Section 1: ARS
Table of Contents
2017 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 in most locations, climate-controlled storage
space for our residential and commercial customers. As of December 31, 2017, we owned 484 self-storage properties located in 23 states and the District of Columbia containing
an aggregate of approximately 33.8 million rentable square feet. In addition, as of December 31, 2017, we managed 452 stores for third parties, bringing the total number of stores
we operated to 936.
In 2017, we continued to deliver on our core strategic objectives of:
· Producing solid organic growth through a sophisticated operating platform and sound fundamental execution;
· Growing our portfolio of high-quality, well-positioned storage assets concentrated in targeted investment markets with appealing demographic trends and 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 another year of strong growth despite an increasing impact from new supply in many of our core markets. Funds from
operations per share, as adjusted, increased 10.4%, and operating cash flow growth supported an 11.1% increase in our annualized common dividend.
Solid Organic Growth
In a competitive operating environment characterized by high occupancies and increasing levels of new supply, the Company’s strong operating performance in 2017 reflects
the quality and commitment of our teammates. At CubeSmart, we strategically invest in people, training, and technology to better meet our customers’ needs and exceed their
expectations by providing a superior storage experience. In recognition of these efforts, CubeSmart has received numerous external awards for outstanding customer service –
namely, Stevie Awards for Customer Service Department of the Year, People’s Choice Stevie Awards for Favorite Customer Service, and ISS Best in Business Best Customer
Service Awards. Our more than 2,500 dedicated teammates serve with passion and exceed expectations to deliver our customer-centric service model every day.
We remain committed to building upon our proprietary operating platform, which sets us apart in an industry characterized by broad fragmentation, generic service offerings,
and relatively unsophisticated systems. In 2017, we continued to refine our digital marketing platform through strategies to build brand awareness across expanding media
channels and attract more customers searching for a solution to their storage needs. Additionally, we continue to enhance our revenue management processes by leveraging
sophisticated forecasting and optimization models to set pricing and promotion strategies that maximize the revenue potential from every rental opportunity.
As a result of these initiatives, same-store net operating income (“NOI”) grew by 5.1% in 2017, driven by increases in net effective rents that generated 4.4% revenue growth and
a 2.8% increase in annual operating expenses, primarily due to increases in real estate taxes offset by favorable utility costs and property insurance renewals. Our same-store
results for 2017 compare favorably to our peer group and the performance of other property sectors despite the headwinds from increasing levels of new supply.
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 or acquisition opportunities with joint-venture partners. In 2017, we acquired or opened for operation 11 properties located in our core
markets including New York City, Chicago, Washington DC, Dallas, Northern California, and South Florida for a total investment of $248.7 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 and developers who recognize the benefit of CubeSmart’s brand, sophisticated operating platform, real-time reporting, and back-office support. During the
past year, the number of stores in our third-party management program grew by 43.0%, from 316 at the end of 2016 to 452 at the end of 2017.
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Importantly, our third-party management platform increases CubeSmart’s scale and market penetration, adds a profitable revenue stream, and serves as an attractive pipeline for
future acquisition opportunities. Since the launch of our third-party management program in 2010, stores acquired from the program have accounted for approximately $600
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 2017, both Moody’s and Standard & Poor’s reaffirmed the Company’s credit ratings of Baa2/BBB, respectively. The Company
finished 2017 with debt to total gross assets of 38.0% and a secured debt balance that represented just 2.6% 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 2017, we prudently
utilized our “at-the-market” equity program to sell common shares, raising $29.6 million in net proceeds, and completed a public offering of unsecured senior notes, raising $100.0
million. We used the senior note proceeds to repay an unsecured term loan scheduled to mature in 2018. 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 2017, we
expanded our portfolio in targeted high-barrier-to-entry markets, delivered solid same-store NOI growth, and received additional national recognition for our customer service
efforts. Demand for self-storage remains healthy and we believe our national portfolio is well positioned to continue to meet the competitive challenges of new supply. We thank
you for your interest and support as we remain focused on creating long-term value for our shareholders.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
☒☒☒☒
☐☐☐☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
O R
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 ☒ No ☐
Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
CubeSmart
CubeSmart, L.P.
Yes ☐ No ☒
Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 ☒ No ☐
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
CubeSmart
CubeSmart, L.P.
Yes ☒ No ☐
Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
CubeSmart
CubeSmart, L.P.
Yes ☒ No ☐
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act:
CubeSmart:
Large accelerated filer ☒
CubeSmart, L.P.:
Large accelerated filer ☐
Accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
Non-accelerated filer ☒
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
CubeSmart
CubeSmart, L.P.
☐
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
CubeSmart
CubeSmart, L.P.
Yes ☐ No ☒
Yes ☐ No ☒
As of June 30, 2017, 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 $4,331,947,035. As of February 14, 2018, the number of common shares of
CubeSmart outstanding was 182,277,838.
As of June 30, 2017, the last business day of CubeSmart, L.P.’s most recently completed second fiscal quarter, the aggregate market value of the 2,471,554 units of limited partnership (the “OP Units”) held by non-affiliates of CubeSmart, L.P. was $59,416,158 based upon the last
reported sale price of $24.04 per share on the New York Stock Exchange on June 30, 2017 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 2018 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, 2017 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, 2017, owned a 99.0% interest in the Operating Partnership. The
remaining 1.0% 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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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
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Table of Contents
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mining Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III
Item 10.
Trustees, Executive Officers, and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13.
Certain Relationships and Related Transactions, and Trustee Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
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5
6
12
24
25
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37
39
44
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61
61
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PART I
Forward-Looking Statements
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;
the failure of our joint venture partners to fulfill their obligations to us or their pursuit of actions that are inconsistent with our objectives;
reductions in asset valuations and related impairment charges;
security breaches or a failure of our networks, systems or technology, which could adversely impact our business, customer and employee relationships;
changes in real estate and zoning laws or regulations;
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·
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 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, 2017, we owned 484 self-storage properties located in 23 states and in the District of Columbia containing an aggregate of approximately 33.8 million
rentable square feet. As of December 31, 2017, approximately 89.2% of the rentable square footage at our owned stores was leased to approximately 279,000 customers, and no
single customer represented a significant concentration of our revenues. As of December 31, 2017, 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, 2017, we managed 452 stores for third parties (including 117
stores containing an aggregate of approximately 6.9 million rentable square feet as part of four separate unconsolidated real estate ventures) bringing the total number of stores
we owned and/or managed to 936. As of December 31, 2017, we managed stores for third parties in the District of Columbia and the following 31 states: Alabama, Arizona,
California, Colorado, Connecticut, Florida, Georgia, Illinois, Kansas, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Jersey,
New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, Washington, West Virginia, and Wisconsin.
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 286, or approximately 59.1%, 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, 410, or approximately 84.7%, 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, 2017, owned an approximately 99.0% 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, 2017 and 2016, we owned 484 and 475 stores, respectively, that contained an aggregate of 33.8 million and 32.9 million rentable square feet with occupancy
levels of 89.2% and 89.7%, 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 2017, 2016 and 2015 acquisition and disposition activity:
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Asset/Portfolio
2017 Acquisitions:
Illinois Asset
Maryland Asset
California Asset
Texas Asset
Florida Asset
Illinois Asset
Florida Asset
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
Texas Asset
Maryland Asset
Maryland Asset
New York/New Jersey Assets
New Jersey Asset
PSI Assets
2015 Dispositions:
Texas Assets
Florida Asset
Market
Chicago
Baltimore / DC
Sacramento
Texas Markets - Major
Florida Markets - Other
Chicago
Florida Markets - Other
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
Texas Markets - Major
Baltimore / DC
Baltimore / DC
New York / Northern NJ
New York / Northern NJ
Various (see note 4)
Transaction Date
Stores
Number of
Purchase / Sale Price
(in thousands)
April 2017
May 2017
May 2017
October 2017
October 2017
November 2017
December 2017
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
July 2015
July 2015
July 2015
August 2015
December 2015
December 2015
1
1
1
1
1
1
1
7
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
1
1
1
2
1
12
29
7
1
8
$
$
$
$
$
$
$
$
11,200
18,200
3,650
4,050
14,500
11,300
17,750
80,650
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
14,200
17,000
19,200
24,823
14,350
109,824
292,362
28,000
9,800
37,800
Texas Markets - Major
Florida Markets - Other
October 2015
October 2015
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, 2017, 2016,
and 2015, we owned 484, 475, and 445 self-storage properties and related assets, respectively. The following table summarizes the change in number of owned stores from
January 1, 2015 through December 31, 2017:
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(1)
Balance - January 1
Stores acquired
Stores developed
Balance - March 31
Stores acquired
Stores developed
Stores combined
Balance - June 30
Stores acquired
Stores developed
Balance - September 30
Stores acquired
Stores developed
Stores combined
Stores sold
Balance - December 31
(2)
2017
2016
2015
475
—
1
476
3
—
(1)
478
—
2
480
4
1
(1)
—
484
445
10
1
456
7
1
—
464
7
—
471
4
—
—
—
475
421
7
—
428
4
1
—
433
5
—
438
13
2
—
(8)
445
(1) On May 16, 2017, the Company acquired a store located in Sacramento, CA for approximately $3.7 million, which is located directly adjacent to an existing wholly-owned
store. Given their proximity to each other, the stores have been combined in our store count, as well as for operational and reporting purposes.
(2) On October 2, 2017, the Company acquired a store located in Keller, TX for approximately $4.1 million, which is located directly adjacent to an existing wholly-owned
store. Given their proximity to each other, the stores have been combined in our store count, as well as for operational and reporting purposes.
Financing and Investing Activities
The following summarizes certain financing and investing activities during the year ended December 31, 2017:
· Store Acquisitions. During 2017, we acquired seven self-storage properties located throughout the United States, including three stores upon completion of
construction and the issuance of a certificate of occupancy, for an aggregate purchase price of approximately $80.7 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 $3.2 million. As of December 31, 2017,
we had one store under contract for a total acquisition price of $12.2 million, which was acquired on January 31, 2018. As of December 31, 2017, we also had one
store under contract for a total acquisition price of $20.8 million to be acquired after the completion of construction and the issuance of the certificate of
occupancy. This acquisition is subject to due diligence and other customary closing conditions, and no assurance can be provided that the acquisition will be
completed on the terms described, or at all.
· Development Activity. During 2017, we completed construction and opened for operation two wholly-owned development properties and two joint venture
development properties for a total cost of $168.0 million. The wholly-owned development properties opened during 2017 are located in Florida and Washington,
D.C. The joint venture development properties opened during 2017 are both located in New York. As of December 31, 2017, we had six joint venture development
properties under construction. We anticipate investing a total of $230.5 million related to these six projects, and construction for all projects is expected to be
completed by the third quarter of 2019.
· At-The-Market Equity Program. During 2017, under our at-the-market equity program, we sold a total of 1.0 million common shares at an average sales price of
$29.13 per share, resulting in net proceeds under the program of $29.6 million, after deducting offering costs. As of December 31, 2017, 4.7 million common shares
remained available for sale under the program. The proceeds from the sales conducted during the year ended December 31, 2017 were used to fund acquisitions of
self-storage properties and for general corporate purposes.
· Debt Offering. On April 4, 2017, we completed the issuance and sale of $50.0 million in aggregate principal amount of 4.375% unsecured senior notes due
December 15, 2023, which are part of the same series as the $250.0 million in aggregate principal amount of 4.375% senior notes due December 15, 2023 issued on
December 17, 2013. On April 4, 2017, we also
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completed the issuance and sale of $50.0 million in aggregate principal amount of 4.000% unsecured senior notes due November 15, 2025, which are part of the
same series as the $250.0 million in aggregate principal amount of 4.000% senior notes due November 15, 2025 issued on October 26, 2015. Net proceeds from the
offerings were used to repay outstanding indebtedness under our $100.0 million unsecured term loan that was scheduled to mature in June 2018.
· Mortgage Loans. During 2017, we repaid one mortgage loan for $6.2 million and, in conjunction with the acquisition of a store located in Maryland, assumed one
mortgage loan with an outstanding principal balance of $5.8 million as of December 31, 2017.
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 2018, 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 2018, we intend to continue to evaluate opportunities to dispose of assets that have unattractive risk adjusted returns. 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 Arizona, California, Florida, Georgia, Illinois, and Texas, 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 2017 revenues. Our stores in Florida, New York, Texas, and California provided approximately 17%, 16%, 10% and 8%, respectively, of our total
revenues for each of the years ended December 31, 2017 and 2016. Our stores in Florida, New York, Texas, and California provided total revenues of approximately 18%, 16%,
10%, and 8%, respectively, for the year ended December 31, 2015.
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, 2017, our debt to total capitalization ratio (determined by dividing the carrying value of our total indebtedness by the sum of (a) the market
value of the Parent Company’s outstanding common shares and units of the Operating Partnership held by third parties and (b) the carrying value of our total indebtedness)
was approximately 23.5% compared to approximately 24.7% as of December 31, 2016. Our ratio of debt to the undepreciated cost of our total assets as of December 31, 2017 was
approximately 38.0% compared to approximately 38.5% as of December 31, 2016. 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 revolving portion of our credit facility, 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 have unattractive risk adjusted returns 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 providers 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, or websites, is not in compliance with the ADA or similar state or local requirements would result in the incurrence of additional costs associated with bringing
them 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, 2017, we employed 2,508 employees, of whom 328 were corporate executive and administrative personnel and 2,180 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 economic and financial market disruptions and the many ways in which they may affect our customers and our business
in general. Nonetheless, financial and macroeconomic disruptions 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
2017 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 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 often do not 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 determined value.
We will incur costs and will face integration challenges when we acquire additional stores.
As we acquire or develop additional self-storage properties and bring additional self-storage properties onto our third party management platform, 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 depreciate/amortize in future periods costs for acquired real property and
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.
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.
We may incur impairment charges.
We evaluate on a quarterly basis our real estate portfolios for indicators of impairment. Impairment charges reflect management’s judgment of the probability and severity of
the decline in the value of real estate assets we own. These charges and provisions may be required in the future as a result of factors beyond our control, including, among
other things, changes in the economic environment and market conditions affecting the value of real property assets or natural or man-made disasters. If we are required to take
impairment charges, our results of operations will be adversely impacted.
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;
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· 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.
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, 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, as well as on-demand storage providers, 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.
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We may become subject to litigation or threatened litigation which may divert management’s time and attention, require us to pay damages and expenses, or restrict the
operation of our business.
We may become subject to disputes with commercial parties with whom we maintain relationships or other parties with whom we do business. Any such dispute could result
in litigation between us and the other parties. Whether or not any dispute actually proceeds to litigation, we may be required to devote significant management time and
attention to its successful resolution (through litigation, settlement, or otherwise), which would detract from our management’s ability to focus on our business. Any such
resolution could involve the payment of damages or expenses by us, which may be significant. In addition, any such resolution could involve our agreement with terms that
restrict the operation of our business.
There are other commercial parties, at both a local and national level, that may assert that our use of our brand names and other intellectual property conflict with their rights
to use brand names, 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 are 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.
Legislative actions and changes may cause our general and administrative costs and compliance costs to increase.
In order to comply with laws adopted by Federal, state or local government or regulatory bodies, we may be required to increase our expenditures and hire additional
personnel and additional outside legal, accounting and advisory services, all of which may cause our general and administrative and compliance costs to increase. Significant
workforce-related legislative changes could increase our expenses and adversely affect our operations. Examples of possible workforce-related legislative changes include
changes to an employer's obligation to recognize collective bargaining units, the process by which collective bargaining agreements are negotiated or imposed, minimum wage
requirements, and health care and medical and family leave mandates. In addition, changes in the regulatory environment affecting health care reimbursements, and increased
compliance costs related to enforcement of federal and state wage and hour statutes and common law related to overtime, among others, could cause our expenses to increase
without an ability to pass through any increased expenses through higher prices.
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.
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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.
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 and
websites 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. The regulatory framework for privacy issues is rapidly evolving and future enactment of more
restrictive laws, rules, or regulations and/or future enforcement actions or investigations could have a materially adverse impact on us through increased costs or restrictions on
our business. Failure to comply with such laws and regulations could result in consent orders or regulatory penalties and significant legal liability, including fines, which could
damage our reputation and have an adverse effect on our results of operations or financial condition.
We face system security risks as we depend upon automated processes and the Internet and we could damage our reputation, incur substantial additional costs and become
subject to litigation if our systems are penetrated.
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
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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.
Risks Related to the Real Estate Industry
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.
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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.
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
legislation commonly known as the Tax Cuts and Jobs Act (the “TCJA”) and the Protecting Americans From Tax Hikes Act of 2015, signed into law on December 22, 2017 and
December 18, 2015, respectively, 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. For tax years beginning before January 1,
2018, 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.
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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.
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.
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The TCJA makes significant changes to the U.S. federal income tax rules for taxation of individuals and corporations, generally effective for taxable years beginning after
December 31, 2017. In addition to reducing corporate and non-corporate tax rates, the TCJA made changes to the number of provisions of the Code that may affect the taxation
of REITs and their security holders. While the changes in the TCJA generally appear to be favorable with respect to REITs, certain changes to the U.S. federal income tax laws
enacted by the TCJA could have a material and adverse effect on us. For example, certain changes in law pursuant to the Tax Cuts and Jobs Act could reduce the relative
competitive advantage of operating as a REIT as compared with operating as a C corporation, including by:
·
reducing the rate of tax applicable to individuals and C corporations, which could reduce the relative attractiveness of the generally single level of taxation on REIT
distributions;
· permitting immediate expensing of capital expenditures, which could likewise reduce the relative attractiveness of the REIT taxation regime; and
·
limiting the deductibility of interest expense, which could increase the distribution requirement of REITs.
Most of the changes applicable to individuals are temporary and apply only to taxable years beginning after December 31, 2017 and before January 1, 2026. The TCJA makes
numerous large and small changes to the tax rules that do not affect REITs directly but may affect our shareholders and may indirectly affect us.
Moreover, Congressional leaders have recognized that the process of adopting extensive tax legislation in a short amount of time without hearings and substantial time for
review is likely to have led to drafting errors, issues needing clarification and unintended consequences that will have to be reviewed in subsequent tax legislation. At this point,
it is not clear when Congress will address these issues or when the Internal Revenue Service will be able to issue administrative guidance on the changes made in the TCJA.
Shareholders are urged to consult with their tax advisors with respect to the status of the TCJA and any other regulatory or administrative developments and proposals and
their potential effect on investment in our capital stock.
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 our shareholders.
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.
From time to time, domestic financial markets experience 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 from 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.
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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. Effective January 1, 2017, our Chief
Executive Officer, Chief Financial Officer, and Chief Legal Officer are parties to the Company’s executive severance plan, however, we cannot 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, 2017, we had 2,180 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 adversely affected.
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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.
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
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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.
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, 2015 and December 31, 2017,
the closing price of our common shares has ranged from a high of $33.30 (on March 31, 2016) to a low of $22.31 (on March 6, 2015). 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.
24
Table of Contents
ITEM 2. PROPERTIES
Overview
As of December 31, 2017, we owned 484 self-storage properties that contain approximately 33.8 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, 2017.
State
Florida
Texas
New York
California
Illinois
Arizona
New Jersey
Maryland
Georgia
Ohio
Connecticut
Virginia
Colorado
Massachusetts
North Carolina
Tennessee
Pennsylvania
Nevada
Washington D.C.
Utah
Rhode Island
New Mexico
Minnesota
Indiana
Total/Weighted Average
Total
Rentable
Square Feet
% of Total
Rentable
Square Feet
Period-end
Occupancy
5,956,304
4,376,387
3,289,051
2,881,220
2,663,648
2,078,331
1,700,780
1,320,572
1,317,487
1,289,553
1,179,145
788,260
697,269
667,868
654,145
617,980
609,136
548,822
295,693
240,023
237,195
182,261
101,028
67,604
33,759,762
17.7 %
13.1 %
9.7 %
8.5 %
7.9 %
6.2 %
5.0 %
3.9 %
3.9 %
3.8 %
3.5 %
2.3 %
2.1 %
2.0 %
1.9 %
1.8 %
1.8 %
1.6 %
0.9 %
0.7 %
0.7 %
0.5 %
0.3 %
0.2 %
100.0 %
90.7 %
87.7 %
80.9 %
92.4 %
86.2 %
90.9 %
93.4 %
91.2 %
91.4 %
91.7 %
91.7 %
88.8 %
90.5 %
90.2 %
90.2 %
90.0 %
91.3 %
91.0 %
72.3 %
91.0 %
93.2 %
93.2 %
93.2 %
94.1 %
89.2 %
Cubes
58,125
36,634
58,183
26,468
24,940
19,135
16,837
13,001
11,043
11,114
10,668
7,874
6,017
7,239
5,614
4,442
6,029
4,136
3,920
2,269
1,976
1,661
1,019
577
338,921
Number of
Stores
80
63
45
40
41
33
25
16
18
20
22
10
11
11
9
7
9
7
4
4
4
3
1
1
484
25
Table of Contents
Our Stores
The following table sets forth additional information with respect to each of our owned stores as of December 31, 2017. 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.
Rentable
Square
Occupancy
(2)
Manager
% Climate
Apartment Controlled
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
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
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
26
Feet
47,680
82,915
57,200
114,080
56,807
25,050
52,575
45,511
59,629
110,835
101,275
83,160
121,730
69,610
94,462
80,725
72,325
53,890
68,409
59,800
43,950
49,820
48,040
45,134
40,790
52,663
46,650
67,496
46,350
42,700
42,275
45,800
48,995
74,770
75,620
94,975
103,558
143,645
45,926
51,324
60,475
124,571
49,775
57,094
93,590
Cubes
81.6 % 456
82.5 % 1,175
84.0 % 443
81.1 % 835
90.1 % 534
97.9 % 266
91.7 % 512
94.8 % 412
94.2 % 527
94.6 % 926
82.2 % 782
93.0 % 814
91.9 % 817
92.5 % 696
87.8 % 628
93.9 % 658
96.1 % 604
91.8 % 409
90.9 % 735
94.9 % 500
92.6 % 537
93.1 % 499
92.5 % 505
95.4 % 423
92.3 % 418
93.8 % 609
92.4 % 463
93.7 % 609
91.0 % 425
95.3 % 413
90.4 % 446
94.5 % 501
94.5 % 558
93.3 % 722
91.6 % 684
94.6 % 971
92.2 % 916
96.4 % 1,269
90.4 % 451
90.2 % 526
96.6 % 371
93.7 % 1,378
91.5 % 453
88.8 % 476
93.4 % 849
(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
(4)
12.7 %
73.9 %
84.0 %
43.8 %
0.0 %
9.0 %
0.0 %
16.7 %
15.7 %
35.4 %
24.8 %
6.6 %
74.3 %
100.0 %
61.3 %
20.5 %
100.0 %
18.8 %
86.7 %
0.0 %
100.0 %
0.0 %
13.5 %
11.3 %
13.6 %
6.9 %
0.0 %
5.9 %
0.0 %
0.0 %
3.8 %
0.0 %
17.9 %
0.0 %
0.0 %
6.9 %
0.0 %
12.0 %
0.0 %
0.0 %
0.0 %
0.0 %
5.1 %
0.0 %
0.0 %
Table of Contents
Store Location
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
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
Year Built
1980
2003
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
Acquired /
Developed
(1)
2005
2005
2005
2006
1997
2006
2006
2005
2005
2005/17
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
27
Feet
50,542
83,600
53,978
57,391
99,783
67,220
85,176
59,944
50,664
111,736
31,070
41,546
35,416
83,227
56,745
78,809
103,567
37,425
63,916
52,390
55,035
81,340
84,520
74,238
147,753
50,708
39,765
68,393
75,717
62,400
47,975
62,400
59,200
74,390
76,025
54,770
87,800
53,490
43,102
48,700
50,629
47,725
45,966
52,875
54,905
46,925
52,725
60,113
44,885
58,500
Rentable
Square
Occupancy
(2)
Manager
% Climate
Apartment Controlled
Cubes
91.6 % 533
92.2 % 765
90.0 % 480
95.9 % 466
93.1 % 720
94.2 % 670
91.5 % 812
87.8 % 561
91.0 % 555
88.0 % 1,087
90.2 % 236
94.0 % 374
92.9 % 375
94.3 % 743
88.5 % 492
94.0 % 641
92.5 % 875
86.7 % 244
92.3 % 742
92.5 % 415
88.3 % 713
88.3 % 704
94.1 % 690
96.1 % 622
93.6 % 1,304
94.2 % 538
93.1 % 479
91.9 % 566
91.7 % 619
91.5 % 530
87.4 % 468
88.7 % 433
94.8 % 449
88.9 % 679
86.2 % 722
92.0 % 551
92.9 % 640
88.7 % 442
92.5 % 484
92.1 % 445
84.4 % 430
92.1 % 471
93.1 % 305
93.8 % 374
89.7 % 607
92.9 % 467
92.4 % 405
91.8 % 583
86.1 % 375
96.3 % 397
(3)
Y
Y
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
(4)
0.0 %
0.0 %
0.0 %
0.0 %
0.0 %
0.0 %
5.5 %
0.0 %
0.0 %
0.0 %
0.0 %
0.0 %
0.0 %
12.5 %
6.7 %
2.3 %
0.0 %
0.0 %
4.3 %
0.0 %
0.0 %
45.9 %
55.2 %
0.0 %
3.7 %
16.0 %
0.0 %
0.0 %
0.0 %
95.5 %
0.0 %
0.0 %
0.0 %
95.1 %
95.0 %
0.0 %
1.6 %
64.5 %
0.0 %
8.8 %
3.5 %
31.8 %
0.0 %
0.0 %
9.4 %
44.5 %
0.0 %
87.3 %
6.9 %
0.0 %
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
Washington III, DC
Washington IV, 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
Delray Beach IV, 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
Year Built
1975/86
1978/97
1979/81
2009
1990
1982/88/00
1988/02
2007
1976
1997
1966
2002
1929/98
1961/13
1925
1998
1999
2001
2001
2002
1979
1996
2000
2007
2001
1999
1984
1988
2001
1998
1999
1987
2006
2017
1999
2007
1998
2001
2002
2005
2004
2003
2006
2004
2006
2003
1998/02
2004/08
2006
1988
Year
Acquired /
Developed
(1)
1996
2005
2005
2012
2016
2005
2005
2011
1996
2005
2012
2008
2011
2016
2017
2001
2001
2005
2014
2015
2004
2004
2000
2014
2012
2014
2004
1996
2001
1998
2001
2013
2014
2017
1999
2013
1999
2014
2014
2005
2007
2007
2007
2007
2014
2007
1998
2014
2015
1994
28
Feet
50,825
42,620
36,140
30,160
78,175
87,000
26,425
78,405
72,025
28,907
84,515
62,685
82,697
78,340
71,971
37,968
61,725
61,514
67,393
76,098
68,398
88,063
76,857
67,955
78,846
90,147
180,588
58,165
80,985
57,230
67,833
75,710
94,377
97,945
70,093
49,577
67,534
83,375
81,554
79,705
64,970
65,840
77,525
82,523
67,375
75,495
160,622
86,924
92,510
49,095
Rentable
Square
Occupancy
(2)
Manager
% Climate
Apartment Controlled
Cubes
91.8 % 561
95.2 % 248
92.4 % 194
90.3 % 348
86.6 % 936
91.6 % 719
90.7 % 253
92.6 % 855
91.2 % 561
93.5 % 363
96.2 % 771
87.6 % 751
91.2 % 1,044
89.5 % 1,050
18.5 % 1,075
92.4 % 611
93.1 % 760
92.6 % 580
94.5 % 721
92.6 % 641
92.0 % 594
94.7 % 852
91.9 % 902
93.7 % 615
92.0 % 757
93.2 % 811
92.4 % 1,778
93.3 % 496
95.2 % 837
88.8 % 520
95.4 % 816
93.8 % 1,180
91.8 % 904
1.9 % 1,155
92.8 % 695
93.3 % 862
95.4 % 593
96.5 % 838
90.3 % 870
95.7 % 720
92.5 % 672
93.0 % 686
92.6 % 720
89.0 % 720
92.9 % 539
95.2 % 702
90.0 % 1,280
96.4 % 757
91.6 % 787
93.6 % 493
(3)
Y
N
N
N
Y
N
N
Y
Y
N
Y
Y
N
Y
N
N
Y
Y
N
N
N
Y
Y
Y
Y
N
N
Y
Y
Y
Y
N
N
N
Y
N
Y
Y
Y
N
N
N
N
N
Y
N
Y
Y
Y
Y
(4)
4.6 %
0.0 %
0.0 %
100.0 %
78.0 %
10.8 %
72.7 %
94.2 %
1.2 %
38.8 %
66.8 %
97.6 %
99.6 %
97.3 %
99.3 %
70.7 %
62.1 %
89.0 %
100.0 %
84.2 %
6.6 %
46.7 %
91.0 %
71.5 %
53.1 %
79.8 %
27.4 %
53.8 %
74.0 %
55.2 %
45.6 %
95.5 %
99.8 %
100.0 %
55.0 %
100.0 %
84.3 %
63.2 %
89.4 %
100.0 %
100.0 %
100.0 %
100.0 %
80.3 %
71.4 %
79.6 %
72.4 %
85.9 %
42.4 %
83.0 %
Table of Contents
Store Location
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
North Palm Beach, FL *
Oakland Park, 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
Austell, GA
Decatur, GA
Duluth, GA
Year Built
2005
2000
1999
1979/81
1985
2000
1995
1989
1988/03
2007
2009
1996
1985
1981/83
1990
2001
2017
2012
1997
2001
2002/04
1988/90/96
2009
2008
2006
1988/91
2001
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
Year
Acquired /
Developed
(1)
2012
2004
2004
1996
1996
2002
1996
1996
2005
2011
2013
1996
1997
1997
1998
2014
2017
2017
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
2006
1998
2011
29
Feet
56,225
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
40,625
81,454
46,275
63,231
76,150
59,580
63,184
101,510
76,601
75,327
67,275
49,276
47,400
122,490
82,685
67,321
81,238
61,810
69,755
71,142
59,725
66,025
86,756
64,975
83,938
74,790
66,906
94,353
77,410
102,742
54,416
90,501
66,625
83,655
145,320
70,885
Rentable
Square
Occupancy
(2)
Manager
% Climate
Apartment Controlled
Cubes
93.9 % 619
92.3 % 616
88.9 % 537
94.8 % 370
94.2 % 460
88.5 % 465
93.2 % 557
88.7 % 569
92.8 % 1,513
93.7 % 929
91.8 % 746
89.8 % 318
87.6 % 649
93.5 % 805
90.7 % 443
94.6 % 607
51.7 % 504
91.3 % 554
94.9 % 635
91.2 % 655
89.3 % 586
91.3 % 825
93.3 % 647
91.9 % 651
91.3 % 581
86.1 % 446
90.2 % 426
94.9 % 1,192
92.6 % 744
91.3 % 693
91.3 % 757
90.7 % 443
94.2 % 667
92.4 % 544
92.8 % 725
92.6 % 845
91.9 % 987
91.0 % 650
94.3 % 792
92.4 % 703
93.2 % 974
94.2 % 836
91.1 % 909
90.5 % 945
92.0 % 542
91.7 % 673
94.0 % 631
92.7 % 674
88.8 % 1,334
90.0 % 590
(3)
N
Y
Y
Y
Y
Y
Y
Y
N
N
N
Y
Y
Y
Y
N
N
N
Y
N
N
Y
N
N
Y
Y
Y
N
N
Y
N
Y
N
Y
Y
N
Y
N
N
N
Y
Y
Y
N
N
Y
N
Y
Y
N
(4)
70.3 %
44.6 %
29.4 %
27.8 %
55.9 %
66.7 %
69.1 %
19.0 %
91.3 %
99.9 %
97.1 %
49.1 %
56.2 %
48.8 %
63.7 %
59.6 %
100.0 %
97.8 %
22.7 %
53.0 %
81.9 %
22.1 %
68.6 %
91.4 %
35.3 %
3.6 %
52.6 %
43.0 %
73.0 %
78.2 %
90.2 %
35.7 %
62.4 %
60.7 %
26.2 %
35.0 %
60.0 %
88.9 %
34.3 %
100.0 %
52.6 %
76.7 %
90.3 %
85.5 %
58.5 %
79.5 %
100.0 %
64.2 %
2.7 %
100.0 %
Table of Contents
Store Location
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
Chicago VII, 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
Riverwoods, IL *
Schaumburg, IL
Streamwood, IL
Warrenville, IL
Waukegan, IL
West Chicago, IL
Year Built
1999
2007
1997
1996
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
2017
2002
1978
2015
1987
2009
1998
1987
1987
1987
1993
1988
1981
2009
1979
1990
1985
1998
2000
2017
1988
1982
1977/89
1977
1979
Year
Acquired /
Developed
(1)
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
2017
2014
2004
2016
2004
2013
2004
2004
2004
2004
2004
2004
2004
2015
2004
2004
2004
2004
2005
2017
2004
2004
2005
2004
2004
30
Feet
73,740
66,750
85,420
52,595
46,955
57,505
49,875
59,950
57,015
79,950
85,125
80,340
65,281
31,575
73,985
51,395
86,350
55,125
82,425
95,845
78,585
84,990
60,495
51,775
71,785
91,292
97,356
69,450
71,625
64,054
57,715
100,085
80,300
41,190
60,090
72,865
74,463
58,241
60,225
64,950
44,700
53,400
53,900
51,900
73,915
31,160
64,305
48,796
79,500
48,175
Rentable
Square
Occupancy
(2)
Manager
% Climate
Apartment Controlled
Cubes
93.2 % 605
91.2 % 591
89.7 % 601
90.4 % 400
89.7 % 500
90.2 % 543
90.1 % 455
91.2 % 429
92.0 % 503
91.5 % 770
95.3 % 653
91.8 % 592
92.3 % 499
90.3 % 367
91.3 % 558
87.2 % 415
88.7 % 738
91.2 % 557
90.8 % 728
92.9 % 1,087
90.3 % 757
95.5 % 1,078
91.5 % 613
90.5 % 603
75.0 % 714
26.8 % 1,094
92.6 % 903
95.3 % 577
90.6 % 666
92.6 % 623
89.4 % 593
93.4 % 738
91.0 % 708
88.7 % 417
91.7 % 575
94.2 % 532
63.9 % 779
89.0 % 536
92.1 % 655
92.2 % 578
89.6 % 484
87.8 % 420
90.3 % 403
90.5 % 356
30.0 % 807
94.4 % 317
94.3 % 551
88.0 % 380
91.0 % 661
90.8 % 437
(3)
Y
N
Y
Y
N
Y
N
N
Y
Y
Y
N
N
Y
Y
Y
Y
N
N
N
N
N
N
N
N
N
N
N
N
Y
N
Y
Y
Y
Y
Y
Y
Y
N
Y
Y
N
N
N
N
N
N
N
Y
Y
(4)
27.6 %
59.2 %
66.1 %
62.5 %
100.0 %
89.1 %
76.7 %
43.4 %
99.4 %
21.7 %
29.1 %
66.2 %
61.5 %
0.0 %
8.6 %
31.8 %
51.1 %
100.0 %
77.3 %
94.7 %
85.6 %
99.8 %
100.0 %
100.0 %
100.0 %
100.0 %
98.8 %
0.0 %
100.0 %
7.5 %
100.0 %
100.0 %
37.4 %
2.2 %
2.8 %
94.0 %
58.0 %
26.1 %
100.0 %
10.4 %
12.2 %
0.0 %
8.7 %
32.6 %
100.0 %
5.4 %
7.6 %
0.0 %
8.2 %
0.0 %
Table of Contents
Store Location
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
Annapolis, MD
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
Year
Acquired /
Developed
Rentable
Square
Occupancy
Manager
% Climate
Apartment Controlled
(1)
2004
2004
2004
2004
2014
2010
2002
2014
2015
2015
2015
1998
2007
2013
2014
2016
2017
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
Year Built
1979
1974
1979
1987
2005
1950
2001
1960
1900/70/80
1900
1966
1987/88/00
2001
2009/11
2007
1998
1976
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
Feet
53,400
54,210
67,825
50,232
67,604
33,286
60,470
108,205
59,296
60,589
34,672
54,073
58,685
61,300
62,402
74,890
92,332
93,750
63,687
77,840
79,600
84,225
78,240
63,475
87,045
74,150
52,830
162,896
97,270
84,225
66,717
62,290
101,028
81,850
109,300
42,165
112,402
69,000
53,736
59,270
77,747
48,675
50,550
51,720
51,500
65,500
105,550
91,280
107,679
36,025
(2)
Cubes
383
94.6 %
485
90.7 %
604
89.1 %
463
88.4 %
577
94.1 %
584
86.9 %
628
91.1 %
95.0 % 1,103
701
82.0 %
606
91.1 %
411
91.0 %
511
92.5 %
658
90.2 %
589
95.4 %
751
92.2 %
697
82.2 %
952
86.7 %
800
92.7 %
648
91.3 %
721
88.4 %
950
94.2 %
914
88.6 %
960
92.5 %
601
89.1 %
789
90.5 %
831
92.3 %
91.7 %
602
92.4 % 1,017
90.3 %
820
91.6 % 1,070
662
89.4 %
90.7 %
664
93.2 % 1,019
595
91.1 %
952
94.2 %
396
89.6 %
840
89.4 %
745
89.8 %
491
89.7 %
526
88.9 %
642
89.8 %
427
85.8 %
382
92.5 %
433
96.0 %
369
93.4 %
93.8 %
613
94.4 % 1,004
849
88.2 %
970
93.7 %
290
95.9 %
(3)
Y
N
Y
Y
Y
N
N
N
N
N
N
Y
Y
N
N
Y
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
31
(4)
0.0 %
0.0 %
9.9 %
17.1 %
40.6 %
100.0 %
99.0 %
25.2 %
0.0 %
93.2 %
100.0 %
50.5 %
97.4 %
100.0 %
100.0 %
31.4 %
59.9 %
49.0 %
9.7 %
41.3 %
98.9 %
51.8 %
96.4 %
91.5 %
45.2 %
99.2 %
9.3 %
64.5 %
71.1 %
99.3 %
95.5 %
21.7 %
74.1 %
21.8 %
7.8 %
16.4 %
11.3 %
44.4 %
96.3 %
43.2 %
13.2 %
11.7 %
27.2 %
0.0 %
0.0 %
94.8 %
93.2 %
7.9 %
3.4 %
14.8 %
Table of Contents
Store Location
Egg Harbor II, NJ
Elizabeth, NJ
Fairview, NJ
Freehold, NJ
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 *
(5)
(5)
(5)
(5)
*
(5)
*
(5)
(5)
Year
Acquired /
Developed
(1)
2010
2005
1997
2012
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
32
Year Built
2002
1925/97
1989
2002
1990
1945/97
1983
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
Feet
70,400
38,830
27,876
81,420
70,550
34,130
100,425
96,025
72,226
84,655
83,121
52,565
67,803
53,569
57,826
57,485
92,070
65,927
58,798
57,536
75,150
48,732
48,850
84,600
91,557
107,226
92,707
61,380
67,864
99,046
105,900
74,580
54,704
45,970
78,625
30,550
147,870
159,805
46,425
89,785
57,566
60,920
41,510
37,545
47,020
74,920
72,750
61,555
46,980
55,875
Rentable
Square
Occupancy
(2)
Manager
% Climate
Apartment Controlled
Cubes
92.4 % 695
92.2 % 674
95.6 % 448
95.8 % 744
93.2 % 618
92.4 % 741
92.9 % 1,118
93.6 % 771
92.5 % 560
89.2 % 773
93.7 % 983
95.3 % 550
94.3 % 684
92.6 % 658
92.5 % 465
96.3 % 507
95.6 % 938
93.0 % 604
93.8 % 532
92.7 % 525
94.7 % 528
95.4 % 373
94.2 % 533
90.5 % 578
85.3 % 578
89.5 % 909
91.4 % 637
93.2 % 613
89.2 % 1,322
73.0 % 1,881
87.4 % 2,033
93.8 % 1,310
92.1 % 1,101
92.4 % 1,130
92.0 % 1,524
89.4 % 544
90.3 % 3,008
92.2 % 2,666
91.8 % 1,085
45.6 % 1,847
88.8 % 1,050
92.8 % 1,146
93.0 % 850
91.9 % 792
89.9 % 884
86.3 % 1,416
96.2 % 1,395
93.5 % 1,203
92.9 % 1,258
63.8 % 1,203
(3)
N
N
N
Y
Y
N
N
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
(4)
19.9 %
0.0 %
98.9 %
66.1 %
0.0 %
99.6 %
5.3 %
32.6 %
5.7 %
49.4 %
92.3 %
91.6 %
100.0 %
98.8 %
9.2 %
83.8 %
86.0 %
13.9 %
15.0 %
11.0 %
75.9 %
13.6 %
66.4 %
78.9 %
66.8 %
84.8 %
73.6 %
99.8 %
97.6 %
99.7 %
99.2 %
99.3 %
99.6 %
94.5 %
100.0 %
100.0 %
99.6 %
74.7 %
98.9 %
100.0 %
100.0 %
18.8 %
100.0 %
100.0 %
100.0 %
97.7 %
100.0 %
92.1 %
100.0 %
100.0 %
Table of Contents
Store Location
Brooklyn XI, NY *
Brooklyn XII, NY *
Holbrook, NY
Jamaica I, NY
Jamaica II, NY
Long Island City, NY *
New Rochelle I, NY
New Rochelle II, NY
New York, 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
Year Built
2016
2017
2007
2000
2010
2014
1998
1917
1917
1988/99
1982
2015
2016
1985/86/99
1989
1900/2011
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
Year
Acquired /
Developed
(1)
2016
2017
2015
2001
2011
2014
2005
2012
2017
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
33
Feet
110,075
131,588
60,397
88,385
92,805
88,825
43,596
63,300
94,912
78,350
47,759
74,188
90,728
38,490
59,945
96,573
50,978
83,395
85,864
50,665
60,210
78,879
46,000
58,325
71,905
36,409
51,200
60,950
73,325
63,525
89,290
89,290
39,332
76,024
93,200
48,672
47,850
80,297
67,245
43,683
90,281
62,750
81,285
57,750
64,938
76,130
18,848
84,145
61,746
96,016
Rentable
Square
Occupancy
(2)
Manager
% Climate
Apartment Controlled
Cubes
48.2 % 2,295
0.3 % 2,612
94.3 % 620
91.7 % 918
94.4 % 1,500
84.7 % 1,950
90.3 % 545
90.8 % 1,024
14.2 % 3,585
93.4 % 651
91.4 % 468
64.4 % 1,438
75.7 % 1,449
93.6 % 331
90.5 % 614
94.5 % 914
90.7 % 758
97.9 % 899
88.5 % 1,507
88.4 % 1,029
90.1 % 1,037
94.9 % 778
91.6 % 343
90.4 % 574
90.7 % 603
92.0 % 354
90.9 % 406
89.6 % 481
93.9 % 593
92.6 % 546
95.3 % 790
88.3 % 781
91.4 % 466
90.5 % 566
90.3 % 707
90.6 % 444
94.3 % 401
93.9 % 809
90.7 % 668
88.7 % 406
93.1 % 719
94.4 % 457
89.7 % 731
95.5 % 542
94.9 % 672
91.5 % 652
85.2 % 229
89.9 % 783
90.6 % 609
90.0 % 950
(3)
N
N
N
Y
N
N
N
Y
N
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
(4)
100.0 %
100.0 %
82.1 %
21.5 %
100.0 %
100.0 %
47.2 %
94.2 %
100.0 %
11.7 %
0.0 %
99.6 %
98.1 %
0.0 %
4.7 %
100.0 %
100.0 %
35.4 %
78.0 %
100.0 %
96.3 %
79.0 %
7.3 %
0.0 %
26.2 %
49.2 %
0.0 %
21.6 %
16.4 %
0.0 %
14.9 %
24.8 %
37.1 %
32.0 %
5.0 %
10.6 %
23.9 %
91.7 %
0.0 %
100.0 %
0.0 %
8.5 %
39.3 %
96.5 %
58.6 %
35.0 %
99.6 %
50.8 %
100.0 %
44.8 %
Table of Contents
Store Location
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
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
Dallas III, TX
Dallas IV, TX *
(5)
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
Year
Acquired /
Developed
(1)
2014
2014
2014
2014
2014
2005
2005
2005
2006
2006
2015
2015
2012
2005
2006
2006
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
34
Year Built
2005
1968/90
2000
1956
2004
1985/98
1984
1986/00
1985
1986/00
1993
1956/01
2003
2001
2000/03
2004
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
Feet
68,279
41,275
77,275
45,745
72,900
75,985
107,850
83,174
101,525
102,450
74,560
72,436
62,170
59,645
64,415
70,585
65,308
67,850
62,850
71,023
61,075
60,400
77,380
88,700
26,550
58,161
58,582
76,673
83,427
114,550
54,499
60,846
50,416
72,900
80,445
77,329
50,854
71,599
74,665
75,175
74,415
69,176
70,100
68,425
78,019
61,590
43,750
124,279
54,690
46,991
Rentable
Square
Occupancy
(2)
Manager
% Climate
Apartment Controlled
Cubes
91.7 % 861
95.6 % 413
96.1 % 579
89.0 % 389
91.4 % 595
91.0 % 635
87.4 % 736
93.0 % 635
92.4 % 620
91.9 % 735
91.0 % 534
82.4 % 547
89.5 % 496
91.9 % 537
92.2 % 596
92.2 % 574
89.4 % 626
88.1 % 616
90.3 % 747
82.9 % 637
72.5 % 568
64.7 % 495
85.9 % 542
69.1 % 518
78.0 % 346
89.4 % 448
91.5 % 532
92.3 % 600
91.4 % 892
72.0 % 1,214
91.0 % 596
94.1 % 462
91.9 % 405
95.1 % 650
92.5 % 675
49.8 % 923
91.8 % 427
91.7 % 523
91.9 % 630
96.2 % 512
89.9 % 556
89.7 % 541
90.1 % 683
94.5 % 470
56.3 % 803
89.2 % 467
94.2 % 380
87.3 % 1,054
93.1 % 592
91.6 % 521
(3)
N
Y
N
N
N
Y
Y
Y
Y
Y
N
Y
Y
Y
Y
Y
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
(4)
58.5 %
22.0 %
0.0 %
39.3 %
11.4 %
9.4 %
0.0 %
13.1 %
8.1 %
10.1 %
22.8 %
37.8 %
57.9 %
63.5 %
45.8 %
93.0 %
18.8 %
35.2 %
54.9 %
38.9 %
99.1 %
0.0 %
40.8 %
26.8 %
0.0 %
46.0 %
38.0 %
27.7 %
91.4 %
93.5 %
93.1 %
3.2 %
38.8 %
68.5 %
76.9 %
94.7 %
26.0 %
28.7 %
92.9 %
21.4 %
59.9 %
54.7 %
4.2 %
54.0 %
100.0 %
9.0 %
10.3 %
62.6 %
99.3 %
100.0 %
Table of Contents
Store Location
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
Year
Acquired /
Developed
(1)
2012
2012
2015
2013
2006/17
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
Year Built
1989
1992
2009/13
2009
2000/17
1996
2003
2002/04
2003
2007/14
2003
2002
2002/14
1996
1996
2014
2002
1985
1998
1996/01
2005
2005
2006
1998
1980/86
1976
1978
1976
1978
2000
2015
2003
1999
2001/04
1998/01
2001/04
1998
2002
2000
Total/Weighted Average (484 stores)
* Denotes stores developed by us or acquired at development completion.
Rentable
Square
Feet
Occupancy
(2)
Cubes
Manager
% Climate
Apartment Controlled
54,209
51,208
70,702
71,308
88,060
67,340
127,659
93,855
60,065
96,896
63,025
57,375
70,920
47,020
70,050
53,750
57,200
72,050
102,330
59,300
73,329
73,155
71,825
61,500
72,751
60,280
71,621
56,446
51,676
114,100
96,143
91,467
73,265
69,475
61,057
85,503
72,745
69,385
55,111
33,759,762
95.4 %
90.4 %
90.6 %
93.2 %
71.5 %
85.8 %
92.5 %
92.7 %
90.7 %
88.1 %
94.9 %
88.7 %
82.2 %
94.4 %
92.4 %
89.9 %
88.9 %
95.3 %
93.1 %
89.6 %
93.1 %
89.8 %
89.2 %
87.6 %
96.1 %
91.6 %
93.1 %
93.5 %
90.5 %
96.2 %
78.1 %
85.3 %
88.4 %
89.5 %
92.3 %
85.8 %
93.8 %
89.0 %
92.1 %
89.2 %
497
434
559
573
795
429
1,183
639
504
639
481
483
518
356
538
393
433
473
540
449
574
668
574
514
534
635
379
757
498
1,153
1,141
908
677
611
564
890
638
733
559
338,921
(3)
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
Y
N
Y
N
N
N
Y
Y
Y
Y
(4)
76.3 %
48.2 %
42.6 %
88.8 %
52.7 %
21.7 %
30.9 %
39.6 %
47.6 %
38.2 %
43.2 %
68.3 %
37.5 %
12.1 %
47.6 %
37.7 %
60.7 %
45.9 %
30.0 %
30.7 %
89.7 %
91.8 %
93.2 %
39.1 %
26.8 %
0.0 %
5.3 %
0.0 %
0.0 %
97.3 %
97.0 %
81.9 %
88.6 %
22.1 %
87.4 %
84.0 %
64.9 %
91.0 %
97.5 %
† 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, 2017, properties in our owned portfolio included an aggregate
of approximately 232,000 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, 2017 divided by total rentable square feet.
(3) Indicates whether a store has an on-site apartment where a manager resides.
(4) Represents the number of climate-controlled cubes divided by total number of 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.
35
Table of Contents
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, and total revenues for our stores owned as of December 31, 2017, 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)
2014 and earlier
2015
2016
2017
All Stores Owned as of December 31, 2017
Stores by Year Acquired - Annual Rent Per Occupied Square Foot
(2)
Year Acquired
(1)
2014 and earlier
2015
2016
2017
All Stores Owned as of December 31, 2017
Stores by Year Acquired - Total Revenues (dollars in thousands)
# of Stores
Rentable Square
Feet
Average Occupancy
2017
2016
2015
413
32
30
9
484
28,307,299
2,258,773
2,430,230
763,460
33,759,762
92.9 %
88.8 %
79.9 %
39.1 %
91.2 %
92.6 %
82.8 %
67.8 %
—
90.7 %
91.7 %
77.2 %
—
—
91.3 %
# of Stores
2017
Rent per Square Foot
2016
2015
413 $
32
30
9
484 $
16.92 $
16.36
15.36
19.11
16.80 $
16.29 $
14.94
15.24
—
16.14 $
15.36
14.84
—
—
15.34
Year Acquired
(1)
2014 and earlier
2015
2016
2017
All Stores Owned as of December 31, 2017
# of Stores
2017
2016
2015
Total Revenues
413 $
32
30
9
484 $
471,476 $
34,870
31,391
2,102
539,839 $
451,160 $
29,660
16,005
—
496,825 $
420,581
9,636
—
—
430,217
(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 $18.2 million, $17.4 million, and $16.2 million for the periods ended
December 31, 2017, 2016 and 2015, respectively.
Unconsolidated Real Estate Ventures
As of December 31, 2017, we held ownership interests ranging from 10% to 50% in four unconsolidated real estate ventures for an aggregate investment balance of $91.2
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,
2017, these four unconsolidated real estate ventures owned 117 self-storage properties that contain an aggregate of approximately 6.9 million net rentable square feet. The self-
storage properties owned by the real estate ventures are managed by us and are located in Texas (35), 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 these ventures has other assets and liabilities 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.
36
Table of Contents
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
2018, we anticipate spending approximately $5.0 million to $8.0 million associated with these capital expenditures. For 2018, we also anticipate spending approximately $12.0
million to $16.0 million on recurring capital expenditures and approximately $60.0 million to $75.0 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. On December 15, 2017, the court granted preliminary approval of a settlement for the class action. The settlement and associated expenses, which
were previously reserved for, did not have a material impact on our consolidated financial position or results of operations.
ITEM 4. MINING SAFETY DISCLOSURES
Not applicable.
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, 2017:
PART II
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
Average
Price Paid
Per Share
Total
Number of
Shares
Purchased
(1)
October 1 - October 31
November 1 - November 30
December 1 - December 31
Total
83 $
80 $
253 $
416 $
25.97
28.99
28.94
28.36
N/A
N/A
N/A
N/A
3,000,000
3,000,000
3,000,000
3,000,000
(1) Represents common shares withheld by the Parent Company upon the vesting of restricted shares to cover employee tax obligations.
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.
37
Table of Contents
Market Information for and Holders of Record of Common Shares
As of December 31, 2017, there were approximately 112 registered record holders of the Parent Company’s common shares and 13 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:
2016
First quarter
Second quarter
Third quarter
Fourth quarter
2017
First quarter
Second quarter
Third quarter
Fourth quarter
High
Low
Cash Dividends
Declared per
Share
$
$
$
$
$
$
$
$
33.30 $
33.28 $
32.07 $
26.96 $
27.70 $
29.18 $
26.43 $
23.88 $
27.38 $
27.96 $
26.84 $
29.65 $
25.12 $
23.81 $
22.94 $
25.63 $
0.21
0.21
0.21
0.27
0.27
0.27
0.27
0.30
For each quarter in 2016 and 2017, 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 2017 consisted of an 86.602% ordinary income distribution, a 0.495% capital gain distribution, and a 12.903%
return of capital distribution from earnings and profits.
We intend to continue to declare quarterly distributions. However, we cannot provide any assurance as to the amount or timing of future distributions. Under 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
On December 7, 2017, the Operating Partnership entered into an agreement to acquire a self-storage property located in Texas for $12.2 million, and agreed to fund a portion of
the acquisition price in the form of common units, designated Class B Units. On January 31, 2018, the Operating Partnership closed on the acquisition and funded approximately
$4.8 million of the acquisition price through the issuance of 168,011 common units. Following a 13-month lock-up period, the holder may tender the common units for redemption
by the Operating Partnership for a cash amount per common unit equal to the market value of an equivalent number of common shares of the Company. The Company has the
right, but not the obligation, to assume and satisfy the redemption obligation of the Operating Partnership by issuing one common share in exchange for each common unit
tendered for redemption. The common units were sold to a single accredited investor unaffiliated with the Company in a private placement transaction exempt from the
registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) of such Act.
38
Table of Contents
Share Performance Graph
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 Index and (iii) the NAREIT All Equity REIT Index as
provided by NAREIT for the period beginning December 31, 2012 and ending December 31, 2017.
Index
CubeSmart
S&P 500 Index
Russell 2000 Index
NAREIT All Equity REIT Index
ITEM 6. SELECTED FINANCIAL DATA
CUBESMART
Period Ending
12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017
229.74
208.14
193.58
159.85
100.00
100.00
100.00
100.00
205.93
170.84
168.85
147.09
228.41
152.59
139.19
135.40
160.37
150.51
145.62
131.68
112.51
132.39
138.82
102.86
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, 2017 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, 2017 and 2016, and for each of the
years in the three-year period ended December 31, 2017, 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, 2017, the related notes, and the independent registered public accounting firm’s report. The other data presented below is
not derived from the audited financial statements included herein.
39
Table of Contents
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.
2017
For the year ended December 31,
2014
2015
2016
(in thousands, except per share data)
2013
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
Gains from sale of real estate, net
Other
Total other expense
INCOME 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
Distribution to preferred shareholders
Preferred share redemption charge
$ 489,043 $ 449,601 $ 392,476 $ 330,898 $ 281,250
32,365
4,780
318,395
40,065
6,000
376,963
55,001
14,899
558,943
45,189
6,856
444,521
50,255
10,183
510,039
181,508
145,681
34,745
1,294
363,228
195,715
165,847
161,865
32,823
6,552
367,087
142,952
153,172
151,789
28,371
3,301
336,633
107,888
132,701
126,813
28,422
7,484
295,420
81,543
118,222
112,313
29,563
3,849
263,947
54,448
(56,952)
(2,638)
—
(1,386)
—
872
(60,104)
135,611
—
—
—
135,611
(1,593)
270
134,288
—
—
(50,399)
(2,577)
—
(2,662)
—
1,062
(54,576)
88,376
—
—
—
88,376
(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
(40,424)
(2,058)
(414)
(1,151)
—
8
(44,039)
10,409
4,145
27,440
31,585
41,994
(941)
470
87,905
(5,045)
(2,937)
79,923 $
(960)
(84)
77,712
(6,008)
—
71,704 $
(307)
(16)
26,379
(6,008)
—
20,371 $
(588)
42
41,448
(6,008)
—
35,440
NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS
$ 134,288 $
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 (1)
Weighted-average diluted shares outstanding (1)
AMOUNTS ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS:
Income from continuing operations
Total discontinued operations
Net income
$
$
$
$
$
$
0.74 $
— $
0.74 $
0.74 $
— $
0.74 $
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
180,525
181,448
178,246
179,533
168,640
170,191
149,107
150,863
135,191
137,742
$ 134,288 $
—
$ 134,288 $
79,923 $
—
79,923 $
71,704 $
—
71,704 $
20,040 $
331
20,371 $
4,392
31,048
35,440
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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)
2017
2016
At December 31,
2015
2014
2013
$
$
3,408,790
3,545,336
1,142,460
81,700
299,396
111,434
1,855,646
54,320
1,629,134
6,236
3,545,336
$
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
484
33,760
89.2 %
$
1.11
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
$
(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 $0.11 and $0.484 per common and preferred shares, respectively, on 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; dividends of $0.27 per common share on December 15, 2016, February 14, 2017, May 31, 2017, and July 25, 2017; and dividends of $0.30 per common share
on December 14, 2017.
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, 2017 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, 2017 and 2016, and
for each of the years in the three-year period ended December 31, 2017, 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, 2017, the related notes, and the independent registered public accounting firm’s report. The other data
presented below is not derived from the audited financial statements included herein.
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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.
2017
For the year ended December 31,
2014
2015
2016
(in thousands, except per unit data)
2013
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
Gains from sale of real estate, net
Other
Total other expense
INCOME 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 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 from continuing operations 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 (1)
Weighted-average diluted units outstanding (1)
AMOUNTS ATTRIBUTABLE TO COMMON UNITHOLDERS:
Income from continuing operations
Total discontinued operations
Net income
42
$ 489,043 $ 449,601 $ 392,476 $ 330,898 $ 281,250
32,365
4,780
318,395
40,065
6,000
376,963
55,001
14,899
558,943
45,189
6,856
444,521
50,255
10,183
510,039
181,508
145,681
34,745
1,294
363,228
195,715
165,847
161,865
32,823
6,552
367,087
142,952
153,172
151,789
28,371
3,301
336,633
107,888
132,701
126,813
28,422
7,484
295,420
81,543
118,222
112,313
29,563
3,849
263,947
54,448
(56,952)
(2,638)
—
(1,386)
—
872
(60,104)
135,611
—
—
—
135,611
270
135,881
(1,593)
134,288
—
—
$ 134,288 $
(50,399)
(2,577)
—
(2,662)
—
1,062
(54,576)
88,376
—
—
—
88,376
(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
(40,424)
(2,058)
(414)
(1,151)
—
8
(44,039)
10,409
4,145
27,440
31,585
41,994
470
88,846
(941)
87,905
(5,045)
(2,937)
79,923 $
(84)
78,672
(960)
77,712
(6,008)
—
71,704 $
(16)
26,686
(307)
26,379
(6,008)
—
20,371 $
42
42,036
(588)
41,448
(6,008)
—
35,440
$
$
$
$
$
$
0.74 $
— $
0.74 $
0.74 $
— $
0.74 $
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
180,525
181,448
178,246
179,533
168,640
170,191
149,107
150,863
135,191
137,742
$ 134,288 $
—
$ 134,288 $
79,923 $
—
79,923 $
71,704 $
—
71,704 $
20,040 $
331
20,371 $
4,392
31,048
35,440
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)
2017
2016
At December 31,
2015
2014
2013
$
$
3,408,790
3,545,336
1,142,460
81,700
299,396
111,434
1,855,646
54,320
1,629,134
6,236
3,545,336
$
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
484
33,760
89.2 %
$
1.11
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
$
(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 $0.11 and $0.484 per common and preferred units, respectively, on 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; dividends of $0.27 per common unit on December 15, 2016, February 14, 2017, May 31, 2017, and July 25, 2017; and dividends of $0.30 per common unit on December
14, 2017.
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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, 2017 and December 31, 2016, we owned 484 and 475 self-storage properties, respectively,
totaling approximately 33.8 million and 32.9 million rentable square feet, respectively. As of December 31, 2017, 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, 2017, we managed 452 stores for third parties (including 117
stores containing an aggregate of approximately 6.9 million rentable square feet as part of four separate unconsolidated real estate ventures), bringing the total number of stores
we owned and/or managed to 936. As of December 31, 2017, we managed stores for third parties in the District of Columbia and the following 31 states: Alabama, Arizona,
California, Colorado, Connecticut, Florida, Georgia, Illinois, Kansas, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Jersey,
New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, Washington, West Virginia, and Wisconsin.
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 and moving trends,
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, 2017.
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
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notes to our consolidated financial statements (see note 2 to the consolidated financial statements). These policies require the application of judgment and assumptions by
management and, as a result, are subject to a degree of uncertainty. Due to this uncertainty, actual results could differ materially from estimates calculated and utilized by
management.
Basis of Presentation
The accompanying consolidated financial statements include all of the accounts of the Company, and its majority-owned and/or controlled subsidiaries. The portion of these
entities not owned by the Company is presented as noncontrolling interests as of and during the periods presented. All significant intercompany accounts and transactions
have been eliminated in consolidation.
When the Company obtains an economic interest in an entity, the Company evaluates the entity to determine if the entity is deemed a variable interest entity (“VIE”), and if
the Company is deemed to be the primary beneficiary, in accordance with authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) on the
consolidation of VIEs. When an entity is not deemed to be a VIE, the Company considers the provisions of additional FASB guidance to determine whether a general partner, or
the general partners as a group, controls a limited partnership or similar entity when the limited partners have certain rights. The Company consolidates (i) entities that are VIEs
and of which the Company is deemed to be the primary beneficiary and (ii) entities that are non-VIEs which the Company controls and in which the limited partners do not have
substantive participating rights, or the ability to dissolve the entity or remove the Company without cause.
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, 2017, 2016, and 2015.
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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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. Property management fee income is recognized monthly as services are performed and in accordance with the terms of the
related management agreements.
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.
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, 2017, 2016 and 2015.
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.
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.
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Recent Accounting Pronouncements
In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-12 – Derivatives and Hedging (Topic 815):
Targeted Improvements to Accounting for Hedging Activities. The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities
with the economic objectives of those activities. The transition guidance provides companies with the option of early adopting the new standard using a modified retrospective
transition method in any interim period after issuance of the update, or alternatively requires adoption for fiscal years beginning after December 15, 2018. This adoption method
will require us to recognize the cumulative effect of initially applying the new guidance as an adjustment to accumulated other comprehensive income with a corresponding
adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that we adopt the update. We are in the process of evaluating the impact of this
new guidance.
In February 2017, as part of the new revenue standard, the FASB issued ASU No. 2017-05 – Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets
(Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance, which focuses on recognizing gains and losses from the transfer of nonfinancial assets in contracts
with non-customers. Specifically, the new guidance defines “in substance nonfinancial asset”, unifies guidance related to partial sales of nonfinancial assets, eliminates rules
specifically addressing sales of real estate, removes exceptions to the financial asset derecognition model, and clarifies the accounting for contributions of nonfinancial assets to
joint ventures. The new guidance became effective on January 1, 2018 when the entity adopted the new revenue standard. Upon adoption, the majority of our sale transactions
are now treated as dispositions of nonfinancial assets rather than dispositions of a business given the FASB’s recently revised definition of a business (see ASU No. 2017-01
below). Additionally, in partial sale transactions where we sell a controlling interest in real estate but retain a noncontrolling interest, we will now fully recognize a gain or loss on
the fair value measurement of the retained interest as the new guidance eliminates the partial profit recognition model.
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 became effective on January 1, 2018. Upon adoption of the new guidance, the majority of
future property acquisitions will now be considered asset acquisitions, resulting in the capitalization of acquisition related costs incurred in connection with these transactions
and the allocation of purchase price and acquisition related costs to the assets acquired based on their relative fair values.
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 became effective on January 1, 2018. The
standard requires the use of the retrospective transition method. The adoption of this guidance will not have a material impact on our consolidated financial statements as the
update primarily relates to financial statement presentation and disclosures.
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 became effective on January 1, 2018. The standard requires the use of the retrospective transition method. The adoption of this guidance
will not have a material impact on our consolidated financial statements as the update primarily relates to financial statement presentation and disclosures.
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 requires 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. We have elected to
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 new standard became effective
on January 1, 2017. The adoption of this guidance did not have a material impact on our consolidated financial position or results of operations.
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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 the new standard on our consolidated financial statements and related disclosures but at this time, expect the primary impact to be related to our ten
ground leases in which we serve as the ground lessee (see note 14).
In May 2014, the FASB issued ASU No. 2014-09 - Revenue from Contracts with Customers (Topic 606), 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 new guidance outlines a five-step process for customer contract revenue recognition
that focuses on transfer of control as opposed to transfer of risk and rewards. The new guidance also requires enhanced disclosures regarding the nature, amount, timing, and
uncertainty of revenues and cash flows from contracts with customers. In May 2016, the FASB issued ASU 2016-12 - Revenue from Contracts with Customers (Topic 606):
Narrow-Scope Improvements and Practical Expedients, which amends ASU 2014-09 and is intended to address implementation issues that were raised by stakeholders. ASU
2016-12 provides practical expedients on collectability, noncash consideration, presentation of sales tax and contract modifications and completed contracts in transition. Both
standards became effective on January 1, 2018. We have finalized the impact of the adoption of ASU No. 2014-09 and ASU No. 2016-12 on our consolidated financial statements
and the related disclosures using the modified retrospective transition method. The standards will not have a material impact on our consolidated statements of financial
position or results of operations primarily because most of our revenue is derived from lease contracts, which are excluded from the scope of the new guidance. Our insurance
fee revenue, property management fee revenue, and merchandise sale revenue are included in the scope of the new guidance, however, we identified similar performance
obligations under this standard as compared with deliverables and separate units of account identified under our previous revenue recognition methodology. Accordingly,
revenue recognized under the new guidance will not differ materially from revenue recognized under previous guidance and there will be no material prior year impact.
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, 2017, we owned 432 same-store properties and
52 non-same-store properties. All of the non-same-store properties were 2016 and 2017 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, 2017, 2016,
and 2015, we owned 484, 475, and 445 self-storage properties and related assets, respectively.
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The following table summarizes the change in number of owned stores from January 1, 2015 through December 31, 2017:
(1)
Balance - January 1
Stores acquired
Stores developed
Balance - March 31
Stores acquired
Stores developed
Stores combined
Balance - June 30
Stores acquired
Stores developed
Balance - September 30
Stores acquired
Stores developed
Stores combined
Stores sold
Balance - December 31
(2)
2017
2016
2015
475
—
1
476
3
—
(1)
478
—
2
480
4
1
(1)
—
484
445
10
1
456
7
1
—
464
7
—
471
4
—
—
—
475
421
7
—
428
4
1
—
433
5
—
438
13
2
—
(8)
445
(1) On May 16, 2017, we acquired a store located in Sacramento, CA for approximately $3.7 million, which is located directly adjacent to an existing wholly-owned store.
Given their proximity to each other, the stores have been combined in our store count, as well as for operational and reporting purposes.
(2) On October 2, 2017, we acquired a store located in Keller, TX for approximately $4.1 million, which is located directly adjacent to an existing wholly-owned store. Given
their proximity to each other, the stores have been combined in our store count, as well as for operational and reporting purposes.
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Comparison of the Year Ended December 31, 2017 to the Year Ended December 31, 2016 (dollars in thousands)
Same-Store Property Portfolio
2017
2016
Increase/
(Decrease) Change
%
Non Same-Store
Properties
Other/
Eliminations
Total Portfolio
2017
2016
2017
2016
2017
2016
Increase/
(Decrease)
%
Change
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
Period Average Occupancy
Realized annual rent per occupied sq. ft.
(1)
(2)
(3)
$
444,290 $
424,977 $
— $
— $
489,043 $
449,601 $
44,689
—
469,666
19,313
1,442
—
20,755
4.5 % $ 44,753 $ 24,624 $
3.2 % 4,643
0.0 %
—
4.4 % 49,396
2,574
—
27,198
4,227
14,899
19,126
2,992
10,183
13,175
46,131
—
490,421
139,092
351,329
432
29,561
91.7 %
93.1 %
16.15 $
$
135,366
334,300
3,726
17,029
2.8 % 18,858
5.1 % 30,538
11,936
15,262
23,558
(4,432)
18,545
(5,370)
432
29,561
91.8 %
92.9 %
15.48
52
4,199
43
3,297
71.7 %
71.4 %
39,442
4,746
4,716
48,904
8.8 %
9.4 %
46.3 %
9.6 %
15,661
33,243
9.4 %
9.7 %
55,001
14,899
558,943
181,508
377,435
484
33,760
50,255
10,183
510,039
165,847
344,192
475
32,858
89.2 %
89.7 %
Depreciation and amortization
General and administrative
Acquisition related costs
Subtotal
OPERATING INCOME
OTHER (EXPENSE) INCOME
Interest:
Interest expense on loans
Loan procurement amortization expense
Equity in losses of real estate ventures
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
NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON
SHAREHOLDERS
145,681
34,745
1,294
181,720
195,715
(56,952)
(2,638)
(1,386)
872
(60,104)
161,865
32,823
6,552
201,240
142,952
(50,399)
(2,577)
(2,662)
1,062
(54,576)
(16,184)
1,922
(5,258)
(19,520)
52,763
(10.0) %
5.9 %
(80.3) %
(9.7) %
36.9 %
(6,553)
(61)
1,276
(190)
(5,528)
(13.0) %
(2.4) %
47.9 %
(17.9) %
(10.1) %
135,611
88,376
47,235
53.4 %
$
(1,593)
270
134,288 $
—
—
(941)
470
87,905 $
(5,045)
(2,937)
(652)
(200)
46,383
5,045
2,937
(69.3) %
(42.6) %
52.8 %
100.0 %
100.0 %
$
134,288 $
79,923 $
54,365
68.0 %
(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.
Revenues
Rental income increased from $449.6 million during 2016 to $489.0 million during 2017, an increase of $39.4 million, or 8.8%. The increase in same-store revenue was due
primarily to an increase in average occupancy of 20 basis points and higher rental rates. Realized annual rent per square foot on our same-store portoflio increased 4.3% as a
result of higher rates for new and existing customers during 2017 as compared to 2016. The remaining increase is primarily attributable to $20.1 million of additional income from
the stores acquired in 2016 and 2017 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 $50.3 million in 2016 to $55.0 million in 2017, an increase of $4.7 million, or 9.4%. The $1.4 million increase in same-store property related income is
mainly attributable to increased insurance participation and higher average occupancy. The remainder of the increase is attributable to other property income derived from the
stores acquired or opened in 2016 and 2017 included in our non-same store portfolio.
Property management fee income increased from $10.2 million during 2016 to $14.9 million during 2017, an increase of $4.7 million, or 46.3%. 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 (452 stores as
of December 31, 2017 compared to 316 stores as of December 31, 2016).
Operating Expenses
Property operating expenses increased from $165.8 million in 2016 to $181.5 million in 2017, an increase of $15.7 million, or 9.4%, which is primarily attributable to $7.0 million of
increased expenses associated with newly acquired stores, a $3.7 million increase in
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property operating expenses on the same-store portfolio, primarily due to higher property tax expenses, and $0.9 million related to hurricane damage, net of expected insurance
proceeds.
Depreciation and amortization decreased from $161.9 million in 2016 to $145.7 million in 2017, a decrease of $16.2 million, or 10.0%. This decrease is primarily attributable to
five-year assets acquired as part of the Company’s property acquisitions in 2011 and 2012 that became fully depreciated during 2016 and 2017.
General and administrative expenses increased from $32.8 million in 2016 to $34.7 million in 2017, an increase of $1.9 million, or 5.9%. The change is primarily attributable to
increased professional fees and payroll expenses resulting from additional employee headcount to support our growth.
Acquisition related costs decreased from $6.6 million during 2016 to $1.3 million during 2017, a decrease of $5.3 million, or 80.3%. Acquisition-related costs are non-recurring
and fluctuate based on periodic investment activity.
Other (expense) income
Interest expense on loans increased from $50.4 million during the year ended December 31, 2016 to $57.0 million during the year ended December 31, 2017, an increase of $6.6
million, or 13.0%. The increase is primarily attributable to a higher amount of outstanding debt during 2017 as compared to 2016, partially offset by lower interest rates during
2017. The average debt balance increased $199.4 million to $1.6 billion during 2017 as compared to $1.4 billion during 2016 as the result of borrowings to fund a portion of the
Company’s acquisition acitivity. The weighted average effective interest rate on our outstanding debt decreased from 3.82% during 2016 to 3.79% during 2017.
Equity in losses of real estate ventures fluctuated from a loss of $2.7 million during the year ended December 31, 2016 to a loss of $1.4 million during the year ended
December 31, 2017, a change of $1.3 million, or 47.9%. The change is mainly driven by our share of the losses attributable to HVP III, 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
III’s acquisition of 68 properties during 2015 and 2016. These assets became fully amortized during 2016 and 2017.
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Comparison of the Year Ended December 31, 2016 to the Year Ended December 31, 2015 (dollars in thousands)
Same-Store Property Portfolio
2016
2015
Increase/
(Decrease)
%
Change
Non Same-Store
Properties
Other/
Eliminations
Total Portfolio
2016
2015
2016
2015
2016
2015
Increase/
(Decrease)
%
Change
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
Period Average Occupancy
Realized annual rent per occupied sq. ft.
(1)
(2)
(3)
$
402,239 $
375,149 $
— $
— $
449,601 $
392,476 $
40,194
—
415,343
27,090
1,978
—
29,068
7.2 % $ 47,362 $ 17,327 $
5,091
4.9 %
0.0 %
—
7.0 % 52,453
2,039
—
19,366
2,992
10,183
13,175
2,956
6,856
9,812
42,172
—
444,411
126,824
317,587
407
27,828
91.8 %
92.9 %
15.56 $
$
127,209
288,134
(385)
29,453
(0.3) % 20,478
10.2 % 31,975
8,210
11,156
18,545
(5,370)
17,753
(7,941)
407
27,828
91.6 %
92.1 %
14.63
68
5,030
78.3 %
38
2,533
75.4 %
57,125
5,066
3,327
65,518
14.6 %
11.2 %
48.5 %
14.7 %
12,675
52,843
8.3 %
18.1 %
50,255
10,183
510,039
165,847
344,192
475
32,858
45,189
6,856
444,521
153,172
291,349
445
30,361
89.7 %
90.2 %
Depreciation and amortization
General and administrative
Acquisition related costs
Subtotal
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
NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON
SHAREHOLDERS
161,865
32,823
6,552
201,240
142,952
(50,399)
(2,577)
(2,662)
—
1,062
(54,576)
151,789
28,371
3,301
183,461
107,888
10,076
4,452
3,251
17,779
35,064
6.6 %
15.7 %
98.5 %
9.7 %
32.5 %
(43,736)
(2,324)
(411)
17,567
(228)
(29,132)
(6,663)
(253)
(2,251)
(17,567)
1,290
(25,444)
(15.2) %
(10.9) %
(547.7) %
(100.0) %
565.8 %
(87.3) %
88,376
78,756
9,620
12.2 %
$
(941)
470
87,905 $
(5,045)
(2,937)
(960)
(84)
77,712 $
(6,008)
—
19
554
10,193
963
(2,937)
2.0 %
659.5 %
13.1 %
16.0 %
(100.0) %
$
79,923 $
71,704 $
8,219
11.5 %
(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 $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 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 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.
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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 activity.
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 III, 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 III’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 III’s acquisition of 68 self-storage properties.
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.
We believe NOI is useful to investors in evaluating our operating performance because:
·
·
it is one of the primary measures used by our management and our 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
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·
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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The following table presents a reconciliation of net income to FFO and FFO, as adjusted, for the years ended December 31, 2017 and 2016 (in thousands):
Net income attributable to the Company’s common shareholders
Add:
Real estate depreciation and amortization:
Real property
Company’s share of unconsolidated real estate ventures
Noncontrolling interests in the Operating Partnership
FFO attributable to common shareholders and OP unitholders
Add:
Loan procurement amortization expense - early repayment of debt
Acquisition related costs
Preferred share redemption charge
Property damage related to hurricanes, net of expected insurance proceeds
FFO, as adjusted, attributable to common shareholders and OP unitholders
(2)
(1)
Weighted-average diluted shares outstanding
Weighted-average diluted units outstanding
Weighted-average diluted shares and units outstanding
For the Year Ended December 31,
2017
2016
$
134,288 $
79,923
$
$
142,961
10,243
1,593
289,085 $
190
1,319
—
874
291,468 $
181,448
2,150
183,598
159,495
11,016
941
251,375
—
6,932
2,937
—
261,244
179,533
2,158
181,691
(1) Acquisition related costs for the year ended December 31, 2016 includes $0.4 million of acquisition related costs that are included in the Company’s share of equity in losses
of real estate ventures.
(2) Property damage related to hurricanes, net of expected insurance proceeds for the year ended December 31, 2017 includes $0.1 million of storm damage 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, 2017 to the Year Ended December 31, 2016
A comparison of cash flow related to operating, investing and financing activities for the years ended December 31, 2017 and 2016 is as follows:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Year Ended December 31,
2017
2016
(in thousands)
Change
$
$
$
293,438 $
(147,824) $
(143,319) $
265,164 $
(544,471) $
219,411 $
28,274
396,647
(362,730)
Cash provided by operating activities for the years ended December 31, 2017 and 2016 was $293.4 million and $265.2 million, respectively, reflecting an increase of $28.3
million. Our increased cash flow from operating activities is primarily attributable to our 2016 and 2017 acquisitions and increased net operating income levels on the same-store
portfolio in the 2017 period as compared to the 2016 period.
Cash used in investing activities was $147.8 million in 2017 and $544.5 million in 2016, a decrease of $396.6 million driven by a decrease in cash used for acquisitions of self-
storage properties. Cash used during 2017 related to the acquisition of seven stores for an aggregate purchase price of $80.7 million, inclusive of $6.2 million of assumed debt
and $12.3 million of OP units issued, while cash used in investing activities during 2016 related to the acquisition of 28 stores for an aggregate purchase price of $403.6 million,
inclusive of $6.5 million of assumed debt. The change is also driven by a decrease in cash used for development costs resulting from the acquisition of a development property
by a consolidated joint venture for $67.2 million, inclusive of $35.0 million of assumed debt, during 2016.
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Cash used in financing activities was $143.3 million in 2017 compared to cash provided by financing activities of $219.4 million in 2016, a change of $362.7 million. The change
is primarily a result of $298.5 million of net proceeds from our issuance of unsecured senior notes in August 2016 compared to $103.2 of net proceeds from our issuance of
unsecured senior notes in April 2017. There was also a $106.5 million decrease in proceeds received from the issuance of common shares from 2016 to 2017 and a $100.0 million
term loan repayment during April 2017 with no comparable repayment in the prior year. We also paid $77.6 million to redeem our 7.75% Series A Preferred shares in November
2016 with no similar transaction in 2017. Additionally, cash distributions paid to common shareholders, preferred shareholders, and noncontrolling interests in the Operating
Partnership increased $39.6 million from 2016 to 2017, resulting primarily from the increase in the common dividend per share and number of shares outstanding.
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,
2016
2015
(in thousands)
Change
$
$
$
265,164 $
(544,471) $
219,411 $
217,272 $
(374,608) $
217,304 $
47,892
(169,863)
2,107
Cash provided by operating activities for the years ended December 31, 2016 and 2015 was $265.2 million and $217.3 million, respectively, an increase of $47.9 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 $219.4 million in 2016 and $217.3 million in 2015, an increase of $2.1 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 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.
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
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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 2018 fiscal year, we expect recurring capital expenditures to be approximately
$12.0 million to $16.0 million, planned capital improvements and store upgrades to be approximately $5.0 million to $8.0 million and costs associated with the development of new
stores to be approximately $60.0 million to $75.0 million. Our currently scheduled principal payments on debt, including borrowings outstanding on the Credit Facility and Term
Loan Facility, are approximately $2.7 million in 2018.
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 2018 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, 2017, we had approximately $5.3 million in available cash and cash equivalents. In addition, we had approximately $417.6 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
$300M 4.375% Guaranteed Notes due 2023
$300M 4.000% Guaranteed Notes due 2025
$300M 3.125% Guaranteed Notes due 2026
Principal balance outstanding
(1)
(2)
Less: Discount on issuance of unsecured senior notes, net
Less: Loan procurement costs, net
Total unsecured senior notes, net
December 31,
December 31,
2017
2016
(in thousands)
$
$
250,000 $
300,000
300,000
300,000
1,150,000
(617)
(6,923)
1,142,460 $
250,000
250,000
250,000
300,000
1,050,000
(3,971)
(6,953)
1,039,076
Effective
Interest Rate
Issuance
Date
Maturity
Date
4.82 %
4.33 %
3.99 %
3.18 %
Jun-12
Various
Various
(1)
(2)
Aug-16
Jul-22
Dec-23
Nov-25
Sep-26
(1) On April 4, 2017, the Operating Partnership issued $50.0 million of its 4.375% senior notes due 2023, which are part of the same series as the $250.0 million principal
amount of the Operating Partnership’s 4.375% senior notes due December 15, 2023 issued on December 17, 2013. The $50.0 million and $250.0 million traunches were
priced at 105.040% and 98.995%, respectively, of the principal amount to yield 3.495% and 4.501%, respectively, to maturity. The combined weighted-average effective
interest rate of the 2023 notes is 4.330%.
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(2) On April 4, 2017, the Operating Partnership issued $50.0 million of its 4.000% senior notes due 2025, which are part of the same series as the $250.0 million principal
amount of the Operating Partnership’s 4.000% senior notes due November 15, 2025 issued on October 26, 2015. The $50.0 million and $250.0 million traunches were priced
at 101.343% and 99.735%, respectively, of the principal amount to yield 3.811% and 4.032%, respectively, to maturity. The combined weighted-average effective interest
rate of the 2025 notes is 3.994%.
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, 2017, the Operating Partnership was in compliance with all of the financial covenants under the Senior
Notes.
Revolving Credit Facility and Unsecured Term Loans
On December 9, 2011, we entered into a credit agreement (the “Credit Facility”), which was subsequently amended on April 5, 2012, June 18, 2013, and April 22, 2015 to provide
for, amongst other things, a $500.0 million unsecured revolving facility (the “Revolver”) with a maturity date of April 22, 2020. Pricing on the Revolver is dependent 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%. As of
December 31, 2017, $417.6 million was available for borrowing under the Revolver. The available balance under the Revolver is reduced by an outstanding letter of credit of $0.7
million. As of December 31, 2017, we also had a $200.0 million unsecured term loan outstanding under the Credit Facility, which is included in the table below.
On June 20, 2011, we entered into an unsecured term loan agreement (the “Term Loan Facility”), which was subsequently amended on June 18, 2013 and August 5, 2014,
consisting of a $100.0 million unsecured term loan with a five-year maturity and a $100.0 million unsecured term loan with a seven-year maturity.
Our unsecured term loans under the Credit Facility and Term Loan Facility are summarized below:
Unsecured Term Loans
Credit Facility
Unsecured term loan
Term Loan Facility
Unsecured term loan
Unsecured term loan
(2)
(3)
Principal balance outstanding
Less: Loan procurement costs, net
Total unsecured term loans, net
Carrying Value as of:
December 31,
December 31,
Effective Interest
Rate as of
2017
2016
December 31, 2017
(1)
Maturity
Date
(in thousands)
$
200,000 $
200,000
2.86 %
Jan-19
—
100,000
300,000
(604)
299,396 $
100,000
100,000
400,000
(1,251)
398,749
$
— %
3.62 %
Jun-18
Jan-20
(1) Pricing on the Term Loan Facility and the unsecured term loan under the Credit Facility is dependent on our unsecured debt credit ratings. At our current Baa2/BBB level,
amounts drawn under the term loan scheduled to mature in January 2019 are priced at 1.30% over LIBOR, while amounts drawn under the term loan scheduled to mature in
January 2020 are priced at 1.15% over LIBOR, excluding the impact of interest rate swaps. As of December 31, 2017, borrowings under the Credit Facility, inclusive of the
Revolver, and Term Loan Facility, as amended and after giving effect to the interest rate swaps, had an effective weighted average interest rate of 3.05%.
(2) On April 6, 2017, we used the net proceeds from the issuance of $50.0 million of our 4.375% Senior Notes due 2023 and $50.0 million of our 4.000% Senior Notes due 2025
to repay all of the outstanding indebtedness under our unsecured term loan that was scheduled to mature in June 2018. Unamortized loan procurement costs of $0.2
million were written off in conjunction with the repayment.
(3) As of December 31, 2017, we had interest rate swaps in place on these borrowings that fix 30-day LIBOR.
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The Term Loan Facility and the unsecured term loan under the Credit Facility were fully drawn as of December 31, 2017 and no further borrowings may be made under the term
loans. Our ability to borrow under the Revolver 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, 2017, we were in compliance with all of our financial covenants and we 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
We maintain an at-the-market equity program that enables us to offer and sell up to 40.0 million common shares through sales agents pursuant to equity distribution
agreements (the “Equity Distribution Agreements”). Our sales activity under the program for the years ended December 31, 2017, 2016, and 2015 is summarized below:
Number of shares sold
Average sales price per share
Net proceeds after deducting offering costs
For the year ended December 31,
2017
2016
2015
(Dollars and shares in thousands, except per share amounts)
$
$
1,036
29.13 $
29,642 $
4,408
31.25 $
136,120 $
8,977
26.35
234,240
We used proceeds from sales of common shares under the program during the years ended December 31, 2017, 2016, and 2015 to fund acquisitions of storage properties and
for general corporate purposes. As of December 31, 2017, 2016, and 2015, 4.7 million common shares, 5.8 million common shares, and 10.2 million common shares, respectively,
remained available for issuance under the Equity Distribution Agreements.
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.
Recent Developments
Subsequent to December 31, 2017, we acquired one self-storage property in Texas for a purchase price of $12.2 million. We funded the purchase price with $7.4 million of cash
and $4.8 million through the issuance of 168,011 common units. Following a 13-month lock-up period, the holder may tender the common units for redemption by the Operating
Partnership for a cash amount per common unit equal to the market value of an equivalent number of common shares of the Company. We have the right, but not the obligation,
to assume and satisfy the redemption obligation of the Operating Partnership by issuing one common share in exchange for each common unit tendered for redemption.
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Other Material Changes in Financial Position
Selected Assets
Storage properties, net
Selected Liabilities
Unsecured senior notes, net
Revolving credit facility
Unsecured term loans, net
Accounts payable, accrued expenses and other liabilities
December 31,
2017
2016
(in thousands)
Change
3,408,790
$
3,326,816
$
81,974
1,142,460
81,700
299,396
143,344
$
$
$
$
1,039,076
43,300
398,749
93,764
$
$
$
$
103,384
38,400
(99,353)
49,580
$
$
$
$
$
Storage properties, net of accumulated depreciation, increased $82.0 million primarily as a result of the acquisition of seven self-storage properties, fixed asset additions, and
development costs incurred during the year.
The increase in Unsecured senior notes, net of $103.4 million was the result of the issuance of $50.0 million of our 4.375% senior notes due 2023, which are part of the same
series as the $250.0 million principal amount of our 4.375% senior notes due December 15, 2023 issued on December 17, 2013, and the issuance of $50.0 million of our 4.000%
senior notes due 2025, which are part of the same series as the $250.0 million principal amount of our 4.000% senior notes due November 15, 2025 issued on October 26, 2015.
Revolving credit facility increased $38.4 million primarily as a result of the acquisition of seven self-storage properties, fixed asset additions, and development costs incurred
during the year.
The decrease in Unsecured term loans, net of $99.4 million was the result of the repayment of the outstanding indebtedness under our unsecured term loan that was scheduled
to mature in June of 2018.
Accounts payable, accrued expenses and other liabilities increased $49.6 million primarily as a result of accrued development costs. Five of our development joint venture
agreements provide the option for the noncontrolling members to put their ownership interest in the ventures to us within the one-year period after construction of each store is
substantially complete. Additionally, we have a one-year option to call the ownership interest of the noncontrolling members beginning on the second anniversary of each
store’s construction being substantially complete. We are accreting the respective liabilities, which totaled $63.0 million and $27.8 million as of December 31, 2017 and 2016,
respectively, during the development periods.
Contractual Obligations
The following table summarizes our known contractual obligations as of December 31, 2017 (in thousands):
(1)
Mortgage loans and notes payable
Revolving credit facility and unsecured term loans
Unsecured senior notes
Interest payments
Ground leases
Software and service contracts
Development commitments
Payments Due by Period
$
$
Total
2018
2019
2020
2021
2022
108,796 $
381,700
1,150,000
349,168
133,039
600
82,728
2,206,031 $
2,650 $
—
—
63,793
2,500
497
70,199
139,639 $
11,652 $
200,000
—
58,157
2,670
73
12,529
285,081 $
12,791 $
181,700
—
52,275
2,743
30
—
249,539 $
45,057 $
—
—
49,437
2,812
—
—
97,306 $
923 $
—
250,000
42,719
2,971
—
—
296,613 $
2023 and
thereafter
35,723
—
900,000
82,787
119,343
—
—
1,137,853
(1) Amounts do not include unamortized discounts/premiums.
We expect to satisfy contractual obligations owed in 2018 through a combination of cash generated from operations and from draws on the revolving portion of our Credit
Facility.
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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, 2017 our consolidated debt consisted of $1.4 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. Additionally, as of December 31, 2017, there were $81.7 million and $200.0
million of outstanding credit facility and unsecured term loan borrowings, respectively, 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 $74.4 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 $84.2 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.
ITEM 9A. CONTROLS AND PROCEDURES
Controls and Procedures (Parent Company)
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Report, the Parent Company carried out an evaluation, under the supervision and with the participation of its management,
including its chief executive officer and chief financial officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-
15(e) under the Exchange Act).
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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, 2017 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, 2017 has been audited by KPMG LLP, an independent registered
public accounting firm, as stated in its report which is included herein.
ITEM 9B. OTHER INFORMATION
Not applicable.
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ITEM 10. TRUSTEES, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
We have adopted a Code of Ethics for all of our employees, officers and trustees, including our principal executive officer and principal financial officer, which is available on
our website at www.cubesmart.com. We intend to disclose any amendment to, or a waiver from, a provision of our Code of Ethics on our website within four business days
following the date of the amendment or waiver.
The remaining information required by this item regarding trustees, executive officers and corporate governance is hereby incorporated by reference to the material appearing
in the Parent Company’s Proxy Statement for the Annual Shareholders Meeting to be held in 2018 (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 2018 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,” “Severence Plan and 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, 2017.
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
(1)
1,833,173
—
1,833,173
$
$
(b)
16.55
(2)
16.55
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities
reflected in column(a))
(c)
4,936,124
4,936,124
(1) Excludes 470,048 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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Table of Contents
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement under the captions “Audit
Committee Matters - Fees Paid to Our Independent Registered Public Accounting Firm” and “- Audit Committee Pre-Approval Policies and Procedures.”
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(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*
3.10*
3.11*
3.12*
3.13*
4.1*
4.2*
4.3*
4.4*
4.5*
4.6*
4.7*
4.8*
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.
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.
Class C Unit Supplement No. 1 to Second Amended and Restated Agreement of Limites Partnership of CubeSmart, L.P. dates as of April 12, 2017, incorporated
by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on April 18, 2017.
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
June 2, 2017.
First Amendment to Third Amended and Restated Bylaws of CubeSmart, effective June 1, 2017, incorporated by reference to Exhibit 3.2 to the Company’s
Current Report on Form 8-K, filed on June 2, 2017.
Form of Common Share Certificate, incorporated by reference to Exhibit 4.1 to Amendment No. 3 to the Company’s Registration Statement on Form S-11, filed on
October 20, 2004, File No. 333-117848.
Form of Certificate for CubeSmart’s 7.75% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, incorporated by reference to Exhibit 4.1 to
CubeSmart’s Form 8-A, filed on October 31, 2011.
Indenture, dated as of September 16, 2011, among CubeSmart, L.P., CubeSmart and U.S. Bank National Association, incorporated by reference to Exhibit 4.5 to
the Company’s Registration Statement on Form S-3, filed on September 16, 2011.
First Supplemental Indenture, dated as of June 26, 2012, among the Company, the Operating Partnership and U.S. Bank National Association, incorporated
herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on June 26, 2012.
Form of $250 million aggregate principal amount of 4.80% senior note due July 15, 2022, incorporated herein by reference to Exhibit 4.2 to the Company’s Current
Report on Form 8-K, filed on June 26, 2012.
Form of CubeSmart Notation of Guarantee, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on June 26, 2012.
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.
Form of $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.
4.9*
4.10*
4.11*
4.12*
4.13*
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 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.
4.14*
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.
4.15*
4.16*
4.17*
10.1*†
10.2*†
10.3*†
10.4*†
10.5*†
10.6*†
10.7*†
10.8*†
10.9*†
10.10*†
10.11*†
10.12*
Form of $50 million aggregate principal amount of 4.375% senior notes due December 15, 2023, incorporated herein by reference to Exhibit 4.1 to the Company’s
Current Report on Form 8-K, filed on April 5, 2017.
Form of $50 million aggregate principal amount of 4.000% senior notes due November 15, 2025, incorporated herein by reference to Exhibit 4.3 to the Company’s
Current Report on Form 8-K, filed on April 5, 2017.
Fifth Supplemental Indenture, dated as of April 4, 2017, among CubeSmart, CubeSmart, L.P. and U.S. Bank National Association, incorporated herein by
reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K, filed on April 5, 2017.
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, Dorothy
Dowling, 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.
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.
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.
64
Table of Contents
10.13*
10.14*†
10.15*†
10.16*†
10.17*
10.18*†
10.19*†
10.20*
10.21*
10.22*
10.23*
10.24*†
10.25*†
10.26*†
10.27*†
10.28*†
10.29*†
10.30*†
10.31*†
10.32*†
10.33*
10.34*
10.35*
10.36*
10.37*
10.38*
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.
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 19, 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 19, 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 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.
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.
10.39*†
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.
10.40*†
First Amendment to Executive Employment Agreement, dated as of September 30, 2016, by and between CubeSmart and Chistopher P. Marr, incorporated by
10.41*†
10.42*†
10.43*†
10.44*†
10.45*†
10.46*†
10.47*†
10.48*†
10.49*†
10.50*†
10.51*†
10.52*†
10.53*
12.1
12.2
21.1
23.1
23.2
31.1
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, incorporated by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
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, incorporated by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
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, incorporated by reference to Exhibit 10.44 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
Form of Restricted Share Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016,
incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
Form of Restricted Share Award Agreement (5-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016,
incorporated by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
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, incorporated by reference to Exhibit 10.47 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
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, incorporated by reference to Exhibit 10.48 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
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, incorporated by reference to Exhibit 10.49 to the Company’s Annual Report on Form 10-K, filed on February 17,
2017.
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, incorporated by reference to Exhibit 10.50 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
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, incorporated by reference to Exhibit 10.51 to the Company’s Annual Report on Form 10-K, filed on February 17,
2017.
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, incorporated by reference to Exhibit 10.52 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
Form of Amendment No. 4 to Equity Distribution Agreement, dated March 17, 2017, by and among CubeSmart, CubeSmart, L.P. and each of the Managers (as
defined therein), incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed March 17, 2017.
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.
65
Table of Contents
31.2
31.3
31.4
32.1
32.2
99.1
101
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, 2017, 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
None.
66
Table of Contents
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.
SIGNATURES
CUBESMART
By:
/s/ Timothy M. Martin
Timothy M. Martin
Chief Financial Officer
Date: February 16, 2018
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
Title
/s/ William M. Diefenderfer III
William M. Diefenderfer III
Chairman of the Board of Trustees
/s/ Christopher P. Marr
Christopher P. Marr
/s/ Timothy M. Martin
Timothy M. Martin
/s/ Piero Bussani
Piero Bussani
/s/ Dorothy Dowling
Dorothy Dowling
/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
Chief Executive Officer and Trustee
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
67
Date
February 16, 2018
February 16, 2018
February 16, 2018
February 16, 2018
February 16, 2018
February 16, 2018
February 16, 2018
February 16, 2018
February 16, 2018
February 16, 2018
FINANCIAL STATEMENTS
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements of CUBESMART and CUBESMART, L.P. (the “Company”)
Management’s Report on CubeSmart Internal Control Over Financial Reporting
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, 2017 and 2016
CubeSmart and Subsidiaries Consolidated Statements of Operations for the years ended December 31, 2017, 2016, and 2015
CubeSmart and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016, and 2015
CubeSmart and Subsidiaries Consolidated Statements of Equity for the years ended December 31, 2017, 2016, and 2015
CubeSmart and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015
CubeSmart, L.P. and Subsidiaries Consolidated Balance Sheets as of December 31, 2017 and 2016
CubeSmart, L.P. and Subsidiaries Consolidated Statements of Operations for the years ended December 31, 2017, 2016, and 2015
CubeSmart, L.P. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016, and 2015
CubeSmart, L.P. and Subsidiaries Consolidated Statements of Capital for the years ended December 31, 2017, 2016, and 2015
CubeSmart, L.P. and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015
Notes to Consolidated Financial Statements
Page No.
F-2
F-3
F-4
F-8
F-9
F-10
F-11
F-12
F-13
F-14
F-15
F-16
F-17
F-18
F-1
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, 2017, 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, 2017, 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, 2017, has been audited by KPMG LLP, an independent registered public accounting firm,
as stated in their report that appears herein.
February 16, 2018
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, 2017, 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, 2017, 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, 2017, has been audited by KPMG LLP, an independent registered public accounting firm,
as stated in their report that appears herein.
February 16, 2018
F-3
To the Shareholders and Board of Trustees of
CubeSmart:
Opinion on the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of CubeSmart and subsidiaries (the “Company”) as of December 31, 2017 and 2016, 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, 2017, and the related notes and
financial statement schedule III (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over
financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission, and our report dated February 16, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2009.
Philadelphia, Pennsylvania
February 16, 2018
F-4
To the Partners of
CubeSmart, L.P.:
Opinion on the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of CubeSmart, L.P. and subsidiaries (the “Company”) as of December 31, 2017 and 2016, 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, 2017, and the
related notes and financial statement schedule III (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over
financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission, and our report dated February 16, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2009.
Philadelphia, Pennsylvania
February 16, 2018
F-5
To the Shareholders and Board of Trustees of
CubeSmart:
Opinion on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
We have audited CubeSmart and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control
– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2017, 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) (“PCAOB”), the consolidated balance sheets of the
Company as of December 31, 2017 and 2016, 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, 2017, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report dated
February 16, 2018 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’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 the accompanying 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 are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 16, 2018
F-6
To the Partners of
CubeSmart, L.P.:
Opinion on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
We have audited CubeSmart, L.P. and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2017, 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) (“PCAOB”), the consolidated balance sheets of the
Company as of December 31, 2017 and 2016, 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, 2017, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report dated
February 16, 2018 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’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 the accompanying 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 are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 16, 2018
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 $291,496 and $208,048, 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
Common shares $.01 par value, 400,000,000 shares authorized, 182,215,735 and 180,083,111 shares issued and outstanding at
December 31, 2017 and December 31, 2016, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Accumulated deficit
Total CubeSmart shareholders’ equity
Noncontrolling interests in subsidiaries
Total equity
Total liabilities and equity
See accompanying notes to the consolidated financial statements.
F-8
December 31,
December 31,
2017
2016
$
$
$
4,161,715 $
(752,925)
3,408,790
5,268
3,890
1,592
91,206
34,590
3,545,336 $
1,142,460 $
81,700
299,396
111,434
143,344
55,297
21,529
486
1,855,646
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
54,320
54,407
1,822
2,356,620
3
(729,311)
1,629,134
6,236
1,635,370
3,545,336 $
1,801
2,314,014
(1,850)
(658,583)
1,655,382
5,855
1,661,237
3,475,028
$
CUBESMART AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
REVENUES
Rental income
Other property related income
Property management fee income
Total revenues
OPERATING EXPENSES
Property operating expenses
Depreciation and amortization
General and administrative
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
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 attributable to common shareholders
Diluted earnings per share attributable to common shareholders
Weighted-average basic shares outstanding
Weighted-average diluted shares outstanding
2017
For the year ended December 31,
2016
2015
$
489,043 $
55,001
14,899
558,943
449,601 $
50,255
10,183
510,039
181,508
145,681
34,745
1,294
363,228
195,715
(56,952)
(2,638)
(1,386)
—
872
(60,104)
135,611
(1,593)
270
134,288
—
—
134,288 $
0.74 $
0.74 $
180,525
181,448
165,847
161,865
32,823
6,552
367,087
142,952
(50,399)
(2,577)
(2,662)
—
1,062
(54,576)
88,376
(941)
470
87,905
(5,045)
(2,937)
79,923 $
0.45 $
0.45 $
178,246
179,533
$
$
$
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
(960)
(84)
77,712
(6,008)
—
71,704
0.43
0.42
168,640
170,191
See accompanying notes to the consolidated financial statements.
F-9
CUBESMART AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
NET INCOME
Other comprehensive income (loss):
Unrealized gains (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
Comprehensive loss (income) attributable to noncontrolling interest in subsidiaries
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY
$
See accompanying notes to the consolidated financial statements.
F-10
For the year ended December 31,
2016
2015
2017
$
135,611 $
88,376 $
78,756
195
1,680
—
—
1,875
137,486
(1,615)
270
136,141 $
(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
Balance at December 31, 2014
Contributions from noncontrolling interest in
subsidiaries
Distributions to noncontrolling interests in
subsidiaries
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
Contributions from noncontrolling interest in
subsidiaries
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 (loss)
Other comprehensive income, net:
Preferred share distributions
Preferred share redemption
Common share distributions
Balance at December 31, 2016
Contributions from noncontrolling interest in
subsidiaries
Acquisition of noncontrolling interest in subsidiary
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 (loss)
Other comprehensive income, net:
Common share distributions
Balance at December 31, 2017
CUBESMART AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
Common
Shares
Preferred
Shares
Number
Amount Number
Amount
Additional
Paid-in
Capital
163,957 $
1,639
3,100 $
31 $
1,974,308 $
Accumulated Other
Comprehensive
(Loss) Income
(8,759)
$
Accumulated
Deficit
(519,193) $
Total
Shareholders’
Equity
1,448,026 $
Noncontrolling
Interests in
Subsidiaries
1,592 $
Total
Equity
1,449,618 $
Noncontrolling
Interests
in the
Operating
Partnership
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 $
(4,978) $
3,781
4,408
123
188
696
44
1
2
7
136,077
4,874
13,276
1,952
1,260
(3,100)
(31)
(74,606)
3,128
180,083 $
1,801
— $
— $
2,314,014 $
(1,850) $
1,036
106
594
397
10
1
6
4
(8,626)
29,632
15,700
2,360
2,009
1,531
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 $
136,121
1
4,876
13,283
1,952
1,260
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 $
(8,626)
29,642
1
15,706
2,364
2,009
1,531
178
178
(319)
84
(9)
1,526 $
4,799
(470)
5,855 $
1,058
(407)
(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
7,388
87,435
3,128
(5,045)
(77,574)
(161,240)
1,661,237 $
1,058
(9,033)
29,642
1
15,706
2,364
2,009
1,531
182,216 $
1,822
— $
— $
2,356,620 $
3 $
1,853
(3,965)
134,288
(201,051)
(729,311) $
(3,965)
134,288
1,853
(201,051)
1,629,134 $
(270)
6,236 $
(3,965)
134,018
1,853
(201,051)
1,635,370 $
See accompanying notes to the consolidated financial statements.
F-11
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
12,324
(15,706)
3,965
1,593
22
(2,285)
54,320
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:
For the year ended December 31,
2016
2015
2017
$
135,611 $
88,376 $
78,756
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
Unsecured term loans
Mortgage loans and notes payable
Loan procurement costs
Acquisition of noncontrolling interest in subsidiary
Proceeds from issuance of common shares, net
Cash paid upon vesting of restricted shares
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 (used in) 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
Issuance of OP units
Liability for acquisition of storage property
Contribution of storage property to real estate venture
$
148,319
1,386
—
5,586
(559)
(60)
(8,845)
10,846
1,154
293,438 $
(69,629)
(28,962)
(64,659)
(301)
15,784
—
—
—
(57)
$
(147,824) $
103,192
628,400
(590,000)
(100,000)
(8,666)
(953)
(9,033)
29,643
(2,046)
—
2,364
1,058
—
(195,006)
—
(2,272)
(143,319) $
2,295
2,973
5,268 $
$
$
$
$
$
$
$
$
$
$
$
$
$
$
164,442
2,662
—
4,850
(1,138)
591
(3,930)
7,862
1,449
265,164 $
(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
(1,638)
(77,574)
13,283
4,799
—
(149,280)
(6,545)
(1,841)
219,411 $
(59,896)
62,869
2,973 $
154,113
411
(17,567)
3,722
(1,429)
743
(2,519)
(438)
1,480
217,272
(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
(1,567)
—
17,489
178
(319)
(107,093)
(6,008)
(1,438)
217,304
59,968
2,901
62,869
63,407 $
53,085 $
46,216
— $
— $
35,122 $
1,875 $
— $
— $
6,201 $
— $
12,324 $
1,470 $
9,400 $
(22,019) $
— $
31,426 $
3,165 $
— $
1,488 $
41,513 $
2,863 $
— $
— $
— $
(14,353)
36,372
16,929
2,854
(249)
662
2,695
—
—
—
—
See accompanying notes to the consolidated financial statements.
F-12
CUBESMART, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
Storage properties
Less: Accumulated depreciation
Storage properties, net (including VIE assets of $291,496 and $208,048, 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 income (loss)
Total CubeSmart, L.P. capital
Noncontrolling interests in subsidiaries
Total capital
Total liabilities and capital
See accompanying notes to the consolidated financial statements.
F-13
$
$
$
December 31,
2017
December 31,
2016
4,161,715 $
(752,925)
3,408,790
5,268
3,890
1,592
91,206
34,590
3,545,336 $
1,142,460 $
81,700
299,396
111,434
143,344
55,297
21,529
486
1,855,646
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
54,320
54,407
1,629,131
3
1,629,134
6,236
1,635,370
3,545,336 $
1,657,232
(1,850)
1,655,382
5,855
1,661,237
3,475,028
$
CUBESMART, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per common unit data)
REVENUES
Rental income
Other property related income
Property management fee income
Total revenues
OPERATING EXPENSES
Property operating expenses
Depreciation and amortization
General and administrative
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
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 attributable to common unitholders
Diluted earnings per unit attributable to common unitholders
Weighted-average basic units outstanding
Weighted-average diluted units outstanding
For the year ended December 31,
2016
2015
2017
$
489,043 $
55,001
14,899
558,943
449,601 $
50,255
10,183
510,039
181,508
145,681
34,745
1,294
363,228
195,715
(56,952)
(2,638)
(1,386)
—
872
(60,104)
135,611
270
135,881
(1,593)
134,288
—
—
134,288 $
0.74 $
0.74 $
180,525
181,448
165,847
161,865
32,823
6,552
367,087
142,952
(50,399)
(2,577)
(2,662)
—
1,062
(54,576)
88,376
470
88,846
(941)
87,905
(5,045)
(2,937)
79,923 $
0.45 $
0.45 $
178,246
179,533
$
$
$
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
(84)
78,672
(960)
77,712
(6,008)
—
71,704
0.43
0.42
168,640
170,191
See accompanying notes to the consolidated financial statements.
F-14
CUBESMART, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
NET INCOME
Other comprehensive income (loss):
Unrealized gains (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
$
See accompanying notes to the consolidated financial statements.
F-15
For the year ended December 31,
2016
2015
2017
$
135,611 $
88,376 $
78,756
195
1,680
—
—
1,875
137,486
(1,615)
270
136,141 $
(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
CUBESMART, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL
(in thousands)
Number of
Common OP
Number of
Preferred OP
Accumulated Other
Total
Noncontrolling
Comprehensive
(Loss) Income
CubeSmart L.P.
Capital
Interest in
Subsidiaries
Total
Capital
Operating
Partnership
Interests
of Third Parties
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, net:
Preferred OP unit distributions
Preferred OP unit redemption
Common OP unit distributions
Balance at December 31, 2016
Contributions from noncontrolling interest in subsidiaries
Acquisition of noncontrolling interest in subsidiary
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, net:
Common OP unit distributions
Balance at December 31, 2017
Units
Units
Operating
Outstanding
Outstanding
163,957
3,100 $
Partner
1,456,785 $
8,978
161
118
1,454
174,668
3,100 $
4,408
123
188
696
(3,100)
180,083
— $
1,036
106
594
397
182,216
— $
234,061
1
3,275
17,489
1,166
989
(19,619)
77,712
(6,008)
(117,546)
1,648,305 $
136,121
1
4,876
13,283
1,952
1,260
7,388
87,905
(5,045)
(77,574)
(161,240)
1,657,232 $
(8,626)
29,642
1
15,706
2,364
2,009
1,531
(3,965)
134,288
(201,051)
1,629,131 $
(8,759) $
1,448,026 $
234,061
1
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 $
(8,626)
29,642
1
15,706
2,364
2,009
1,531
(3,965)
134,288
1,853
(201,051)
1,629,134 $
3,781
(4,978) $
3,128
(1,850) $
1,853
3 $
1,592 $
178
(319)
84
(9)
1,526 $
4,799
(470)
5,855 $
1,058
(407)
(270)
6,236 $
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
7,388
87,435
3,128
(5,045)
(77,574)
(161,240)
1,661,237 $
1,058
(9,033)
29,642
1
15,706
2,364
2,009
1,531
(3,965)
134,018
1,853
(201,051)
1,635,370 $
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
12,324
(15,706)
3,965
1,593
22
(2,285)
54,320
See accompanying notes to the consolidated financial statements.
F-16
CUBESMART, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating Activities
Net income
Adjustments to reconcile net income to cash provided by operating activities:
For the year ended December 31,
2017
2016
2015
$
135,611 $
88,376 $
78,756
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
Unsecured term loans
Mortgage loans and notes payable
Loan procurement costs
Acquisition of noncontrolling interest in subsidiary
Proceeds from issuance of common OP units
Cash paid upon vesting of restricted 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 (used in) 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
Issuance of OP units
Liability for acquisition of storage property
Contribution of storage property to real estate venture
$
148,319
1,386
—
5,586
(559)
(60)
(8,845)
10,846
1,154
293,438 $
(69,629)
(28,962)
(64,659)
(301)
15,784
—
—
—
(57)
$
(147,824) $
103,192
628,400
(590,000)
(100,000)
(8,666)
(953)
(9,033)
29,643
(2,046)
—
2,364
1,058
—
(197,278)
—
(143,319) $
2,295
2,973
5,268 $
$
$
$
$
$
$
$
$
$
$
$
$
$
$
164,442
2,662
—
4,850
(1,138)
591
(3,930)
7,862
1,449
265,164 $
(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
(1,638)
(77,574)
13,283
4,799
—
(151,121)
(6,545)
219,411 $
(59,896)
62,869
2,973 $
154,113
411
(17,567)
3,722
(1,429)
743
(2,519)
(438)
1,480
217,272
(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
(1,567)
—
17,489
178
(319)
(108,531)
(6,008)
217,304
59,968
2,901
62,869
63,407 $
53,085 $
46,216
— $
— $
35,122 $
1,875 $
— $
— $
6,201 $
— $
12,324 $
1,470 $
9,400 $
(22,019) $
— $
31,426 $
3,165 $
— $
1,488 $
41,513 $
2,863 $
— $
— $
— $
(14,353)
36,372
16,929
2,854
(249)
662
2,695
—
—
—
—
See accompanying notes to the consolidated financial statements.
F-17
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, 2017, 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, 2017, the Parent Company owned approximately 99.0% 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 (except, as disclosed in note 4, in the case of the Class
C OP Units issued on April 12, 2017, such right became exercisable on October 12, 2017 and, in the case of the 440,160 OP Units issued on May 9, 2017, such right may be
exercised at any time on or after May 9, 2018) for cash equal to the fair value of an equivalent number of common shares of the Parent Company or, in the case of Class C OP
Units, the stated value of such Class C OP Units. 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, or in the case of Class C OP Units, for common shares with a fair value equal to the stated value of such Class C OP Units. 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
F-18
(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 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, 2017, as the estimated redemption value exceeded their carrying value.
The Operating Partnership recorded an increase to OP Units owned by third parties and a corresponding decrease to capital of $4.0 million as of December 31, 2017. 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
F-19
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.
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 $21.4 million and $24.7 million as of December 31, 2017 and 2016, respectively, and are reported net of accumulated
amortization of $11.1 million and $9.7 million as of December 31, 2017 and 2016, 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
F-20
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.
Other Assets
Other assets are comprised of the following as of December 31, 2017 and 2016 (in thousands):
Intangible assets, net of accumulated amortization of $1,532 and $8,109
Accounts receivable
Deposits on future acquisitions
Prepaid real estate taxes
Prepaid insurance
Amounts due from affiliates (see note 13)
Assets held in trust related to deferred compensation arrangements
Other
Total other assets, net
Environmental Costs
December 31,
2017
2016
1,716
5,498
1,000
3,960
2,105
7,480
9,393
3,438
34,590
$
$
8,280
4,434
5,106
3,640
1,053
3,349
6,748
3,904
36,514
$
$
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. Property management fee income is recognized monthly as services are performed and in accordance with the terms of the related management agreements.
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 $9.7
million, $9.4 million, and $8.6 million in advertising and marketing expenses for the years ended December 31, 2017, 2016 and 2015, 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, 2017, 2016 and 2015, the Company recognized $0.6 million, $1.6 million, and $2.5 million, respectively, of equity offering costs related to the issuance of common shares.
F-21
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, 2017, 2016 and 2015, the Company capitalized $5.6 million, $4.6
million, and $2.6 million, respectively, of interest incurred that is directly associated with construction activities.
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 $100.0 million and $300.0 million as of
December 31, 2017 and 2016, respectively, the fair value of which are included in Accounts payable, accrued expenses and other liabilities on the Company’s consolidated
balance sheets.
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 $3.4 billion and $3.2 billion as of December 31, 2017 and 2016, 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 2017 consisted of an 86.602% ordinary income distribution, a 0.495% capital gain
distribution, and a 12.903% return of capital distribution from earnings and profits.
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 2017, 2016, or 2015.
Taxable REIT subsidiaries are subject to federal and state income taxes. Our taxable REIT subsidiaries had a net deferred tax asset related to expenses which are deductible for
tax purposes in future periods of $1.4 million and $1.3 million as of December 31, 2017 and 2016, respectively.
Legislation commonly known as the Tax Cuts and Jobs Act (“TCJA”) was signed into law on December 22, 2017. The TCJA makes significant changes to the U.S. federal
income tax rules for taxation of individuals and corporations (including REITs), generally effective for taxable years beginning after December 31, 2017.
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
F-22
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 923,000; 1,287,000, and 1,551,000 in 2017, 2016, and 2015, respectively.
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. The Pound was translated at an average exchange rate of 1.529755 for the
period from January 1, 2015 to October 2, 2015. 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 from sale of real estate, net on the Company’s consolidated statements 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 2017, the Company adopted ASU No. 2016-09 – Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting, which requires retrospective application for the cash flow presentation of cash withheld upon restricted stock vesting and paid by the Company to a taxing
authority to satisfy the employee’s related tax obligation. See “Recent Accounting Pronouncements” below. As a result of adopting the new guidance, $1.6 million of vested
restricted shares that were withheld to satisfy employee tax obligations and paid to the taxing authorities, were reclassified from operating activities to financing activities within
the Company’s consolidated statements of cash flows for each of the years ended December 31, 2016 and 2015.
Recent Accounting Pronouncements
In August 2017, the FASB issued ASU No. 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The purpose of this
updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The transition guidance provides
companies with the option of early adopting the new standard using a modified retrospective transition method in any interim period after issuance of the update, or
alternatively requires adoption for fiscal years beginning after December 15, 2018. This adoption method will require the Company to recognize the cumulative effect of initially
applying the new guidance as an adjustment to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the
beginning of the fiscal year that the Company adopts the update. The Company is in the process of evaluating the impact of this new guidance.
In February 2017, as part of the new revenue standard, the FASB issued ASU No. 2017-05 – Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets
(Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance, which focuses on recognizing gains and losses from the transfer of nonfinancial assets in contracts
with non-customers. Specifically, the new guidance
F-23
defines “in substance nonfinancial asset”, unifies guidance related to partial sales of nonfinancial assets, eliminates rules specifically addressing sales of real estate, removes
exceptions to the financial asset derecognition model, and clarifies the accounting for contributions of nonfinancial assets to joint ventures. The new guidance became effective
on January 1, 2018 when the entity adopted the new revenue standard. Upon adoption, the majority of its sale transactions are now treated as dispositions of nonfinancial
assets rather than dispositions of a business given the FASB’s recently revised definition of a business (see ASU No. 2017-01 below). Additionally, in partial sale transactions
where the Company sells a controlling interest in real estate but retains a noncontrolling interest, the Company will now fully recognize a gain or loss on the fair value
measurement of the retained interest as the new guidance eliminates the partial profit recognition model.
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 became effective on January 1, 2018. Upon adoption of the new guidance, the majority of
future property acquisitions will now be considered asset acquisitions, resulting in the capitalization of acquisition related costs incurred in connection with these transactions
and the allocation of purchase price and acquisition related costs to the assets acquired based on their relative fair values.
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 became effective on January 1, 2018. The
standard requires the use of the retrospective transition method. The adoption of this guidance will not have a material impact on the Company’s consolidated financial
statements as the update primarily relates to financial statement presentation and disclosures.
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 became effective on January 1, 2018. The standard requires the use of the retrospective transition method. The adoption of this guidance
will not have a material impact on the Company’s consolidated financial statements as the update primarily relates to financial statement presentation and disclosures.
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 requires 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. The Company has
elected to 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 new standard became
effective for the Company on January 1, 2017. The adoption of this guidance did not 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 the new standard on the Company’s consolidated financial statements and related disclosures but at this time, it expects the primary impact to be
related to its ten ground leases in which it serves as the ground lessee (see note 14).
F-24
In May 2014, the FASB issued ASU No. 2014-09 - Revenue from Contracts with Customers (Topic 606), 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 new guidance outlines a five-step process for customer contract revenue recognition
that focuses on transfer of control as opposed to transfer of risk and rewards. The new guidance also requires enhanced disclosures regarding the nature, amount, timing, and
uncertainty of revenues and cash flows from contracts with customers. In May 2016, the FASB issued ASU 2016-12 - Revenue from Contracts with Customers (Topic 606):
Narrow-Scope Improvements and Practical Expedients, which amends ASU 2014-09 and is intended to address implementation issues that were raised by stakeholders. ASU
2016-12 provides practical expedients on collectability, noncash consideration, presentation of sales tax and contract modifications and completed contracts in transition. Both
standards became effective on January 1, 2018. The Company finalized the impact of the adoption of ASU No. 2014-09 and ASU No. 2016-12 on the Company’s consolidated
financial statements and related disclosures and adopted the standards using the modified retrospective transition method. The standards will not have a material impact on the
Company’s consolidated statements of financial position or results of operations primarily because most of its revenue is derived from lease contracts, which are excluded from
the scope of the new guidance. The Company’s insurance fee revenue, property management fee revenue, and merchandise sale revenue are included in the scope of the new
guidance, however, the Company identified similar performance obligations under this standard as compared with deliverables and separate units of account identified under its
previous revenue recognition methodology. Accordingly, revenue recognized under the new guidance will not differ materially from revenue recognized under previous
guidance and there will be no material prior year impact.
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 each of the years ended
December 31, 2017 and 2016. The stores in Florida, New York, Texas, and California provided total revenues of approximately 18%, 16%, 10%, and 8%, respectively, for the year
ended December 31, 2015.
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
December 31,
2017
December 31,
2016
(in thousands)
711,140
3,086,252
182,958
181,365
4,161,715
(752,925)
3,408,790
$
$
649,744
2,928,275
217,867
202,294
3,998,180
(671,364)
3,326,816
$
$
F-25
The following table summarizes the Company’s acquisition and disposition activity for the years ended December 31, 2017, 2016, and 2015:
Asset/Portfolio
2017 Acquisitions:
Illinois Asset
Maryland Asset
California Asset
Texas Asset
Florida Asset
Illinois Asset
Florida Asset
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
Texas Asset
Maryland Asset
Maryland Asset
New York/New Jersey Assets
New Jersey Asset
PSI Assets
2015 Dispositions:
Texas Assets
Florida Asset
Market
Transaction Date
Number of
Stores
Purchase / Sale Price
(in thousands)
Chicago
Baltimore / DC
Sacramento
Texas Markets - Major
Florida Markets - Other
Chicago
Florida Markets - Other
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
Texas Markets - Major
Baltimore / DC
Baltimore / DC
New York / Northern NJ
New York / Northern NJ
Various (see note 4)
Texas Markets - Major
Florida Markets - Other
F-26
April 2017
May 2017
May 2017
October 2017
October 2017
November 2017
December 2017
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
July 2015
July 2015
July 2015
August 2015
December 2015
December 2015
October 2015
October 2015
1
1
1
1
1
1
1
7
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
1
1
1
2
1
12
29
7
1
8
$
$
$
$
$
$
$
$
11,200
18,200
3,650
4,050
14,500
11,300
17,750
80,650
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
14,200
17,000
19,200
24,823
14,350
109,824
292,362
28,000
9,800
37,800
4. INVESTMENT ACTIVITY
2017 Acquisitions
During the year ended December 31, 2017, the Company acquired six stores located throughout the United States, including two stores upon completion of construction and
the issuance of a certificate of occupancy, for an aggregate purchase price of approximately $69.5 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 $3.2 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 2017 was approximately $1.5 million. In connection with one of the acquired stores, the Company assumed mortgage debt that was recorded at a fair value of $6.2 million,
which fair value includes an outstanding principal balance totaling $5.9 million and a net premium of $0.3 million to reflect the estimated fair value of the debt at the time of
assumption. As part of the acquisition of that same store, the Company issued OP Units that were valued at approximately $12.3 million as consideration for the remainder of the
purchase price (see note 12).
During the year ended December 31, 2017, the Company also acquired a store in Illinois upon completion of construction and the issuance of a certificate of occupancy for
$11.2 million. The purchase price was satisfied with $9.7 million of cash and 58,400 newly created Class C OP Units. Each Class C OP Unit has a stated value of $25 and bears an
annual distribution rate of 3% of the stated value. The holder has the option to tender the Class C OP Units to the Operating Partnership at any time, and on or after April 12,
2018, the Operating Partnership will have the option to redeem the Class C OP Units, in each case at a redemption price of $25 per Class C OP Unit. The Company has the right to
settle the redemption in cash or, at the Company’s option, common shares of CubeSmart, or a combination of cash and common shares, with the common shares valued at their
closing price on the redemption date. Because the Class C OP Units represent an unconditional obligation that the Company may settle by issuing a variable number of its
common shares with a monetary value that is known at inception, they have been classified as a liability in Accounts payable, accrued expenses and other liabilities on the
Company’s consolidated balance sheets.
The following table summarizes the Company’s revenue and earnings associated with the 2017 acquisitions from the respective acquisition dates, that are included in the
consolidated statements of operations for the year ended December 31, 2017:
Total revenue
Net loss
Year Ended December
31, 2017
(in thousands)
$
1,572
(1,330)
As of December 31, 2017, the Company was under contract and had made deposits of $1.0 million associated with two stores, including one store to be acquired after the
completion of construction and the issuance of the certificate of occupancy, for an aggregate acquisition price of $33.0 million. The deposits are reflected in Other assets, net on
the Company’s consolidated balance sheets. The purchase of the store under construction is expected to occur during the second quarter of 2018 after the completion of
construction and the issuance of a certificate of occupancy. This acquisition is subject to due diligence and other customary closing conditions and no assurance can be
provided that it will be completed on the terms described, or at all. On January 31, 2018, the Company acquired the remaining store that was under contract as of December 31,
2017 (see note 19).
Development
As of December 31, 2017, the Company had invested in joint ventures to develop six self-storage properties located in Massachusetts (1) New Jersey (1), and New York (4).
Construction for all projects is expected to be completed by the third quarter of 2019. As of December 31, 2017, development costs incurred to date for these projects totaled
$121.0 million. Total construction costs for these projects are expected to be $232.6 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, 2015. 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.
F-27
Brooklyn, NY
Washington, D.C.
New York, NY
North Palm Beach, FL
Bronx, NY
Queens, NY
Brooklyn, NY
Queens, NY
Arlington, VA
(1) (2)
(1)
(3)
Store Location
Number of
Stores
Date Opened
1
1
1
1
1
1
1
1
1
9
Q4 2017
Q3 2017
Q3 2017
Q1 2017
Q2 2016
Q1 2016
Q4 2015
Q4 2015
Q2 2015
CubeSmart
Ownership
Interest
51%
100%
90%
100%
100%
100%
100%
90%
90%
$
$
Total
Construction Costs
(in thousands)
49,300
27,800
81,200
9,700
32,200
31,800
14,800
17,400
17,100
281,300
(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) This store is subject to a ground lease.
(3) During the fourth quarter of 2015, the Company, through a joint venture in which the Company owned a 90% interest and that it previously consolidated, completed the
construction and opened for operation a store located in Brooklyn, NY. On June 2, 2017, the Company acquired the noncontrolling member’s 10% interest in the venture
for $9.0 million. Prior to this transaction, the noncontrolling member’s interest was reported in Noncontrolling interests in subsidiaries on the consolidated balance
sheets. Since the Company retained its controlling interest in the joint venture and the store is now wholly owned, this transaction was accounted for as an equity
transaction. The carrying amount of the noncontrolling interest was reduced to zero to reflect the purchase, and the $8.6 million difference between the purchase price
paid by the Company and the carrying amount of the noncontrolling interest was recorded as an adjustment to equity attributable to the Company. In conjunction with
the Company’s acquisition of the noncontrolling interest, the $9.8 million related party loan extended by the Company to the venture during the construction period was
repaid in full.
2016 Acquisitions
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 the years ended December 31, 2017 and 2016 was approximately $8.3 million and $10.5 million, respectively. 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.
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 was 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.
F-28
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 January 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.
5. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES
191 IV CUBE LLC (“HVP IV”)
On October 16, 2017, the Company acquired a self-storage property located in Texas for $9.4 million, which it then contributed to a newly-formed joint venture on November 1,
2017. In return for contributing the property to HVP IV, the Company received approximately $7.5 million in cash and a 20% ownership interest in the venture. Subsequent to
December 31, 2017, HVP IV acquired two self-storage properties in Arizona (1) and Texas (1) for an aggregate purchase price of $20.5 million.
CUBE HHF Northeast Venture LLC (“HHFNE”)
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 III”)
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 III paid $242.5 million for these 37 stores, of which $18.9 million was
allocated to the value of the in-place lease
F-29
intangible. HVP III 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 III 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 III 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.
During the first quarter of 2016, HVP III 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 III 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 III 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 III
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 III related to this portfolio acquisition was $5.4 million, bringing its total investment in HVP III 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 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 HVP IV, HHFNE, HVP III, 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, 2017 and 2016 (in thousands):
F-30
Assets
Storage properties, net
Other assets
Total assets
Liabilities and equity
Other liabilities
Debt
Equity
CubeSmart
Joint venture partners
Total liabilities and equity
December 31,
2017
December 31,
2016
$
$
$
$
647,668
8,284
655,952
6,853
346,475
91,206
211,418
655,952
$
$
$
$
667,975
17,003
684,978
6,516
345,631
98,682
234,149
684,978
The following is a summary of results of operations of the Ventures for the years ended December 31, 2017, 2016 and 2015 (in thousands):
Total revenues
Operating expenses
Interest expense, net
Depreciation and amortization
Net loss
Company’s share of net loss
2017
Year ended December 31,
2016
2015
$
81,058 $
34,705
11,703
45,086
(10,436)
(1,386)
64,931 $
29,900
9,432
53,701
(28,102)
(2,662)
31,249
15,042
3,846
16,214
(3,853)
(411)
The results of operations above include the periods from November 1, 2017 (date of acquisition) through December 31, 2017 for HVP IV, December 15, 2016 (date of
acquisition) through December 31, 2017 for HHFNE, and December 8, 2015 (date of acquisition) through December 31, 2017 for HVP III.
6. UNSECURED SENIOR NOTES
The Company’s unsecured senior notes are summarized as follows (collectively referred to as the “Senior Notes”):
Unsecured Senior Notes
$250M 4.800% Guaranteed Notes due 2022
$300M 4.375% Guaranteed Notes due 2023
$300M 4.000% Guaranteed Notes due 2025
$300M 3.125% Guaranteed Notes due 2026
Principal balance outstanding
(1)
(2)
Less: Discount on issuance of unsecured senior notes, net
Less: Loan procurement costs, net
Total unsecured senior notes, net
December 31,
December 31,
2017
2016
(in thousands)
$
$
250,000 $
300,000
300,000
300,000
1,150,000
(617)
(6,923)
1,142,460 $
250,000
250,000
250,000
300,000
1,050,000
(3,971)
(6,953)
1,039,076
Effective
Interest Rate
Issuance
Date
Maturity
Date
4.82 %
4.33 %
3.99 %
3.18 %
Jun-12
Various
Various
(1)
(2)
Aug-16
Jul-22
Dec-23
Nov-25
Sep-26
(1) On April 4, 2017, the Operating Partnership issued $50.0 million of its 4.375% senior notes due 2023, which are part of the same series as the $250.0 million principal
amount of the Operating Partnership’s 4.375% senior notes due December 15, 2023 issued on December 17, 2013. The $50.0 million and $250.0 million traunches were
priced at 105.040% and 98.995%, respectively, of the principal amount to yield 3.495% and 4.501%, respectively, to maturity. The combined weighted-average effective
interest rate of the 2023 notes is 4.330%.
(2) On April 4, 2017, the Operating Partnership issued $50.0 million of its 4.000% senior notes due 2025, which are part of the same series as the $250.0 million principal
amount of the Operating Partnership’s 4.000% senior notes due November 15, 2025 issued on October 26, 2015. The $50.0 million and $250.0 million traunches were priced
at 101.343% and 99.735%, respectively, of the
F-31
principal amount to yield 3.811% and 4.032%, respectively, to maturity. The combined weighted-average effective interest rate of the 2025 notes is 3.994%.
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, 2017, the Operating Partnership was in compliance with all of the financial covenants under the Senior Notes.
7. REVOLVING CREDIT FACILITY AND UNSECURED TERM LOANS
On December 9, 2011, the Company entered into a credit agreement (the “Credit Facility”), which was subsequently amended on April 5, 2012, June 18, 2013, and April 22, 2015
to provide for, amongst other things, a $500.0 million unsecured revolving facility (the “Revolver”) with a maturity date of April 22, 2020. Pricing on the Revolver is dependent
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%. As of December 31, 2017, $417.6 million was available for borrowing under the Revolver. The available balance under the Revolver is reduced by an
outstanding letter of credit of $0.7 million. As of December 31, 2017, the Company also had a $200.0 million unsecured term loan outstanding under the Credit Facility, which is
included in the table below.
On June 20, 2011, the Company entered into an unsecured term loan agreement (the “Term Loan Facility”), which was subsequently amended on June 18, 2013 and August 5,
2014, consisting of a $100.0 million unsecured term loan with a five-year maturity and a $100.0 million unsecured term loan with a seven-year maturity.
The Company’s unsecured term loans under the Credit Facility and Term Loan Facility are summarized below:
Unsecured Term Loans
Credit Facility
Unsecured term loan
Term Loan Facility
Unsecured term loan
Unsecured term loan
(2)
(3)
Principal balance outstanding
Less: Loan procurement costs, net
Total unsecured term loans, net
Carrying Value as of:
December 31,
December 31,
Effective Interest
Rate as of
2017
2016
December 31, 2017
(1)
Maturity
Date
(in thousands)
$
200,000 $
200,000
2.86 %
Jan-19
—
100,000
300,000
(604)
299,396 $
100,000
100,000
400,000
(1,251)
398,749
$
— %
3.62 %
Jun-18
Jan-20
(1) Pricing on the Term Loan Facility and the unsecured term loan under the Credit Facility is dependent on the Company’s unsecured debt credit ratings. At the Company’s
current Baa2/BBB level, amounts drawn under the term loan scheduled to mature in January 2019 are priced at 1.30% over LIBOR, while amounts drawn under the term
loan scheduled to mature in January 2020 are priced at 1.15% over LIBOR, excluding the impact of interest rate swaps. As of December 31, 2017, borrowings under the
Credit Facility, inclusive of the Revolver, and Term Loan Facility, as amended and after giving effect to the interest rate swaps, had an effective weighted average interest
rate of 3.05%.
(2) On April 6, 2017, the Company used the net proceeds from the issuance of $50.0 million of its 4.375% Senior Notes due 2023 and $50.0 million of its 4.000% Senior Notes
due 2025 to repay all of the outstanding indebtedness under its unsecured term loan that was scheduled to mature in June 2018. Unamortized loan procurement costs of
$0.2 million were written off in conjunction with the repayment.
(3) As of December 31, 2017, the Company had interest rate swaps in place on these borrowings that fix 30-day LIBOR (see note 10).
F-32
The Term Loan Facility and the unsecured term loan under the Credit Facility were fully drawn as of December 31, 2017 and no further borrowings may be made under the term
loans. The Company’s ability to borrow under the Revolver 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, 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, 2017, 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 67
YSI 33
YSI 26
YSI 57
YSI 55
YSI 24
YSI 65
YSI 66
YSI 68
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,
December 31,
2017
2016
Effective
Interest Rate
Maturity
Date
$
(in thousands)
— $
9,547
8,228
2,889
22,508
25,700
2,411
31,727
5,786
108,796
3,286
(648)
111,434 $
$
6,216
9,860
8,423
2,957
22,952
26,464
2,457
32,257
—
111,586
3,742
(710)
114,618
2.55 %
6.42 %
4.56 %
4.61 %
4.85 %
4.64 %
3.85 %
3.51 %
3.78 %
Mar-17
Jul-19
Nov-20
Nov-20
Jun-21
Jun-21
Jun-23
Jun-23
May-24
As of December 31, 2017 and 2016, the Company’s mortgage loans payable were secured by certain of its self-storage properties with net book values of approximately $236.9
million and $233.1 million, respectively. The following table represents the future principal payment requirements on the outstanding mortgage loans and notes payable as of
December 31, 2017 (in thousands):
2018
2019
2020
2021
2022
2023 and thereafter
Total mortgage payments
Plus: Unamortized fair value adjustment
Less: Loan procurement costs, net
Total mortgage loans and notes payable, net
F-33
$
$
2,650
11,652
12,791
45,057
923
35,723
108,796
3,286
(648)
111,434
9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the changes in accumulated other comprehensive income (loss) by component for the year ended December 31, 2017 (in thousands):
Unrealized losses
on interest rate
swaps
Other comprehensive gain before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current-period other comprehensive gain
Balance at December 31, 2016
Balance at December 31, 2017
(1)
See note 10 for additional information about the effects of the amounts reclassified.
10. RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS
$
$
192
(1)
1,661
1,853
(1,850)
3
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, 2017 and 2016 (in thousands):
Hedge
Product Type
Hedge
(1)
Notional Amount
December 31, 2017
December 31, 2016
Strike
Effective
Date
Maturity
December 31, 2017
December 31, 2016
Fair Value
Swap
Swap
Swap
Swap
Swap
Swap
Swap
Cash flow
Cash flow
Cash flow
Cash flow
Cash flow
Cash flow
Cash flow
$
$
— $
—
—
—
40,000
40,000
20,000
100,000 $
75,000
50,000
50,000
25,000
40,000
40,000
20,000
300,000
1.3360 %
1.3360 %
1.3360 %
1.3375 %
2.4590 %
2.4725 %
2.4750 %
12/30/2011
12/30/2011
12/30/2011
12/30/2011
6/20/2011
6/20/2011
6/20/2011
3/31/2017
3/31/2017
3/31/2017
3/31/2017
6/20/2018
6/20/2018
6/20/2018
$
$
— $
—
—
—
(161)
(163)
(82)
(406) $
(103)
(69)
(69)
(34)
(797)
(804)
(404)
(2,280)
(1) Hedging unsecured variable rate debt by fixing 30-day LIBOR.
F-34
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, 2017 and 2016, 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 $1.7 million of unrealized losses from accumulated other comprehensive loss as an increase to interest expense during 2017. The
Company estimates that $0.4 million will be reclassified as an increase to interest expense in 2018.
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, 2017 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
$
$
— $
406 $
— $
406 $
—
—
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 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 2017 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 the Company and
the counterparties. However, as of December 31, 2017, the Company has assessed the significance of the effect
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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, 2017 and 2016. The aggregate carrying value of the Company’s debt was $1.6 billion as of December 31, 2017 and 2016. The estimated fair value of the Company’s
debt was $1.7 billion and $1.6 billion as of December 31, 2017 and 2016, respectively. These estimates were based on a discounted cash flow analysis assuming market interest
rates for comparable obligations as of December 31, 2017 and 2016. 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
Estimated
Opening
Date Opened / CubeSmart
Ownership
(3)
(1)
CS 1158 McDonald Ave, LLC ("McDonald Ave")
CS SJM E 92nd Street, LLC ("92nd St")
(1)
CS 160 East 22nd St, LLC ("22nd St")
2225 46th St, LLC ("46th St")
CS SDP Waltham, LLC ("Waltham")
2880 Exterior St, LLC ("Exterior St")
3068 Cropsey Avenue, LLC ("Cropsey Ave")
444 55 Street Holdings, LLC ("55th St")
186 Jamaica Avenue, LLC ("Jamaica Ave")
Shirlington Rd, LLC ("SRLLC")
(3)
(1)
(3)
(1)
(3)
(2)
th
(1)
1
1
1
1
1
1
1
1
1
1
10
Brooklyn, NY
New York, NY
Bayonne, NJ
Queens, NY
Waltham, MA
Bronx, NY
Brooklyn, NY
New York, NY
Brooklyn, NY
Arlington, VA
Q3 2019 (est.)
Q2 2019 (est.)
Q1 2019 (est.)
Q4 2018 (est.)
Q4 2018 (est.)
Q3 2018 (est.)
Q4 2017
Q3 2017
Q4 2015
Q2 2015
December 31, 2017
Interest
Total Assets
Total Liabilities
51%
90%
51%
51%
90%
51%
51%
90%
90%
90%
$
$
18,472
$
1,366
5,533
27,130
5,981
62,763
47,952
82,216
18,478
16,320
286,211 $
2,429
1,096
3,382
9,551
704
31,575
22,189
33,858
13,289
12,819
130,892
(1) The noncontrolling members of McDonald Ave, 22nd St, 46th St, Exterior St, and Cropsey Ave have the option to put their ownership interest in the ventures to the
Company for $10.0 million, $11.5 million, $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 McDonald Ave, 22nd St, 46th
St, Exterior St, and Cropsey Ave for $10.0 million, $11.5 million, $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, 2017, has accrued $2.2 million, $3.3 million, $8.2 million, $28.9 million and $20.4 million related to McDonald Ave, 22nd St, 46th St, Exterior St, and Cropsey Ave,
respectively.
(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 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.
th
(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, 2017, the Company has fully
funded its $12.8 million loan commitment to Jamaica Ave and $12.7 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. As of December 31, 2017, the Company has not funded any of
its $10.8 million or $6.2 million loan commitments to Waltham and 92nd St, respectively.
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See note 4 for details regarding the Company’s June 2, 2017 acquisition of the noncontrolling interest in a previously consolidated joint venture that developed and owned a
store in Brooklyn, NY.
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 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 1.0% and 1.1% of the outstanding OP Units as of December 31, 2017 and December 31, 2016, 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 has been 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 18, 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 commenced operations during
the third quarter of 2017.
On May 9, 2017, the Company acquired a store in Maryland for $18.2 million and assumed an existing mortgage loan with an outstanding balance of approximately $5.9 million.
In conjunction with the closing, the Company issued 440,160 OP Units, valued at approximately $12.3 million, to pay the remaining consideration.
On April 12, 2017, the Company acquired a store in Illinois for $11.2 million. In conjunction with the closing, the Company paid $9.7 million and issued 58,400 Class C OP Units
to pay the remaining consideration.
As of December 31, 2017 and 2016, 1,878,253 and 2,032,394 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, 2017 and 2016. As of December 31, 2017, the Operating Partnership recorded an increase to OP Units owned by third
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parties and a corresponding decrease to capital of $4.0 million. As of December 31, 2016, the Operating Partnership recorded a decrease to OP Units owned by third parties and a
corresponding increase to capital of $7.4 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 for fee income to the Company based on a
percentage of reveneus 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, 2017, 2016 and 2015 were $3.8 million, $2.9 million and $1.0 million, respectively.
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 $7.5
million and $3.3 million as of December 31, 2017 and 2016, respectively, and are included in Other Assets, net in the Company’s consolidated balance sheets. Additionally, as
discussed in note 12 the Company had outstanding mortgage loans receivable from consolidated joint ventures of $25.5 million and $34.7 million as of December 31, 2017 and
2016, respectively, which are eliminated for consolidation purposes. The Company believes that all of these related-party receivables are fully collectible.
The HVP III, HVP IV, and HHFNE operating agreements provide for acquisition fees payable from HVP III, HVP IV, and HHFNE to the Company in an amount equal to 0.5% of
the purchase price upon closing of an acquisition by HVP III, HVP IV, and HHFNE, or any of their subsidiaries and completion of certain measures as defined in the operating
agreements. The Company recognized $0.5 million and $1.8 million in acquisition fees during the years ended December 31, 2017 and 2016, respectively, which are included in
Other income on the consolidated statements of operations. The Company did not recognize any acquisition fees during the year ended December 31, 2015.
14. COMMITMENTS AND CONTINGENCIES
Ground Leases
The Company currently owns eight operating self-storage properties and two self-storage properties 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 $3.4 million,
$2.7 million, and $2.4 million for the years ended December 31, 2017, 2016 and 2015, respectively. Total future minimum rental payments under non-cancelable ground leases are
as follows:
2018
2019
2020
2021
2022
2023 and thereafter
Development Commitments
Ground Lease
Amount
(in thousands)
$
$
2,500
2,670
2,743
2,812
2,971
119,343
133,039
The Company has development agreements for the construction of six new self-storage properties (see note 4), which will require payments of approximately $82.7 million, due
in installments upon completion of certain construction milestones, during 2018 and 2019.
Litigation
The Company is involved in claims from time to time, which arise in the ordinary course of business. In accordance with applicable accounting guidance, management
establishes an accrued liability for litigation when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be
exposure to loss in excess of those amounts accrued. The estimated loss, if any, is based upon currently available information and is subject to significant judgment, a variety of
assumptions, and known and
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unknown uncertainties. In the opinion of management, the Company has made adequate provisions for potential liabilities, arising from any such matters, which are included in
Accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets. 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 the Company’s 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. On December 15, 2017, the court granted preliminary approval of a settlement for the class action. The settlement and associated expenses, which
were previously reserved for, did not have a material impact on the Company’s consolidated financial position or results of operations.
Insurance Recovery
As a result of hurricanes that occurred during the third quarter of 2017, the Company incurred damage at certain stores located in Florida and Texas. During the year ended
December 31, 2017, the Company recorded $1.1 million in charges based on the damage assessment and terms of the deductibles under the insurance policies, inclusive of its
$0.1 million portion of the charge taken by HHF. These charges are comprised of $0.3 million in net book value write-offs related to damaged assets and $0.8 million in estimated
deductibles related to costs incurred for repairs and cleanup. The Company has comprehensive insurance coverage and, after receipt of $0.3 million in October 2017, recorded a
receivable of $1.0 million as of December 31, 2017 for the remaining anticipated insurance recoveries which is included in Other assets within the Company’s consolidated
balance sheets. To the extent that insurance proceeds, which are on a replacement cost basis, ultimately exceed the net book value of the damaged assets, a gain will be
recognized in the period in which all contingencies related to the insurance claim have been resolved. The estimated charges for the insurance deductibles and asset write-offs
are included in Property operating expenses and Depreciation and amortization, respectively within the Company’s consolidated statements of operations. The Company’s
portion of the charge taken by HHF is included in Equity in losses of real estate ventures within the Company’s consolidated statements of operations.
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 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, 2017: (i) 4,936,124 common shares remained available for future awards under the 2007 Plan; (ii) 465,045 unvested restricted
share awards were outstanding under the 2007 Plan; and (iii) 1,833,173 common shares were subject to outstanding options under the 2007 Plan (with the outstanding options
having a weighted average exercise price of $16.55 per share and a weighted average term to maturity of 5.26 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
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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, 2017, there were approximately five thousand shares outstanding under the 2004 Plan.
Share Options
The fair values for options granted in 2017, 2016, and 2015 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
Weighted average expected life of the options
Weighted average grant date fair value of options granted per share
(1)
(2)
2017
2016
2015
2.2 %
3.5 %
33.00 %
6.0 years
6.12
$
1.8 %
2.7 %
33.00 %
6.0 years
7.61
$
1.5 %
2.6 %
33.00 %
6.0 years
6.23
$
(1) Expected volatility is based upon the level of volatility historically experienced.
(2) 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 2017, 2016 and 2015 grants was based on the trading history of the Company’s shares.
In 2017, 2016, and 2015, the Company recognized compensation expense related to options issued to employees and executives of approximately $1.5 million, $1.3 million and
$1.0 million, respectively, which is included in General and administrative expense on the Company’s consolidated statements of operations. During 2017, 289,104 share options
were issued for which the fair value of the options at their respective grant dates was approximately $1.8 million. The share options vest over three years. As of December 31,
2017, the Company had approximately $1.8 million of unrecognized option compensation cost related to all grants that will be recorded over the next three years.
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The table below summarizes the option activity under the 2004 Plan and the 2007 Plan for the years ended December 31, 2017, 2016 and 2015:
Balance at December 31, 2014
Options granted
Options canceled
Options exercised
Balance at December 31, 2015
Options granted
Options exercised
Balance at December 31, 2016
Options granted
Options exercised
Balance at December 31, 2017
Vested or expected to vest at December 31, 2017
Exercisable at December 31, 2017
Number of Shares
Under Option
Weighted Average
Strike Price
Weighted Average
Remaining
Contractual Term
3,692,301 $
202,485
(18,230)
(1,454,612)
2,421,944 $
213,008
(695,262)
1,939,690 $
289,104
(395,621)
1,833,173 $
1,833,173 $
1,337,280 $
11.76
25.00
19.75
11.31
13.07
30.32
18.69
12.94
26.30
5.98
16.55
16.55
12.58
4.16
9.08
—
2.38
4.08
9.07
0.29
4.85
9.07
1.14
5.26
5.26
4.04
As of December 31, 2017, the aggregate intrinsic value of options outstanding, of options that vested or expected to vest, and of options that were exercisable was
approximately $35.3 million. The aggregate intrinsic value of options exercised was approximately $8.8 million for the year ended December 31, 2017.
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 166,000 restricted shares and share units were issued during 2017 for which the fair value of the restricted shares and share units at their respective grant dates
was approximately $4.7 million, which vest over three to five years. During 2016, approximately 155,000 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 $5.2 million. As of December 31, 2017 the Company had approximately $5.2 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 2017, 2016 and 2015, the Company recognized compensation expense related to restricted shares and share units issued to employees and Trustees of approximately $4.1
million, $3.6 million, and $2.7 million, respectively; these amounts were recorded in general and administrative expense. The following table presents non-vested restricted share
and share unit activity during 2017:
Non-Vested at January 1, 2017
Granted
Vested
Forfeited
Non-Vested at December 31, 2017
Number of Non-
Vested Restricted
Shares and Share Units
323,022
165,709
(130,500)
(5,769)
352,462
On January 23, 2017, 52,426 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 $1.8 million. The Company used a Monte Carlo simulation analysis to estimate the fair value of the awards. The restricted share units will cliff vest upon the third
anniversary of the effective date, or December 31, 2019. The compensation expense recognized related to these awards and remaining unrecognized compensation costs are
included in the amounts disclosed above.
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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.
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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:
For the year ended December 31,
2017
2016
2015
(Dollars and shares in thousands, except per share amounts)
Net income
Noncontrolling interests in the Operating Partnership
Noncontrolling interest in subsidiaries
Distributions to preferred shareholders
Preferred share redemption charge
(1)
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)
$
$
135,611 $
(1,593)
270
—
—
134,288 $
180,525
923
181,448
88,376 $
(941)
470
(5,045)
(2,937)
79,923 $
178,246
1,287
179,533
Basic earnings per share attributable to common shareholders
Diluted earnings per share attributable to common shareholders
$
$
0.74 $
0.74 $
0.45 $
0.45 $
Earnings per common unit and capital
The following is a summary of the elements used in calculating basic and diluted earnings per common unit:
78,756
(960)
(84)
(6,008)
—
71,704
168,640
1,551
170,191
0.43
0.42
Net income
Operating Partnership interests of third parties
Noncontrolling interest in subsidiaries
(1)
Distribution to preferred unitholders
Preferred unit redemption charge
Net income attributable to common unitholders
Weighted-average units outstanding
Unit options and restricted share units
Weighted-average diluted units outstanding
(2)
Basic earnings per unit attributable to common unitholders
Diluted earnings per unit attributable to common unitholders
For the year ended December 31,
2017
2016
2015
(Dollars and units in thousands, except per unit amounts)
$
$
$
$
135,611 $
(1,593)
270
—
—
134,288 $
180,525
923
181,448
88,376 $
(941)
470
(5,045)
(2,937)
79,923 $
178,246
1,287
179,533
78,756
(960)
(84)
(6,008)
—
71,704
168,640
1,551
170,191
0.74 $
0.74 $
0.45 $
0.45 $
0.43
0.42
(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 the year ended December 31, 2015, the Company declared cash dividends per preferred share/unit of $1.938.
(2) For the years ended December 31, 2017, 2016 and 2015, the Company declared cash dividends per common share/unit of $1.11, $0.90, and $0.69, 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 1,878,253; 2,032,394 and 2,159,650 as of December 31, 2017, 2016 and 2015, respectively. There were 182,215,735; 180,083,111 and
174,667,870 common units outstanding as of December 31, 2017, 2016 and 2015, respectively.
F-43
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.
The Company maintains an at-the-market equity program that enables it to offer and sell up to 40.0 million common shares through sales agents pursuant to equity
distribution agreements (the “Equity Distribution Agreements”). The Company’s sales activity under the program for the years ended December 31, 2017, 2016, and 2015 is
summarized below:
Number of shares sold
Average sales price per share
Net proceeds after deducting offering costs
For the year ended December 31,
2017
2016
2015
(Dollars and shares in thousands, except per share amounts)
$
$
1,036
29.13 $
29,642 $
4,408
31.25 $
136,120 $
8,977
26.35
234,240
The proceeds from the sales conducted during the years ended December 31, 2017, 2016, and 2015 were used to fund acquisitions of storage properties and for general
corporate purposes. As of December 31, 2017, 2016, and 2015, 4.7 million common shares, 5.8 million common shares, and 10.2 million common shares, respectively, 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, 2017 or 2016. The Company had net deferred tax assets of $1.4
million and $1.3 million, which are included in other assets on the Company’s consolidated balance sheets as of December 31, 2017 and 2016, respectively. The Company
believes it is more likely than not the deferred tax assets will be realized.
18. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
During the years ended December 31, 2017 and 2016, the Company acquired seven self-storage properties for an aggregate purchase price of approximately $80.7 million (see
note 3) and 28 stores for an aggregate purchase price of approximately $403.6 million, respectively.
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 2017 and 2016 as if each had occurred as of January 1, 2016 and 2015,
respectively. The unaudited pro forma information presented below does not purport to represent what the Company’s actual results of operations would have been for the
periods indicated, nor does it purport to represent the Company’s future results of operations.
F-44
The following table summarizes, on a pro forma basis, the Company’s consolidated results of operations for the year ended December 31, 2017 and 2016 based on the
assumptions described above:
Pro forma revenues
Pro forma net income
Earnings per share attributable to common shareholders:
Basic - as reported
Diluted - as reported
Basic - as pro forma
Diluted - as pro forma
19. SUBSEQUENT EVENTS
Year ended December 31,
2016
2017
(in thousands, except per share data)
$
$
$
$
$
$
560,852 $
145,941 $
523,821
115,269
0.74 $
0.74 $
0.80 $
0.80 $
0.45
0.45
0.63
0.62
Subsequent to December 31, 2017, the Company acquired one self-storage property in Texas for a purchase price of $12.2 million. The purchase price was funded with $7.4
million of cash and $4.8 million through the issuance of 168,011 common units. Following a 13-month lock-up period, the holder may tender the common units for redemption by
the Operating Partnership for a cash amount per common unit equal to the market value of an equivalent number of common shares of the Company. The Company has the
right, but not the obligation, to assume and satisfy the redemption obligation of the Operating Partnership by issuing one common share in exchange for each common unit
tendered for redemption.
20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly financial information for the years ended December 31, 2017 and 2016 (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,
2017
June 30,
2017
September 30, December 31,
2017
2017
Three months ended
$
133,037 $
92,646
24,986
0.14
0.14
138,559 $
91,025
32,458
0.18
0.18
143,865 $
91,586
37,297
0.21
0.21
143,482
87,971
39,547
0.22
0.22
Three months ended
March 31,
2016
June 30,
2016
September 30, December 31,
2016
2016
$
118,871 $
90,145
15,750
0.08
0.08
126,526 $
93,509
20,424
0.11
0.11
132,096 $
92,585
24,884
0.13
0.13
132,546
90,848
26,847
0.13
0.13
The sum of quarterly earnings per share amounts do not necessarily equal the full year amounts.
F-45
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
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
CUBESMART
SCHEDULE III
REAL ESTATE AND RELATED DEPRECIATION
December 31, 2017
(Dollars in thousands)
Initial Cost
Buildings
&
Improvements
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
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
6,750
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
Costs
Subsequent
to
Acquisition
399
108
90
152
1,195
196
311
284
254
241
560
1,636
130
85
84
1,758
107
575
2,153
1,076
1,090
258
371
357
229
324
336
469
327
416
343
350
468
305
234
78
273
223
1,849
164
1,059
903
249
429
345
312
215
390
212
1,756
598
372
425
324
327
1,188
1,359
1,321
219
571
309
603
175
436
344
848
1,001
708
2,346
174
326
216
379
559
92
409
269
227
120
65
275
564
388
432
2,408
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
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
2,086
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
Square
Footage
47,680
82,915
57,200
114,080
56,807
25,050
52,575
45,511
59,629
110,835
101,275
83,160
121,730
69,610
94,462
80,725
72,325
53,890
68,409
59,800
43,950
49,820
48,040
45,134
40,790
52,663
46,650
67,496
46,350
42,700
42,275
45,800
48,995
74,770
75,620
94,975
103,558
143,645
45,926
51,324
60,475
124,571
49,775
57,094
93,590
50,542
83,600
53,978
57,391
99,783
67,220
85,176
59,944
50,664
111,736
31,070
41,546
35,416
83,227
56,745
78,809
103,567
37,425
63,916
52,390
55,035
81,340
84,520
74,238
147,753
50,708
39,765
68,393
75,717
62,400
47,975
62,400
59,200
74,390
76,025
54,770
87,800
53,490
43,102
48,700
Encumbrances
(A)
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
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
2,085
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
F-46
Gross Carrying Amount at
December 31, 2017
Buildings
&
Improvements
Accumulated
Depreciation
Total
(B)
Year
Acquired/
Developed
1,480
7,592
4,779
11,998
2,899
1,139
2,603
2,132
1,971
7,322
3,284
3,187
10,559
12,363
5,800
5,521
3,868
2,424
5,051
2,650
2,683
1,945
2,545
1,981
1,623
2,486
2,250
2,734
1,650
1,814
2,497
2,238
2,641
6,249
4,253
10,462
6,585
9,669
2,832
5,876
2,571
13,335
4,915
2,517
8,745
3,813
7,194
3,059
3,758
4,057
5,949
4,941
3,593
3,144
6,413
1,432
2,067
1,918
4,894
3,628
6,315
6,391
2,093
5,258
2,244
5,498
5,165
5,612
5,099
11,712
4,223
3,239
4,634
2,996
9,049
1,783
2,435
2,490
7,172
12,174
1,830
3,636
2,701
2,135
2,678
1,807
9,110
5,730
13,197
3,317
1,437
3,524
2,863
2,677
8,758
4,419
4,034
12,674
13,293
6,959
6,404
4,452
3,173
5,639
3,034
3,074
2,478
3,220
2,496
2,053
3,156
2,839
3,459
2,075
2,253
3,169
2,825
3,349
8,641
5,887
12,569
9,109
12,709
3,264
7,034
3,127
16,473
6,818
3,385
10,450
5,236
9,993
4,154
4,657
4,729
7,300
6,111
4,877
4,296
8,499
1,614
2,373
2,160
6,766
4,411
7,605
8,083
2,869
6,481
3,035
6,676
6,064
8,692
6,217
16,341
5,818
4,461
6,377
4,339
10,330
2,554
3,091
3,136
8,602
14,002
2,709
5,320
3,969
2,797
3,038
608
1,045
730
383
1,356
437
1,034
854
805
596
1,315
1,210
1,295
454
513
2,638
256
846
761
1,258
1,241
771
984
786
648
994
888
1,075
629
767
965
886
1,058
2,426
1,720
1,054
2,645
3,140
1,333
743
1,034
4,995
1,910
1,021
897
1,546
2,789
1,201
1,434
2,030
2,232
1,900
1,459
1,266
1,547
660
952
889
1,882
1,394
2,444
2,501
835
1,985
891
2,075
2,307
1,736
2,059
4,590
1,644
1,278
1,880
1,102
452
683
934
1,010
1,213
496
702
1,367
983
750
1,180
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
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
2005/2017
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
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
Shelton, CT
South Windsor, CT
Stamford, CT
Wilton, CT
Washington I, DC
Washington II, DC
Washington III, DC
Washington IV, 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
Delray Beach IV, 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
North Palm Beach, FL
Oakland Park, 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
Square
Footage
Encumbrances
Land
Initial Cost
Buildings
&
Improvements
Costs
Subsequent
to
Acquisition
Land
Gross Carrying Amount at
December 31, 2017
Buildings
&
Improvements
Accumulated
Depreciation
Total
(B)
Year
Acquired/
Developed
50,629
47,725
45,966
52,875
54,905
46,925
52,725
60,113
44,885
58,500
50,825
42,620
36,140
30,160
78,175
87,000
26,425
78,405
72,025
28,907
84,515
62,685
82,697
78,340
71,971
37,968
61,725
61,514
67,393
76,098
68,398
88,063
76,857
67,955
78,846
90,147
180,588
58,165
80,985
57,230
67,833
75,710
94,377
97,945
70,093
49,577
67,534
83,375
81,554
79,705
64,970
65,840
77,525
82,523
67,375
75,495
160,622
86,924
92,510
49,095
56,225
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
40,625
81,454
46,275
63,231
76,150
59,580
63,184
101,510
76,601
75,327
67,275
49,276
47,400
122,490
82,685
67,321
81,238
61,810
69,755
(A)
(A)
217
1,819
744
424
240
540
996
671
87
2,004
136
1,059
911
646
1,171
3,092
1,135
1,613
90
1,941
2,409
871
3,152
4,469
6,359
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
2,208
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
1,374
3,007
1,286
1,191
1,589
1,209
633
950
640
440
555
1,511
2,457
337
1,640
453
1,003
F-47
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
9,032
1,127
3,374
12,261
12,759
13,612
15,438
20,417
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
14,384
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
7,649
10,145
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
1,516
104
508
460
1,550
476
325
157
1,210
656
2,071
272
291
58
108
706
254
217
1,493
188
404
536
202
58
2
1,605
1,927
443
247
54
250
1,131
2,574
99
173
174
1,656
1,519
1,240
2,001
822
222
155
5
2,490
86
940
135
155
156
170
1,010
1,159
362
122
476
7,507
176
211
1,247
164
264
400
2,202
1,859
667
1,850
1,619
867
936
80
2,631
4,294
4,147
613
193
29
11
198
230
202
742
184
127
141
607
110
353
118
2,808
301
187
215
504
1,819
744
473
489
563
996
671
274
2,004
410
1,059
911
646
1,171
3,092
1,135
1,613
272
1,941
2,421
894
3,154
4,469
6,359
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
2,208
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
1,374
3,007
1,286
1,191
1,589
1,209
633
950
640
440
555
1,511
2,457
953
1,640
453
1,003
3,236
2,801
1,531
2,107
3,555
2,576
1,748
3,465
1,767
3,454
2,958
1,818
1,601
3,244
15,530
5,226
1,899
8,165
2,228
3,022
12,727
10,573
12,039
15,497
20,419
3,551
4,392
2,973
6,285
7,226
3,053
5,596
4,040
5,485
6,035
9,723
10,442
2,888
6,152
4,490
4,075
4,940
10,442
14,388
5,455
4,337
3,269
5,215
5,814
4,836
5,626
6,018
7,133
6,835
3,846
6,808
10,905
7,829
4,928
1,556
2,181
2,356
2,773
3,285
2,712
2,738
2,850
3,332
12,228
9,869
6,025
3,100
5,252
4,079
2,996
6,407
7,679
10,157
3,386
2,952
4,138
7,122
3,268
4,811
3,295
2,759
2,845
7,804
16,297
5,434
7,247
2,532
5,159
3,740
4,620
2,275
2,580
4,044
3,139
2,744
4,136
2,041
5,458
3,368
2,877
2,512
3,890
16,701
8,318
3,034
9,778
2,500
4,963
15,148
11,467
15,193
19,966
26,778
4,364
5,350
4,003
7,510
8,681
4,233
7,527
4,870
6,578
7,224
11,660
14,026
3,369
7,525
5,801
4,958
5,897
12,528
16,596
6,839
5,199
3,597
6,245
6,962
6,698
6,576
7,688
8,784
8,055
4,601
9,158
11,259
9,381
5,885
1,812
2,590
3,257
3,765
3,684
3,095
3,534
3,334
3,893
16,805
11,832
7,231
3,370
5,810
4,677
3,403
7,668
9,053
13,164
4,672
4,143
5,727
8,331
3,901
5,761
3,935
3,199
3,400
9,315
18,754
6,387
8,887
2,985
6,162
1,587
1,211
680
890
1,878
1,019
739
444
849
1,557
1,406
764
685
569
784
2,247
850
1,614
1,018
1,273
2,353
3,328
2,302
894
133
1,459
1,795
1,145
718
576
1,216
2,221
1,997
545
1,030
1,223
4,087
1,431
2,384
2,044
1,707
737
1,174
36
2,490
557
1,504
592
657
1,742
1,822
1,960
2,297
2,230
384
2,156
4,972
922
421
737
384
928
1,077
1,603
1,286
1,038
1,373
1,649
4,537
2,126
881
1,469
2,535
1,994
1,473
647
234
47
1,280
1,180
1,565
2,408
734
803
334
963
366
999
782
2,633
2,358
848
526
1995
2005
2005
2001
1995
2002
2005
2014
1996
2005
1996
2005
2005
2012
2016
2005
2005
2011
1996
2005
2012
2008
2011
2016
2017
2001
2001
2005
2014
2015
2004
2004
2000
2014
2012
2014
2004
1996
2001
1998
2001
2013
2014
2017
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
2017
2017
2005
2004
2005
2006
2010
2012
2014
2006
2014
2014
2016
1997
2007
2006
2014
Table of Contents
Description
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
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
Chicago VII, 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
Riverwoods, 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
Annapolis, MD
Baltimore, MD
Beltsville, MD
California, MD
Capitol Heights, MD
Clinton, MD
District Heights, MD
Elkridge, MD
Gaithersburg I, MD
Gaithersburg II, MD
Square
Footage
Encumbrances
Land
Initial Cost
Buildings
&
Improvements
Costs
Subsequent
to
Acquisition
Land
Gross Carrying Amount at
December 31, 2017
Buildings
&
Improvements
Accumulated
Depreciation
Total
(B)
Year
Acquired/
Developed
71,142
59,725
66,025
86,756
64,975
83,938
74,790
66,906
94,353
77,410
102,742
54,416
90,501
66,625
83,655
145,320
70,885
73,740
66,750
85,420
52,595
46,955
57,505
49,875
59,950
57,015
79,950
85,125
80,340
65,281
31,575
73,985
51,395
86,350
55,125
82,425
95,845
78,585
84,990
60,495
51,775
71,785
91,292
97,356
69,450
71,625
64,054
57,715
100,085
80,300
41,190
60,090
72,865
74,463
58,241
60,225
64,950
44,700
53,400
53,900
51,900
73,915
31,160
64,305
48,796
79,500
48,175
53,400
54,210
67,825
50,232
67,604
33,286
60,470
108,205
59,296
60,589
34,672
54,073
58,685
61,300
62,402
74,890
92,332
93,750
63,687
77,840
79,600
84,225
78,240
63,475
87,045
74,150
333
135
2,721
324
1,390
2,670
2,291
719
2,129
804
1,499
866
806
822
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
1,585
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
2,643
1,050
1,277
1,486
2,704
2,182
1,527
1,155
3,124
2,383
5,786
F-48
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
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
11,191
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
7,826
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
13,938
5,997
6,295
4,280
13,332
10,757
8,313
5,695
9,000
11,750
1,399
3,411
422
3,185
284
258
123
1,667
439
74
318
92
1,060
73
381
400
216
424
125
954
224
70
117
788
120
318
355
343
93
147
475
203
306
1,070
47
175
953
73
813
56
53
47
290
185
815
23
306
218
578
380
307
354
251
4,570
932
31
645
412
510
346
285
92
257
491
505
650
497
318
458
550
303
54
266
726
706
34
54
263
2,533
374
319
276
324
38
1,443
72
341
43
133
540
239
480
69
529
383
2,721
685
1,390
2,670
2,291
835
2,129
804
1,499
866
967
822
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
1,585
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
2,643
1,173
1,268
1,486
2,704
2,182
1,527
1,155
3,124
2,383
3,842
4,322
10,594
5,823
6,020
5,154
10,385
3,841
7,805
4,036
7,709
4,360
4,032
4,127
4,436
6,183
1,935
2,910
5,675
2,969
1,965
4,696
2,956
2,541
2,084
3,471
4,473
4,653
5,831
5,763
3,505
3,335
2,395
5,103
3,167
8,430
14,070
4,108
12,775
6,442
5,197
9,582
11,481
12,870
4,503
13,176
3,311
5,657
9,478
5,056
2,166
3,447
4,296
6,554
4,264
3,720
3,306
2,778
3,031
1,768
1,952
7,918
765
1,841
3,145
4,360
2,388
3,650
3,199
3,814
3,225
5,643
2,890
6,899
16,535
4,427
6,664
5,000
3,411
6,046
7,998
7,854
13,393
13,976
5,297
6,375
4,030
13,376
10,890
7,728
5,934
8,218
11,819
4,371
4,705
13,315
6,508
7,410
7,824
12,676
4,676
9,934
4,840
9,208
5,226
4,999
4,949
6,079
6,799
2,308
3,456
6,423
3,601
2,331
5,634
3,532
3,070
2,482
4,221
6,133
6,390
6,453
6,520
3,933
3,979
3,326
6,115
3,800
10,105
16,737
4,941
15,202
7,738
6,241
11,178
11,481
15,477
6,067
14,674
4,757
6,760
13,218
6,577
3,292
4,316
4,843
8,551
5,569
4,469
5,007
4,276
4,104
3,508
2,646
9,503
1,303
3,288
4,211
5,558
3,459
4,805
4,056
4,607
4,168
6,777
3,428
8,415
19,746
5,004
7,333
5,585
3,749
7,376
9,556
9,391
14,027
16,619
6,470
7,643
5,516
16,080
13,072
9,255
7,089
11,342
14,202
1,739
2,126
508
2,781
1,938
1,659
495
1,602
3,132
655
883
446
1,622
706
1,485
3,118
400
614
380
1,171
414
876
503
997
350
1,414
1,477
1,534
1,897
385
1,369
1,311
944
2,004
281
860
1,453
416
1,327
564
456
483
58
1,303
1,703
678
1,348
848
3,719
2,004
862
1,324
1,703
979
1,679
325
1,249
1,052
1,183
667
702
199
287
702
1,112
1,668
909
1,408
1,255
1,510
1,248
645
651
2,597
1,682
293
444
331
1,564
1,793
1,150
902
594
271
2,116
937
1,558
1,028
1,417
1,578
790
3,215
913
1999
1996
2016
1997
2007
2007
2016
2001
2004
2012
2014
2014
2001
2012
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
2017
2014
2004
2016
2004
2013
2004
2004
2004
2004
2004
2004
2004
2015
2004
2004
2004
2004
2005
2017
2004
2004
2005
2004
2004
2004
2004
2004
2004
2014
2010
2002
2014
2015
2015
2015
1998
2007
2013
2014
2016
2017
2001
2013
2004
2015
2013
2011
2013
2005
2015
Table of Contents
Description
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
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
Brooklyn XII, NY
Holbrook, NY
Jamaica I, NY
Jamaica II, NY
Long Island City, NY
New Rochelle I, NY
New Rochelle II, NY
New York, 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
Square
Footage
Encumbrances
Land
Initial Cost
Buildings
&
Improvements
Costs
Subsequent
to
Acquisition
Land
Gross Carrying Amount at
December 31, 2017
Buildings
&
Improvements
Accumulated
Depreciation
Total
(B)
Year
Acquired/
Developed
52,830
162,896
97,270
84,225
66,717
62,290
101,028
81,850
109,300
42,165
112,402
69,000
53,736
59,270
77,747
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
70,550
34,130
100,425
96,025
72,226
84,655
83,121
52,565
67,803
53,569
57,826
57,485
92,070
65,927
58,798
57,536
75,150
48,732
48,850
84,600
91,557
107,226
92,707
61,380
67,864
99,046
105,900
74,580
54,704
45,970
78,625
30,550
147,870
159,805
46,425
89,785
57,566
60,920
41,510
37,545
47,020
74,920
72,750
61,555
46,980
55,875
110,075
131,588
60,397
88,385
92,805
88,825
43,596
63,300
94,912
78,350
47,759
74,188
90,728
38,490
59,945
96,573
50,978
83,395
85,864
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
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
1,077
2,029
2,043
5,391
5,700
1,673
3,167
42,022
225
1,141
5,158
6,208
1,068
2,079
1,919
2,363
2,237
3,295
8,228
2,889
22,508
25,700
31,727
F-49
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
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
6,057
10,737
11,658
26,413
28,101
4,827
2,713
38,753
2,514
5,624
12,339
25,815
1,149
2,238
9,463
17,411
11,030
18,049
100
3,673
2,596
54
199
99
124
959
875
442
827
1,537
55
929
140
422
170
1,466
182
317
300
2,757
4042
66
278
692
583
203
498
774
2,522
315
2,984
5,740
660
1,358
315
145
1,414
205
131
356
268
364
100
581
435
110
92
176
98
624
1,021
1,697
185
124
208
361
186
163
1,332
475
265
73
329
494
142
164
109
100
192
89
106
2,916
226
—
57
1,802
386
43
1,212
434
—
4,230
48
757
6
204
347
848
286
159
1,020
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
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
1,077
2,029
2,043
5,391
5,700
1,673
3,762
42,022
568
1,141
5,160
6,208
1,068
2,079
1,919
2,363
2,237
3,295
5,586
8,853
8,886
11,042
11,382
6,552
12,424
2,339
2,898
1,731
3,228
4,510
8,818
5,920
9,309
2,344
2,424
3,395
1,260
2,640
11,140
5,055
7,873
565
1,666
2,533
2,736
5,558
5,160
4,087
6,994
5,178
6,947
9,723
7,986
4,541
9,239
9,904
3,102
6,333
10,746
3,168
3,446
2,145
6,241
3,155
5,265
10,144
8,665
9,736
12,397
8,309
10,840
29,451
32,018
19,543
15,653
15,132
22,807
6,330
40,610
45,291
17,396
31,674
9,084
8,269
13,794
11,411
11,798
20,845
27,809
24,649
14,726
9,472
35,610
6,056
10,794
10,739
26,942
28,144
5,380
18,980
38,753
5,595
5,672
13,094
25,822
1,075
2,181
10,312
11,926
11,188
16,577
6,699
10,781
10,686
13,271
13,651
7,861
14,022
2,790
3,396
2,071
3,771
5,578
9,639
8,344
11,799
2,640
2,881
3,880
1,482
3,111
15,480
5,834
9,188
669
1,950
3,284
2,982
6,644
7,053
5,457
8,037
6,165
8,019
10,567
9,472
5,649
11,049
11,748
3,808
7,576
12,899
4,207
4,609
2,809
7,487
5,006
8,620
11,315
9,781
11,196
13,783
9,868
12,854
29,451
38,478
19,543
15,653
15,132
22,807
7,581
48,577
54,381
17,396
31,674
10,879
9,870
16,566
13,695
14,172
25,056
33,413
29,631
17,692
14,357
45,703
7,133
12,823
12,782
32,333
33,844
7,053
22,742
80,775
6,163
6,813
18,254
32,030
2,143
4,260
12,231
14,289
13,425
19,872
819
3,644
3,573
1,378
1,426
968
458
939
1,222
709
1,350
1,722
284
374
622
1,106
399
1,737
300
420
4,177
2,370
3,984
125
397
918
1,335
946
1,721
1,622
3,339
873
3,292
3,115
1,119
1,811
700
665
1,267
1,056
1,581
1,289
1,432
887
635
1,353
2,261
396
355
338
361
626
2,539
5,659
6,261
3,836
3,075
2,959
4,227
1,181
7,374
7,838
1,733
1,564
2,097
1,943
2,712
2,251
2,307
4,076
5,447
2,882
1,721
622
2,069
—
719
4,408
5,259
2,759
1,872
3,521
405
2,615
574
928
1,661
487
951
1,429
2,322
1,889
3,522
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
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
2017
2015
2001
2011
2014
2005
2012
2017
1998
2014
2015
2016
2005
2005
2013
2011
2012
2011
Table of Contents
Description
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
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
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
Square
Footage
Encumbrances
Land
Initial Cost
Buildings
&
Improvements
Costs
Subsequent
to
Acquisition
Land
Gross Carrying Amount at
December 31, 2017
Buildings
&
Improvements
Accumulated
Depreciation
Total
(B)
Year
Acquired/
Developed
50,665
60,210
78,879
46,000
58,325
71,905
36,409
51,200
60,950
73,325
63,525
89,290
89,290
39,332
76,024
93,200
48,672
47,850
80,297
67,245
43,683
90,281
62,750
81,285
57,750
64,938
76,130
18,848
84,145
61,746
96,016
68,279
41,275
77,275
45,745
72,900
75,985
107,850
83,174
101,525
102,450
74,560
72,436
62,170
59,645
64,415
70,585
65,308
67,850
62,850
71,023
61,075
60,400
77,380
88,700
26,550
58,161
58,582
76,673
83,427
114,550
54,499
60,846
50,416
72,900
80,445
77,329
50,854
71,599
74,665
75,175
74,415
69,176
70,100
68,425
78,019
61,590
43,750
124,279
54,690
46,991
54,209
51,208
70,702
71,308
88,060
67,340
127,659
93,855
60,065
96,896
63,025
2,411
(A)
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
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
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
1,330
476
1,464
1,307
892
1,219
837
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
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
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
7,960
2,525
7,217
15,025
5,529
9,864
4,443
90
325
193
270
230
148
209
118
99
114
99
280
255
637
141
2,316
1,520
1,229
3,246
338
418
3,249
260
174
124
343
1,267
1,657
221
776
1,913
163
126
101
50
143
350
773
221
289
377
802
97
113
275
377
326
332
240
262
132
49
561
137
39
199
145
482
229
253
65
84
305
353
392
128
31
193
202
572
281
133
170
590
297
112
388
677
1,336
5,783
179
375
129
95
84
316
418
328
175
127
83
267
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
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
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
1,331
492
1,464
1,307
892
1,219
843
10,012
9,956
11,927
2,512
1,404
2,823
3,997
1,725
2,281
4,242
3,553
4,147
3,243
1,335
5,346
2,352
1,737
2,032
4,303
3,178
3,071
3,417
2,379
8,682
2,814
5,366
4,842
19,853
5,029
4,048
6,904
5,153
2,823
5,331
4,108
5,315
4,489
3,563
4,476
3,425
7,409
5,113
8,539
3,632
1,964
3,709
5,135
4,582
5,415
5,932
6,394
7,057
1,592
3,398
7,989
752
1,919
2,288
4,864
13,110
11,914
11,689
2,746
1,256
4,331
5,057
7,724
2,883
4,093
5,850
3,795
5,846
5,417
3,981
4,278
8,671
799
1,352
6,709
4,985
3,534
6,753
1,588
5,822
6,637
7,660
2,506
7,545
15,201
5,657
9,948
4,129
12,027
11,917
14,309
3,036
1,693
4,062
4,766
2,051
2,724
5,080
4,254
5,908
4,609
1,740
6,402
2,684
1,951
2,501
5,201
4,473
3,641
4,352
2,887
10,408
3,333
6,385
5,768
22,812
6,004
4,686
8,365
6,165
3,370
6,392
4,931
6,364
5,077
3,968
5,069
3,841
8,401
6,008
11,288
4,346
4,203
4,447
6,170
5,444
6,465
7,082
7,823
9,992
2,988
4,059
11,339
1,565
2,279
4,763
5,804
15,718
14,283
11,689
3,315
2,509
5,205
6,057
8,998
3,976
5,657
7,004
4,514
7,005
6,481
4,748
5,140
9,882
1,375
2,313
7,700
5,968
4,215
8,047
1,884
6,528
7,966
8,991
2,998
9,009
16,508
6,549
11,167
4,972
1,960
2,221
2,342
1,009
573
1,084
407
179
236
430
362
1,553
1,232
997
544
1,063
822
1,637
2,017
1,213
1,018
1,511
985
1,479
476
898
1,956
2,182
871
850
2,832
636
290
541
413
541
1,734
1,346
1,758
1,331
2,858
415
570
631
737
1,321
1,791
554
571
605
426
427
509
545
483
275
341
866
646
1,283
1,061
906
923
444
1,547
455
423
1,080
1,531
2,050
893
708
556
1,402
1,447
469
316
436
2,140
1,044
666
1,170
278
389
861
1,584
865
1,052
824
319
542
1,479
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
2015
2015
2012
2005
2006
2006
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
2006/2017
2006
2013
2016
2016
2016
2006
F-50
Table of Contents
Description
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
Square
Footage
Encumbrances
Land
Initial Cost
Buildings
&
Improvements
Costs
Subsequent
to
Acquisition
Land
57,375
70,920
47,020
70,050
53,750
57,200
72,050
102,330
59,300
73,329
73,155
71,825
61,500
72,751
60,280
71,621
56,446
51,676
114,100
96,143
91,467
73,265
69,475
61,057
85,503
72,745
69,385
55,111
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
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
144
166
213
227
69
254
359
157
171
358
223
297
145
289
525
526
526
411
235
94
1,184
307
349
412
181
255
226
147
374
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
1,757
1,746
860
1,482
2,300
(A) This store is part of the YSI 33 Loan portfolio, with a balance of $9,547 as of December 31, 2017.
(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 2017 and 2016 was as follows (in thousands):
33,759,762
689,793
3,031,426
289,554 711,140
Gross Carrying Amount at
December 31, 2017
Buildings
&
Improvements
3,405
4,870
1,459
4,677
3,281
1,924
2,576
7,240
1,161
2,460
5,088
4,861
4,037
2,879
1,326
922
1,052
794
14,101
9,938
10,528
11,528
4,516
4,782
8,787
4,464
7,471
11,487
374
3,086,252
Accumulated
Depreciation
Total
4,067
5,817
3,093
5,534
3,933
4,176
3,026
8,677
2,498
5,355
6,140
5,857
4,866
3,459
5,174
3,069
3,748
2,731
16,913
16,774
12,621
13,804
6,196
6,539
10,533
5,324
8,953
13,787
374
3,797,392
(B)
609
195
548
1,680
316
716
428
938
434
921
1,727
1,623
153
1,025
544
366
428
334
2,471
975
2,312
1,948
1,599
1,707
1,700
1,011
1,661
1,945
96
652,455
Year
Acquired/
Developed
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
Storage properties*
Balance at beginning of year
Acquisitions & improvements
Fully depreciated assets
Dispositions and other
Construction in progress, net
Balance at end of year
Accumulated depreciation*
Balance at beginning of year
Depreciation expense
Fully depreciated assets
Dispositions and other
Balance at end of year
Storage properties, net
2017
2016
3,998,180
247,546
(53,903)
(9,179)
(20,929)
4,161,715
671,364
135,732
(53,903)
(268)
752,925
3,408,790
$
$
$
$
$
3,467,032
490,980
(61,232)
—
101,400
3,998,180
594,049
138,547
(61,232)
—
671,364
3,326,816
$
$
$
$
$
*
These amounts include equipment that is housed at the Company’s stores which is excluded from Schedule III above.
F-51
Table of Contents
Earnings before fixed charges:
Add:
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
CubeSmart
Computation of Ratio of Earnings to Fixed Charges
(dollars in thousands)
Exhibit 12.1
2013
2014
2015
2016
2017
Year Ended December 31,
$
10,409 $
44,109
26,366 $
50,470
78,756 $
48,760
88,376 $
57,689
135,611
65,346
(851)
(1,328)
(2,550)
(4,563)
(5,606)
53,667
75,508
124,966
141,502
195,351
43,108
851
150
48,992
1,328
150
46,060
2,550
150
52,976
4,563
150
59,590
5,606
150
44,109
50,470
48,760
57,689
65,346
Income allocated to preferred shareholders
Total combined fixed charges and preferred distributions
6,008
50,117
6,008
56,478
6,008
54,768
5,045
62,734
—
65,346
Ratio of earnings to fixed charges
1.07
1.34
2.28
2.26
2.99
* Includes amounts reported in discontinued operations
Table of Contents
Earnings before fixed charges:
Add:
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
Income allocated to preferred shareholders
Total combined fixed charges and preferred distributions
CubeSmart L.P.
Computation of Ratio of Earnings to Fixed Charges
(dollars in thousands)
Exhibit 12.2
2013
Year Ended December 31,
2015
2014
2016
2017
$
10,409
44,109
$
26,366
50,470
$
78,756
48,760
$
88,376
57,689
$
135,611
65,346
(851)
(1,328)
(2,550)
(4,563)
(5,606)
53,667
75,508
124,966
141,502
195,351
43,108
851
150
48,992
1,328
150
46,060
2,550
150
52,976
4,563
150
59,590
5,606
150
44,109
50,470
48,760
57,689
65,346
6,008
50,117
6,008
56,478
6,008
54,768
5,045
62,734
—
65,346
Ratio of earnings to fixed charges
1.07
1.34
2.28
2.26
2.99
* Includes amounts reported in discontinued operations
Table of Contents
Subsidiary
12250 El Dorado Parkway, LLC
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
191 IV CUBE 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
4441 Alma Road, LLC
5 Old Lancaster Associates, LLC
CONSHOHOCKEN GP II, LLC
CS 1158 MCDONALD AVE, LLC
CS 160 EAST 22ND ST, LLC
CS ANNAPOLIS HOLDINGS, LLC
CS ANNAPOLIS, 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
Exhibit 21.1
Jurisdiction of Organization
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
Delaware
Delaware
Delaware
Pennsylvania
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Table of Contents
Subsidiary
CS SNL New York Ave TRS, LLC
CS SNL NEW YORK AVE, LLC
CS SNL OPERATING COMPANY, LLC
CS VENTURE I, 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 IV 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
SHIRLINGTON RD TRS, LLC
Jurisdiction of Organization
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
Table of Contents
Subsidiary
SHIRLINGTON RD, LLC
SOMERSET MT, LLC
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
Jurisdiction of Organization
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Luxembourg
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Table of Contents
The Board of Trustees of
CubeSmart:
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the registration statements (No. 333-216768) 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 16, 2018, with respect to the consolidated balance sheets of
CubeSmart and subsidiaries as of December 31, 2017 and 2016, 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, 2017, and the related notes and financial statement schedule III (collectively, the “consolidated financial
statements”), and the effectiveness of internal control over financial reporting as of December 31, 2017, which reports appear in the December 31, 2017 annual report on Form
10-K of CubeSmart and CubeSmart, L.P.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 16, 2018
Table of Contents
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. 333-216768) 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 16, 2018, with respect to the consolidated balance sheets of
CubeSmart, L.P. and subsidiaries as of December 31, 2017 and 2016, 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, 2017, and the related notes and financial statement schedule III (collectively, the “consolidated financial
statements”), and the effectiveness of internal control over financial reporting as of December 31, 2017, which reports appear in the December 31, 2017 annual report on Form
10-K of CubeSmart and CubeSmart, L.P.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 16, 2018
Table of Contents
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 16, 2018
/s/ Christopher P. Marr
Christopher P. Marr
Chief Executive Officer
Table of Contents
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 16, 2018
/s/ Timothy M. Martin
Timothy M. Martin
Chief Financial Officer
Table of Contents
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.
6
Date: February 16, 2018
/s/ Christopher P. Marr
Christopher P. Marr
Chief Executive Officer
Table of Contents
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 16, 2018
/s/ Timothy M. Martin
Timothy M. Martin
Chief Financial Officer
Table of Contents
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, 2017 (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 16, 2018
Date: February 16, 2018
/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.
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Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
the
Sarbanes-Oxley Act of 2002
Exhibit 32.2
The undersigned, the Chief Executive Officer and Chief Financial Officer of CubeSmart L.P. (the “Company”), each hereby certifies, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(a) The Annual Report on Form 10-K of the Company for the year ended December 31, 2017 (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 16, 2018
Date: February 16, 2018
/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.
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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 reflects changes to the U.S. federal income tax laws made by legislation commonly referred to as the
Tax Cuts and Jobs Act (the “TCJA”), which was signed into law on December 22, 2017. The TCJA is a far-reaching and complex revision to the U.S. federal income tax laws with
disparate and, in some cases, countervailing impacts on different categories of taxpayers and industries, and it is anticipated that it will require subsequent rulemaking in a
number of areas. The long-term impact of the TCJA on us, our investors, our tenants and the real estate industry cannot be reliably predicted at this early stage of the new law’s
implementation.
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 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.
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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.
· For tax years beginning before January 1, 2018, 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 (35% for tax years beginning on or before December 31, 2017 and 21% for tax years beginning after
that date), 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.
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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% (for tax years beginning on or before December 31, 2017 and 21% for tax years beginning after
that date) 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.
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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
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applicable (35% for tax years beginning on or before December 31, 2017 and 21% for tax years beginning after that date) 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.
operations. We could also be subject to tax in situations and on transactions not presently contemplated.
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
Requirements for Qualification
(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 requirements, (b) gross income tests,
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);
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 individuals, which the U.S.
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 satisfies all relevant filing and
8) It uses a calendar year for U.S. federal income tax purposes and complies with the recordkeeping requirements of the U.S. federal income tax laws; and
9) It meets certain other qualifications, tests described below, regarding the nature of its income and assets and the distribution of its income.
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.
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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 requirement 6 is not satisfied, CubeSmart will be deemed to have satisfied such requirement. 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
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:
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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);
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· gain from the sale of real estate assets (other than gain from property held primarily for sale to customers), except effective for taxable years beginning after
December 31, 2015, for gain from a nonqualified publicly offered REIT debt instrument (as defined below);
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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.”
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 qualifying income for
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.
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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 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.
Interest. The term “interest” generally does not include any amount received or accrued, directly or indirectly, if the 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 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:
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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
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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 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.
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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 (35% for tax years beginning on or before December 31, 2017 and 21%
for tax years beginning after that date) 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:
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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
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trade or business primarily to manage the risk of interest 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.
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:
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
· 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.
Asset Tests. To maintain its qualification as a REIT, CubeSmart also must satisfy the following asset tests at the end of each quarter of each taxable year.
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;
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;
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·
·
·
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.
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 may not exceed 5% of the value
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 power or value of any one
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 represented by securities of
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.”
· 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.”
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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 securities issued by the
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:
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
· 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% (for tax years beginning on or before December 31, 2017 and 21% for tax years
beginning after that date) of the net income from the nonqualifying assets during the period in which it failed to satisfy the asset tests.
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 and deemed distributions of
· 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.
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.
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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 distributions with declaration and
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
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, for tax years beginning before January 1, 2018, 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
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. The state and local tax
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.
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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.
An organization with at least two owners or members will be classified as a partnership, rather than as a corporation, for U.S. federal income tax purposes if it:
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
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
Partnerships ending with or within CubeSmart’s taxable year, even if CubeSmart receives no distribution from the Partnerships 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.
Among the deductions that would flow to Cubesmart are the interest deductions of the Operating Partnership and its subsidiary Partnerships. The TCJA
limits a taxpayer’s net interest expense deduction to 30% of the sum of adjusted taxable income, business interest, and certain other amounts. Adjusted taxable income does not
include items of income or expense not allocable to a trade or business, business interest or expense, the new deduction for qualified business income, NOLs, and for years prior
to 2022, deductions
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for depreciation, amortization, or depletion. For partnerships, the interest deduction limit is applied at the partnership level, subject to certain adjustments to the partners for
unused deduction limitation at the partnership level.
The TCJA allows a real property trade or business to elect out of this interest limit so long as it uses a 40-year recovery period for nonresidential real property,
a 30-year recovery period for residential rental property, and a 20-year recovery period for related improvements described below. Disallowed interest expense is carried forward
indefinitely (subject to special rules for partnerships). The interest deduction limit applies to taxable years beginning after December 31, 2017.
For taxpayers that do not use the TCJA’s real property trade or business exception to the business interest deduction limits, the TCJA maintains the current
39-year and 27.5-year straight line recovery periods for nonresidential real property and residential rental property, respectively, and provides that tenant improvements for such
taxpayers are subject to a general 15-year recovery period. Also, the TCJA temporarily allows 100% expensing of certain new or used tangible property through 2022, phasing
out at 20% for each following year (with an election available for 50% expensing of such property if placed in service during the first taxable year ending after September 27,
2017). The changes apply, generally, to property acquired after September 27, 2017 and placed in service after September 27, 2017.
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 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
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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.
Taxation of Shareholders
Taxation of Taxable U.S. Shareholders
The term “U.S. shareholder” means a holder of CubeSmart common shares or preferred shares that, for U.S. federal income tax purposes, is:
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. However, for taxable years prior to 2026, generally individual shareholders are allowed to deduct 20% of the aggregate amount of ordinary dividends
distributed by us, subject to certain limitations. 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, also
see the discussion below “Taxation of Shareholders—Tax Rates Applicable to Individual Shareholders under the TCJA”). 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% for tax years beginning on or before December 31, 2017 and 37% for tax years beginning after that date (but see the
discussion below “Taxation of Shareholders—Tax Rates Applicable to Individual Shareholders under the TCJA” regarding the sunset of the 37% rate). However, the preferential
tax rate for qualified dividend income will apply to CubeSmart’s ordinary REIT dividends, if any, that are (i) attributable to
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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. However, for taxable years prior to 2026, generally individual shareholders are allowed to deduct 20% of the aggregate amount of ordinary dividends
distributed by us, subject to certain limitations.
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 current
maximum rate of 20% (see the discussion below “Taxation of Shareholders—Tax Rates Applicable to Individual Shareholders under the TCJA”), maximum rate of 20%, except
that the portion of such gain that is attributable to depreciation recapture will be taxable at 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 (subject to certain limitation for net operating losses arising in tax years beginning
after December 31, 2017). 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. Net capital gain from the disposition of our stock or capital gain dividends
generally will be excluded from investment income unless the shareholder elects to have the gain taxed at ordinary income rates. 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
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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. 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% for tax years beginning on or before December 31, 2017 and 37% for tax years beginning after that date (but see the discussion below “Taxation of
Shareholders—Tax Rates Applicable to Individual Shareholders under the TCJA” regarding the sunset of the 37% rate). The maximum tax rate on long-term capital gain
applicable to U.S. shareholders taxed at individual rates is currently 20%. For additional information, see the discussion below “Taxation of Shareholders—Tax Rates Applicable
to Individual Shareholders under the TCJA” 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 the current20% 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
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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 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.
Tax Rates Applicable to Individual Shareholders under the TCJA
Long-term capital gains (i.e., capital gains with respect to assets held for more than one year) and “qualified dividends” received by an individual generally are
subject to federal income tax at a maximum rate of 20%. Short-term capital gains (i.e., capital gains with respect to assets held for one year or less) generally are subject to federal
income tax at ordinary income rates. Because we are not generally subject to federal income tax on the portion of our REIT taxable income or capital gains distributed to our
shareholders, our dividends generally are not eligible for the 20% maximum tax rate on qualified dividends. Instead, our ordinary dividends generally are taxed at the higher tax
rates applicable to ordinary income, the maximum rate of which is 37% for tax years beginning after December 31, 2017 (the rate was 39.6% for tax years beginning before that
date) and before January 1, 2026. However, for taxable years prior to 2026, individual shareholders are generally allowed to deduct 20% of the aggregate amount of ordinary
dividends distributed by us, subject to certain limitations, which would reduce the maximum marginal effective tax rate for individuals on the receipt of such ordinary dividends
to 29.6%. The 20% maximum tax rate for long-term capital gains and qualified dividends generally applies to:
your long-term capital gains, if any, recognized on the disposition of our shares;
our distributions designated as long-term capital gain dividends (except to the extent attributable to real estate depreciation, in which case such distributions are
subject to a 25% tax rate to such extent);
our dividends attributable to dividends received by us from non-REIT corporations, such as taxable REIT subsidiaries; and
our dividends to the extent attributable to income upon which we have paid corporate income tax (e.g., to the extent that we distribute less than 100% of our taxable
income).
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 debt securities and capital gains from the
sale or other disposition of shares or debt securities, 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 debt securities.
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% (for tax years beginning on or before December 31, 2017 and 24% for tax years
beginning after that date) with respect to distributions unless the holder:
is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact; or
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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 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.
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 more than 10% of the value of
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 consequences of the acquisition,
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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 be treated as receiving
dividends 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
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 (in “Taxation of Non-U.S. Shareholders—Taxation of Disposition of Shares”)
with respect to certain holders owning 10% or less 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
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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.
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
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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.
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.”
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.
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
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.
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 refund or a credit against the
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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
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.
This section describes the material U.S. federal income tax consequences of owning the debt securities that the Operating Partnership may offer. This summary
As used herein, a “U.S. Holder” means a beneficial owner of debt securities of the Operating Partnership, who is, for U.S. federal income tax purposes:
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.
Pursuant to the TCJA, for taxable years beginning after December 31, 2017 (and for taxable years beginning after December 31, 2018 for instruments issued
with original issue discount (“OID”)),an accrual method taxpayer that reports revenues on an applicable financial statement generally must recognize income for U.S. federal
income tax purposes no later than the taxable year in which such income is taken into account as revenue in an applicable financial statement of the taxpayer. To the extent this
rule is inconsistent with the rules described in the subsequent discussion, this rule supersedes such discussion. Thus, this rule could potentially require such a taxpayer to
recognize income for U.S. federal income tax purposes with respect to the debt securities prior to the time such income would be recognized pursuant to the rules described in
the subsequent discussion. Investors in the debt securities should consult their tax advisors regarding the potential applicability of these rules to their investment in the debt
securities. It is currently not clear how this rule would apply to debt instruments with OID and market discount.
Taxation of Taxable U.S. Holders
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 paid or accrued, in accordance
In that case, you should be aware that you generally must include OID in gross income in advance of
Original Issue Discount. If you own debt securities issued with OID, you will be subject to special tax accounting rules, as described in greater detail below.
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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.
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 determination in the
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.
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.
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
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.
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.
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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.
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.
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, exchange, retirement, redemption
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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, also see the discussion above in “Taxation of Shareholders—Tax Rates Applicable to Individual Shareholders under the TCJA” for a
more detailed discussion on tax rates for individuals)). 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 debt securities and capital gains from the sale or other
disposition of shares or debt securities, 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 debt securities.
Taxation of Tax-Exempt Holders of Debt Securities
Assuming the debt security is debt for tax purposes, interest income accrued on the debt security should not constitute unrelated business taxable income to
a tax-exempt holder. As a result, a tax-exempt holder 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.
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 withholding tax under the “portfolio
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;
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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.
Non-U.S. Holders are urged to consult their own tax advisors regarding applicable income tax treaties, which may provide different rules.
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 tax on gain realized on the
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
payments of the proceeds of the sale, exchange, or redemption of debt securities, and backup
Certain U.S. Holders may be subject to information reporting requirements on payments of principal and interest (including OID) on debt securities and
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withholding, currently imposed at a rate of 28% (for tax years beginning on or before December 31, 2017 and 24% for tax years beginning after that date), 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.
“United States related person” generally will not be subject to information reporting or backup withholding. For this purpose, a “United States related person” is:
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
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.
or a credit against such Holder’s U.S. federal income tax liability, provided that the requisite procedures are followed.
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
Holders of debt securities are urged to consult their tax advisors regarding their qualification for exemption from backup withholding and the procedure for
obtaining such an exemption, if applicable.
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.
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BOARD OF TRUSTEES
CORPORATE OFFICERS
CORPORATE INFORMATION
Christopher P. Marr
President and Chief Executive Officer
Timothy M. Martin
Chief Financial Officer
Jeffrey P. Foster
Senior Vice President and
Chief Legal Officer and Secretary
Jonathan L. Perry
Senior Vice President and
Chief Investment Officer
Transfer Agent
American Stock Transfer &
Trust Co., LLC
Operations Center
6201 15th Avenue
Brooklyn, NY 11219
877.237.6885
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 30, 2018 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,
CubeSmart
Piero Bussani
General Counsel & Senior Vice President,
ReVantage Corporate Services
Dorothy Dowling
Chief Marketing Officer and
Senior Vice President of Sales,
Best Western Hotels and Resorts
John W. Fain
Senior Vice President,
Sales & Marketing (retired),
UPS Freight
Marianne M. Keler
Partner,
Keler & Kershow, PLLC
John F. Remondi
Chief Executive Officer and Director,
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, 2017, 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
assumpt ions, 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; the failure of the Company’s joint venture partners to fulfill their obligations to the Company or their pursuit of actions that are inconsistent with the Company’s objectives;
reductions in asset valuations and related impairment charges; security breaches or a failure of the Company’s networks, systems or technology, which could adversely impact the Company’s business,
customer and employee relationships; 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 SEC 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.
Table of Contents
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5 Old Lancaster Road
Malvern, PA 19355
www.cubesmart.com