging transactions with respect to its assets or liabilities.
CubeSmart’s hedging activities may include entering into interest rate swaps, caps, and floors, options to purchase such items, and futures and
forward contracts. Income and gain from “hedging transactions” will be excluded from gross income for purposes of both the 75% and 95% gross
income tests. A “hedging transaction” means either (1) any transaction entered into in the normal course of its trade or business primarily to
manage the risk of interest
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rate, price changes, or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, to
acquire or carry real estate assets or (2) any transaction entered into primarily to manage the risk of currency fluctuations with respect to any item
of income or gain that would be qualifying income under the 75% or 95% gross income test (or any property which generates such income or gain).
CubeSmart will be required to clearly identify any such hedging transaction before the close of the day on which it was acquired, originated, or
entered into and to satisfy other identification requirements. No assurance can be given that its hedging activities will not give rise to income that
does not qualify for purposes of either or both of the gross income tests, and will not adversely affect CubeSmart’s ability to satisfy the REIT
qualification requirements.
Effective for taxable years beginning after December 31, 2015, if CubeSmart has entered into a hedging transaction described in
(1) or (2), and a portion of the hedged indebtedness or property is extinguished or disposed of and, in connection with such extinguishment or
disposition, CubeSmart enters into a new clearly identified hedging transaction (a “New Hedge”), income from the applicable hedge and income
from the New Hedge (including gain from the disposition of such New Hedge) will not be treated as gross income for purposes of the 95% and
75% gross income tests.
Foreign Currency Gain. Certain foreign currency gains will be excluded from gross income for purposes of one or both of the
gross income tests. “Real estate foreign exchange gain” will be excluded from gross income for purposes of the 75% gross income test. Real estate
foreign exchange gain generally includes foreign currency gain attributable to any item of income or gain that is qualifying income for purposes of
the 75% gross income test, foreign currency gain attributable to the acquisition or ownership of (or becoming or being the obligor under)
obligations secured by mortgages on real property or on interests in real property and certain foreign currency gain attributable to certain
“qualified business units” of a REIT. “Passive foreign exchange gain” will be excluded from gross income for purposes of the 95% gross income
test. Passive foreign exchange gain generally includes real estate foreign exchange gain as described above, and also includes foreign currency
gain attributable to any item of income or gain that is qualifying income for purposes of the 95% gross income test and foreign currency gain
attributable to the acquisition or ownership of (or becoming or being the obligor under) debt obligations. Because passive foreign exchange gain
includes real estate foreign exchange gain, real estate foreign exchange gain is excluded from gross income for purposes of both the 75% and 95%
gross income test. These exclusions for real estate foreign exchange gain and passive foreign exchange gain do not apply to foreign currency gain
derived from dealing, or engaging in substantial and regular trading, in securities. Such gain is treated as nonqualifying income for purposes of
both the 75% and 95% gross income tests.
Failure to Satisfy Gross Income Tests. If CubeSmart fails to satisfy one or both of the gross income tests for any taxable year,
CubeSmart nevertheless may qualify as a REIT for that year if it qualifies for relief under certain provisions of the U.S. federal income tax laws.
Those relief provisions will be available if:
· CubeSmart’s failure to meet those tests is due to reasonable cause and not to willful neglect; and
· following such failure for any taxable year, a schedule of the sources of its income is filed with the IRS in accordance with
regulations prescribed by the Secretary of the Treasury.
CubeSmart cannot predict, however, whether any failure to meet these tests will qualify for the relief provisions. As discussed
above in “Taxation of CubeSmart as a REIT,” even if the relief provisions apply, CubeSmart would incur a 100% tax on the gross income
attributable to the greater of (1) the amount by which it fails the 75% gross income test, or (2) the excess of 95% of its gross income over the
amount of gross income qualifying under the 95% gross income test, multiplied, in either case, by a fraction intended to reflect its profitability.
quarter of each taxable year.
Asset Tests. To maintain its qualification as a REIT, CubeSmart also must satisfy the following asset tests at the end of each
First, at least 75% of the value of CubeSmart’s total assets must consist of:
· cash or cash items, including certain receivables;
· government securities;
· interests in real property, including leaseholds and options to acquire real property and leaseholds;
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· effective for taxable years beginning after December 31, 2015: (i) personal property leased in connection with real property to the
extent that the rents from personal property are treated as “rent from real property” for purposes of the 75% income test, and
(ii) debt instruments issued by publicly offered REITs;
· interests in mortgages on real property (including certain mortgage-backed securities) and, for taxable years beginning after
December 31, 2015, interests in mortgage loans secured by both real and personal property if the fair market value of such
personal property does not exceed 15% of the total fair market value of all property securing the loans;
· stock in other REITs; and
· investments in stock or debt instruments during the one year period following its receipt of new capital that CubeSmart raises
through equity offerings or public offerings of debt with at least a five year term.
may not exceed 5% of the value of its total assets, or the “5% asset test.”
Second, of CubeSmart’s investments not included in the 75% asset class, the value of its interest in any one issuer’s securities
power or value of any one issuer’s outstanding securities, or the “10% vote test” and “10% value test,” respectively.
Third, of CubeSmart’s investments not included in the 75% asset class, CubeSmart may not own more than 10% of the voting
represented by securities of one or more taxable REIT subsidiaries.
Fourth, not more than 25% (20% for taxable years beginning after December 31, 2017) of the value of CubeSmart’s assets may be
Fifth, effective for taxable years beginning after December 31, 2015, not more than 25% of the value of CubeSmart’s total assets
may be represented by “nonqualified publicly offered REIT debt instruments.” “Nonqualified publicly offered REIT debt instruments” are debt
instruments issued by publicly offered REITs that are not secured by a mortgage on real property.
For purposes of the 5% asset test, the 10% vote test and 10% value test, the term “securities” does not include stock in another
REIT, equity or debt securities of a qualified REIT subsidiary or taxable REIT subsidiary, mortgage loans that constitute real estate assets, or
equity interests in a partnership. The term “securities,” however, generally includes debt securities issued by a partnership or another REIT, except
that for purposes of the 10% value test, the term “securities” does not include:
· Any “straight debt” security, which is defined as a written unconditional promise to pay on demand or on a specified date a sum
certain in money if (i) the debt is not convertible, directly or indirectly, into stock, and (ii) the interest rate and interest payment
dates are not contingent on profits, the borrower’s discretion, or similar factors. “Straight debt” securities do not include any
securities issued by a partnership or a corporation in which CubeSmart or any controlled taxable REIT subsidiary hold non-
”straight debt” securities that have an aggregate value of more than 1% of the issuer’s outstanding securities. However,
“straight debt” securities include debt subject to the following contingencies: (1) a contingency relating to the time of payment
of interest or principal, as long as either (i) there is no change to the effective yield of the debt obligation, other than a change to
the annual yield that does not exceed the greater of 0.25% or 5% of the annual yield, or (ii) neither the aggregate issue price nor
the aggregate face amount of the issuer’s debt obligations held by CubeSmart exceeds $1 million and no more than 12 months of
unaccrued interest on the debt obligations can be required to be prepaid; and (2) a contingency relating to the time or amount of
payment upon a default or prepayment of a debt obligation, as long as the contingency is consistent with customary commercial
practice.
· Any loan to an individual or an estate.
· Any “section 467 rental agreement,” other than an agreement with a related party tenant.
· Any obligation to pay “rents from real property.”
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· Certain securities issued by governmental entities.
· Any security issued by a REIT.
· Any debt instrument issued by an entity treated as a partnership for U.S. federal income tax purposes in which CubeSmart is a
partner to the extent of CubeSmart’s proportionate interest in the debt and equity securities of the partnership.
· Any debt instrument issued by an entity treated as a partnership for U.S. federal income tax purposes not described in the
preceding bullet points if at least 75% of the partnership’s gross income, excluding income from prohibited transactions, is
qualifying income for purposes of the 75% gross income test described above in “Requirements for Qualification—Gross Income
Tests.”
securities issued by the partnership, without regard to the securities described in the last two bullet points above.
For purposes of the 10% value test, its proportionate share of the assets of a partnership is its proportionate interest in any
Failure to Satisfy Asset Tests. CubeSmart will monitor the status of its assets for purposes of the various asset tests and will
manage its portfolio in order to comply at all times with such tests. If CubeSmart fails to satisfy the asset tests at the end of a calendar quarter, it
would not lose its REIT status if:
· CubeSmart satisfied the asset tests at the end of the preceding calendar quarter; and
· the discrepancy between the value of its assets and the asset test requirements arose from changes in the market values of its
assets and was not wholly or partly caused by the acquisition of one or more non-qualifying assets.
If the failure to satisfy the asset tests results from an acquisition of securities or other property during a quarter, the failure can
be cured by disposition of sufficient nonqualifying assets within 30 days after the close of that quarter. CubeSmart intends to maintain adequate
records of the value of its assets to ensure compliance with the asset tests, and to take such other action within 30 days after the close of any
quarter as may be required to cure any noncompliance. However, there can be no assurance that such other action will always be successful. If
CubeSmart fails to cure any noncompliance with the asset tests within such time period, its status as a REIT would be lost.
In the event that, at the end of any calendar quarter, CubeSmart violates the 5% asset test, the 10% vote test or the 10% value
test described above, CubeSmart will not lose its REIT status if (i) the failure is de minimis (up to the lesser of 1% of its assets or $10 million) and
(ii) CubeSmart disposes of assets or otherwise complies with the asset tests within six months after the last day of the quarter in which it identifies
such failure. In the event the failure to meet the asset test is more than de minimis, CubeSmart will not lose its REIT status if (i) the failure was due
to reasonable cause and not to willful neglect, (ii) CubeSmart files a description of each asset causing the failure with the IRS, (iii) CubeSmart
disposes of assets or otherwise complies with the asset tests within six months after the last day of the quarter in which CubeSmart identifies the
failure, and (iv) CubeSmart pays a tax equal to the greater of $50,000 or 35% of the net income from the nonqualifying assets during the period in
which it failed to satisfy the asset tests.
and deemed distributions of retained capital gain, to its shareholders in an aggregate amount not less than the sum of
Annual Distribution Requirements. Each taxable year, CubeSmart must distribute dividends, other than capital gain dividends
· 90% of its “REIT taxable income,” computed without regard to the dividends paid deduction and its net capital gain or loss, and
· 90% of its after-tax net income, if any, from foreclosure property, minus
· the sum of certain items of non-cash income.
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Generally, CubeSmart must pay such distributions in the taxable year to which they relate, or in the following taxable year if
either (a) CubeSmart declares the distribution before it timely files its U.S. federal income tax return for the year and pays the distribution on or
before the first regular dividend payment date after such declaration or (b) CubeSmart declares the distribution in October, November, or
December of the taxable year, payable to shareholders of record on a specified day in any such month, and CubeSmart actually pays the dividend
before the end of January of the following year. In both instances, these distributions relate to its prior taxable year for purposes of the 90%
distribution requirement.
In order for distributions to be counted towards CubeSmart’s distribution requirement, and to provide a tax deduction to
CubeSmart, for taxable years ending on or before December 31, 2014, they must not be “preferential dividends.” A dividend is not a preferential
dividend if it is pro rata among all outstanding shares within a particular class, and is in accordance with the preferences among the different
classes of shares as set forth in CubeSmart’s organizational documents. For all subsequent taxable years, so long as CubeSmart continues to be a
“publicly offered REIT”, the preferential dividend rule will not apply.
To the extent that CubeSmart distributes at least 90%, but less than 100%, of its net taxable income, CubeSmart will be subject to
tax at ordinary corporate tax rates on the retained portion. In addition, CubeSmart may elect to retain, rather than distribute, its net long-term capital
gains and pay tax on such gains. In this case, CubeSmart would elect to have its shareholders include their proportionate share of such
undistributed long-term capital gains in their income and receive a corresponding credit for their proportionate share of the tax paid by us.
CubeSmart’s shareholders would then increase their adjusted basis in their CubeSmart shares by the difference between the amount included in
their long-term capital gains and the tax deemed paid with respect to their shares.
distributions with declaration and record dates falling in the last three months of the calendar year, at least the sum of:
If CubeSmart fails to distribute during a calendar year, or by the end of January of the following calendar year in the case of
· 85% of its REIT ordinary income for the year,
· 95% of its REIT capital gain income for the year, and
· any undistributed taxable income from prior periods, CubeSmart will incur a 4% nondeductible excise tax on the excess of such
required distribution over the amounts CubeSmart actually distributed. In calculating the required distribution for taxable years
beginning after December 31, 2015, the amount that CubeSmart is treated as having distributed is not reduced by any amounts
not allowable in computing its taxable income for the taxable year and which were no allowable in computing its taxable income
for any prior years. If CubeSmart so elects, it will be treated as having distributed any such retained amount for purposes of the
4% nondeductible excise tax described above.
It is possible that, from time to time, CubeSmart may experience timing differences between the actual receipt of income and
actual payment of deductible expenses and the inclusion of that income and deduction of such expenses in arriving at its REIT taxable income. For
example, because CubeSmart may deduct capital losses only to the extent of its capital gains, its REIT taxable income may exceed its economic
income. Further, it is possible that, from time to time, CubeSmart may be allocated a share of net capital gain from a partnership in which CubeSmart
owns an interest attributable to the sale of depreciated property that exceeds its allocable share of cash attributable to that sale. Although several
types of non-cash income are excluded in determining the annual distribution requirement, CubeSmart will incur corporate income tax and the 4%
nondeductible excise tax with respect to those non-cash income items if CubeSmart does not distribute those items on a current basis. As a result
of the foregoing, CubeSmart may have less cash than is necessary to distribute all of its taxable income and thereby avoid corporate income tax
and the 4% nondeductible excise tax imposed on certain undistributed income. In such a situation, CubeSmart may issue additional common or
preferred shares, CubeSmart may borrow or may cause the Operating Partnership to arrange for short-term or possibly long-term borrowing to
permit the payment of required distributions, or CubeSmart may pay dividends in the form of taxable in-kind distributions of property, including
potentially, its shares.
Under certain circumstances, CubeSmart may be able to correct a failure to meet the distribution requirement for a year by paying
“deficiency dividends” to its shareholders in a later year. CubeSmart may include such deficiency dividends in its deduction for dividends paid for
the earlier year. Although CubeSmart may be able to avoid
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income tax on amounts distributed as deficiency dividends, CubeSmart will be required to pay interest to the IRS based upon the amount of any
deduction it takes for deficiency dividends.
Failure to Qualify
If CubeSmart were to fail to qualify as a REIT in any taxable year and no relief provision applied, CubeSmart would have the
following consequences: CubeSmart would be subject to U.S. federal income tax and any applicable alternative minimum tax at regular corporate
rates applicable to regular C corporations on its taxable income, determined without reduction for amounts distributed to shareholders. CubeSmart
would not be required to make any distributions to shareholders. Unless CubeSmart qualified for relief under specific statutory provisions, it would
not be permitted to elect taxation as a REIT for the four taxable years following the year during which CubeSmart ceased to qualify as a REIT.
If CubeSmart fails to satisfy one or more requirements for REIT qualification, other than the gross income tests and the asset
tests, CubeSmart could avoid disqualification if its failure is due to reasonable cause and not to willful neglect and CubeSmart pays a penalty of
$50,000 for each such failure. In addition, there are relief provisions for a failure of the gross income tests and asset tests, as described in
“Requirements for Qualification — Gross Income Tests” and “Requirements for Qualification — Asset Tests.” It is not possible to state whether in
all circumstances CubeSmart would be entitled to such statutory relief.
State and Local Taxes
The state and local tax treatment in such jurisdictions may differ from the U.S. federal income tax treatment described above.
We may be subject to taxation by various states and localities, including those in which we transact business or own property.
Tax Aspects of Investments in the Operating Partnership and Subsidiary Partnerships
The following discussion summarizes certain U.S. federal income tax considerations applicable to CubeSmart’s direct or indirect
investment in its Operating Partnership and any subsidiary partnerships or limited liability companies we form or acquire that are treated as
partnerships for U.S. federal income tax purposes, each individually referred to as a “Partnership” and, collectively, as “Partnerships.” The
following discussion does not address state or local tax laws or any federal tax laws other than income tax laws.
Classification as Partnerships. CubeSmart is required to include in its income its distributive share of each Partnership’s income
and to deduct its distributive share of each Partnership’s losses but only if such Partnership is classified for U.S. federal income tax purposes as a
partnership (or an entity that is disregarded for U.S. federal income tax purposes if the entity has only one owner or member), rather than as a
corporation or an association taxable as a corporation.
federal income tax purposes if it:
An organization with at least two owners or members will be classified as a partnership, rather than as a corporation, for U.S.
· is treated as a partnership under the Treasury regulations relating to entity classification (the “check-the-box regulations”); and
· is not a “publicly traded partnership.”
Under the check-the-box regulations, an unincorporated domestic entity with at least two owners or members may elect to be
classified either as an association taxable as a corporation or as a partnership. If such an entity does not make an election, it generally will be
treated as a partnership for U.S. federal income tax purposes. We intend that each Partnership will be classified as a partnership for U.S. federal
income tax purposes (or else a disregarded entity where there are not at least two separate beneficial owners).
A publicly traded partnership is a partnership whose interests are traded on an established securities market or are readily
tradable on a secondary market (or a substantial equivalent). A publicly traded partnership is generally treated as a corporation for U.S. federal
income tax purposes, but will not be so treated if, for each taxable year
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beginning after December 31, 1987 in which it was classified as a publicly traded partnership, at least 90% of the partnership’s gross income
consisted of specified passive income, including real property rents (which includes rents that would be qualifying income for purposes of the
75% gross income test, with certain modifications that make it easier for the rents to qualify for the 90% passive income exception), gains from the
sale or other disposition of real property, interest, and dividends (the “90% passive income exception”).
Treasury regulations provide limited safe harbors from treatment as a publicly traded partnership. Pursuant to one of those safe
harbors (the “private placement exclusion”), interests in a partnership will not be treated as readily tradable on a secondary market or the
substantial equivalent thereof if (1) all interests in the partnership were issued in a transaction or transactions that were not required to be
registered under the Securities Act of 1933, as amended, and (2) the partnership does not have more than 100 partners at any time during the
partnership’s taxable year. For the determination of the number of partners in a partnership, a person owning an interest in a partnership, grantor
trust, or S corporation that owns an interest in the partnership is treated as a partner in the partnership only if (1) substantially all of the value of
the owner’s interest in the entity is attributable to the entity’s direct or indirect interest in the partnership and (2) a principal purpose of the use of
the entity is to permit the partnership to satisfy the 100-partner limitation. CubeSmart believes that each Partnership should qualify for the private
placement exclusion.
We have not requested, and do not intend to request, a ruling from the IRS that the Partnerships will be classified as
partnerships (or disregarded entities, if the entity has only one owner or member) for U.S. federal income tax purposes. If for any reason a
Partnership were taxable as a corporation, rather than as a partnership, for U.S. federal income tax purposes, CubeSmart may not be able to qualify
as a REIT, unless it qualifies for certain relief provisions. See “Requirements for Qualification — Gross Income Tests” and “Requirements for
Qualification — Asset Tests.” In addition, any change in a Partnership’s status for tax purposes might be treated as a taxable event, in which case
CubeSmart might incur tax liability without any related cash distribution. See “Requirements for Qualification — Annual Distribution
Requirements.” Further, items of income and deduction of such Partnership would not pass through to its partners, and its partners would be
treated as shareholders for tax purposes. Consequently, such Partnership would be required to pay income tax at corporate rates on its net income,
and distributions to its partners would constitute dividends that would not be deductible in computing such Partnership’s taxable income.
Partners, Not the Partnerships, Subject to Tax. A partnership is not a taxable entity for U.S. federal income tax purposes, except
that, for tax years beginning after December 31, 2017, a partnership is liable for paying tax assessed pursuant to an audit adjustment unless the
partnership elects to pass-through such audit adjustments to its partners. CubeSmart will therefore take into account its allocable share of each
Partnership’s income, gains, losses, deductions, and credits for each taxable year of the Partnership ending with or within CubeSmart’s taxable
year, even if CubeSmart receives no distribution from the Partnership for that year or a distribution less than CubeSmart’s share of taxable income.
Similarly, even if CubeSmart receives a distribution, CubeSmart may not be taxed on such distribution if the distribution does not exceed its
adjusted tax basis in its interest in the distributing Partnership.
Partnership Allocations. Although a partnership agreement generally will determine the allocation of income and losses among
partners, allocations will be disregarded for tax purposes if they do not comply with the provisions of the U.S. federal income tax laws governing
partnership allocations. If an allocation is not recognized for U.S. federal income tax purposes, the item subject to the allocation will be reallocated
in accordance with the partners’ interests in the partnership, which will be determined by taking into account all of the facts and circumstances
relating to the economic arrangement of the partners with respect to such item.
Tax Allocations With Respect to Contributed Properties. Income, gain, loss, and deduction attributable to (a) appreciated or
depreciated property that is contributed to a partnership in exchange for an interest in the partnership or (b) property revalued on the books of a
partnership must be allocated in a manner such that each of a contributing partner or the partners at the time of a book revaluation, as applicable,
are charged with, or benefits from, respectively, the unrealized gain or unrealized loss associated with the property at the time of the contribution.
The amount of such unrealized gain or unrealized loss, referred to as “built-in gain” or “built-in loss,” is generally equal to the difference between
the fair market value of the contributed or revalued property at the time of contribution or revaluation and the adjusted tax basis of such property
at that time, referred to as a book-tax difference. Such allocations are solely for U.S. federal income tax purposes and do not affect the book capital
accounts or other economic or legal arrangements among the partners. The U.S. Treasury Department has issued regulations requiring
partnerships to use a “reasonable method” for allocating items with respect to which there is a book-tax difference and outlining several
reasonable allocation methods. Unless we, as general partner, select a different method, the Operating Partnership will
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use the traditional method for allocating items with respect to which there is a book-tax difference. Depending upon the method chosen,
(1) CubeSmart’s tax depreciation deductions attributable to those properties may be lower than they would have been if the partnership had
acquired those properties for cash and (2) in the event of a sale of such properties, CubeSmart could be allocated gain in excess of its
corresponding economic or book gain. These allocations may cause CubeSmart to recognize taxable income in excess of cash proceeds received
by us, which might adversely affect CubeSmart’s ability to comply with the REIT distribution requirements or result in CubeSmart’s shareholders
recognizing additional dividend income without an increase in distributions.
Depreciation. Some assets in our Partnerships include appreciated property contributed by its partners. Assets contributed to a
Partnership in a tax-free transaction generally retain the same depreciation method and recovery period as they had in the hands of the partner who
contributed them to the partnership. Accordingly, the Partnership’s depreciation deductions for such contributed real property are based on the
historic tax depreciation schedules for the properties prior to their contribution to the Operating Partnership.
Basis in Partnership Interest. CubeSmart’s adjusted tax basis in any partnership interest it owns generally will be:
· the amount of cash and the basis of any other property it contributes to the partnership;
· increased by its allocable share of the partnership’s income (including tax-exempt income) and its allocable share of
indebtedness of the partnership; and
· reduced, but not below zero, by its allocable share of the partnership’s loss (excluding any non-deductible items), the amount of
cash and the basis of property distributed to CubeSmart, and constructive distributions resulting from a reduction in its share of
indebtedness of the partnership.
Loss allocated to CubeSmart in excess of its basis in a partnership interest will not be taken into account until CubeSmart again
has basis sufficient to absorb the loss. A reduction of CubeSmart’s share of partnership indebtedness will be treated as a constructive cash
distribution to CubeSmart, and will reduce its adjusted tax basis in the partnership. Distributions, including constructive distributions, in excess of
the basis of CubeSmart’s partnership interest will constitute taxable income to CubeSmart. Such distributions and constructive distributions
normally will be characterized as long-term capital gain.
Sale of a Partnership’s Property. Generally, any gain realized by a Partnership on the sale of property that is a capital asset held
for more than one year will be long-term capital gain, except for any portion of the gain treated as depreciation or cost recovery recapture. Any
gain or loss recognized by a Partnership on the disposition of contributed or revalued properties will be allocated first to the partners who
contributed the properties or who were partners at the time of revaluation, to the extent of their built-in gain or loss on those properties for U.S.
federal income tax purposes. The partners’ built-in gain or loss on contributed or revalued properties is the difference between the partners’
proportionate share of the book value of those properties and the partners’ tax basis allocable to those properties at the time of the contribution or
revaluation. Any remaining gain or loss recognized by the Partnership on the disposition of contributed or revalued properties, and any gain or
loss recognized by the Partnership on the disposition of other properties, will be allocated among the partners in accordance with their percentage
interests in the Partnership.
CubeSmart’s share of any Partnership gain from the sale of inventory or other property held primarily for sale to customers in the
ordinary course of the Partnership’s trade or business will be treated as income from a prohibited transaction subject to a 100% tax. Income from a
prohibited transaction may have an adverse effect on CubeSmart’s ability to satisfy the gross income tests for REIT status. See “Requirements for
Qualification — Gross Income Tests.” CubeSmart does not presently intend to acquire or hold, or to allow any Partnership to acquire or hold, any
property that is likely to be treated as inventory or property held primarily for sale to customers in the ordinary course of CubeSmart’s, or the
Partnership’s, trade or business.
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Taxation of Shareholders
Taxation of Taxable U.S. Shareholders
purposes, is:
The term “U.S. shareholder” means a holder of CubeSmart common shares or preferred shares that, for U.S. federal income tax
· a citizen or individual resident of the United States;
· a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized under the
laws of the United States, any of its states or the District of Columbia;
· an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
· any trust if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S.
persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a
U.S. person.
If a partnership, entity or arrangement treated as a partnership for U.S. federal income tax purposes holds CubeSmart common
shares or preferred shares, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner
and the activities of the partnership. If you are a partner in a partnership holding CubeSmart common shares or preferred shares, you should
consult your tax advisor regarding the consequences of the ownership and disposition of CubeSmart common shares or preferred shares by the
partnership.
Taxation of U.S. Shareholders on Distributions. As long as CubeSmart qualifies as a REIT, a taxable U.S. shareholder will be
required to take into account as ordinary income distributions made out of CubeSmart’s current or accumulated earnings and profits that
CubeSmart does not designate as capital gain dividends or retained long-term capital gain. A U.S. shareholder will not qualify for the dividends-
received deduction generally available to corporations. Dividends paid to a U.S. shareholder generally will not qualify for the preferential tax rate
for “qualified dividend income” (currently, a 20% maximum rate). Qualified dividend income generally includes dividends paid by domestic C
corporations and certain qualified foreign corporations to most noncorporate U.S. shareholders. Because a REIT is not generally subject to U.S.
federal income tax on the portion of its REIT taxable income distributed to its shareholders, CubeSmart’s dividends generally will not be eligible for
the preferential tax rate on qualified dividend income. As a result, CubeSmart’s ordinary REIT dividends will be taxed at the higher rate applicable
to ordinary income. Currently, the highest marginal individual income tax rate on ordinary income is 39.6%. However, the preferential tax rate for
qualified dividend income will apply to CubeSmart’s ordinary REIT dividends, if any, that are (i) attributable to dividends received by CubeSmart
from non-REIT corporations, such as our taxable REIT subsidiaries, and (ii) attributable to income upon which CubeSmart has paid corporate
income tax (e.g., to the extent that CubeSmart distributes less than 100% of CubeSmart’s taxable income). In general, to qualify for the preferential
tax rate on qualified dividend income, a U.S. shareholder must hold CubeSmart common shares or preferred shares for more than 60 days during the
121-day period beginning on the date that is 60 days before the date on which the common shares or preferred shares become ex-dividend.
With respect to common shares, CubeSmart may distribute taxable dividends that are payable partly in cash and partly in
CubeSmart common shares. Taxable U.S. shareholders receiving such dividends will be required to include the full amount of the dividends as
ordinary income to the extent of CubeSmart’s current and accumulated earnings and profits.
Any distribution CubeSmart declares in October, November, or December of any year that is payable to a U.S. shareholder of
record on a specified date in any of those months will be treated as paid by CubeSmart and received by the U.S. shareholder on December 31 of the
year, provided CubeSmart actually pays the distribution during January of the following calendar year.
Distributions to a U.S. shareholder which CubeSmart designates as capital gain dividends will generally be treated as long-term
capital gain, without regard to the period for which the U.S. shareholder has held its common shares or preferred shares. In general, U.S.
shareholders will be taxable on long term capital gains at a maximum rate of 20%, except that the portion of such gain that is attributable to
depreciation recapture will be taxable at
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the maximum rate of 25%. A corporate U.S. shareholder, however, may be required to treat up to 20% of certain capital gain dividends as ordinary
income.
Effective for distributions paid or treated as being paid in taxable years beginning after December 31, 2015, the aggregate amount
of dividends that CubeSmart may designate as “capital gain dividends” or “qualified dividend income” with respect to any taxable year may not
exceed the dividends paid by CubeSmart with respect to such taxable year, including dividends that are paid in the following taxable year and
treated as having been paid with respect to such taxable year by being (1) declared before CubeSmart timely files its tax return for such taxable year
and (2) paid with or before the first regular dividend payment after such declaration.
CubeSmart may elect to retain and pay income tax on the net long-term capital gain that CubeSmart receives in a taxable year. In
that case, a U.S. shareholder would be taxed on its proportionate share of CubeSmart’s undistributed long-term capital gain. The U.S. shareholder
would receive a credit or refund for its proportionate share of the tax CubeSmart paid. The U.S. shareholder would increase the basis in its common
shares or preferred shares by the amount of its proportionate share of CubeSmart’s undistributed long-term capital gain, minus its share of the tax
CubeSmart paid.
A U.S. shareholder will not incur tax on a distribution in excess of CubeSmart’s current and accumulated earnings and profits if
the distribution does not exceed the adjusted basis of the U.S. shareholder’s common shares or preferred shares. Instead, the distribution will
reduce the adjusted basis of the shares, and any amount in excess of both CubeSmart’s current and accumulated earnings and profits and the
adjusted basis will be treated as capital gain, long-term capital gain if the shares have been held for more than one year, provided the shares are a
capital asset in the hands of the U.S. shareholder.
Shareholders may not include in their individual income tax returns any of CubeSmart’s net operating losses or capital losses.
Instead, these losses are generally carried over by CubeSmart for potential offset against CubeSmart’s future income. Taxable distributions from
CubeSmart and gain from the disposition of common shares or preferred shares will not be treated as passive activity income; and, therefore,
shareholders generally will not be able to apply any “passive activity losses,” such as losses from certain types of limited partnerships in which
the shareholder is a limited partner, against such income. In addition, taxable distributions from CubeSmart and gain from the disposition of
common shares or preferred shares generally will be treated as investment income for purposes of the investment interest limitations. CubeSmart
will notify shareholders after the close of its taxable year as to the portions of the distributions attributable to that year that constitute ordinary
income, return of capital, and capital gain.
Taxation of U.S. Shareholders on the Disposition of Common and Preferred Shares
In general, a U.S. shareholder who is not a dealer in securities must treat any gain or loss realized upon a taxable disposition of
CubeSmart’s common or preferred shares as long-term capital gain or loss if the U.S. shareholder has held the shares for more than one year, and
otherwise as short-term capital gain or loss. In general, a U.S. shareholder will realize gain or loss in an amount equal to the difference between the
sum of the fair market value of any property and the amount of cash received in such disposition and the U.S. shareholder’s adjusted tax basis. A
U.S. shareholder’s adjusted tax basis generally will equal the U.S. shareholder’s acquisition cost, increased by the excess of net capital gains
deemed distributed to the U.S. shareholder less tax deemed paid by it and reduced by any returns of capital. However, a U.S. shareholder must
treat any loss upon a sale or exchange of common or preferred shares held by such shareholder for six months or less as a long-term capital loss to
the extent of capital gain dividends and any actual or deemed distributions from CubeSmart that such U.S. shareholder treats as long-term capital
gain. All or a portion of any loss that a U.S. shareholder realizes upon a taxable disposition of common or preferred shares may be disallowed if the
U.S. shareholder purchases other common shares or preferred shares within 30 days before or after the disposition.
If a U.S. shareholder recognizes a loss upon a subsequent disposition of CubeSmart shares in an amount that exceeds a
prescribed threshold, it is possible that the provisions of Treasury regulations involving “reportable transactions” could apply, with a resulting
requirement to separately disclose the loss generating transactions to the IRS. While these regulations are directed towards “tax shelters,” they are
written broadly, and apply to transactions that would not typically be considered tax shelters. Significant penalties apply for failure to comply with
these requirements. You should consult your tax advisor concerning any possible disclosure obligation with respect to the receipt or disposition
of CubeSmart shares, or transactions that might be undertaken directly or indirectly by us.
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Moreover, you should be aware that CubeSmart and other participants in transactions involving CubeSmart (including our advisors) might be
subject to disclosure or other requirements pursuant to these regulations.
The tax-rate differential between capital gain and ordinary income for non-corporate taxpayers may be significant. A taxpayer
generally must hold a capital asset for more than one year for gain or loss derived from its sale or exchange to be treated as long-term capital gain
or loss. The highest marginal individual income tax rate is currently 39.6%. The maximum tax rate on long-term capital gain applicable to U.S.
shareholders taxed at individual rates is 20%. The maximum tax rate on long-term capital gain from the sale or exchange of “section 1250
property” (i.e., generally, depreciable real property) is 25% to the extent the gain would have been treated as ordinary income if the property were
“section 1245 property” (i.e., generally, depreciable personal property). CubeSmart generally may designate whether a distribution CubeSmart
designates as capital gain dividends (and any retained capital gain that CubeSmart is deemed to distribute) is taxable to non-corporate
shareholders at a 20% or 25% rate. The characterization of income as capital gain or ordinary income may affect the deductibility of capital losses.
A non-corporate taxpayer may deduct capital losses not offset by capital gains against its ordinary income only up to a maximum of $3,000
annually. A non-corporate taxpayer may carry unused capital losses forward indefinitely. A corporate taxpayer must pay tax on its net capital gain
at corporate ordinary-income rates. A corporate taxpayer may deduct capital losses only to the extent of capital gains, with unused losses carried
back three years and forward five years.
Redemption of Preferred Shares
Whenever we redeem any preferred shares, the treatment accorded to any redemption by us for cash (as distinguished from a
sale, exchange or other disposition) of our preferred shares to a U.S. shareholder of such preferred shares can only be determined on the basis of
the particular facts as to each holder at the time of redemption. In general, a U.S. shareholder of our preferred shares will recognize capital gain or
loss measured by the difference between the amount received by the holder of such shares upon the redemption and such holder’s adjusted tax
basis in the preferred shares redeemed (provided the preferred shares are held as a capital asset) if such redemption (i) results in a “complete
termination” of the holder’s interest in all classes of our shares under Section 302(b)(3) of the Code, or (ii) is “not essentially equivalent to a
dividend” with respect to the holder of the preferred shares under Section 302(b)(1) of the Code. In applying these tests, there must be taken into
account not only the preferred shares being redeemed, but also such holder’s ownership of other classes and series of our shares and any options
(including stock purchase rights) to acquire any of the foregoing. The U.S. shareholder of our preferred shares also must take into account any
such securities (including options) which are considered to be owned by such holder by reason of the constructive ownership rules set forth in
Sections 318 and 302(c) of the Code.
If the U.S. shareholder of preferred shares owns (actually or constructively) none of our voting shares, or owns an insubstantial
amount of our voting shares, based upon current law, it is probable that the redemption of preferred shares from such a holder would be
considered to be “not essentially equivalent to a dividend.” However, whether a distribution is “not essentially equivalent to a dividend” depends
on all of the facts and circumstances, and a U.S. shareholder of our preferred shares intending to rely on any of the tests in this or the preceding
paragraph at the time of redemption should consult its tax advisor to determine their application to its particular situation. If the redemption does
not meet any of the tests under Section 302 of the Code, then the redemption proceeds received from our preferred shares will be treated as a
distribution on our shares as described under “Taxation of U.S. Shareholders — Taxation of Taxable U.S. Shareholders — Taxation of U.S.
Shareholders on Distributions.” If the redemption of a holder’s preferred shares is taxed as a dividend, the adjusted basis of such holder’s
redeemed preferred shares will be transferred to any other shares held by the holder.
If the holder owns no other shares, under certain circumstances, such basis may be transferred to a related person, or it may be lost entirely.
With respect to a redemption of our preferred shares that is treated as a distribution with respect to our shares, which is not
otherwise taxable as a dividend, the IRS has proposed Treasury regulations that would require any basis reduction associated with such a
redemption to be applied on a share-by-share basis which could result in taxable gain with respect to some shares, even though the holder’s
aggregate basis for the shares would be sufficient to absorb the entire amount of the redemption distribution (in excess of any amount of such
distribution treated as a dividend). Additionally, these proposed Treasury regulations would not permit the transfer of basis in the redeemed
shares of the preferred shares to the remaining shares held (directly or indirectly) by the redeemed holder. Instead, the unrecovered basis in our
preferred shares would be treated as a deferred loss to be recognized when certain conditions are satisfied. These proposed Treasury regulations
would be effective for transactions that occur after the date the regulations are
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published as final Treasury regulations. There can, however, be no assurance as to whether, when, and in what particular form such proposed
Treasury regulations will ultimately be finalized.
Conversion of Our Preferred Shares into Common Shares.
Except as provided below, a U.S. shareholder generally will not recognize gain or loss upon the conversion of our preferred
shares into our common shares. Except as provided below, a U.S. shareholder’s basis and holding period in the common shares received upon
conversion generally will be the same as those of the converted preferred shares (but the basis will be reduced by the portion of adjusted tax basis
allocated to any fractional common share exchanged for cash). Any common shares received in a conversion that is attributable to accumulated
and unpaid dividends on the converted preferred shares will be treated as a distribution on our shares as described above in “Taxation of U.S.
Shareholders — Taxation of Taxable U.S. Shareholders — Taxation of U.S. Shareholders on Distributions.” Cash received upon conversion in lieu
of a fractional common share generally will be treated as a payment in a taxable exchange for such fractional common share, and gain or loss will be
recognized on the receipt of cash in an amount equal to the difference between the amount of cash received and the adjusted tax basis allocable to
the fractional common share deemed exchanged. This gain or loss will be long-term capital gain or loss if the U.S. shareholder has held the
preferred shares for more than one year. See “— Taxation of U.S. Shareholders — Taxation of Taxable U.S. Shareholders — Taxation of U.S.
Shareholders on the Disposition of Common and Preferred Shares.” U.S. shareholders should consult with their tax advisors regarding the U.S.
federal income tax consequences of any transaction by which such holder exchanges common shares received on a conversion of preferred shares
for cash or other property.
Medicare Tax on Investment Income
Certain U.S. shareholders and U.S. Holders (as defined below) who are individuals, estates or trusts and whose income exceeds
certain thresholds may be required to pay a 3.8% Medicare tax on “net investment income” which includes, among other things, dividends on
shares, interest on debentures and capital gains from the sale or other disposition of shares or debentures, subject to certain exceptions.
Prospective investors should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of our
common shares, preferred shares or debentures.
Information Reporting Requirements and Backup Withholding.
CubeSmart will report to its shareholders and to the IRS the amount of distributions CubeSmart pays during each calendar year
and the amount of tax it withholds, if any. A shareholder may be subject to backup withholding at a rate of up to 28% with respect to distributions
unless the holder:
· is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact; or
· provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies
with the applicable requirements of the backup withholding rules.
A shareholder who does not provide CubeSmart with its correct taxpayer identification number also may be subject to penalties
imposed by the IRS. In addition, CubeSmart may be required to withhold a portion of capital gain distributions to any shareholders who fail to
certify their non-foreign status to CubeSmart. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding
rules may be allowed as a refund or a credit against the shareholder’s income tax liability, provided the required information is timely furnished to
the IRS.
Taxation of Tax-Exempt Shareholders
Tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts and
annuities, generally are exempt from U.S. federal income taxation. However, they are subject to taxation on their “unrelated business taxable
income.” While many investments in real estate generate unrelated business taxable income, the IRS has issued a ruling that dividend distributions
from a REIT to an exempt employee pension trust do not constitute unrelated business taxable income so long as the exempt employee pension
trust does not otherwise use the shares of the REIT in an unrelated trade or business of the pension trust. Based on that ruling, amounts
CubeSmart distributes to tax-exempt shareholders generally should not constitute unrelated business taxable income. However, if a
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tax-exempt shareholder were to finance its acquisition of common shares or preferred shares with debt, a portion of the income it received from
CubeSmart would constitute unrelated business taxable income pursuant to the “debt-financed property” rules. Furthermore, social clubs,
voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans that are exempt from
taxation under special provisions of the U.S. federal income tax laws are subject to different unrelated business taxable income rules, which
generally will require them to characterize distributions they receive from CubeSmart as unrelated business taxable income.
In certain circumstances, a qualified employee pension or profit-sharing trust that owns more than 10% of CubeSmart’s shares of
beneficial interest (by value) must treat a percentage of the dividends it receives from CubeSmart as unrelated business taxable income. Such
percentage is equal to the gross income CubeSmart derives from an unrelated trade or business, determined as if CubeSmart were a pension trust,
divided by its total gross income for the year in which it pays the dividends. This rule applies to a pension trust holding more than 10% of
CubeSmart shares only if:
· the percentage of CubeSmart’s dividends which the tax-exempt trust must treat as unrelated business taxable income is at least
5%;
· CubeSmart is a “pension-held REIT,” that is, CubeSmart qualifies as a REIT by reason of the modification of the rule requiring
that no more than 50% of CubeSmart’s shares of beneficial interest be owned by five or fewer individuals that allows the
beneficiaries of the pension trust to be treated as holding CubeSmart’s shares in proportion to their actuarial interests in the
pension trust; and
· either: (i) one pension trust owns more than 25% of the value of CubeSmart’s shares of beneficial interest; or (ii) one or more
pension trusts each individually holding more than 10% of the value of CubeSmart’s shares of beneficial interest collectively
owns more than 50% of the value of CubeSmart’s shares of beneficial interest.
more than 10% of the value of its shares, or CubeSmart from becoming a pension-held REIT.
Certain restrictions on ownership and transfer of CubeSmart’s shares should generally prevent a tax-exempt entity from owning
consequences of the acquisition, ownership and disposition of CubeSmart shares.
Tax-exempt U.S. shareholders are urged to consult their tax advisor regarding the U.S. federal, state, local and foreign tax
Taxation of Non-U.S. Shareholders
The term “non-U.S. shareholder” means a holder of CubeSmart common shares or preferred shares that is not a U.S. shareholder
or a partnership (or an entity treated as a partnership for U.S. federal income tax purposes). The rules governing U.S. federal income taxation of
non-U.S. shareholders are complex. This section is only a summary of such rules. We urge non-U.S. shareholders to consult their own tax advisors
to determine the impact of federal, state, local and foreign income tax laws on ownership of common shares or preferred shares, including any
reporting requirements.
Taxation of Distributions. A non-U.S. shareholder that receives a distribution which is not attributable to gain from CubeSmart’s
sale or exchange of a “United States real property interest” (“USRPI”) (discussed below) and that CubeSmart does not designate a capital gain
dividend or retained capital gain will recognize ordinary income to the extent that CubeSmart pays such distribution out of CubeSmart’s current or
accumulated earnings and profits.
A withholding tax equal to 30% of the gross amount of the distribution ordinarily will apply unless an applicable tax treaty reduces or eliminates
the tax. However, a non-U.S. shareholder generally will be subject to U.S. federal income tax at graduated rates on any distribution treated as
effectively connected with the non-U.S. shareholder’s conduct of a U.S. trade or business, in the same manner as U.S. shareholders are taxed on
distributions. A corporate non-U.S. shareholder may, in addition, be subject to the 30% branch profits tax with respect to that distribution.
CubeSmart plans to withhold U.S. income tax at the rate of 30% on the gross amount of any distribution paid to a non-U.S. shareholder unless
either:
· a lower treaty rate applies and the non-U.S. shareholder files a properly completed IRS Form W-8BEN or W-8BEN-E (or other
applicable form) evidencing eligibility for that reduced rate with us; or
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· the non-U.S. shareholder files an IRS Form W-8ECI (or other applicable form) with CubeSmart claiming that the distribution is
effectively connected income.
A non-U.S. shareholder will not incur tax on a distribution in excess of CubeSmart’s current and accumulated earnings and
profits if the excess portion of such distribution does not exceed the adjusted basis of its common shares or preferred shares. Instead, the excess
portion of the distribution will reduce the adjusted basis of such shares. A non-U.S. shareholder will be subject to tax on a distribution that
exceeds both CubeSmart’s current and accumulated earnings and profits and the adjusted basis of its shares, if the non-U.S. shareholder otherwise
would be subject to tax on gain from the sale or disposition of common shares or preferred shares, as described below. Because CubeSmart
generally cannot determine at the time CubeSmart makes a distribution whether the distribution will exceed CubeSmart’s current and accumulated
earnings and profits, CubeSmart normally will withhold tax on the entire amount of any distribution at the same rate as CubeSmart would withhold
on a dividend. However, a non-U.S. shareholder may obtain a refund of amounts CubeSmart withholds if CubeSmart later determines that a
distribution in fact exceeded CubeSmart’s current and accumulated earnings and profits.
CubeSmart may be required to withhold 15% (increased from 10% effective February 17, 2016) of any distribution that exceeds
CubeSmart’s current and accumulated earnings and profits. Consequently, although CubeSmart intends to withhold at a rate of 30% on the entire
amount of any distribution, to the extent CubeSmart does not do so, CubeSmart may withhold at a rate of 15% on any portion of a distribution not
subject to withholding at a rate of 30%.
For any year in which CubeSmart qualifies as a REIT, except as discussed below with respect to 10% or less holders of regularly
traded classes of shares, a non-U.S. shareholder will incur tax on distributions attributable to gain from CubeSmart’s sale or exchange of a USRPI
under the Foreign Investment in Real Property Tax Act of 1980, or “FIRPTA.” A USRPI includes certain interests in real property and shares in
United States corporations at least 50% of whose assets consist of interests in real property. Under FIRPTA, a non-U.S. shareholder is taxed on
distributions attributable to gain from sales of USRPIs as if the gain were effectively connected with the conduct of a U.S. business of the non-U.S.
shareholder. A non-U.S. shareholder would be taxed on such a distribution at the normal capital gain rates applicable to U.S. shareholders, subject
to applicable alternative minimum tax and a special alternative minimum tax in the case of a nonresident alien individual. A non-U.S. corporate
shareholder not entitled to treaty relief or exemption also may be subject to the 30% branch profits tax on such a distribution. CubeSmart must
withhold 35% of any distribution that CubeSmart could designate as a capital gain dividend. A non-U.S. shareholder may receive a credit against
its tax liability for the amount CubeSmart withholds.
Effective December 18, 2015, our shares will not be treated as a USRPI when held, directly or indirectly, by a qualified
shareholder and, therefore, FIRPTA will not apply to such shares. However, certain investors in a qualified shareholder that owns more than 10%
of our shares (directly or indirectly) that are not themselves qualified shareholders may be subject to FIRPTA withholding. A “qualified
shareholder” is a foreign entity that (1)(i) is eligible for the benefits of a comprehensive income tax treaty with the United States that includes an
exchange of information program and the principal class of interests of which is listed and regularly traded on one or more recognized stock
exchanges (as defined in such comprehensive income tax treaty), or (ii) is a foreign partnership that is created or organized under foreign law as a
limited partnership in a jurisdiction that has an agreement for the exchange of information with respect to taxes with the United States and has a
class of limited partnership units which is regularly traded on the New York Stock Exchange or Nasdaq Stock Market and the value of such class of
limited partnership units is greater than 50% of the value of all of the partnership units of the foreign partnership, (2) is a qualified collective
investment vehicle, and (3) maintains records on the identity of each person who, at any time during the foreign person’s taxable year, holds
directly 5% or more of the class of interests described in (1)(i) or (ii). A “qualified collective investment vehicle” is a foreign person that (x) under
the comprehensive income tax treaty described in (1)(i) or (ii) would be eligible for a reduced rate of withholding with respect to dividends paid by
a REIT even if such person owned more than 10% of the REIT, (y) is a publicly traded partnership that is a withholding foreign partnership, and
would be treated as a United States real property holding corporation if it were a United States corporation, or (z) which is designated as a qualified
collective investment vehicle by the Secretary of the Treasury and is either (1) fiscally transparent or (2) required to include dividends in its gross
income, but is entitled to a deduction for distributions to its equity investors. Additionally, effective December 18, 2015, qualified foreign pension
funds will not be subject to FIRPTA withholding. The rules concerning qualified shareholders and qualified foreign pension funds are complex
and investors who believe they may be qualified shareholders or qualified foreign pension funds should consult with their own tax advisors to find
out if these rules are applicable to them.
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However, distributions attributable to gain from sales or exchanges by CubeSmart of USRPIs are treated as ordinary dividends
(not subject to the 35% withholding tax under FIRPTA) if the distribution is made to a non-U.S. shareholder with respect to any class of shares
which is “regularly traded” on an established securities market located in the United States and if the non-U.S. shareholder did not own more than
5% of such class of shares at any time during the taxable year. Such distributions will generally be subject to a 30% U.S. withholding tax (subject
to reduction under applicable treaty) but a non-U.S. shareholder will not be required to report the distribution on a U.S. tax return. In addition, the
branch profits tax will not apply to such distributions.
Taxation of Disposition of Shares. A non-U.S. shareholder generally will not incur tax under FIRPTA with respect to gain on a
sale of common shares or preferred shares as long as CubeSmart is a “domestically-controlled REIT,” which means that at all times non-U.S.
persons hold, directly or indirectly, less than 50% in value of all outstanding CubeSmart shares.
CubeSmart cannot assure you that this test will be met. Further, even if CubeSmart is a domestically controlled REIT, pursuant to “wash sale”
rules under FIRPTA, a non-U.S. shareholder may incur tax under FIRPTA. The “wash sale” rule applies to the extent such non-U.S. shareholder
disposes of CubeSmart shares during the 30-day period preceding a dividend payment, and such non-U.S. shareholder (or a person related to such
non-U.S. shareholder) acquires or enters into a contract or option to acquire CubeSmart common shares or preferred shares within 61 days of the
1st day of the 30 day period described above, and any portion of such dividend payment would, but for the disposition, be treated as a USRPI
capital gain to such non-U.S. shareholder, then such non-U.S. shareholder shall be treated as having USRPI capital gain in an amount that, but for
the disposition, would have been treated as USRPI capital gain.
In addition, a non-U.S. shareholder that owns, actually or constructively, 10% or less of the outstanding common shares or
preferred shares at all times during a specified testing period will not incur tax under FIRPTA on gain from a sale of such common shares or
preferred shares if such shares are “regularly traded” on an established securities market. Because CubeSmart’s common shares and preferred
shares are “regularly traded” on an established securities market, CubeSmart expects that a non-U.S. shareholder generally will not incur tax under
FIRPTA on gain from a sale of common shares or preferred shares unless it owns or has owned more than 10% of such common shares or
preferred shares at any time during the five year period to such sale. Any gain subject to tax under FIRPTA will be treated in the same manner as it
would be in the hands of U.S. shareholders, subject to alternative minimum tax, but under a special alternative minimum tax in the case of
nonresident alien individuals, and the purchaser of the shares could be required to withhold 10% of the purchase price and remit such amount to
the IRS.
A non-U.S. shareholder generally will incur tax on gain not subject to FIRPTA if:
· the gain is effectively connected with the conduct of the non-U.S. shareholder’s U.S. trade or business, in which case the non-
U.S. shareholder will be subject to the same treatment as U.S. shareholders with respect to the gain; or
· the non-U.S. shareholder is a nonresident alien individual who was present in the U.S. for 183 days or more during the taxable
year and has a “tax home” in the United States, in which case the non-U.S. shareholder will incur a 30% tax on capital gains.
Redemptions of Our Preferred Shares. Whenever we redeem any preferred shares, the treatment accorded to any redemption by
us for cash (as distinguished from a sale, exchange or other disposition) of our preferred shares to a non-U.S. shareholder of such preferred shares
can only be determined on the basis of the particular facts as to each holder at the time of redemption. In general, a non-U.S. shareholder of our
preferred shares will recognize capital gain or loss measured by the difference between the amount received by the holder of such shares upon the
redemption and such holder’s adjusted tax basis in the preferred shares redeemed (provided the preferred shares are held as a capital asset) if such
redemption (i) results in a “complete termination” of the holder’s interest in all classes of our shares under Section 302(b)(3) of the Code, or (ii) is
“not essentially equivalent to a dividend” with respect to the holder of the preferred shares under Section 302(b)(1) of the Code. In applying these
tests, there must be taken into account not only the preferred shares being redeemed, but also such holder’s ownership of other classes and series
of our shares and any options (including stock purchase rights) to acquire any of the foregoing. The non-U.S. shareholder of our preferred shares
also must take into account any such securities (including options) which are considered to be owned by such holder by reason of the
constructive ownership rules set forth in Sections 318 and 302(c) of the Code.
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If the non-U.S. shareholder of preferred shares owns (actually or constructively) none of our voting shares, or owns an
insubstantial amount of our voting shares, based upon current law, it is probable that the redemption of preferred shares from such a holder would
be considered to be “not essentially equivalent to a dividend.” However, whether a distribution is “not essentially equivalent to a dividend”
depends on all of the facts and circumstances, and a non-U.S. shareholder of our preferred shares intending to rely on any of the tests in this or
the preceding paragraph at the time of redemption should consult its tax advisor to determine their application to its particular situation. If the
redemption does not meet any of the tests under Section 302 of the Code, then the redemption proceeds received from our preferred shares will be
treated as a distribution on our shares as described under “Taxation of Shareholders — Taxation of Non-U.S. Shareholders — Taxation of
Distributions.”
If the redemption of a holder’s preferred shares is taxed as a dividend, the adjusted basis of such holder’s redeemed preferred
shares will be transferred to any other shares held by the holder. If the holder owns no other shares, under certain circumstances, such basis may
be transferred to a related person, or it may be lost entirely.
With respect to a redemption of our preferred shares that is treated as a distribution with respect to our shares, which is not
otherwise taxable as a dividend, the IRS has proposed Treasury regulations that would require any basis reduction associated with such a
redemption to be applied on a share-by-share basis which could result in taxable gain with respect to some shares, even though the holder’s
aggregate basis for the shares would be sufficient to absorb the entire amount of the redemption distribution (in excess of any amount of such
distribution treated as a dividend). Additionally, these proposed Treasury regulations would not permit the transfer of basis in the redeemed
shares of the preferred shares to the remaining shares held (directly or indirectly) by the redeemed holder. Instead, the unrecovered basis in our
preferred shares would be treated as a deferred loss to be recognized when certain conditions are satisfied. These proposed Treasury regulations
would be effective for transactions that occur after the date the regulations are published as final Treasury regulations. There can, however, be no
assurance as to whether, when, and in what particular form such proposed Treasury regulations will ultimately be finalized.
Conversion of Our Preferred Shares into Common Shares. Except as provided below, a non-U.S. shareholder generally will not
recognize gain or loss upon the conversion of our preferred shares into our common shares, provided our preferred shares do not constitute a
USRPI. Even if our preferred shares do constitute a USRPI, provided our common shares also constitute a USRPI, a non-U.S. shareholder generally
will not recognize gain or loss upon a conversion of our preferred shares into our common shares provided certain reporting requirements are
satisfied. Except as provided below, a non-U.S. shareholder’s basis and holding period in the common shares received upon conversion will be the
same as those of the converted preferred shares (but the basis will be reduced by the portion of adjusted tax basis allocated to any fractional
common share exchanged for cash). Any common shares received in a conversion that are attributable to accumulated and unpaid dividends on
the converted preferred shares will be treated as a distribution on our shares as described under “— Taxation of Shareholders — Taxation of Non-
U.S. Shareholders — Taxation of Distributions.” Cash received upon conversion in lieu of a fractional common share generally will be treated as a
payment in a taxable exchange for such fractional common share as described under “— Taxation of Shareholders — Taxation of Non-U.S.
Shareholders — Taxation of Disposition of Shares.” Non-U.S. shareholders should consult with their tax advisor regarding the U.S. federal income
tax consequences of any transaction by which such holder exchanges common shares received on a conversion of preferred shares for cash or
other property.
Information Reporting and Backup Withholding Applicable to non-U.S. Shareholders
CubeSmart must report annually to the IRS and to each non-U.S. shareholder the amount of dividends paid to such holder and
the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such
dividends and withholding may also be made available to the tax authorities in the country in which the non-U.S. shareholder resides under the
provisions of an applicable income tax treaty.
Payments of dividends or of proceeds from the disposition of shares made to a non-U.S. shareholder may be subject to
information reporting and backup withholding unless such holder establishes an exemption, for example, by properly certifying its non-United
States status on a properly completed IRS Form W-8 BEN or W-8BEN-E or another appropriate version of IRS Form W-8. Notwithstanding the
foregoing, backup withholding may apply if either CubeSmart or its paying agent has actual knowledge, or reason to know, that a non-U.S.
shareholder is a United States person.
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refund or a credit against the shareholder’s income tax liability, provided the required information is timely furnished to the IRS.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a
Additional Withholding Requirements under “FATCA”
Under Sections 1471 through 1474 of the Code (such Sections commonly referred to as “FATCA”), payments of dividends to a
non-U.S. shareholder will be subject to 30% withholding tax if the non-U.S. shareholder fails to provide the withholding agent with documentation
sufficient to show that it is compliant with the FATCA or otherwise exempt from withholding under FATCA. Generally, such documentation is
provided on an executed IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable. If a dividend payment is both subject to withholding under
FATCA and subject to withholding tax discussed above, the withholding under FATCA may be credited against, and therefore reduce, such other
withholding tax. Starting in 2019, the gross proceeds from certain capital gain dividends or the disposition of our common stock may also be
subject to FATCA withholding absent proof of FATCA compliance prior to January 1, 2019. Non-U.S. shareholders should consult their tax
advisors to determine the applicability of this legislation in light of their individual circumstances.
Legislative or Other Actions Affecting REITs
The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process
and by the IRS and the U.S. Treasury Department. No assurance can be given as to whether, when, or in what form, the U.S. federal income tax
laws applicable to CubeSmart and its shareholders may be enacted. Changes to the federal tax laws and interpretations of U.S. federal tax laws
could adversely affect an investment in CubeSmart shares.
Taxation of Holders of Debt Securities
This section describes the material U.S. federal income tax consequences of owning the debt securities that the Operating
Partnership may offer. This summary is for general information only and is not tax advice. The tax consequences of owning any particular issue of
debt securities will be discussed in the applicable prospectus.
income tax purposes:
As used herein, a “U.S. Holder” means a beneficial owner of debt securities of the Operating Partnership, who is, for U.S. federal
· a citizen or individual resident of the United States,
· a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the
laws of the United States, or any of its states, or the District of Columbia,
· an estate the income of which is subject to U.S. federal income taxation regardless of its source, or
· any trust if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S.
persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a
U.S. person.
If a partnership holds debt securities, the tax treatment of a partner will generally depend upon the status of the partner and the
activities of the partnership. If you are a partner of a partnership holding debt securities of the Operating Partnership, you should consult your tax
advisor regarding the consequences of the ownership and disposition of debt securities by the partnership.
Taxation of Taxable U.S. Holders
paid or accrued, in accordance with the U.S. Holder’s method of accounting for U.S. federal income tax purposes.
Interest. The stated interest on debt securities generally will be taxable to a U.S. Holder as ordinary income at the time that it is
24
Original Issue Discount. If you own debt securities issued with original issue discount (“OID”), you will be subject to special
tax accounting rules, as described in greater detail below. In that case, you should be aware that you generally must include OID in gross income
in advance of the receipt of cash attributable to that income. However, you generally will not be required to include separately in income cash
payments received on the debt securities, even if denominated as interest, to the extent those payments do not constitute “qualified stated
interest,” as defined below. If we determine that a particular debt security will be an OID debt security, we will disclose that determination in the
prospectus relating to those debt securities.
A debt security with an “issue price” that is less than the “stated redemption price at maturity” (the sum of all payments to be
made on the debt security other than “qualified stated interest”) generally will be issued with OID if that difference is at least 0.25% of the stated
redemption price at maturity multiplied by the number of complete years to maturity. The “issue price” of each debt security in a particular offering
will be the first price at which a substantial amount of that particular offering is sold to the public. The term “qualified stated interest” means stated
interest that is unconditionally payable in cash or in property, other than debt instruments of the issuer, and the interest to be paid meets all of the
following conditions:
· it is payable at least once per year;
· it is payable over the entire term of the debt security; and
· it is payable at a single fixed rate or, subject to certain conditions, based on one or more interest indices.
determination in the prospectus relating to those debt securities.
If we determine that particular debt securities of a series will bear interest that is not qualified stated interest, we will disclose that
If you own a debt security issued with “de minimis” OID, which is discount that is not OID because it is less than 0.25% of the
stated redemption price at maturity multiplied by the number of complete years to maturity, you generally must include the de minimis OID in
income at the time principal payments on the debt securities are made in proportion to the amount paid. Any amount of de minimis OID that you
have included in income will be treated as capital gain.
Certain of the debt securities may contain provisions permitting them to be redeemed prior to their stated maturity at our option
and/or at your option. OID debt securities containing those features may be subject to rules that differ from the general rules discussed herein. If
you are considering the purchase of OID debt securities with those features, you should carefully examine the applicable prospectus and should
consult your own tax advisor with respect to those features since the tax consequences to you with respect to OID will depend, in part, on the
particular terms and features of the debt securities.
If you own OID debt securities with a maturity upon issuance of more than one year you generally must include OID in income
in advance of the receipt of some or all of the related cash payments using the “constant yield method” described in the following paragraphs.
This method takes into account the compounding of interest.
The amount of OID that you must include in income if you are the initial United States holder of an OID debt security is the sum
of the “daily portions” of OID with respect to the debt security for each day during the taxable year or portion of the taxable year in which you
held that debt security (“accrued OID”). The daily portion is determined by allocating to each day in any “accrual period” a pro rata portion of the
OID allocable to that accrual period. The “accrual period” for an OID debt security may be of any length and may vary in length over the term of
the debt security, provided that each accrual period is no longer than one year and each scheduled payment of principal or interest occurs on the
first day or the final day of an accrual period. The amount of OID allocable to any accrual period is an amount equal to the excess, if any, of:
· the debt security’s “adjusted issue price” at the beginning of the accrual period multiplied by its yield to maturity, determined on
the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period, over
· the aggregate of all qualified stated interest allocable to the accrual period.
25
OID allocable to a final accrual period is the difference between the amount payable at maturity, other than a payment of
qualified stated interest, and the adjusted issue price at the beginning of the final accrual period. Special rules will apply for calculating OID for an
initial short accrual period. The “adjusted issue price” of a debt security at the beginning of any accrual period is equal to its issue price increased
by the accrued OID for each prior accrual period, determined without regard to the amortization of any acquisition or bond premium, as described
below, and reduced by any payments made on the debt security (other than qualified stated interest) on or before the first day of the accrual
period. Under these rules, you will generally have to include in income increasingly greater amounts of OID in successive accrual periods. We are
required to provide information returns stating the amount of OID accrued on debt securities held of record by persons other than corporations
and other exempt holders.
Floating rate debt securities are subject to special OID rules. In the case of an OID debt security that is a floating rate debt
security, both the “yield to maturity” and “qualified stated interest” will be determined solely for purposes of calculating the accrual of OID as
though the debt security will bear interest in all periods at a fixed rate generally equal to the rate that would be applicable to interest payments on
the debt security on its date of issue or, in the case of certain floating rate debt securities, the rate that reflects the yield to maturity that is
reasonably expected for the debt security. Additional rules may apply if either:
· the interest on a floating rate debt security is based on more than one interest index; or
· the principal amount of the debt security is indexed in any manner.
This discussion does not address the tax rules applicable to debt securities with an indexed principal amount. If you are
considering the purchase of floating rate OID debt securities or securities with indexed principal amounts, you should carefully examine the
prospectus relating to those debt securities, and should consult your own tax advisor regarding the U.S. federal income tax consequences to you
of holding and disposing of those debt securities.
You may elect to treat all interest on any debt securities as OID and calculate the amount includible in gross income under the
constant yield method described above. For purposes of this election, interest includes stated interest, acquisition discount, OID, de minimis OID,
market discount, de minimis market discount and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. You
must make this election for the taxable year in which you acquired the debt security, and you may not revoke the election without the consent of
the IRS. You should consult with your own tax advisor about this election.
Market Discount. If you purchase debt securities, other than OID debt securities, after original issuance for an amount that is
less than their stated redemption price at maturity, or, in the case of OID debt securities, their adjusted issue price, the amount of the difference will
be treated as “market discount” for U.S. federal income tax purposes, unless that difference is less than a specified de minimis amount. Under the
market discount rules, you will be required to treat any principal payment on, or any gain on the sale, exchange, retirement or other disposition of,
the debt securities as ordinary income to the extent of the market discount that you have not previously included in income and are treated as
having accrued on the debt securities at the time of their payment or disposition. In addition, you may be required to defer, until the maturity of the
debt securities or their earlier disposition in a taxable transaction, the deduction of all or a portion of the interest expense on any indebtedness
attributable to the debt securities. You may elect, on a debt security-by-debt security basis, to deduct the deferred interest expense in a tax year
prior to the year of disposition. You should consult your own tax advisor before making this election.
Any market discount will be considered to accrue ratably during the period from the date of acquisition to the maturity date of
the debt securities, unless you elect to accrue on a constant interest method. You may elect to include market discount in income currently as it
accrues, on either a ratable or constant interest method, in which case the rule described above regarding deferral of interest deductions will not
apply. Your election to include market discount in income currently, once made, applies to all market discount obligations acquired by you on or
after the first taxable year to which your election applies and may not be revoked without the consent of the IRS. You should consult your own tax
advisor before making this election.
Acquisition Premium and Amortizable Bond Premium. If you purchase OID debt securities for an amount that is greater than
their adjusted issue price but equal to or less than the sum of all amounts payable on the debt securities after the purchase date other than
payments of qualified stated interest, you will be considered to have purchased those debt securities at an “acquisition premium.” Under the
acquisition premium rules, the amount of OID that you must include in gross income with respect to those debt securities for any taxable year will
be reduced by the portion of the acquisition premium properly allocable to that year.
26
If you purchase debt securities (including OID debt securities) for an amount in excess of the sum of all amounts payable on
those debt securities after the purchase date other than qualified stated interest, you will be considered to have purchased those debt securities at
a “premium” and, if they are OID debt securities, you will not be required to include any OID in income. You generally may elect to amortize the
premium over the remaining term of those debt securities on a constant yield method as an offset to interest when includible in income under your
regular accounting method.
In the case of debt securities that provide for alternative payment schedules, bond premium is calculated by assuming that
(a) you will exercise or not exercise options in a manner that maximizes your yield, and (b) we will exercise or not exercise options in a manner that
minimizes your yield. If you do not elect to amortize bond premium, that premium will decrease the gain or increase the loss you would otherwise
recognize on disposition of the debt security. Your election to amortize premium on a constant yield method will also apply to all debt obligations
held or subsequently acquired by you on or after the first day of the first taxable year to which the election applies. You may not revoke the
election without the consent of the IRS. You should consult your own tax advisor before making this election.
exchange, retirement, redemption or other taxable disposition of such debt securities in an amount equal to the difference between:
Sale, Exchange and Retirement of Debt Securities. A U.S. Holder of debt securities will recognize gain or loss upon the sale,
· the amount of cash and the fair market value of other property received in exchange for such debt securities, other than amounts
attributable to accrued but unpaid stated interest, which will be subject to tax as ordinary income to the extent not previously
included in income; and
· the U.S. Holder’s adjusted tax basis in such debt securities.
A U.S. Holder’s adjusted tax basis in a debt security generally will equal the cost of the debt security to such holder
(A) increased by the amount of OID or accrued market discount (if any) previously included in income by such holder and (B) decreased by the
amount of (1) any payments other than qualified stated interest payments and (2) any amortizable bond premium taken by the holder.
Any gain or loss recognized will generally be capital gain or loss, and such capital gain or loss will generally be long-term capital
gain or loss if the debt security has been held by the U.S. Holder for more than one year. Long-term capital gain for non-corporate taxpayers is
subject to reduced rates of U.S. federal income taxation (currently, a 20% maximum federal rate). The deductibility of capital losses is subject to
certain limitations.
If a U.S. Holder recognizes a loss upon a subsequent disposition of debt securities in an amount that exceeds a prescribed
threshold, it is possible that the provisions of Treasury regulations involving “reportable transactions” could apply, with a resulting requirement
to separately disclose the loss generating transactions to the IRS. While these regulations are directed towards “tax shelters,” they are written
broadly, and apply to transactions that would not typically be considered tax shelters. Significant penalties apply for failure to comply with these
requirements. You should consult your tax advisor concerning any possible disclosure obligation with respect to the receipt or disposition of debt
securities, or transactions that might be undertaken directly or indirectly by us. Moreover, you should be aware that we and other participants in
transactions involving us (including our advisors) might be subject to disclosure or other requirements pursuant to these regulations.
Medicare Tax on Investment Income
Certain U.S. Shareholders and U.S. Holders who are individuals, estates or trusts and whose income exceeds certain thresholds
may be required to pay a 3.8% Medicare tax on “net investment income” which includes, among other things, dividends on shares, interest on
debentures and capital gains from the sale or other disposition of shares or debentures, subject to certain exceptions. Prospective investors
should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of our common shares, preferred
shares or debentures.
Taxation of Tax-Exempt Holders of Debt Securities
unrelated business taxable income to a tax-exempt holder. As a result, a tax-exempt holder
Assuming the debt security is debt for tax purposes, interest income accrued on the debt security should not constitute
27
generally should not be subject to U.S. federal income tax on the interest income accruing on debt securities of the Operating Partnership.
Similarly, any gain recognized by the tax-exempt holder in connection with a sale of the debt security generally should not be unrelated business
taxable income. However, if a tax-exempt holder were to finance its acquisition of the debt security with debt, a portion of the interest income and
gain attributable to the debt security would constitute unrelated business taxable income pursuant to the “debt-financed property” rules. Tax-
exempt holders should consult their own counsel to determine the potential tax consequences of an investment in debt securities of the Operating
Partnership.
Taxation of Non-U.S. Holders of Debt Securities
The term “non-U.S. Holder” means a holder of debt securities of the Operating Partnership that is not a U.S. Holder or a
partnership (or an entity treated as a partnership for U.S. federal income tax purposes). The rules governing U.S. federal income taxation of non-
U.S. Holders are complex. This section is only a summary of such rules. We urge non-U.S. Holders to consult their own tax advisors to determine
the impact of federal, state, local and foreign income tax laws on ownership of debt securities, including any reporting requirements.
withholding tax under the “portfolio interest exemption,” provided that:
Interest. Interest (including OID) paid to a non-U.S. Holder of debt securities will not be subject to U.S. federal income or
· interest paid on debt securities is not effectively connected with a non-U.S. Holder’s conduct of a trade or business in the
United States;
· the non-U.S. Holder does not actually or constructively own 10% or more of the capital or profits interest in the Operating
Partnership;
· the non-U.S. Holder is not
· a controlled foreign corporation with respect to which the Operating Partnership is a “related person” within the
meaning of Section 864(d) of the Code; or
· a bank that receives such interest on an extension of credit made pursuant to a loan agreement entered into in the
ordinary course of its trade or business; and
· the beneficial owner of debt securities provides a certification, which is generally made on an IRS Form W-8BEN of W-8BEN-E or
other applicable form or a suitable substitute form and signed under penalties of perjury, that it is not a United States person.
A payment of interest (including OID) to a non-U.S. Holder that does not qualify for the portfolio interest exemption and that is
not effectively connected to a United States trade or business will be subject to United States federal withholding tax at a rate of 30%, unless a
United States income tax treaty applies to reduce or eliminate withholding.
A non-U.S. Holder will generally be subject to tax in the same manner as a U.S. Holder with respect to payments of interest
(including OID) if such payments are effectively connected with the conduct of a trade or business by the non-U.S. Holder in the United States
and, if an applicable tax treaty provides, such gain is attributable to a United States permanent establishment maintained by the non-U.S. Holder. In
some circumstances, such effectively connected income received by a non-U.S. Holder which is a corporation may be subject to an additional
“branch profits tax” at a 30% base rate or, if applicable, a lower treaty rate.
To claim the benefit of a lower treaty rate or to claim exemption from withholding because the income is effectively connected
with a United States trade or business, the non-U.S. Holder must provide a properly executed IRS Form W-8BEN or W-8BEN-E or IRS Form W-
8ECI or other applicable form, or a suitable substitute form, as applicable, prior to the payment of interest. Such certificate must contain, among
other information, the name and address of the non-U.S. Holder.
different rules.
Non-U.S. Holders are urged to consult their own tax advisors regarding applicable income tax treaties, which may provide
28
tax on gain realized on the sale, exchange or redemption of debt securities unless:
Sale or Retirement of Debt Securities. A non-U.S. Holder generally will not be subject to U.S. federal income tax or withholding
· the non-U.S. Holder is a non-resident alien individual who is present in the United States for 183 days or more in the taxable year
of the sale, exchange or redemption, and certain other conditions are met; or
· the gain is effectively connected with the conduct of a trade or business of the non-U.S. Holder in the United States and, if an
applicable tax treaty so provides, such gain is attributable to a United States permanent establishment maintained by such
holder.
Except to the extent that an applicable tax treaty provides otherwise, a non-U.S. Holder will generally be subject to tax in the
same manner as a U.S. Holder with respect to gain realized on the sale, exchange or redemption of debt securities if such gain is effectively
connected with the conduct of a trade or business by the non-U.S. Holder in the United States and, if an applicable tax treaty provides, such gain
is attributable to a United States permanent establishment maintained by the non-U.S. Holder. In certain circumstances, a non-U.S. Holder that is a
corporation will be subject to an additional “branch profits tax” at a 30% rate or, if applicable, a lower treaty rate on such income.
U.S. Federal Estate Tax. Your estate will not be subject to U.S. federal estate tax on the debt securities beneficially owned by
you at the time of your death, provided that any payment to you on the debt securities, including OID, would be eligible for exemption from the
30% U.S. federal withholding tax under the “portfolio interest exemption” described above, without regard to the certification requirement.
Information Reporting and Backup Withholding Applicable to Holders of Debt Securities
U.S. Holders
Certain U.S. Holders may be subject to information reporting requirements on payments of principal and interest (including OID)
on debt securities and payments of the proceeds of the sale, exchange, or redemption of debt securities, and backup withholding, currently
imposed at a rate of 28%, may apply to such payment if the U.S. Holder:
· fails to furnish an accurate taxpayer identification number, or TIN, to the payor in the manner required;
· is notified by the IRS that it has failed to properly report payments of interest or dividends; or
· under certain circumstances, fails to certify, under penalties of perjury, that it has furnished a correct TIN and that it has not
been notified by the IRS that it is subject to backup withholding.
Non-U.S. Holders
A non-U.S. Holder is generally not subject to backup withholding with respect to payments of interest (including OID) on debt
securities if it certifies as to its status as a non-U.S. Holder under penalties of perjury or if it otherwise establishes an exemption, provided that
neither we nor our paying agent has actual knowledge or reason to know that the non-U.S. Holder is a United States person or that the conditions
of any other exemptions are not, in fact, satisfied. Information reporting requirements, however, will apply to payments of interest (including OID)
to non-U.S. Holders where such interest is subject to withholding or exempt from United States withholding tax pursuant to a tax treaty. Copies of
these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in
which the non-U.S. Holder resides.
The payment of the proceeds from the disposition of debt securities to or through the United States office of any broker, United
States or foreign, will be subject to information reporting and possible backup withholding unless the owner certifies as to its non-United States
status under penalties of perjury or otherwise establishes an exemption, provided that the broker does not have actual knowledge or reason to
know that the non-U.S. Holder is a United States person or that the conditions of any other exemption are not, in fact, satisfied.
29
The payment of the proceeds from the disposition of debt securities to or through a non-United States office of a non-United
States broker that is not a “United States related person” generally will not be subject to information reporting or backup withholding. For this
purpose, a “United States related person” is:
· a controlled foreign corporation for U.S. federal income tax purposes;
· a foreign person 50% or more of whose gross income from all sources for the three-year period ending with the close of its
taxable year preceding the payment, or for such part of the period that the broker has been in existence, is derived from activities
that are effectively connected with the conduct of a United States trade or business; or
· a foreign partnership that at any time during the partnership’s taxable year is either engaged in the conduct of a trade or
business in the United States or of which 50% or more of its income or capital interests are held by United States persons.
In the case of the payment of proceeds from the disposition of debt securities to or through a non-United States office of a
broker that is either a United States person or a United States related person, the payment may be subject to information reporting unless the
broker has documentary evidence in its files that the owner is a non-U.S. Holder and the broker has no knowledge or reason to know to the
contrary. Backup withholding will not apply to payments made through foreign offices of a broker that is a United States person or a United States
related person, absent actual knowledge that the payee is a United States person.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a
Holder will be allowed as a refund or a credit against such Holder’s U.S. federal income tax liability, provided that the requisite procedures are
followed.
withholding and the procedure for obtaining such an exemption, if applicable.
Holders of debt securities are urged to consult their tax advisors regarding their qualification for exemption from backup
FATCA Withholding
Payments of interest to a non-U.S. holder will be subject to a 30% withholding tax if the non-U.S. holder fails to provide the
withholding agent with documentation sufficient to show that it is compliant with FATCA. Generally such documentation is provided on an
executed IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable. If interest is subject to the 30% tax under FATCA, it will not be subject to the
30% tax described above under “Taxation of Non-U.S. Shareholders” and “Taxation of Non-U.S. Holders of Debt Securities.” Effective on
January 1, 2019, payments of the gross proceeds may also be subject to FATCA withholding absent proof of FATCA compliance. Prospective
investors should consult their tax advisors regarding the possible implications of this legislation on their investment in common shares or
preferred shares of CubeSmart or debt securities of the Operating Partnership.
30
BOARD OF TRUSTEES
CORPORATE OFFICERS
CORPORATE INFORMATION
Christopher P. Marr
President and Chief Executive Officer
Timothy M. Martin
Chief Financial Officer
Transfer Agent
American Stock Transfer & Trust Co.,
LLC Operations Center
6201 15th Avenue
Brooklyn, NY 11219
877.237.6885
Jeffrey P. Foster
Senior Vice President and
Chief Legal Officer and Secretary
Stock Listing
CubeSmart trades on the New York
Stock Exchange under the symbol
CUBE
Annual Meeting
The annual meeting of shareholders will
be held at
5 Old Lancaster Road
Malvern, PA 19355
on May 31, 2017 at 8:00 A.M. ET
Corporate Headquarters
5 Old Lancaster Road
Malvern, PA 19355
Investor Relations
5 Old Lancaster Road
Malvern, PA 19355
610.535.5700
Form 10-K
The Annual Report on Form 10-K
filed with the Securities and
Exchange Commission is available
to shareholders without charge
upon written request to:
Investor Relations
5 Old Lancaster Road
Malvern, PA 19355
610.535.5700
Internet
Financial statements and other
information are available
electronically on CubeSmart’s web
site at www.cubesmart.com
William M. Diefenderfer III
Chairman of the Board
Partner, Diefenderfer, Hoover,
Boyle & Wood
Christopher P. Marr
President and Chief Executive Officer
Piero Bussani
Managing Director & Chief Legal Officer
Digital Bridge Holdings, LLC
John W. Fain
Senior Vice President,
Sales & Marketing (retired)
UPS Freight
Marianne M. Keler
Partner, Keler & Kershow, PLLC
John F. Remondi
President and Chief Executive Officer,
Navient
Jeffrey F. Rogatz
Managing Director,
Robert W. Baird & Co.
Deborah Ratner Salzberg
President,
Forest City Washington, Inc.
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, the Company has 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, 2016,
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, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. 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 the Company believes 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. 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, including the Company’s ability to maintain
or raise occupancy and rental rates; the execution of the Company’s business plan; the availability of external sources of capital; financing risks,
including the risk of over-leverage and the corresponding risk of default on the Company’s 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; the Company’s ability to maintain its status as a REIT for federal income tax purposes; acquisition and development risks;
increases in taxes, fees, and assessments from state and local jurisdictions; risks of investing through joint ventures; 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 in this Annual Report and, from time to time, in other reports
that the Company files with the Securities and Exchange Commission or in other documents that the Company publicly disseminates. The
Company undertakes 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 Old Lancaster Road
Malvern, PA 19355
www.cubesmart.com
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