2019 Annual Report
(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. 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, 2019,
we owned 523 stores located in 24 states and the District of Columbia containing an aggregate of approximately 36.6 million rentable square
feet. In addition, as of December 31, 2019, we managed 649 stores for third-party owners in 38 states and the District of Columbia containing
an aggregate of approximately 43.0 million rentable square feet, bringing the total number of stores we operated to 1,172.
In 2019, we continued to deliver on our core strategic objectives of:
Producing attractive organic growth in an increasingly competitive environment through a sophisticated operating platform;
Growing our portfolio of high-quality, well-positioned storage assets concentrated in targeted investment markets with
appealing demographic trends and long-term growth 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 resulted in another year of solid growth when considering the short-term dilution generated by
our value creation pipeline of recently developed assets and competition from new supply in many of our core markets.
Attractive Organic Growth
In a competitive operating environment that was characterized by high occupancies and increased levels of new supply, the Company’s
strong operating performance in 2019 reflects the quality of our operating platform and the 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 delivering a
superior storage experience. In recognition of these efforts, CubeSmart received numerous external awards for outstanding customer service
including the 2019 People’s Choice Stevie Award for Best Customer Service. Our more than 3,000 dedicated teammates serve with passion
and exceed expectations by delivering 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 technology solutions. In 2019, we continued to refine our digital
marketing platform by expanding media channels and utilizing data and technologies to more efficiently attract potential customers searching
for a solution to their storage needs. Additionally, we continued to enhance our revenue management processes by analyzing existing
customer data and leveraging sophisticated forecasting and optimization models to set pricing and promotion strategies that attract customers
to CubeSmart and maximize the revenue potential from every rental opportunity.
A Portfolio of High-Quality, Well-Positioned Storage Assets
CubeSmart’s portfolio is concentrated in targeted investment markets with strong demographics, including an industry-leading market share
in New York City. Our external growth strategy is focused on acquiring existing cash-flowing properties, acquiring recently developed
properties that are still in the early stages of lease-up and entering into selective development or acquisition opportunities with joint venture
partners. In 2019, we continued to grow our portfolio by acquiring 29 properties for a total investment of $246.6 million. Included in those
29 properties are 18 properties that we were able to acquire for $128.3 million as part of our successful exit from one of our unconsolidated
joint ventures. As part of that transaction, the joint venture sold 50 non-core properties for $293.5 million which subsequently allowed us to
unlock a promoted return and acquire our partner’s 90% interest in the remaining 18 properties at an attractive valuation. Our development
pipeline continues to produce high-quality stores as we opened three new stores in Queens, NY, Bayonne, NJ and Waltham, MA for a total
investment of $90.6 million. Additionally, in 2019 we contributed $10.2 million to one of our other unconsolidated joint ventures, which
acquired eight recently developed properties. During 2019, we also disposed of one non-strategic property for $4.1 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 administrative support. During the past year, we added 199 new stores to the platform, ending
the year with 649 third-party stores under management.
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. 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 2019, both Moody’s and Standard & Poor’s
reaffirmed the Company’s credit ratings of Baa2 and BBB, respectively. The Company finished 2019 with debt to total gross assets of 39.0%
and a secured debt balance that represented just 1.9% of our total gross asset value.
CubeSmart’s financial position remains strong and we have proven access to the full array of capital resources. In June, we amended and
restated our revolving line of credit, expanding its capacity to $750 million, extending the maturity out to 2024 and improving pricing. To
support our external growth initiatives in 2019, the Company completed two public offerings of unsecured notes, in January and October,
raising aggregate gross proceeds of $700 million. Additionally, we prudently utilized our “at-the-market” equity program to sell common
shares, raising $196.3 million in net proceeds. Looking forward, we expect to continue to fund growth in a manner that maintains credit
metrics consistent with our investment grade ratings.
Corporate Responsibility
CubeSmart is dedicated to growing strategically and consciously in a sustainable manner that is beneficial to all of our stakeholders. We
proactively pursue environmental and energy-efficient initiatives that positively impact the well-being of our customers, teammates and
communities, while also improving our profitability. During 2019, we continued to install solar energy systems at select properties, invest
in energy-efficient upgrades of HVAC and lighting equipment to reduce energy consumption and minimize the use of toner and paper
through our innovative paperless transaction processes. We believe that implementation of sustainable business practices benefits our
teammates, stakeholders and the communities in which we operate.
Our Board of Trustees recognizes the importance of integrity and is dedicated to maintaining sound corporate governance and shareholder
engagement practices, as demonstrated by scoring in the top twenty percent of peer companies for corporate governance by ISS. We are
committed to the long-term benefit of our shareholders through the highest ethical standards and upholding our corporate responsibilities.
The CubeSmart Code of Business Conduct and Ethics shapes our management, operation and governance of the Company, supporting and
promoting diversity, inclusion and fairness. Going forward, CubeSmart will continue to maintain our sound corporate governance practices,
reduce the environmental impact of our operations, and improve engagement with our teammates, investors and our communities.
Value Creation
At CubeSmart, we are committed to enhancing our high-quality portfolio, sophisticated operating platform and award-winning customer
service while maintaining a conservative, unsecured balance sheet. During 2019, we continued to execute on our strategy by expanding our
portfolio in targeted core markets and raising attractive capital to finance our continued growth while continuing to grow and improve our
operating platform. Despite elevated levels of new supply, demand for self-storage remains steady and we believe our sophisticated platform
and high-quality portfolio are well positioned to continue to meet any competitive challenges. We thank you for your interest and support as
we remain focused on creating long-term value for all of our stakeholders.
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, 2019
OR
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
Trading Symbol(s)
CUBE
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 every Interactive Data File required to be submitted 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 such files).
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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
CubeSmart:
Large accelerated filer
CubeSmart, L.P.:
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
Accelerated filer
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 28, 2019, 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 $6,407,986,013. As of
February 19, 2020, the number of common shares of CubeSmart outstanding was 193,582,271.
As of June 28, 2019, the last business day of CubeSmart, L.P.’s most recently completed second fiscal quarter, the aggregate market value of the 1,865,570 units of limited partnership (the “OP Units”) held by non-affiliates of
CubeSmart, L.P. was $62,384,661 based upon the last reported sale price of $33.44 per share on the New York Stock Exchange on June 28, 2019 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 2020 Annual Meeting of Shareholders of CubeSmart to be filed subsequently with the SEC are incorporated by reference into Part III of this report.
EXPLANATORY NOTE
This report combines the annual reports on Form 10-K for the year ended December 31, 2019 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, 2019, 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 of 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 the 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
2
statements. The separate discussions of the Parent Company and the Operating Partnership in this report should be read in conjunction
with each other to understand the results of the Company’s operations on a consolidated basis and how management operates the
Company.
This report also includes separate Item 9A - Controls and Procedures sections, signature pages and Exhibits 31 and 32, certifications for
each of the Parent Company and the Operating Partnership, in order to establish that the Chief Executive Officer and the Chief Financial
Officer of the Parent Company and the Chief Executive Officer and the Chief Financial Officer of the Operating Partnership have made
the requisite certifications and that the Parent Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and 18 U.S.C. §1350.
3
TABLE OF CONTENTS
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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26
28
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28
30
35
46
47
47
47
48
48
48
48
48
49
49
49
49
55
4
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 or
persons acting on their behalf 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 such forward-looking 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:
adverse changes in the national and local economic, business, real estate and other market conditions;
the effect of competition from existing and new self-storage properties and operators on our ability to maintain or raise occupancy
and rental rates;
the failure to execute our business plan;
reduced availability and increased costs 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 or future indebtedness;
increases in interest rates and operating costs;
counterparty non-performance related to the use of derivative financial instruments;
risks related to our ability to maintain the Parent Company’s qualification as a REIT for federal income tax purposes;
the failure of acquisitions and developments to close on expected terms, or at all, or to perform as expected;
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;
cyber 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, zoning, use and occupancy laws or regulations;
5
risks related to natural disasters or acts of violence, pandemics, active shooters, terrorism or war that affect the markets in which we
operate;
potential environmental and other liabilities;
uninsured or uninsurable losses and the ability to obtain insurance coverage against risks and losses;
our ability to attract and retain talent in the current labor market;
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, 2019, we owned 523 self-storage properties located in 24 states and in the District of Columbia containing an
aggregate of approximately 36.6 million rentable square feet. As of December 31, 2019, approximately 89.5% of the rentable square
footage at our owned stores was leased to approximately 306,000 customers, and no single customer represented a significant
concentration of our revenues. As of December 31, 2019, we owned stores in the District of Columbia and the following 24
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, South Carolina, Tennessee, Texas, Utah and
Virginia. In addition, as of December 31, 2019, we managed 649 stores for third parties (including 91 stores containing an aggregate of
approximately 6.3 million net rentable square feet as part of four separate unconsolidated real estate ventures) bringing the total number of
stores we owned and/or managed to 1,172. As of December 31, 2019, we managed stores for third parties in the District of Columbia and
the following 38 states: Alabama, Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky,
Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New Mexico,
New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont,
Virginia, Washington 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 302, or approximately 57.7%, 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, 442, or approximately 84.5%, 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, 2019, owned a 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.
6
Acquisition and Disposition Activity
As of December 31, 2019 and 2018, we owned 523 and 493 stores, respectively, that contained an aggregate of 36.6 million and 34.6
million rentable square feet with occupancy levels of 89.5% and 89.0%, 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 2019, 2018 and 2017 acquisition and disposition
activity:
Asset/Portfolio
2019 Acquisitions:
Maryland Asset
Florida Assets
Arizona Asset
HVP III Assets
Georgia Asset
South Carolina Asset
Texas Asset
Florida Assets
California Asset
2019 Disposition:
Texas Asset
2018 Acquisitions:
Texas Asset
Texas Asset
Metro DC Asset
Nevada Asset
North Carolina Asset
California Asset
Texas Asset
California Asset
New York Asset
Illinois Asset
2018 Dispositions:
Arizona Assets
2017 Acquisitions:
Illinois Asset
Maryland Asset
California Asset
Texas Asset
Florida Asset
Illinois Asset
Florida Asset
Market
Transaction Date
Stores
Number of
Purchase / Sale Price
(in thousands)
Baltimore / DC
Florida Markets - Other
Phoenix
Various (see note 4)
Atlanta
Charleston
Texas Markets - Major
Florida Markets - Other
Los Angeles
March 2019
April 2019
May 2019
June 2019
August 2019
August 2019
October 2019
November 2019
December 2019
1
2
1
18
1
1
1
3
1
29
$
$
22,000
19,000
1,550
128,250 (1)
14,600
3,300
7,300
32,100
18,500
246,600
Texas Markets - Major
October 2019
1
1
$
$
4,146
4,146
Texas Markets - Major
Texas Markets - Major
Baltimore / DC
Las Vegas
Charlotte
Los Angeles
Texas Markets - Major
San Diego
New York / Northern NJ
Chicago
January 2018
May 2018
July 2018
September 2018
September 2018
October 2018
October 2018
November 2018
November 2018
December 2018
Phoenix
November 2018
Chicago
Baltimore / DC
Sacramento
Texas Markets - Major
Florida Markets - Other
Chicago
Florida Markets - Other
April 2017
May 2017
May 2017
October 2017
October 2017
November 2017
December 2017
1
1
1
1
1
1
1
1
1
1
10
2
2
1
1
1
1
1
1
1
7
$
$
12,200
19,000
34,200
14,350
11,000
53,250
23,150
19,118
37,000
4,250
227,518
$
$
17,502
17,502
$
$
11,200
18,200
3,650
4,050
14,500
11,300
17,750
80,650
7
(1) Amount represents the purchase price for 90% of the ownership interest in 191 III CUBE LLC ("HVP III"), which at the time of
the acquisition owned 18 storage properties (see note 4).
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, 2019, 2018 and 2017, we owned 523, 493 and 484 self-storage properties and related assets, respectively.
The following table summarizes the change in number of owned stores from January 1, 2017 through December 31, 2019:
Balance - January 1
Stores acquired
Stores developed
Balance - March 31
Stores acquired
Stores developed
Stores combined (1)
Balance - June 30
Stores acquired
Stores developed
Balance - September 30
Stores acquired
Stores developed
Stores combined (1)
Stores sold
Balance - December 31
2019
2018
2017
493
1
—
494
21
2
(1)
516
2
1
519
5
—
—
(1)
523
484
1
—
485
1
—
—
486
3
1
490
5
—
—
(2)
493
475
—
1
476
3
—
(1)
478
—
2
480
4
1
(1)
—
484
(1) On May 16, 2017, October 2, 2017 and May 24, 2019, we acquired stores located in Sacramento, CA, Keller, TX and Tempe, AZ
for approximately $3.7 million, $4.1 million and $1.6 million, respectively. In each case, the store acquired is located directly
adjacent to an existing wholly-owned store. Given their proximity to each other, each acquired store has been combined with the
existing adjacent store 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, 2019:
Store Acquisitions. During 2019, we acquired 11 self-storage properties located in Arizona (1), California (1), Florida (5), Georgia
(1), Maryland (1), South Carolina (1) and Texas (1), for an aggregate purchase price of approximately $118.3 million. Additionally,
on June 6, 2019, we acquired our partner’s 90% ownership interest in 191 III CUBE LLC (“HVP III”), an unconsolidated real estate
venture in which we previously owned a 10% noncontrolling interest, for $128.3 million. As of the date of acquisition, HVP III
owned 18 stores located in Georgia (1), Massachusetts (7), North Carolina (1), South Carolina (7) and Tennessee (2). As of
December 31, 2019, we had two stores under contract for an aggregate purchase price of $57.5 million.
Development Activity. During 2019, we completed construction and opened for operation three joint venture properties located in
Massachusetts (1), New Jersey (1) and New York (1). As of December 31, 2019, we had five joint venture development properties
under construction located in Massachusetts (1), New York (2), Pennsylvania (1) and Virginia (1) which are expected to be
completed by the second quarter of 2021. As of December 31, 2019, we had invested $58.6 million of an expected $131.9 million,
related to these five projects.
Consolidated Development Joint Venture Buy-outs. During 2019, we acquired the noncontrolling members’ interest in six
previously consolidated development joint ventures for an aggregate purchase price of $94.6 million. The stores are located in
Massachusetts (1), New Jersey (1) and New York (4) and are wholly-owned by the Company as of December 31, 2019.
Store Disposition. On October 7, 2019, we sold a store in Texas for a sales price of approximately $4.1 million. We recorded a $1.5
million gain in connection with the sale.
Unconsolidated Real Estate Venture Activity. During 2019, 191 IV CUBE LLC, an unconsolidated real estate venture in which we
own a 20% interest, acquired eight stores for an aggregate purchase price of $122.5 million, of which we contributed $10.2 million.
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The acquired stores are located in Florida (1), Minnesota (1), Pennsylvania (1) and Texas (5). Additionally, on June 5, 2019, HVP
III sold 50 stores located in Florida (3), Georgia (4), Michigan (17), North Carolina (3), South Carolina (15) and Tennessee (8), to
an unaffiliated third party buyer for an aggregate sales price of $293.5 million. The venture recorded gains which aggregated to
approximately $106.7 million in connection with the sale.
Debt Offerings. On January 30, 2019, we issued $350.0 million in aggregate principal amount of unsecured senior notes due
February 15, 2029, which bear interest at a rate of 4.375% per annum. Net proceeds from the offering were used to repay all of the
outstanding indebtedness under the $200.0 million unsecured term loan portion of our credit facility that was scheduled to mature in
January 2019. The remaining proceeds from the offering were used to repay a portion of the outstanding indebtedness under the
revolving portion of our credit facility. Additionally, on October 11, 2019, we issued $350.0 million in aggregate principal amount
of unsecured senior notes due February 15, 2030 which bear interest at a rate of 3.000% per annum. Net proceeds from the offering
were used to repay all of the outstanding indebtedness under the revolving portion of our credit facility and for working capital and
other corporate purposes.
Credit Facility Amendment. On June 19, 2019, we amended and restated, in its entirety, our credit facility which, subsequent to the
amendment and restatement, is comprised of a $750.0 million unsecured revolving facility (the “Revolver”) maturing on June 19,
2024. At our current Baa2/BBB level, amounts drawn under the Revolver are priced at 1.10% over LIBOR, inclusive of a facility
fee of 0.15%.
Term Loan Repayments. During 2019, we repaid all $200.0 million of outstanding indebtedness under the unsecured term loan
portion of our credit facility that was scheduled to mature in January 2019 and all $100.0 million of outstanding indebtedness under
the unsecured term loan portion of our term loan facility that was scheduled to mature in January 2020.
Mortgage Loan Repayment. During 2019, we repaid one mortgage loan for $9.0 million.
At-The-Market Equity Program Activity. During 2019, under our at-the-market equity program, we sold a total of 5.9 million
common shares at an average sales price of $33.64 per share, resulting in net proceeds of $196.3 million for the year, after
deducting offering costs. As of December 31, 2019, 4.6 million common shares remained available for sale under the program. We
used the proceeds from the 2019 sales to fund the acquisition and development of self-storage properties and for general corporate
purposes.
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 2020, 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 2020, 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 and other investment opportunities.
Investment and Market Selection Process
We maintain a disciplined and focused process in the acquisition and development of self-storage properties. Our investment
committee is comprised of four senior officers who oversee our investment process. Our investment process involves six
stages — identification, initial due diligence, economic assessment, investment committee approval (and when required, the approval of
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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, but not exclusively limited to, 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, ease of access 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.
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 2019 revenues. Our stores in Florida, New York, Texas and California
provided approximately 16%, 16%, 10% and 8%, respectively, of our total revenues for the year ended December 31, 2019. 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, 2018 and 2017.
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, 2019, our debt to total market 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
23.9% compared to approximately 24.4% as of December 31, 2018. Our ratio of debt to the undepreciated cost of our total assets as of
December 31, 2019 was approximately 39.0% compared to approximately 37.9% as of December 31, 2018. 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-
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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
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 our 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.
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Insurance
We carry comprehensive liability, fire, casualty, extended coverage and rental loss insurance covering all of the properties in our
portfolio. We also 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 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. Additionally, we use a combination of insurance products to provide risk mitigation for
potential liabilities associated with automobiles, workers’ compensation, employment practices, general contractors, directors and officers,
employee health-care benefits and personal injuries that might be sustained at our stores.
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, 2019, we employed 3,011 employees, of whom 390 were corporate executive and administrative personnel and
2,621 were property-level personnel. We believe that our relations with our employees are good. Our employees are not unionized.
Available Information
We file registration statements, proxy statements, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to those reports, with the SEC. You may obtain copies of these documents by 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.
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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, paid time off and severance payments 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 16%, 16%, 10% and 8%, respectively, of our total 2019 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
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.
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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.
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,
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, 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 portfolio 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.
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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 and governmental mandated benefits to our
employees, utilities, insurance, administrative expenses and costs for repairs and maintenance. If operating expenses increase without a
corresponding increase in revenues, our profitability could diminish and limit our ability to make distributions to our shareholders.
We cannot assure our ability to pay dividends in the future.
Historically, we have paid quarterly distributions to our shareholders, and we intend to continue to pay quarterly dividends and to make
distributions to our shareholders in amounts such that all or substantially all of our taxable income in each year, subject to certain
adjustments, is distributed. This, along with other factors, should enable us to continue to qualify for the tax benefits accorded to a REIT
under the Internal Revenue Code. We have not established a minimum dividends payment level, and all future distributions will be made
at the discretion of our Board. Our ability to pay dividends will depend upon, among other factors:
the operational and financial performance of our stores;
capital expenditures with respect to existing and newly acquired stores;
general and administrative costs associated with our operation as a publicly-held REIT;
maintenance of our REIT status;
the amount of, and the interest rates on, our debt;
the absence of significant expenditures relating to environmental and other regulatory matters; and
other risk factors described in this Report.
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 co-invest 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.
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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.
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.
We carry comprehensive liability, fire, casualty, extended coverage and rental loss insurance covering all of the properties in our
portfolio. We also carry environmental insurance coverage on certain stores in our portfolio. We believe the policy specifications and
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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 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.
Additionally, we use a combination of insurance products, some of which include deductibles and self-insured retention amounts, to
provide risk mitigation for potential liabilities associated with automobiles, workers' compensation, employment practices, general
contractors, directors and officers, employee health-care benefits and personal injuries that might be sustained at our stores. Liabilities
associated with the risks that are retained by us are estimated, in part, by considering historical claims experience and actuarial
assumptions. Our results of operations could be materially impacted by claims and other expenses related to such insurance plans if future
occurrences and claims differ from these assumptions and historical trends.
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, deductibles, retentions and other policy terms at levels that are not commercially reasonable
in the current insurance environment. We may be unable to obtain required insurance coverage if the cost and/or availability make it
impractical or impossible to comply with debt covenants. If we cannot comply with a lender’s requirements, the lender could declare a
default, which could affect our ability to obtain future financing and have a material adverse effect on our results of operations and cash
flows and our ability to obtain future financing. In addition, we may be required to self-insure against certain losses or our insurance costs
may increase.
Potential liability for environmental contamination could result in substantial costs.
We are subject to federal, state and local environmental regulations that apply generally to the ownership of real property and the
operation of self-storage properties. If we fail to comply with those laws, we could be subject to significant fines or other governmental
sanctions.
Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate may be required to investigate
and clean up hazardous or toxic substances or petroleum product releases at a property and may be held liable to a governmental entity or
to third parties for property damage and for investigation and clean-up costs incurred by such parties in connection with contamination.
Such liability may be imposed whether or not the owner or operator knew of, or was responsible for, the presence of these hazardous or
toxic substances. The cost of investigation, remediation or removal of such substances may be substantial, and the presence of such
substances, or the failure to properly remediate such substances, may adversely affect our ability to sell or rent such property or to borrow
using such property as collateral. In addition, in connection with the ownership, operation and management of properties, we are
potentially liable for property damage or injuries to persons and property.
Our practice is to conduct or obtain environmental assessments in connection with the acquisition or development of additional stores.
We carry environmental insurance coverage on certain stores in our portfolio. We obtain or examine environmental assessments from
qualified and reputable environmental consulting firms (and intend to conduct such assessments prior to the acquisition or development of
additional stores). The environmental assessments received to date have not revealed, nor do we have actual knowledge of, any
environmental liability that we believe will have a material adverse effect on us. However, we cannot assure that our environmental
assessments have identified or will identify all material environmental conditions, that any prior owner of any property did not create a
material environmental condition not actually known to us, or that a material environmental condition does not otherwise exist with
respect to any of our properties.
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 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 or
websites. 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
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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 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 the properties or websites 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,
including California and New York, 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, which could damage our reputation, cause us
to incur substantial additional costs and become subject to litigation if our systems or processes 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
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
stores.
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 convenient 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 , active shooter incidents 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 at or against our stores, the United States or our interests, may negatively impact our operations and the value of our
securities. Attacks, armed conflicts or active-shooter situations 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, armed
conflicts or active-shooter situations 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, 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:
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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, personnel, insurance premiums, customer acquisition costs 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, declining demand for self-storage or the public
perception that any of these events may occur, could result in a general decline in rental revenues, which could impair our ability to satisfy
our debt service obligations and to make distributions to our shareholders.
Rental revenues are significantly influenced by demand for self-storage space generally, and a decrease in such demand would likely
have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio.
Because our real estate portfolio consists primarily of self-storage properties, we are subject to risks inherent in investments in a single
industry. A decrease in the demand for self-storage space would have a greater adverse effect on our rental revenues than if we owned a
more diversified real estate portfolio. Demand for self-storage space could be adversely affected by weakness in the national, regional and
local economies, changes in supply of, or demand for, similar or competing self-storage properties in an area and the excess amount of
self-storage space in a particular market. To the extent that any of these conditions occur, they are likely to affect market rents for self-
storage space, which could cause a decrease in our rental revenue. Any such decrease could impair our ability to satisfy debt service
obligations and make distributions to our shareholders.
Because real estate is illiquid, we may not be able to sell properties 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
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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, we owned a subsidiary REIT (“PSI”) that was liquidated on December 31, 2018. Prior to liquidation, PSI was
independently subject to, and was required to 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 failed to qualify as a REIT during our period of ownership, and certain statutory
relief provisions do not apply, as a result of a protective election made jointly by PSI and CubeSmart, PSI will be taxed as a taxable REIT
subsidiary. See the section entitled “Taxation of CubeSmart−Requirements for Qualification−Taxable REIT Subsidiaries” in Exhibit 99.1
for more information regarding taxable REIT subsidiaries.
Failure of the Operating Partnership (or a subsidiary partnership or joint venture) to be treated as a partnership would have serious
adverse consequences to our shareholders.
If the IRS were to successfully challenge the tax status of the Operating Partnership or any of its subsidiary partnerships or joint ventures
for federal income tax purposes, the Operating Partnership or the affected subsidiary partnership or joint venture would be taxable as a
corporation. In such event, we would cease to qualify as a REIT and the imposition of a corporate tax on the Operating Partnership, a
subsidiary partnership or joint venture would reduce the amount of cash available for distribution from the Operating Partnership to us and
ultimately to our shareholders.
To maintain our REIT status, we may be forced to borrow funds on a short-term basis during unfavorable market conditions.
As a REIT, we are subject to certain distribution requirements, including the requirement to distribute 90% of our REIT taxable income,
excluding net capital gains, which may result in our having to make distributions at a disadvantageous time or to borrow funds at
unfavorable rates. Compliance with this requirement may hinder our ability to operate solely on the basis of maximizing profits.
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.
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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.
The TCJA made 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 TCJA 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 made 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.
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.
Dividends paid by REITs do not qualify for the reduced tax rates provided under current law.
Dividends paid by REITs are generally not eligible for the reduced 15% maximum tax rate for dividends paid to individuals (20% for
those with taxable income above certain thresholds that are adjusted annually under current law). The more favorable rates applicable to
regular corporate dividends could cause shareholders who are individuals to perceive investments in REITs to be relatively less attractive
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than investments in the stock of non-REIT corporations that pay dividends to which more favorable rates apply, which could reduce the
value of REIT stocks.
Legislation modifies the rules applicable to partnership tax audits.
The Bipartisan Budget Act of 2015, effective for taxable years beginning after December 31, 2017, requires our Operating Partnership
and any subsidiary partnership to pay the hypothetical increase in partner-level taxes (including interest and penalties) resulting from an
adjustment of partnership tax items on audit or in other tax proceedings, unless the partnership elects an alternative method under which
the taxes resulting from the adjustment (and interest and penalties) are assessed at the partner level. Many uncertainties remain as to the
application of these rules, including the application of the alternative method to partners that are REITs, and the impact they will have on
us. However, it is possible that partnerships in which we invest may be subject to U.S. federal income tax, interest and penalties in the
event of a U.S. federal income tax audit as a result of these law changes.
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.
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.
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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 other 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.
Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect
our financial results.
As of December 31, 2019, we did not have any outstanding debt that was indexed to the London Interbank Offered Rate (“LIBOR”),
however future borrowings under our Revolver are subject to variable interest rates based on LIBOR. On July 27, 2017, the Financial
Conduct Authority (“FCA”), which regulates LIBOR, announced its intention to phase out LIBOR rates by the end of 2021. It is not
possible to predict the further effect of the FCA’s announcement, any changes in the methods by which LIBOR is determined, or any other
reforms to LIBOR that may be enacted in the United Kingdom, the European Union or elsewhere. Such developments may cause LIBOR
to perform differently than in the past, or cease to exist. In addition, any other legal or regulatory changes made by the FCA, ICE
Benchmark Administration Limited, the European Money Markets Institute (formerly Euribor-EBF), the European Commission or any
other successor governance or oversight body, or future changes adopted by such body, in the method by which LIBOR is determined or
the transition from LIBOR to a successor benchmark may result in, among other things, a sudden or prolonged increase or decrease in
LIBOR, a delay in the publication of LIBOR, and changes in the rules or methodologies in LIBOR, which may discourage market
participants from continuing to administer or to participate in LIBOR’s determination, and, in certain situations, could result in LIBOR no
longer being determined and published. If a published U.S. dollar LIBOR rate is unavailable after 2021, the interest rates on our debt
which is indexed to LIBOR will be determined using alternative methods, which may result in interest obligations which are more than or
do not otherwise correlate over time with the payments that would have been made on such debt if U.S. dollar LIBOR was available in its
current form. Further, the same costs and risks that may lead to the unavailability of U.S. dollar LIBOR may make one or more of the
alternative methods impossible or impracticable to determine. Any of these proposals or consequences could have a material adverse effect
on our financing costs, and as a result, our financial condition, operating results and cash flows.
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. 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.
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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, 2019, we had 2,621 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.
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.
24
Our declaration of trust permits our Board to issue preferred shares with terms that may discourage third parties from conducting a
tender offer or seeking other change of control transactions that could involve a premium price for our shares or otherwise benefit our
shareholders.
Our declaration of trust permits our Board to issue up to 40,000,000 preferred shares, having those preferences, conversion or other
rights, voting powers, restrictions, limitations as to distributions, qualifications or terms or conditions of redemption as determined by our
Board. In addition, our Board may reclassify any unissued common shares into one or more classes or series of preferred shares. Thus,
our Board could authorize, without shareholder approval, the issuance of preferred shares with terms and conditions that could have the
effect of discouraging a takeover or other transaction in which holders of some or a majority of our shares might receive a premium for
their shares over the then-prevailing market price of our shares. We currently do not expect that the Board would require shareholder
approval prior to such a preferred issuance. In addition, any preferred shares that we issue would rank senior to our common shares with
respect to the payment of distributions, in which case we could not pay any distributions on our common shares until full distributions
have been paid with respect to such preferred shares.
Risks Related to our Securities
Additional issuances of equity securities may be dilutive to shareholders.
The interests of our shareholders could be diluted if we issue additional equity securities to finance future acquisitions or developments
or to repay indebtedness. Our Board may authorize the issuance of additional equity securities, including preferred shares, without
shareholder approval. Our ability to execute our business strategy depends upon our access to an appropriate blend of debt financing,
including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing, including common and preferred
equity.
Many factors could have an adverse effect on the market value of our securities.
A number of factors might adversely affect the price of our securities, many of which are beyond our control. These factors include:
increases in market interest rates, relative to the dividend yield on our shares. If market interest rates go up, prospective
purchasers of our securities may require a higher yield. Higher market interest rates would not, however, result in more funds for
us to distribute and, to the contrary, would likely increase our borrowing costs and potentially decrease funds available for
distribution. Thus, higher market interest rates could cause the market price of our equity securities to go down;
anticipated benefit of an investment in our securities as compared to investment in securities of companies in other industries
(including benefits associated with tax treatment of dividends and distributions);
perception by market professionals of REITs generally and REITs comparable to us in particular;
level of institutional investor interest in our securities;
relatively low trading volumes in securities of REITs;
our results of operations and financial condition;
investor confidence in the stock market generally; and
additions and departures of key personnel.
The market value of our equity securities is based primarily upon the market’s perception of our growth potential and our current and
potential future earnings and cash distributions. Consequently, our equity securities may trade at prices that are higher or lower than our
net asset value per equity security. If our future earnings or cash distributions are less than expected, it is likely that the market price of
our equity securities will diminish.
25
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 fluctuation and may continue to fluctuate or decline. Between January 1,
2017 and December 31, 2019, the closing price per share of our common shares has ranged from a high of $36.31 (on September 4, 2019)
to a low of $22.94 (on July 10, 2017).
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, which could result in
substantial costs and divert our management’s attention and resources from our business.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of December 31, 2019, we owned 523 self-storage properties that contain approximately 36.6 million rentable square feet and are
located in 24 states and the District of Columbia. The following table sets forth summary information regarding our stores by state as of
December 31, 2019.
State
Florida
Texas
New York
California
Illinois
Arizona
New Jersey
Georgia
Maryland
Ohio
Connecticut
Massachusetts
Virginia
North Carolina
Tennessee
Colorado
Nevada
Pennsylvania
South Carolina
Washington D.C.
Rhode Island
Utah
New Mexico
Minnesota
Indiana
Total/Weighted average
Number of
Stores
Cubes
Total
Rentable
Square Feet
% of Total
Rentable
Square Feet
Period-end
Occupancy
85
66
48
43
42
31
26
20
17
20
22
19
10
11
9
11
8
9
8
5
4
4
3
1
1
523
61,362
39,280
64,397
29,439
25,265
17,700
18,422
12,426
13,998
11,069
10,718
11,969
7,903
6,651
5,631
6,020
5,127
6,057
3,873
5,296
2,010
2,308
1,683
1,033
578
370,215
6,322,178
4,642,072
3,664,270
3,124,044
2,695,389
1,905,617
1,809,740
1,454,927
1,399,402
1,290,003
1,190,691
1,172,820
787,595
760,177
755,515
697,299
643,062
611,007
432,419
409,850
245,545
239,198
182,261
100,928
67,600
36,603,609
17.2 %
12.6 %
9.9 %
8.5 %
7.4 %
5.2 %
4.9 %
4.0 %
3.8 %
3.5 %
3.3 %
3.2 %
2.2 %
2.1 %
2.1 %
1.9 %
1.8 %
1.7 %
1.2 %
1.1 %
0.7 %
0.7 %
0.5 %
0.3 %
0.2 %
100.0 %
90.9 %
90.4 %
84.3 %
91.1 %
91.7 %
91.9 %
87.5 %
87.3 %
89.7 %
91.4 %
91.7 %
83.0 %
90.2 %
88.1 %
88.6 %
89.5 %
91.6 %
90.1 %
88.1 %
82.7 %
89.9 %
90.4 %
93.0 %
88.0 %
89.0 %
89.5 %
26
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, 2019, 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)
2016 and earlier
2017
2018
2019
Rentable
Average Occupancy
# of Stores Square Feet 2019
2018
2017
472 32,856,176 92.1 % 92.0 % 91.7 %
762,926 68.3 % 45.9 % 39.1 %
994,243 66.1 % 56.7 %
1,990,264 74.2 %
—
9
11
31
—
—
All stores owned as of December 31, 2019
523 36,603,609 90.4 % 90.6 % 91.3 %
Stores by Year Acquired - Annual Rent Per Occupied Square Foot (2)
Year Acquired (1)
2016 and earlier
2017
2018
2019
All stores owned as of December 31, 2019
Stores by Year Acquired - Total Revenues (dollars in thousands)
Year Acquired (1)
2016 and earlier
2017
2018
2019
All stores owned as of December 31, 2019
# of Stores 2019
2018
2017
Rent per Square Foot
472 $ 17.76 $ 17.44 $ 16.83
19.11
—
—
523 $ 17.80 $ 17.59 $ 16.85
21.14
22.69
15.18
19.99
24.76
—
9
11
31
# of Stores
2019
Total Revenues
2018
2017
472 $ 570,381 $ 557,719 $ 535,552
2,102
—
—
523 $ 609,817 $ 569,419 $ 537,654
11,865
15,730
11,841
7,563
4,137
—
9
11
31
(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 $21.5 million, $19.9 million and $18.2 million for the periods ended December 31, 2019, 2018 and 2017,
respectively.
Unconsolidated Real Estate Ventures
As of December 31, 2019, we held common ownership interests ranging from 10% to 50% in three unconsolidated real estate ventures
for an aggregate investment balance of $91.1 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, 2019, these three unconsolidated real estate
ventures owned 69 self-storage properties that contain an aggregate of approximately 4.8 million net rentable square feet. The self-storage
properties owned by these three real estate ventures are managed by us and are located in Arizona (2), Connecticut (5), Florida (4),
Georgia (2), Maryland (1), Massachusetts (6), Minnesota (1), North Carolina (1), Pennsylvania (1), Rhode Island (2), Texas (42) and
Vermont (2).
On September 5, 2018, we invested $5.0 million in exchange for 100% of the Class A preferred units of Capital Storage Partners, LLC
(“Capital Storage”), a newly formed venture that acquired 22 self-storage properties that contain an aggregate of approximately 1.6 million
27
net rentable square feet. The stores owned by Capital Storage are located in Florida (4), Oklahoma (5) and Texas (13). The Class A
preferred units earn an 11% cumulative dividend prior to any other distributions.
Each of these ventures has assets and liabilities that we do not consolidate in our financial statements.
We account for our investments in real estate ventures using the equity method when it is determined that we have the ability to exercise
significant influence over the venture. See note 5 to the consolidated financial statements for further disclosure regarding the assets,
liabilities and operating results of our unconsolidated real estate ventures which we account for using the equity method of accounting.
Capital Expenditures
We have a capital improvement program that includes office upgrades, adding climate control to select cubes, construction of parking
areas and other store upgrades. For 2020, we anticipate spending approximately $24.0 million to $29.0 million associated with these
capital expenditures. For 2020, we also anticipate spending approximately $14.0 million to $19.0 million on recurring capital expenditures
and approximately $39.0 million to $54.0 million on the development of new self-storage properties.
ITEM 3. LEGAL PROCEEDINGS
To our knowledge, no legal proceedings are pending against us, other than routine actions and administrative proceedings, and other
actions not deemed material, and which, in the aggregate, are not expected to have a material adverse effect on our financial condition,
results of operations or cash flows.
ITEM 4. MINING SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
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, 2019:
October 1 - October 31
November 1 - November 30
December 1 - December 31
Total
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs
Average
Price Paid
Per Share
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
Total
Number of
Shares
Purchased (1)
318
37
221
576
$ 34.44
$ 31.04
$ 30.61
$ 32.75
3,000,000
N/A
3,000,000
N/A
N/A
3,000,000
N/A 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.
28
Market Information for and Holders of Record of Common Shares
As of December 31, 2019, there were 136 registered record holders of the Parent Company’s common shares and 15 holders (other than
the Parent Company) of the Operating Partnership’s common units. These amounts do not include common shares held by brokers and
other institutions on behalf of shareholders. The Parent Company’s common stock is traded on the New York Stock Exchange (“NYSE”)
under the symbol CUBE. There is no established trading market for units of the Operating Partnership.
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 a 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 2019 consisted of a 78.413% ordinary income distribution, a 5.207% capital gain distribution and a
16.380% 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.
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 Operating Partnership Unregistered Equity Securities
On October 30, 2019, the Operating Partnership entered into an agreement to acquire a self-storage property located in California for
$18.5 million, and agreed to fund a portion of the acquisition price in the form of common units, designated Class B Units. On December
16, 2019, the Operating Partnership closed on the acquisition and funded approximately $3.6 million of the acquisition price through the
issuance of 106,738 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 accredited
investors unaffiliated with the Company in private placement transactions exempt from the registration requirements of the Securities Act
of 1933 pursuant to Section 4(a)(2) of such Act.
Securities Authorized Under Equity Compensation Plans
Other information about our equity compensation plans is incorporated herein by reference to Part III, Item 12 of this Annual Report on
Form 10-K.
29
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, 2014 and ending December 31, 2019.
Index
CubeSmart
S&P 500 Index
Russell 2000 Index
NAREIT All Equity REIT Index
ITEM 6. SELECTED FINANCIAL DATA
CUBESMART
For the year ended December 31,
2014
2015
100.00 142.43
100.00 101.38
100.00
95.59
100.00 102.83
2016
128.41
113.51
115.95
111.70
2017
144.74
138.29
132.94
121.39
2018
149.64
132.23
118.30
116.48
2019
168.95
173.86
148.49
149.86
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, 2019 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, 2019 and 2018, and for each of the years in
the three-year period ended December 31, 2019, 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, 2019, 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.
30
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.
2019
For the year ended December 31,
2016
2017
2018
(in thousands, except per share data)
2015
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
OTHER (EXPENSE) INCOME
Interest:
Interest expense on loans
Loan procurement amortization expense
Equity in earnings (losses) of real estate ventures
Gains from sale of real estate, net
Other
Total other expense
NET INCOME
$ 552,404 $ 517,535 $ 489,043 $ 449,601 $ 392,476
45,189
6,856
444,521
50,255
10,183
510,039
67,558
23,953
643,915
55,001
14,899
558,943
60,156
20,253
597,944
209,739
163,547
38,560
—
411,846
196,866
143,350
37,712
—
377,928
181,508
145,681
34,745
1,294
363,228
165,847
161,865
32,823
6,552
367,087
153,172
151,789
28,371
3,301
336,633
(72,525)
(2,819)
11,122
1,508
1,416
(61,298)
170,771
(62,132)
(2,313)
(865)
10,576
206
(54,528)
165,488
(56,952)
(2,638)
(1,386)
—
872
(60,104)
135,611
(50,399)
(2,577)
(2,662)
—
1,062
(54,576)
88,376
(43,736)
(2,324)
(411)
17,567
(228)
(29,132)
78,756
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
(1,708)
54
169,117
—
—
(1,820)
221
163,889
—
—
(1,593)
270
134,288
—
—
NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS
$ 169,117 $ 163,889 $ 134,288 $
(941)
470
87,905
(5,045)
(2,937)
79,923 $
(960)
(84)
77,712
(6,008)
—
71,704
Basic earnings per share attributable to common shareholders
Diluted earnings per share attributable to common shareholders
$
$
0.89 $
0.88 $
0.89 $
0.88 $
0.74 $
0.74 $
0.45 $
0.45 $
0.43
0.42
Weighted average basic shares outstanding (1)
Weighted average diluted shares outstanding (1)
190,874
191,576
184,653
185,495
180,525
181,448
178,246
179,533
168,640
170,191
31
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)
2019
2018
December 31,
2017
2016
2015
$ 3,774,485
4,029,545
1,835,725
—
—
96,040
2,160,121
62,088
1,799,346
7,990
4,029,545
$ 3,600,968
3,752,972
1,143,524
195,525
299,799
108,246
1,980,704
55,819
1,709,678
6,771
3,752,972
$ 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
523
36,604
493
34,619
484
33,760
475
32,858
445
30,361
$
89.5 %
$
1.29
89.0 %
$
1.22
89.2 %
$
1.11
89.7 %
$
0.90
90.2 %
0.69
(1) OP units have been excluded from the earnings per share calculations as the related income or loss is presented in noncontrolling
interests in the Operating Partnership.
(2) We announced full quarterly dividends of $0.16 and $0.484 per common and preferred share, respectively, on February 24, 2015,
May 27, 2015 and August 4, 2015; dividends of $0.21 and $0.484 per common and preferred share, 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; dividends of
$0.30 per common share on December 14, 2017, February 13, 2018, May 30, 2018 and August 7, 2018; dividends of $0.32 per
common share on December 13, 2018, February 19, 2019, May 14, 2019 and July 23, 2019; and dividends of $0.33 per common
share on December 12, 2019.
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 five-year period ended December 31, 2019 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, 2019 and 2018, and for each of the years in
the three-year period ended December 31, 2019, 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, 2019, 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.
32
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.
2019
For the year ended December 31,
2016
2017
2018
(in thousands, except per unit data)
2015
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
OTHER (EXPENSE) INCOME
Interest:
Interest expense on loans
Loan procurement amortization expense
Equity in earnings (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
$ 552,404 $ 517,535 $ 489,043 $ 449,601 $ 392,476
45,189
6,856
444,521
60,156
20,253
597,944
67,558
23,953
643,915
50,255
10,183
510,039
55,001
14,899
558,943
209,739
163,547
38,560
—
411,846
196,866
143,350
37,712
—
377,928
181,508
145,681
34,745
1,294
363,228
165,847
161,865
32,823
6,552
367,087
153,172
151,789
28,371
3,301
336,633
(72,525)
(2,819)
11,122
1,508
1,416
(61,298)
170,771
54
170,825
(1,708)
169,117
—
—
(62,132)
(2,313)
(865)
10,576
206
(54,528)
165,488
221
165,709
(1,820)
163,889
—
—
(56,952)
(2,638)
(1,386)
—
872
(60,104)
135,611
270
135,881
(1,593)
134,288
—
—
(50,399)
(2,577)
(2,662)
—
1,062
(54,576)
88,376
(43,736)
(2,324)
(411)
17,567
(228)
(29,132)
78,756
470
88,846
(941)
87,905
(5,045)
(2,937)
(84)
78,672
(960)
77,712
(6,008)
—
71,704
NET INCOME ATTRIBUTABLE TO COMMON UNITHOLDERS
$ 169,117 $ 163,889 $ 134,288 $
79,923 $
Basic earnings per unit attributable to common unitholders
Diluted earnings per unit attributable to common unitholders
$
$
0.89 $
0.88 $
0.89 $
0.88 $
0.74 $
0.74 $
0.45 $
0.45 $
0.43
0.42
Weighted average basic units outstanding (1)
Weighted average diluted units outstanding (1)
190,874
191,576
184,653
185,495
180,525
181,448
178,246
179,533
168,640
170,191
33
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)
2019
2018
December 31,
2017
2016
2015
$ 3,774,485
4,029,545
1,835,725
—
—
96,040
2,160,121
62,088
1,799,346
7,990
4,029,545
$ 3,600,968
3,752,972
1,143,524
195,525
299,799
108,246
1,980,704
55,819
1,709,678
6,771
3,752,972
$ 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
523
36,604
493
34,619
484
33,760
475
32,858
445
30,361
$
89.5 %
$
1.29
89.0 %
$
1.22
89.2 %
$
1.11
89.7 %
$
0.90
90.2 %
0.69
(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 $0.16 and $0.484 per common and preferred unit, respectively, on February 24, 2015,
May 27, 2015 and August 4, 2015; dividends of $0.21 and $0.484 per common and preferred unit, 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; dividends of
$0.30 per common unit on December 14, 2017, February 13, 2018, May 30, 2018 and August 7, 2018; dividends of $0.32 per
common unit on December 13, 2018, February 19, 2019, May 14, 2019 and July 23, 2019; and dividends of $0.33 per common
unit on December 12, 2019.
34
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, 2019 and December 31, 2018, we owned 523 self-storage properties totaling approximately 36.6 million rentable
square feet and 493 self-storage properties totaling approximately 34.6 million rentable square feet, respectively. As of December 31,
2019, we owned stores in the District of Columbia and the following 24 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, South Carolina, Tennessee, Texas, Utah and Virginia. In addition, as of December 31, 2019, we managed 649
stores for third parties (including 91 stores containing an aggregate of approximately 6.3 million net rentable square feet as part of four
separate unconsolidated real estate ventures), bringing the total number of stores we owned and/or managed to 1,172. As of December 31,
2019, we managed stores for third parties in the District of Columbia and the following 38 states: Alabama, Arizona, California, Colorado,
Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota,
Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon,
Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington 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 management. We believe this approach allows us to respond quickly and effectively to changes in local market
conditions and 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 16%, 16%, 10%, and 8%, respectively, of total revenues for the year ended December 31, 2019.
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
35
historical consolidated financial statements included in this Report. A summary of significant accounting policies is also provided in the
notes to our consolidated financial statements (see note 2 to the consolidated financial statements). These policies require the application
of judgment and assumptions by management and, as a result, are subject to a degree of uncertainty. Due to this uncertainty, actual results
could differ materially from estimates calculated and utilized by management.
Basis of Presentation
The accompanying consolidated financial statements include all of the accounts of the Company, and its majority-owned and/or
controlled subsidiaries. The portion of these entities not owned by the Company is presented as noncontrolling interests as of and during
the periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation.
When the Company obtains an economic interest in an entity, the Company evaluates the entity to determine if the entity is deemed a
variable interest entity (“VIE”) and if the Company is deemed to be the primary beneficiary, in accordance with authoritative guidance
issued by the Financial Accounting Standards Board (“FASB”) on the consolidation of VIEs. When an entity is not deemed to be a VIE,
the Company considers the provisions of additional FASB guidance to determine whether a general partner, or the general partners as a
group, control 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, improvements 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.
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, 2019, 2018 and
2017.
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
transaction from closing. However, each potential transaction is evaluated based on its separate facts and circumstances. Stores classified
36
as held for sale are reported at the lesser of carrying value or fair value less estimated costs to sell and are not depreciated. There were no
stores classified as held for sale as of December 31, 2019.
Investments in Unconsolidated Real Estate Ventures
The Company accounts for its investments in unconsolidated real estate ventures under the equity method of accounting when it is
determined that the Company has the ability to exercise significant influence over the venture. Under the equity method, investments in
unconsolidated real estate ventures are recorded initially at cost, as investments in real estate entities, and subsequently adjusted for equity
in earnings (losses) and cash contributions, less cash 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, 2019, 2018 and 2017.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements affecting our business, see note 2 to the consolidated financial statements.
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 for
each period presented 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, 2019, we owned 466 same-store properties and 57
non same-store properties. All of the non same-store properties were 2018 and 2019 acquisitions, dispositions, developed stores, stores
with a significant portion of net rentable square footage taken out of service or stores that have not yet reached stabilization as defined
above. 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, 2019, 2018 and 2017, we owned 523, 493 and 484 self-storage properties and related assets, respectively.
37
The following table summarizes the change in number of owned stores from January 1, 2017 through December 31, 2019:
Balance - January 1
Stores acquired
Stores developed
Balance - March 31
Stores acquired
Stores developed
Stores combined (1)
Balance - June 30
Stores acquired
Stores developed
Balance - September 30
Stores acquired
Stores developed
Stores combined (1)
Stores sold
Balance - December 31
2019
2018
2017
493
1
—
494
21
2
(1)
516
2
1
519
5
—
—
(1)
523
484
1
—
485
1
—
—
486
3
1
490
5
—
—
(2)
493
475
—
1
476
3
—
(1)
478
—
2
480
4
1
(1)
—
484
(1) On May 16, 2017, October 2, 2017 and May 24, 2019, we acquired stores located in Sacramento, CA, Keller, TX and Tempe, AZ
for approximately $3.7 million, $4.1 million and $1.6 million, respectively. In each case, the store acquired is located directly
adjacent to an existing wholly-owned store. Given their proximity to each other, each acquired store has been combined with the
existing adjacent store in our store count, as well as for operational and reporting purposes.
Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018 (dollars in thousands)
Same-Store Property Portfolio
2019
2018
Increase/ %
(Decrease) Change
Non Same-Store
Properties
Other/
Eliminations
Total Portfolio
Increase/ %
2019
2018
2019
2018
2019
2018
(Decrease)
Change
REVENUES:
Rental income
Other property related income
Property management fee income
Total revenues
OPERATING EXPENSES:
Property operating expenses
NET OPERATING INCOME (LOSS):
$ 508,696
53,130
—
561,826
$ 499,729
51,490
—
551,219
$
8,967
1,640
—
10,607
1.8 % $ 43,708
5,139
3.2 %
0.0 %
—
1.9 % 48,847
$ 17,806
2,503
—
20,309
$
— $
9,289
23,953
33,242
— $ 552,404
67,558
23,953
643,915
6,163
20,253
26,416
$ 517,535
60,156
20,253
597,944
$
34,869
7,402
3,700
45,971
6.7 %
12.3 %
18.3 %
7.7 %
164,616
397,210
158,307
392,912
6,309
4,298
4.0 % 19,430
1.1 % 29,417
9,776
10,533
25,693
7,549
28,783
(2,367)
209,739
434,176
196,866
401,078
12,873
33,098
6.5 %
8.3 %
Store count
Total square footage
Period end occupancy (1)
Period average occupancy (2)
Realized annual rent per occupied sq. ft. (3)
466
32,377
466
32,377
91.2 %
92.4 %
$
17.01
91.1 %
92.4 %
16.70
$
57
4,227
27
2,242
75.8 %
58.9 %
523
36,604
493
34,619
89.5 %
89.0 %
Depreciation and amortization
General and administrative
Subtotal
OTHER (EXPENSE) INCOME
Interest:
Interest expense on loans
Loan procurement amortization expense
Equity in earnings (losses) of real estate ventures
Gains from sale of real estate, net
Other
Total other expense
NET INCOME
163,547
38,560
202,107
143,350
37,712
181,062
20,197
848
21,045
14.1 %
2.2 %
11.6 %
(72,525)
(2,819)
11,122
1,508
1,416
(61,298)
170,771
(62,132)
(2,313)
(865)
10,576
206
(54,528)
165,488
(10,393)
(506)
(16.7)%
(21.9)%
11,987 1,385.8 %
(85.7)%
587.4 %
(12.4)%
3.2 %
(9,068)
1,210
(6,770)
5,283
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Noncontrolling interests in the Operating Partnership
Noncontrolling interests in subsidiaries
NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS
(1,708)
54
$ 169,117
(1,820)
221
$ 163,889
$
112
(167)
5,228
6.2 %
(75.6)%
3.2 %
(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.
38
Revenues
Rental income increased from $517.5 million in 2018 to $552.4 million in 2019, an increase of $34.9 million, or 6.7%. The $9.0 million
increase in same-store rental income was due primarily to higher rental rates. Realized annual rent per square foot on our same-store
portfolio increased 1.9% as a result of higher rental rates for new and existing customers in 2019 as compared to 2018. The remaining
increase was primarily attributable to $25.9 million of additional rental income from the stores acquired or opened in 2018 and 2019
included in our non-same store portfolio.
Other property related income increased from $60.2 million in 2018 to $67.6 million in 2019, an increase of $7.4 million, or 12.3%. The
$1.6 million increase in same-store other property related income was mainly attributable to increased customer insurance participation.
The remainder of the increase was attributable to $2.6 million of additional other property related income derived from the stores acquired
or opened in 2018 and 2019 included in our non-same store portfolio and $3.1 million resulting primarily from increased customer
insurance participation at our managed stores.
Property management fee income increased from $20.3 million in 2018 to $24.0 million in 2019, an increase of $3.7 million, or 18.3%.
This increase was attributable to an increase in management fees related to the third-party management business resulting from more
stores under management (649 stores as of December 31, 2019 compared to 593 stores as of December 31, 2018) and higher revenue at
these managed stores.
Operating Expenses
Property operating expenses increased from $196.9 million in 2018 to $209.7 million in 2019, an increase of $12.9 million, or 6.5%.
This increase was primarily attributable to a $6.3 million increase in property operating expenses on the same-store portfolio primarily due
to higher property taxes and personnel expenses. The remainder of the increase was attributable to $9.7 million of increased expenses
associated with newly acquired or developed stores.
Depreciation and amortization increased from $143.4 million in 2018 to $163.5 million in 2019, an increase of $20.2 million, or 14.1%.
This increase was primarily attributable to depreciation and amortization expense related to stores acquired and developed during 2018 and
2019.
Other (expense) income
Interest expense increased from $62.1 million in 2018 to $72.5 million in 2019, an increase of $10.4 million, or 16.7%. The increase was
attributable to a higher amount of outstanding debt during 2019 compared to 2018, and higher interest rates during 2019. The average
outstanding debt balance increased $163.5 million to $1,854.4 million during 2019 as compared to $1,690.9 million during 2018 as the
result of borrowings to fund a portion of the Company’s acquisition activity. The weighted average effective interest rate on our
outstanding debt increased from 3.93% during 2018 to 4.06% during 2019.
Equity in earnings (losses) of real estate ventures increased $12.0 million from 2018 to 2019. The change was mainly driven by our
share of the gains attributable to HVP III, a real estate venture in which we previously owned a 10% interest. The gains were recorded in
connection with HVP III’s sale of 50 properties during 2019, prior to the Company’s acquisition of its partner’s 90% interest in the
venture.
Gains from sale of real estate, net were $1.5 million in 2019 compared to $10.6 million in 2018, a decrease of $9.1 million. These gains
are determined on a transactional basis and, accordingly, are not comparable across reporting periods.
Other income increased $1.2 million from 2018 to 2019, primarily due to fees earned in connection with joint venture property
transactions that occurred during 2019.
Comparison of the Year Ended December 31, 2018 to the Year Ended December 31,2017
Refer to the section entitled “Results of Operations” within Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2018 for a comparison of the year ended
December 31, 2018 to the year ended December 31, 2017.
39
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, 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
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 and restated, 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.
40
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.
The following table presents a reconciliation of net income to FFO and FFO, as adjusted, for the years ended December 31, 2019 and
2018:
Net income attributable to the Company’s common shareholders
Add (deduct):
Real estate depreciation and amortization:
Real property
Company’s share of unconsolidated real estate ventures
Gains from sale of real estate, net (1)
Noncontrolling interests in the Operating Partnership
FFO attributable to common shareholders and OP unitholders
Add:
Loan procurement amortization expense - early repayment of debt
Loss related to settlement of legal action (2)
FFO, as adjusted, attributable to common shareholders and OP unitholders
Weighted average diluted shares outstanding
Weighted average diluted units outstanding
Weighted average diluted shares and units outstanding
For the year ended December 31,
2019
2018
(dollars in thousands)
$
169,117 $
163,889
$
$
160,485
7,052
(12,175)
1,708
326,187 $
140,538
10,286
(10,576)
1,820
305,957
141
—
326,328 $
—
1,828
307,785
191,576
1,886
193,462
185,495
2,021
187,516
(1) The year ended December 31, 2019 includes $10.7 million of gains from sale of real estate, net that are included in the
Company’s share of equity in earnings of real estate ventures.
(2) Loss related to settlement of legal action for the year ended December 31, 2018, represents a charge related to a settlement
agreement for a class action alleging violations of a state specific deceptive and unfair trade practices act.
Cash Flows
Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018
A comparison of cash flow related to operating, investing and financing activities for the years ended December 31, 2019 and 2018 is as
follows:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
For the year ended December 31,
2019
2018
Change
(in thousands)
$
331,768
$ (375,664)
95,855
$
$
304,335 $ 27,433
$ (322,259) $ (53,405)
15,248 $ 80,607
$
Cash provided by operating activities for the years ended December 31, 2019 and 2018 was $331.8 million and $304.3 million,
respectively, reflecting an increase of $27.4 million. Our increased cash flow from operating activities was primarily attributable to stores
41
acquired and developed during 2018 and 2019, as well as increased net operating income levels on the same-store portfolio in 2019 as
compared to 2018.
Cash used in investing activities increased from $322.3 million in 2018 to $375.7 million in 2019, reflecting an increase of $53.4
million. The change was primarily driven by an increase in cash used for acquisitions of storage properties and the remaining interest in
HVP III, a previously unconsolidated real estate venture. Including the HVP III membership interest acquisition, cash used during 2019
related to the acquisition of 29 stores for an aggregate net purchase price of $238.3 million, inclusive of $3.6 million of OP units issued,
while cash used during 2018 related to the acquisition of ten stores for an aggregate purchase price of $227.5 million, inclusive of $7.2
million of assumed debt and $4.8 million of OP units issued. Additionally, there was a $16.7 million increase in development costs from
the 2018 to 2019 resulting from the payment of put liabilities associated with three previously consolidated development joint ventures
during 2019. The remainder of the change was due to a $12.5 million decrease in the proceeds from sale of real estate, net from 2018 to
2019 resulting from the sale of one property for a sales price of $4.1 million in 2019 compared to the sale of two properties for an
aggregate sales price of $17.5 million in 2018.
Cash provided by financing activities increased from $15.2 million in 2018 to $95.9 million in 2019, reflecting an increase of $80.6
million. This change was primarily the result of $696.4 million of net proceeds from our issuance of the 2029 Notes and 2030 Notes
(defined below) during 2019 as well as an increase of $64.5 million in proceeds received from the issuance of common shares during 2019
compared to 2018. These cash inflows were offset by a $200.0 million cash payment made to repay our unsecured term loan in January
2019 and a $413.8 million net increase in revolving credit facility payments from 2018 to 2019. The change was also impacted by the
combined $35.8 million cash outflow for the acquisition of the noncontrolling members’ interests in four separate consolidated
development joint ventures during 2019 with no comparable cash outflow during 2018. Additionally, cash distributions paid to common
shareholders and noncontrolling interests in the Operating Partnership increased $22.6 million from 2018 to 2019 resulting from the
increase in the common dividend per share and number of shares outstanding.
Comparison of the Year Ended December 31, 2018 to the Year Ended December 31, 2017
Refer to the section entitled “Cash Flows” within Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” of our Annual Report on Form 10-K for the year ended December 31, 2018 for a comparison of the year ended December 31,
2018 to the year ended December 31, 2017.
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 at our stores and fees earned from
managing stores. Therefore, our ability to generate cash from operations is dependent on the rents that we are able to charge and collect
from our customers. We believe that the properties in which we invest, self-storage properties, are less sensitive than other real estate
product types to near-term economic downturns. However, prolonged economic downturns will adversely affect our cash flows from
operations.
In order to qualify as a REIT for federal income tax purposes, the Parent Company is required to distribute at least 90% of REIT taxable
income, excluding capital gains, to its shareholders on an annual basis or pay federal income tax. The nature of our business, coupled with
the requirement that we distribute a substantial portion of our income on an annual basis, will cause us to have substantial liquidity needs
over both the short and 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 2020 fiscal year, we expect recurring capital expenditures to be approximately $14.0 million to $19.0 million,
planned capital improvements and store upgrades to be approximately $24.0 million to $29.0 million and costs associated with the
development of new stores to be approximately $39.0 million to $54.0 million. Our currently scheduled principal payments on debt are
approximately $12.8 million in 2020.
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 Revolver
provide adequate sources of liquidity to enable us to execute our current business plan and remain in compliance with our covenants.
42
Our liquidity needs beyond 2020 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 Revolver, 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, 2019, we had approximately $54.9 million in available cash and cash equivalents. In addition, we had
approximately $749.3 million of availability for borrowings under the revolving portion of our Amended and Restated Credit Facility
(defined below).
Unsecured Senior Notes
On January 30, 2019, we issued $350.0 million in aggregate principal amount of unsecured senior notes due February 15, 2029, which
bear interest at a rate of 4.375% per annum (the “2029 Notes”). The 2029 Notes were priced at 99.356% of the principal amount to yield
4.455% to maturity. Net proceeds from the offering were used to repay all of the outstanding indebtedness under our $200.0 million
unsecured term loan portion of our credit facility that was scheduled to mature in January 2019. The remaining proceeds from the offering
were used to repay a portion of the outstanding indebtedness under the revolving portion of our Credit Facility (defined below).
Additionally, on October 11, 2019, we issued $350.0 million in aggregate principal amount of unsecured senior notes due February 15,
2030, which bear interest at a rate of 3.000% per annum (the “2030 Notes”). The 2030 Notes were priced at 99.623% of the principal
amount to yield 3.043% to maturity. Net proceeds from the offering were used to repay all of the outstanding indebtedness under the
Revolver and for working capital and other general corporate purposes.
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 (1)
$300M 4.000% Guaranteed Notes due 2025 (2)
$300M 3.125% Guaranteed Notes due 2026
$350M 4.375% Guaranteed Notes due 2029
$350M 3.000% Guaranteed Notes due 2030
Principal balance outstanding
Less: Discount on issuance of unsecured senior notes, net
Less: Loan procurement costs, net
Total unsecured senior notes, net
$
250,000 $
300,000
300,000
300,000
350,000
350,000
1,850,000
(3,860)
(10,415)
250,000
300,000
300,000
300,000
—
—
1,150,000
(568)
(5,908)
$ 1,835,725 $ 1,143,524
December 31,
2019
2018
(in thousands)
Effective
Interest Rate
Issuance
Date
Maturity
Date
4.82 %
Jun-12
4.33 % Various (1)
3.99 % Various (2)
Aug-16
3.18 %
Jan-19
4.46 %
Oct-19
3.04 %
Jul-22
Dec-23
Nov-25
Sep-26
Feb-29
Feb-30
(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 tranches 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%.
43
(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 tranches 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 1.5:1.0 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, 2019, 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, among other things, a $500.0 million unsecured revolving facility with a maturity date of
April 22, 2020. On June 19, 2019, we amended and restated, in its entirety, the Credit Facility (the “Amended and Restated Credit
Facility”) which, subsequent to the amendment and restatement, is comprised of a $750.0 million unsecured revolving credit facility (the
“Revolver”) maturing on June 19, 2024. Under the Amended and Restated Credit Facility, pricing on the Revolver is dependent upon our
unsecured debt credit ratings. At our current Baa2/BBB level, amounts drawn under the Revolver are priced at 1.10% over LIBOR,
inclusive of a facility fee of 0.15%. We incurred costs of $3.9 million in 2019 in connection with amending and restating the Credit
Facility and capitalized such costs as a component of Loan procurement costs, net of amortization on the consolidated balance sheets.
As of December 31, 2019, borrowings under the Revolver had an effective weighted average interest rate of 2.86%. Additionally, as of
December 31, 2019, $749.3 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.
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, among other things, a $100.0 million unsecured term loan with a seven-year maturity that
was repaid on June 19, 2019.
Our unsecured term loans under the Credit Facility and Term Loan Facility are summarized below:
Unsecured Term Loans
Credit Facility
Unsecured term loan (1)
Term Loan Facility
Unsecured term loan (2)
Principal balance outstanding
Less: Loan procurement costs, net
Total unsecured term loans, net
Carrying Value as of:
December 31,
Effective Interest
Rate as of
2019
2018
December 31, 2019
Maturity
Date
(in thousands)
$
— $
200,000
— %
Jan-19
—
—
—
— $
100,000
300,000
(201)
299,799
$
— %
Jan-20
(1) On January 31, 2019, we used a portion of the net proceeds from the issuance of the 2029 Notes to repay all of the outstanding
indebtedness under the unsecured term loan portion of the Credit Facility.
(2) On June 19, 2019, we used an initial advance at closing of the Amended and Restated Credit Facility to repay all of the
outstanding indebtedness under the unsecured term loan portion of the Term Loan Facility that was scheduled to mature in
January 2020. Unamortized loan procurement costs of $0.1 million were written off in conjunction with the repayment.
Under the Amended and Restated Credit Facility, our ability to borrow under the Revolver is subject to ongoing compliance with
certain financial covenants which include, among other things, (1) a maximum total indebtedness to total asset value of 60.0%, and (2) a
44
minimum fixed charge coverage ratio of 1.5:1.0. As of and for the year ended December 31, 2019, the Operating Partnership was in
compliance with all of its financial covenants.
Issuance of Common Shares
We maintain an at-the-market equity program that enables us to offer and sell up to 50.0 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, 2019, 2018 and 2017 is summarized below:
For the year ended December 31,
2018
(dollars and shares in thousands, except per share amounts)
2017
2019
Number of shares sold
Average sales price per share
Net proceeds after deducting offering costs
$
$
5,899
33.64 $
196,304 $
4,291
31.09 $
131,835 $
1,036
29.13
29,642
We used proceeds from sales of common shares under the program during the years ended December 31, 2019, 2018 and 2017 to fund
acquisitions of storage properties and for general corporate purposes. As of December 31, 2019, 2018 and 2017, 4.6 million common
shares, 10.5 million common shares and 4.7 million common shares, respectively, remained available for issuance under the Equity
Distribution Agreements.
Other Material Changes in Financial Position
Selected Assets
Storage properties, net
Other assets, net
Selected Liabilities
Unsecured senior notes, net
Revolving credit facility
Unsecured term loans, net
December 31,
2019
2018
(in thousands)
Change
$
$
3,774,485
101,443
1,835,725
—
—
$
$
3,600,968
48,763
1,143,524
195,525
299,799
$
$
173,517
52,680
692,201
(195,525)
(299,799)
Storage properties, net increased $173.5 million from December 31, 2018 to December 31, 2019, primarily as a result of the acquisition
of 29 storage properties, additions and improvements to storage properties, and development costs incurred during the year.
Other assets, net increased $52.7 million from December 31, 2018 to December 31, 2019 primarily due to the adoption of Accounting
Standard Update (“ASU”) No. 2016-02 - Leases (Topic 842) on January 1, 2019, which required the Company to record right-of-use
assets associated with leases in which it serves as lessee (see note 13).
Unsecured senior notes, net increased $692.2 million from December 31, 2018 to December 31, 2019 as a result of the issuance of the
2029 Notes and 2030 Notes on January 31, 2019 and October 11, 2019, respectively.
Revolving credit facility decreased $195.5 million from December 31, 2018 to December 31, 2019 as a result of the Company using a
portion of the net proceeds from the issuance of the 2030 Notes to repay all of the outstanding indebtedness under the Revolver.
Unsecured term loans, net decreased $299.8 million from December 31, 2018 to December 31, 2019 as a result of the Company using a
portion of the net proceeds from the issuance of the 2029 Notes to repay all of the outstanding indebtedness under the unsecured term loan
portion of the Credit Facility, and an initial advance at closing of the Amended and Restated Credit Facility to repay all of the outstanding
indebtedness under the unsecured term loan portion of the Term Loan Facility.
45
Contractual Obligations
The following table summarizes our known contractual obligations as of December 31, 2019 (in thousands):
Payments Due by Period
Mortgage loans and notes payable (1)
Unsecured senior notes (2)
Interest payments
Operating lease payments
Software and service contracts
Properties under contract to be acquired (3)
Development commitments
2022
$
923 $
Total
94,494 $
—
1,300,000
143,280
91,241
—
—
—
$ 2,633,287 $ 195,326 $ 132,798 $ 321,914 $ 394,371 $ 54,357 $ 1,534,521
1,850,000
472,242
103,171
1,873
54,853
56,654
250,000
68,532
2,459
—
—
—
300,000
60,829
2,523
—
—
—
2024
4,704 $
—
47,280
2,373
—
—
—
2020
12,791 $
—
77,071
2,273
1,735
54,853
46,603
2021
45,057 $
—
75,250
2,302
138
—
10,051
2023
31,019 $
2025 and
thereafter
(1) Amounts do not include $1.8 million of unamortized fair value adjustments for discounts/premiums and $0.3 million of
unamortized loan procurement costs as of December 31, 2019.
(2) Amounts do not include $3.9 million of unamortized discounts on the issuance of unsecured senior notes and $10.4 million of
unamortized loan procurement costs as of December 31, 2019.
(3) Amounts do not include $2.6 million of aggregate deposits made by the Company as of December 31, 2019. The deposits are
associated with two properties that were under contract to be acquired as of December 31, 2019 and are to be applied towards the
purchase price of each property upon acquisition.
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, 2019 our consolidated debt consisted of $1,944.5 million of outstanding mortgage loans and notes payable and
unsecured senior notes that are subject to fixed rates. Borrowings under our Revolver are subject to floating rates. Changes in market
interest rates have different impacts on the fixed- and variable-rate portions of our debt portfolio. A change in market interest rates on the
fixed portion of the debt portfolio impacts the net financial instrument position, but has no impact on interest incurred or cash flows. A
change in market interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows, but does not
impact the net financial instrument position.
46
If market interest rates increase by 100 basis points, the fair value of our outstanding fixed-rate mortgage debt and unsecured senior
notes would decrease by approximately $110.2 million. If market interest rates decrease by 100 basis points, the fair value of our
outstanding fixed-rate mortgage debt and unsecured senior notes would increase by approximately $122.5 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).
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,
2019 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.
47
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, 2019 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its report which is
included herein.
ITEM 9B. OTHER INFORMATION
Not applicable.
ITEM 10. TRUSTEES, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
We have adopted a Code of Ethics for all of our employees, officers and trustees, including our principal executive officer and principal
financial officer, which is available on our website at www.cubesmart.com. We intend to disclose any amendment to, or a waiver from, a
provision of our Code of Ethics on our website within four business days following the date of the amendment or waiver.
The remaining information required by this item regarding trustees, executive officers and corporate governance is hereby incorporated
by reference to the material appearing in the Parent Company’s Proxy Statement for the Annual Shareholders Meeting to be held in 2020
(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 2020 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 “Delinquent Section 16(a) Reports.”
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,” “Severance 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, 2019.
Plan Category
Equity compensation plans approved by shareholders
Equity compensation plans not approved by shareholders
Total
Number of securities to Weighted average
be issued upon exercise
exercise price of
of outstanding options, outstanding options,
warrants and rights
warrants and rights
(b)
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities
reflected in column(a))
(c)
(a)
1,602,353 $
—
1,602,353 $
24.10 (1)
—
24.10
4,015,223
—
4,015,223
(1) This number reflects the weighted average exercise price of outstanding options and has been calculated exclusive of outstanding
restricted unit awards.
48
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.”
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy
Statement under the captions “Audit Committee Matters - Fees Paid to Our Independent Registered Public Accounting Firm” and “- Audit
Committee Pre-Approval Policies and Procedures.”
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) Documents filed as part of this report:
1. Financial Statements.
The response to this portion of Item 15 is submitted as a separate section of this report.
2. Financial Statement Schedules.
The response to this portion of Item 15 is submitted as a separate section of this report.
3. Exhibits.
The list of exhibits filed with this Report is set forth in response to Item 15(b). The required exhibit index has been filed with the
exhibits.
(b) Exhibits. The following documents are filed as exhibits to this report:
3.1*
3.2*
3.3*
3.4*
3.5*
3.6*
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.
49
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*
4.9*
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 Limited 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.
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.
4.10*
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.
50
4.11*
4.12*
4.13*
4.14*
4.15*
4.16*
4.17*
4.18*
4.19*
4.20*
4.21*
4.22*
Form of $250 million aggregate principal amount of 4.000% senior note due November 15, 2025, incorporated by reference
to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on October 26, 2015.
Fourth Supplemental Indenture, dated as of August 15, 2016, among CubeSmart, CubeSmart, L.P. and U.S. Bank National
Association, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on August
15, 2016.
Form of $300 million aggregate principal amount of 3.125% senior notes due September 1, 2026, incorporated herein by
reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on August 15, 2016.
Form of CubeSmart Notation of Guarantee, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report
on Form 8-K, filed on August 15, 2016.
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.
Form of $350 million aggregate principal amount of 4.375% senior notes due February 15, 2029, incorporated herein by
reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on January 30, 2019.
Sixth Supplemental Indenture, dated as of January 30, 2019, among CubeSmart, CubeSmart, L.P. and U.S. Bank National
Association, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on January
30, 2019.
Form of $350 million aggregate principal amount of 3.000% senior notes due February 15, 2030, incorporated herein by
reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on October 11, 2019.
Form of CubeSmart Notation of Guarantee, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report
on Form 8-K, filed on October 11, 2019.
Seventh Supplemental Indenture, dated of as October 11, 2019, among CubeSmart, CubeSmart, L.P. and U.S. Bank National
Association, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on October
11, 2019.
4.23
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.
10.1*†
10.2*†
10.3*†
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 Christopher P. Marr, Timothy M. Martin, Jeffrey P.
Foster, Joel D. Keaton, 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.
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.
51
10.4*†
10.5*†
10.6*†
10.7*†
10.8*†
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.
10.9*†
U-Store-It Trust Deferred Trustees Plan, effective as of May 31, 2005, incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K, filed on June 6, 2005.
10.10*†
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.
10.11*†
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.
10.12*†
10.13*†
10.14*†
10.15*
10.16*
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.
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.
Underwriting Agreement, dated as of January 24, 2019, among CubeSmart, CubeSmart, L.P., Wells Fargo Securities, LLC,
Barclays Capital Inc. and Jefferies LLC, as representatives of each of the other underwriters named in Exhibit A thereto,
incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed on January 25, 2019.
10.17*†
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.
10.18*†
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.
10.19*†
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.
52
10.20*†
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.
10.21*†
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.
10.22*†
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.
10.23*†
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.
10.24*†
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.
10.25*†
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.
10.26*†
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.
10.27*†
10.28*†
10.29*†
10.30*†
10.31*†
10.32*†
10.33*†
10.34*†
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.
53
10.35*†
10.36*†
10.37*†
10.38*
10.39*
10.40*
10.41*
10.42*
10.43*
10.44*†
10.45*†
10.46*†
10.47*
10.48*
Form of 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.
Amended and Restated Equity Distribution Agreement, dated July 27, 2018, by and among CubeSmart, CubeSmart, L.P. and
Wells Fargo Securities, LLC, incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed
on July 27, 2018.
Amended and Restated Equity Distribution Agreement, dated July 27, 2018, by and among CubeSmart, CubeSmart, L.P. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, incorporated by reference to Exhibit 1.2 to the Company’s Current
Report on Form 8-K, filed on July 27, 2018.
Amended and Restated Equity Distribution Agreement, dated July 27, 2018, by and among CubeSmart, CubeSmart, L.P. and
BMO Capital Markets Corp., incorporated by reference to Exhibit 1.3 to the Company’s Current Report on Form 8-K, filed
on July 27, 2018.
Amended and Restated Equity Distribution Agreement, dated July 27, 2018, by and among CubeSmart, CubeSmart, L.P. and
Jeffries LLC, incorporated by reference to Exhibit 1.4 to the Company’s Current Report on Form 8-K, filed on July 27, 2018.
Amended and Restated Equity Distribution Agreement, dated July 27, 2018, by and among CubeSmart, CubeSmart, L.P. and
RBC Capital Markets, LLC, incorporated by reference to Exhibit 1.5 to the Company’s Current Report on Form 8-K, filed on
July 27, 2018.
Amended and Restated Equity Distribution Agreement, dated July 27, 2018, by and among CubeSmart, CubeSmart, L.P. and
Barclays Capital Inc., incorporated by reference to Exhibit 1.6 to the Company’s Current Report on Form 8-K, filed on July
27, 2018.
Form of Restricted Share Agreement under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective
June 1, 2016, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed on January 3,
2019.
Form of Non-Qualified Share Option Agreement under the CubeSmart 2007 Equity Incentive Plan, as amended and restated,
effective June 1, 2016, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed on
January 3, 2019.
Form of Performance-Vested Restricted Share Agreement under the CubeSmart 2007 Equity Incentive Plan, as amended and
restated, effective June 1, 2016, incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K,
filed on January 3, 2019.
Amended and Restated Credit Agreement, dated as of June 19, 2019, by and among CubeSmart, L.P., CubeSmart, the
lenders referred to therein, and Wells Fargo Bank, National Association, as administrative agent for the Lenders,
incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on June 21, 2019.
First Amendment to the Amended and Restated Equity Distribution Agreement, dated July 29, 2019, by and among
CubeSmart, CubeSmart, L.P. and Wells Fargo Securities, LLC, incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, filed on October 25, 2019.
54
10.49*
10.50*
10.51*
10.52*
First Amendment to the Amended and Restated Equity Distribution Agreement, dated July 29, 2019, by and among
CubeSmart, CubeSmart, L.P. and Barclays Capital Inc, incorporated by reference to Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2019, filed on October 25, 2019.
First Amendment to the Amended and Restated Equity Distribution Agreement, dated July 29, 2019, by and among
CubeSmart, CubeSmart, L.P. and BofA Securities, Inc, incorporated by reference to Exhibit 10.3 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2019, filed on October 25, 2019.
First Amendment to the Amended and Restated Equity Distribution Agreement, dated July 29, 2019, by and among
CubeSmart, CubeSmart, L.P. and Jefferies LLC, incorporated by reference to Exhibit 10.4 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2019, filed on October 25, 2019.
First Amendment to the Amended and Restated Equity Distribution Agreement, dated July 29, 2019, by and among
CubeSmart, CubeSmart, L.P. and RBC Capital Markets, LLC, incorporated by reference to Exhibit 10.5 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, filed on October 25, 2019.
21.1
List of Subsidiaries.
23.1
Consent of KPMG LLP relating to financial statements of CubeSmart.
23.2
Consent of KPMG LLP relating to financial statements of CubeSmart, L.P.
31.1
31.2
31.3
31.4
32.1
32.2
Certification of Chief Executive Officer of CubeSmart required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer of CubeSmart required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer of CubeSmart, L.P. required by Rule 13a-14(a)/15d-14(a) under the Exchange Act,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer of CubeSmart, L.P. required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer and Chief Financial Officer of CubeSmart pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer and Chief Financial Officer of CubeSmart, L.P. pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1
Material United States Federal Income Tax Considerations.
101
The following CubeSmart and CubeSmart, L.P. financial information for the year ended December 31, 2019, formatted in
Inline 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.
104
Cover Page Interactive Data File – embedded within the Inline XBRL document (included as Exhibit 101).
*
†
Incorporated herein by reference as above indicated.
Denotes a management contract or compensatory plan, contract or arrangement.
ITEM 16. FORM 10-K SUMMARY
None.
55
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 21, 2020
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
Date
/s/ Marianne M. Keler
Marianne M. Keler
/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/ John F. Remondi
John F. Remondi
/s/ Jeffrey F. Rogatz
Jeffrey F. Rogatz
/s/ Deborah Ratner Salzberg
Deborah Ratner Salzberg
Chair of the Board of Trustees
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
Chief Executive Officer and Trustee
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
56
FINANCIAL STATEMENTS
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements of CUBESMART and CUBESMART, L.P. (the “Company”)
Page No.
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, 2019 and 2018
CubeSmart and Subsidiaries Consolidated Statements of Operations for the years ended December 31, 2019,
2018 and 2017
CubeSmart and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31,
2019, 2018 and 2017
CubeSmart and Subsidiaries Consolidated Statements of Equity for the years ended December 31, 2019, 2018 and 2017
CubeSmart and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018
and 2017
CubeSmart, L.P. and Subsidiaries Consolidated Balance Sheets as of December 31, 2019 and 2018
CubeSmart, L.P. and Subsidiaries Consolidated Statements of Operations for the years ended December 31, 2019, 2018
and 2017
CubeSmart, L.P. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) for the years
ended December 31, 2019, 2018 and 2017
CubeSmart, L.P. and Subsidiaries Consolidated Statements of Capital for the years ended December 31, 2019, 2018
and 2017
CubeSmart, L.P. and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018
and 2017
Notes to Consolidated Financial Statements
F-2
F-3
F-4
F-10
F-11
F-12
F-13
F-14
F-15
F-16
F-17
F-18
F-19
F-20
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, 2019, 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, 2019, 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, 2019, has been audited by KPMG LLP, an
independent registered public accounting firm, as stated in their report that appears herein.
February 21, 2020
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, 2019, 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, 2019, 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, 2019, has been audited by KPMG LLP, an
independent registered public accounting firm, as stated in their report that appears herein.
February 21, 2020
F-3
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees
CubeSmart:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of CubeSmart and subsidiaries (the Company) as of December 31, 2019
and 2018, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year
period ended December 31, 2019, 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, 2019, 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 21, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of
January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.
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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material
to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment. The communication
of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not,
by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Evaluation of self-storage properties for impairment
As discussed in notes 2 and 3 to the consolidated financial statements, the Company had $3.8 billion of self-storage properties,
net of accumulated depreciation as of December 31, 2019. The Company performs an impairment assessment whenever events or
changes in circumstances indicate that there may be an impairment. This involves comparing the undiscounted future net
operating cash flows plus a terminal value to the carrying amount of the self-storage property.
We identified the evaluation of self-storage properties for impairment as a critical audit matter. The Company uses revenue and
expense growth rates, and terminal value capitalization rate assumptions in determining estimated future cash flows as part of its
impairment assessment. Changes to these assumptions could have a significant impact on the determination of recoverability of
the carrying amount of a self-storage property, and involved subjective auditor judgement.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal
F-4
controls over the Company’s self-storage property impairment process, including controls related to the selection of the revenue
and expense growth rates, and terminal value capitalization rate. We assessed the Company’s forecasted growth rates against the
Company’s historical growth rates and published reports of industry data. We evaluated the Company’s expected terminal value
capitalization rates by comparing them to published reports of industry data and historical transactions of the Company. We also
identified the threshold rates at which the revenue and expense growth rates and terminal value capitalization rate assumptions
would indicate the self-storage property may be impaired and analyzed those threshold rates against the published industry data
and historical results.
/s/ KPMG LLP
We have served as the Company’s auditor since 2009.
Philadelphia, Pennsylvania
February 21, 2020
F-5
Report of Independent Registered Public Accounting Firm
To the Partners of CubeSmart, L.P. and the Board of Trustees of CubeSmart:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of CubeSmart, L.P. and subsidiaries (the Partnership) as of December 31,
2019 and 2018, 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, 2019, 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 Partnership as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in
the three-year period ended December 31, 2019, 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
Partnership’s internal control over financial reporting as of December 31, 2019, 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 21, 2020 expressed an unqualified opinion on the effectiveness of the Partnership’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Partnership has changed its method of accounting for leases as of
January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Partnership’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 Partnership 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material
to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment. The communication
of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not,
by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Evaluation of self-storage properties for impairment
As discussed in notes 2 and 3 to the consolidated financial statements, the Partnership had $3.8 billion of self-storage properties,
net of accumulated depreciation as of December 31, 2019. The Partnership performs an impairment assessment whenever events
or changes in circumstances indicate that there may be an impairment. This involves comparing the undiscounted future net
operating cash flows plus a terminal value to the carrying amount of the self-storage property.
We identified the evaluation of self-storage properties for impairment as a critical audit matter. The Partnership uses revenue and
expense growth rates, and terminal value capitalization rate assumptions in determining estimated future cash flows as part of its
impairment assessment. Changes to these assumptions could have a significant impact on the determination of recoverability of
the carrying amount of a self-storage property, and involved subjective auditor judgement.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal
F-6
controls over the Partnership’s self-storage property impairment process, including controls related to the selection of the revenue
and expense growth rates, and terminal value capitalization rate. We assessed the Partnership’s forecasted growth rates against the
Partnership’s historical growth rates and published reports of industry data. We evaluated the Partnership’s expected terminal
value capitalization rates by comparing them to published reports of industry data and historical transactions of the Partnership.
We also identified the threshold rates at which the revenue and expense growth rates and terminal value capitalization rate
assumptions would indicate the self-storage property may be impaired and analyzed those threshold rates against the published
industry data and historical results.
/s/ KPMG LLP
We have served as the Partnership’s auditor since 2009.
Philadelphia, Pennsylvania
February 21, 2020
F-7
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees
CubeSmart:
Opinion on Internal Control Over Financial Reporting
We have audited Cubesmart and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2019, 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, 2019, 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, 2019 and 2018, 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, 2019, and the
related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report dated February 21,
2020 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 21, 2020
F-8
Report of Independent Registered Public Accounting Firm
To the Partners of CubeSmart, L.P. and the Board of Trustees of CubeSmart:
Opinion on Internal Control Over Financial Reporting
We have audited Cubesmart, L.P. and subsidiaries’ (the Partnership) internal control over financial reporting as of December 31, 2019,
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 Partnership maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2019, 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 Partnership as of December 31, 2019 and 2018, 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, 2019, and the
related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report dated February 21,
2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Partnership’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 Partnership’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 Partnership 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 21, 2020
F-9
CUBESMART AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Storage properties
Less: Accumulated depreciation
Storage properties, net (including VIE assets of $92,612 and $330,986, 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, 193,557,024 and 187,145,103 shares
issued and outstanding at December 31, 2019 and 2018, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total CubeSmart shareholders’ equity
Noncontrolling interests in subsidiaries
Total equity
Total liabilities and equity
See accompanying notes to the consolidated financial statements.
December 31,
2019
2018
$ 4,699,844 $ 4,463,455
(862,487)
3,600,968
3,764
2,718
963
95,796
48,763
$ 4,029,545 $ 3,752,972
(925,359)
3,774,485
54,857
3,584
4,059
91,117
101,443
$ 1,835,725 $ 1,143,524
195,525
299,799
108,246
149,914
60,627
22,595
474
1,980,704
—
—
96,040
137,880
64,688
25,313
475
2,160,121
62,088
55,819
1,936
2,674,745
(729)
(876,606)
1,799,346
7,990
1,807,336
1,871
2,500,751
(1,029)
(791,915)
1,709,678
6,771
1,716,449
$ 4,029,545 $ 3,752,972
F-10
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
OTHER (EXPENSE) INCOME
Interest:
Interest expense on loans
Loan procurement amortization expense
Equity in earnings (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’S COMMON
For the year ended December 31,
2018
2017
2019
$
552,404 $
517,535 $
67,558
23,953
643,915
209,739
163,547
38,560
—
411,846
(72,525)
(2,819)
11,122
1,508
1,416
(61,298)
170,771
60,156
20,253
597,944
196,866
143,350
37,712
—
377,928
(62,132)
(2,313)
(865)
10,576
206
(54,528)
165,488
489,043
55,001
14,899
558,943
181,508
145,681
34,745
1,294
363,228
(56,952)
(2,638)
(1,386)
—
872
(60,104)
135,611
(1,708)
54
(1,820)
221
(1,593)
270
SHAREHOLDERS
$
169,117 $
163,889 $
134,288
Basic earnings per share attributable to common shareholders
Diluted earnings per share attributable to common shareholders
$
$
0.89 $
0.88 $
0.89 $
0.88 $
0.74
0.74
Weighted average basic shares outstanding
Weighted average diluted shares outstanding
190,874
191,576
184,653
185,495
180,525
181,448
See accompanying notes to the consolidated financial statements.
F-11
CUBESMART AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
For the year ended December 31,
2018
2017
2019
$
170,771 $
165,488 $
135,611
232
70
302
171,073
(979)
(60)
(1,039)
164,449
195
1,680
1,875
137,486
(1,615)
270
136,141
NET INCOME
Other comprehensive income (loss):
Unrealized gains (losses) on interest rate swaps
Reclassification of realized losses (gains) on interest rate swaps
OTHER COMPREHENSIVE INCOME (LOSS)
COMPREHENSIVE INCOME
Comprehensive income attributable to noncontrolling interests in the
Operating Partnership
Comprehensive loss attributable to noncontrolling interest in subsidiaries
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY
$
(1,710)
54
169,417 $
(1,814)
221
162,856 $
See accompanying notes to the consolidated financial statements.
F-12
CUBESMART AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
Common
Shares
Additional Accumulated Other
Paid-in
Number Amount Capital
180,083 $ 1,801 $ 2,314,014 $
Comprehensive
(Loss) Income
(1,850) $
Accumulated Shareholders’
Deficit
Equity
Total
Noncontrolling
Interests in
Total
Subsidiaries Equity
Noncontrolling
Interests
in the
Operating
Partnership
54,407
(658,583) $
1,655,382 $
(8,626)
29,642
1
15,706
2,364
2,009
1,531
5,855 $ 1,661,237 $
1,058
(407)
1,058
(9,033)
29,642
1
12,324
(15,706)
15,706
2,364
2,009
1,531
(3,965)
134,288
1,853
(201,051)
3 $
(729,311) $
(3,965)
134,288
1,853
(201,051)
1,629,134 $
(270)
(3,965)
134,018
1,853
(201,051)
6,236 $ 1,635,370 $
3,965
1,593
22
(2,285)
54,320
131,829
1
4,404
3,835
2,570
1,541
(299)
163,889
405
(226,599)
(791,915) $
(299)
163,889
(627)
(226,599)
1,709,678 $
(1,032)
(1,029) $
1,036
106
594
397
10
1
6
4
(8,626)
29,632
15,700
2,360
2,009
1,531
182,216 $ 1,822 $ 2,356,620 $
4,291
86
147
405
43
1
1
4
131,786
4,403
3,831
2,570
1,541
187,145 $ 1,871 $ 2,500,751 $
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 units
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 ($1.11 per share)
Balance at December 31, 2017
Contributions from noncontrolling interest in subsidiaries
Distributions paid to noncontrolling interest in subsidiaries
Issuance of common shares, net
Issuance of restricted shares
Issuance of OP units
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 (loss) income, net:
Common share distributions ($1.22 per share)
Balance at December 31, 2018
Contributions from noncontrolling interest in subsidiaries
Distributions paid to noncontrolling interest in subsidiaries
Acquisition of noncontrolling interest in subsidiary
Issuance of common shares, net
Issuance of restricted shares
Issuance of OP units
Conversion from units to shares
Exercise of stock options
Amortization of restricted shares
Share compensation expense
Adjustment for noncontrolling interests in the Operating
5,899
52
80
381
60
1
4
(34,690)
196,244
2,485
3,682
4,487
1,786
(34,690)
196,304
2,486
3,686
4,487
1,786
Partnership
Net income (loss)
Other comprehensive income, net:
Common share distributions ($1.29 per share)
Balance at December 31, 2019
193,557 $ 1,936 $ 2,674,745 $
(729) $
(5,918)
169,117
300
(5,918)
169,117
300
(247,890)
(247,890)
(876,606) $ 1,799,346 $
See accompanying notes to the consolidated financial statements.
F-13
925
(169)
(221)
925
(169)
131,829
1
4,404
3,835
2,570
1,541
(299)
163,668
(627)
(226,599)
6,771 $ 1,716,449 $
7,376
(188)
(5,915)
7,376
(188)
(40,605)
196,304
2,486
3,686
4,487
1,786
(5,918)
169,063
300
(247,890)
(54)
7,990 $ 1,807,336 $
6,242
(4,404)
299
1,820
(6)
(2,452)
55,819
3,576
(2,486)
5,918
1,708
2
(2,449)
62,088
CUBESMART AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating Activities
Net income
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization
Equity in (earnings) 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:
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
Cash paid for partner's interest in real estate venture, net of cash, cash equivalents and restricted cash
acquired
Investment in real estate ventures
Cash distributed from real estate ventures
Proceeds from sale of real estate, net
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
Settlement of hedge transactions
Acquisition of noncontrolling interest in subsidiary, net
Proceeds from issuance of common shares, net
Cash paid upon vesting of restricted 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 noncontrolling interests in Operating Partnership
Net cash provided by (used in) financing activities
Change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Supplemental Cash Flow and Noncash Information
Cash paid for interest, net of interest capitalized
Supplemental disclosure of noncash activities:
Proceeds held in escrow from real estate venture's sale of real estate (see note 4)
Noncash consideration for acquisition of partner's interest in real estate venture (see note 4)
Discount on issuance of unsecured senior notes
Noncash drawdown on revolving credit facility
Mortgage loan assumptions
Repayment of unsecured term loan through noncash drawdown on revolving credit facility
Accretion of put liability
Derivative valuation adjustment
Loan procurement costs
Issuance of OP units
Liability for acquisition of storage property
Contribution of storage property to real estate venture
Acquisition of noncontrolling interest in subsidiary
Contributions from noncontrolling interests in subsidiaries
For the year ended December 31,
2018
2017
2019
$
170,771 $
165,488 $
135,611
166,366
(11,122)
(1,508)
6,694
(718)
(6,578)
6,042
1,821
331,768 $
(117,998)
(37,569)
(102,826)
(117,959)
(10,264)
7,096
3,856
(375,664) $
145,663
865
(10,576)
5,572
(735)
(4,937)
2,653
342
304,335 $
(214,510)
(27,626)
(86,002)
—
(19,216)
8,706
16,389
(322,259) $
696,426
859,313
—
679,535
(1,158,776)
(200,000)
(11,652)
(6,023)
(807)
(35,777)
196,304
(421)
3,686
48
(188)
(243,859)
(2,419)
95,855 $
51,959
6,482
58,441 $
(565,710)
—
(9,816)
—
—
—
131,830
(1,461)
3,835
925
(169)
(221,328)
(2,393)
15,248 $
(2,676)
9,158
6,482 $
148,319
1,386
—
5,586
(559)
(10,429)
10,846
1,154
291,914
(69,629)
(27,378)
(68,778)
—
(301)
15,783
—
(150,303)
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)
(1,708)
10,866
9,158
69,283 $
66,829 $
63,407
8,288 $
(8,288) $
3,574 $
103,938 $
— $
(100,000) $
5,895 $
302 $
(3,770) $
3,576 $
— $
— $
(4,828) $
7,328 $
— $
— $
— $
— $
7,166 $
— $
24,747 $
(633) $
— $
6,242 $
— $
— $
— $
— $
—
—
—
—
6,201
—
35,122
1,875
—
12,324
1,470
9,400
—
—
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
See accompanying notes to the consolidated financial statements.
F-14
CUBESMART, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
Storage properties
Less: Accumulated depreciation
Storage properties, net (including VIE assets of $92,612 and $330,986, 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
December 31,
2019
2018
$
$
4,699,844 $
(925,359)
3,774,485
54,857
3,584
4,059
91,117
101,443
4,029,545 $
$
1,835,725 $
—
—
96,040
137,880
64,688
25,313
475
2,160,121
4,463,455
(862,487)
3,600,968
3,764
2,718
963
95,796
48,763
3,752,972
1,143,524
195,525
299,799
108,246
149,914
60,627
22,595
474
1,980,704
Limited Partnership interests of third parties
62,088
55,819
Commitments and contingencies
Capital
Operating Partner
Accumulated other comprehensive loss
Total CubeSmart, L.P. capital
Noncontrolling interests in subsidiaries
Total capital
Total liabilities and capital
1,800,075
(729)
1,799,346
7,990
1,807,336
4,029,545 $
1,710,707
(1,029)
1,709,678
6,771
1,716,449
3,752,972
$
See accompanying notes to the consolidated financial statements.
F-15
CUBESMART, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per common unit data)
For the year ended December 31,
2018
2017
2019
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
OTHER (EXPENSE) INCOME
Interest:
Interest expense on loans
Loan procurement amortization expense
Equity in earnings (losses) of real estate ventures
Gains from sale of real estate, net
Other
Total other expense
NET INCOME
NET LOSS 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 COMMON UNITHOLDERS
$
$
552,404 $
517,535 $
67,558
23,953
643,915
209,739
163,547
38,560
—
411,846
(72,525)
(2,819)
11,122
1,508
1,416
(61,298)
170,771
60,156
20,253
597,944
196,866
143,350
37,712
—
377,928
(62,132)
(2,313)
(865)
10,576
206
(54,528)
165,488
54
170,825
(1,708)
169,117 $
221
165,709
(1,820)
163,889 $
489,043
55,001
14,899
558,943
181,508
145,681
34,745
1,294
363,228
(56,952)
(2,638)
(1,386)
—
872
(60,104)
135,611
270
135,881
(1,593)
134,288
Basic earnings per unit attributable to common unitholders
Diluted earnings per unit attributable to common unitholders
$
$
0.89 $
0.88 $
0.89 $
0.88 $
0.74
0.74
Weighted average basic units outstanding
Weighted average diluted units outstanding
190,874
191,576
184,653
185,495
180,525
181,448
See accompanying notes to the consolidated financial statements.
F-16
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 (gains) on interest rate swaps
OTHER COMPREHENSIVE INCOME (LOSS)
COMPREHENSIVE INCOME
Comprehensive income attributable to Operating Partnership interests of
third parties
Comprehensive loss attributable to noncontrolling interest in subsidiaries
COMPREHENSIVE INCOME ATTRIBUTABLE TO OPERATING
For the year ended December 31,
2018
2017
2019
$
170,771 $
165,488 $
135,611
232
70
302
171,073
(1,710)
54
(979)
(60)
(1,039)
164,449
(1,814)
221
195
1,680
1,875
137,486
(1,615)
270
PARTNER
$
169,417 $
162,856 $
136,141
See accompanying notes to the consolidated financial statements.
F-17
CUBESMART, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL
(in thousands)
Number of
Common
OP
Units
Outstanding
Accumulated Other
Operating Comprehensive
(Loss) Income
Partner
Total
CubeSmart L.P.
Capital
Noncontrolling
Interest in
Subsidiaries
Operating
Partnership
Interests
of Third Parties
Total
Capital
5,855 $ 1,661,237 $
1,058
(407)
1,058
(9,033)
29,642
1
15,706
2,364
2,009
1,531
(3,965)
134,018
1,853
(201,051)
(270)
6,236 $ 1,635,370 $
925
(169)
(221)
925
(169)
131,829
1
4,404
3,835
2,570
1,541
(299)
163,668
(627)
(226,599)
6,771 $ 1,716,449 $
7,376
(188)
(5,915)
7,376
(188)
(40,605)
196,304
2,486
3,686
4,487
1,786
(5,918)
169,063
300
(247,890)
(54)
7,990 $ 1,807,336 $
54,407
12,324
(15,706)
3,965
1,593
22
(2,285)
54,320
6,242
(4,404)
299
1,820
(6)
(2,452)
55,819
3,576
(2,486)
5,918
1,708
2
(2,449)
62,088
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 units
Conversion from OP units to shares
Exercise of OP unit options
Amortization of restricted OP units
OP unit compensation expense
Adjustment for Operating Partnership interests of third parties
Net income (loss)
Other comprehensive income, net:
Common OP unit distributions ($1.11 per unit)
Balance at December 31, 2017
Contributions from noncontrolling interest in subsidiaries
Distributions paid to noncontrolling interest in subsidiaries
Issuance of common OP units, net
Issuance of restricted OP units
Issuance of OP units
Conversion from OP units to shares
Exercise of OP unit options
Amortization of restricted OP units
OP unit compensation expense
Adjustment for Operating Partnership interests of third parties
Net income (loss)
Other comprehensive income (loss), net:
Common OP unit distributions ($1.22 per unit)
Balance at December 31, 2018
Contributions from noncontrolling interest in subsidiaries
Distributions paid to noncontrolling interest in subsidiaries
Acquisition of noncontrolling interest in subsidiary
Issuance of common OP units, net
Issuance of restricted OP units
Issuance of OP units
Conversion from OP units to shares
Exercise of OP unit options
Amortization of restricted OP units
OP unit compensation expense
Adjustment for Operating Partnership interests of third parties
Net income (loss)
Other comprehensive income, net:
Common OP unit distributions ($1.29 per unit)
Balance at December 31, 2019
180,083 $ 1,657,232 $
(1,850) $
1,655,382 $
1,036
106
594
397
(8,626)
29,642
1
15,706
2,364
2,009
1,531
(3,965)
134,288
(201,051)
1,853
182,216 $ 1,629,131 $
3 $
4,291
86
147
405
131,829
1
4,404
3,835
2,570
1,541
(299)
163,889
405
(226,599)
(1,032)
187,145 $ 1,710,707 $
(1,029) $
5,899
52
80
381
(34,690)
196,304
2,486
3,686
4,487
1,786
(5,918)
169,117
(247,890)
300
193,557 $ 1,800,075 $
(729) $
(8,626)
29,642
1
15,706
2,364
2,009
1,531
(3,965)
134,288
1,853
(201,051)
1,629,134 $
131,829
1
4,404
3,835
2,570
1,541
(299)
163,889
(627)
(226,599)
1,709,678 $
(34,690)
196,304
2,486
3,686
4,487
1,786
(5,918)
169,117
300
(247,890)
1,799,346 $
See accompanying notes to the consolidated financial statements.
F-18
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:
$
170,771 $
165,488 $
135,611
For the year ended December 31,
2018
2017
2019
Depreciation and amortization
Equity in (earnings) 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:
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
Cash paid for partner's interest in real estate venture, net of cash, cash equivalents and restricted cash
acquired
Investment in real estate ventures
Cash distributed from real estate ventures
Proceeds from sale of real estate, net
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
Settlement of hedge transactions
Acquisition of noncontrolling interest in subsidiary, net
Proceeds from issuance of common OP units
Cash paid upon vesting of restricted OP 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
Net cash provided by (used in) financing activities
Change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Supplemental Cash Flow and Noncash Information
Cash paid for interest, net of interest capitalized
Supplemental disclosure of noncash activities:
Proceeds held in escrow from real estate venture's sale of real estate (see note 4)
Noncash consideration for acquisition of partner's interest in real estate venture (see note 4)
Discount on issuance of unsecured senior notes
Noncash drawdown on revolving credit facility
Mortgage loan assumptions
Repayment of unsecured term loan through noncash drawdown on revolving credit facility
Accretion of put liability
Derivative valuation adjustment
Loan procurement costs
Issuance of OP units
Liability for acquisition of storage property
Contribution of storage property to real estate venture
Acquisition of noncontrolling interest in subsidiary
Contributions from noncontrolling interests in subsidiaries
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
166,366
(11,122)
(1,508)
6,694
(718)
145,663
865
(10,576)
5,572
(735)
(6,578)
6,042
1,821
331,768 $
(4,937)
2,653
342
304,335 $
$
(117,998)
(37,569)
(102,826)
(117,959)
(10,264)
7,096
3,856
(375,664) $
(214,510)
(27,626)
(86,002)
—
(19,216)
8,706
16,389
(322,259) $
696,426
859,313
(1,158,776)
(200,000)
(11,652)
(6,023)
(807)
(35,777)
196,304
(421)
3,686
48
(188)
(246,278)
—
679,535
(565,710)
—
(9,816)
—
—
—
131,830
(1,461)
3,835
925
(169)
(223,721)
95,855 $
51,959
6,482
58,441 $
15,248 $
(2,676)
9,158
6,482 $
148,319
1,386
—
5,586
(559)
(10,429)
10,846
1,154
291,914
(69,629)
(27,378)
(68,778)
—
(301)
15,783
—
(150,303)
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)
(1,708)
10,866
9,158
69,283 $
66,829 $
63,407
8,288 $
(8,288) $
3,574 $
103,938 $
— $
(100,000) $
5,895 $
302 $
(3,770) $
3,576 $
— $
— $
(4,828) $
7,328 $
— $
— $
— $
— $
7,166 $
— $
24,747 $
(633) $
— $
6,242 $
— $
— $
— $
— $
—
—
—
—
6,201
—
35,122
1,875
—
12,324
1,470
9,400
—
—
See accompanying notes to the consolidated financial statements.
F-19
CUBESMART AND CUBESMART L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
CubeSmart (the “Parent Company”) operates as a self-managed and self-administered real estate investment trust (“REIT”) with its
operations conducted solely through CubeSmart, L.P. and its subsidiaries. CubeSmart, L.P., a Delaware limited partnership (the
“Operating Partnership”), operates through an umbrella partnership structure, with the Parent Company, a Maryland REIT, as its sole
general partner. 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, 2019, the Company owned
self-storage properties located in the District of Columbia and 24 states throughout the United States which are presented under one
reportable segment: the Company owns, operates, develops, manages and acquires self-storage properties.
As of December 31, 2019, 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 the Operating Partnership 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 following a specified restricted period for cash equal
to the fair value of an equivalent number of common shares of the Parent Company. In lieu of delivering cash, however, the Parent
Company, as the Operating Partnership’s general partner, may, at its option, choose to acquire any OP Units so tendered by issuing
common shares in exchange for the tendered OP Units. If the Parent Company so chooses, its common shares will be exchanged for OP
Units on a one-for-one basis. This one-for-one exchange ratio is subject to adjustment to prevent dilution. With each such exchange or
redemption, the Parent Company’s percentage ownership in the Operating Partnership will increase. In addition, whenever the Parent
Company issues common or other classes of its shares, it contributes the net proceeds it receives from the issuance to the Operating
Partnership and the Operating Partnership issues to the Parent Company an equal number of OP Units or other partnership interests having
preferences and rights that mirror the preferences and rights of the shares issued. This structure is commonly referred to as an umbrella
partnership REIT or “UPREIT”.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include all of the accounts of the Company and its majority-owned and/or
controlled subsidiaries. The portion of these entities not owned by the Company is presented as noncontrolling interests as of and during
the periods consolidated. All significant intercompany accounts and transactions have been eliminated in consolidation.
When the Company obtains an economic interest in an entity, the Company evaluates the entity to determine if the entity is deemed a
variable interest entity (“VIE”) and if the Company is deemed to be the primary beneficiary in accordance with authoritative guidance
issued on the consolidation of VIEs. When an entity is not deemed to be a VIE, the Company considers the provisions of additional
guidance to determine whether a general partner, or the general partners as a group, controls a limited partnership or similar entity when
the limited partners have certain rights. The Company consolidates (i) entities that are VIEs and of which the Company is deemed to be the
primary beneficiary, and (ii) entities that are non-VIEs which the Company controls and which the limited partners do not have the ability
to dissolve or remove the Company without cause nor substantive participating rights.
The Operating Partnership meets the criteria as a VIE. The Parent Company’s sole significant asset is its investment in the Operating
Partnership. As a result, substantially all of the Parent Company’s assets and liabilities represent those assets and liabilities of the
Operating Partnership. All of the Parent Company’s debt is an obligation of the Operating Partnership.
Noncontrolling Interests
The Financial Accounting Standards Board (“FASB”) issued authoritative guidance regarding noncontrolling interests in consolidated
financial statements which was effective on January 1, 2009. The guidance states that noncontrolling interests are the portion of equity
(net assets) in a subsidiary not attributable, directly or indirectly, to a parent. The ownership interests in the subsidiary that are held by
owners other than the parent are noncontrolling interests. Under the guidance, such noncontrolling interests are reported on the
consolidated balance sheets within equity, separately from the Company’s equity. On the consolidated statements of operations, revenues,
expenses and net income or loss from controlled or consolidated entities that are less than wholly owned are reported at the consolidated
amounts, including both the amounts attributable to the Company and noncontrolling interests. Presentation of consolidated equity activity
F-20
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, 2019,
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 $5.9 million as of December 31, 2019. Disclosure of such redemption provisions is
provided in note 12.
Estimates
The preparation of consolidated 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 management believes the assumptions and estimates made
are reasonable and appropriate, as discussed in the applicable sections throughout these consolidated financial statements, different
assumptions and estimates could materially impact the Company’s 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 the Company’s 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. Acquisition costs are accounted for in accordance with Accounting Standard
Update (“ASU”) No. 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business, which was adopted on
January 1, 2018, and are generally capitalized. Costs incurred for the renovation of a store are capitalized to the Company’s investment in
that store. 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. Allocations to land, building and improvements and equipment are recorded based upon their respective fair values
as estimated by management. If appropriate, 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
F-21
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. There were no impairment
losses recognized during the years ended December 31, 2019, 2018 and 2017.
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 and are not depreciated. There were no
stores classified as held for sale as of December 31, 2019.
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 $31.5 million and $21.5 million as of December 31, 2019 and 2018, respectively,
and are reported net of accumulated amortization of $12.9 million and $13.4 million as of December 31, 2019 and 2018, respectively. In
accordance with ASU No. 2015-03, Loan procurement costs, net are presented as a direct deduction from the carrying amount of the
related debt liability. If there is not an associated debt liability recorded on the consolidated balance sheets, the costs are recorded as an
asset net of accumulated amortization. Loan procurement costs associated with the Company’s revolving credit facility remain in Loan
procurement costs, net of amortization on the Company’s consolidated balance sheets. The costs are amortized over the estimated life of
the related debt using the effective interest method and are reported as Loan procurement amortization expense on the Company’s
consolidated statements of operations.
F-22
Other Assets
Other assets are comprised of the following as of December 31, 2019 and 2018:
Intangible assets, net of accumulated amortization of $10,170 and $3,124
Accounts receivable, net
Prepaid property taxes
Prepaid insurance
Amounts due from affiliates (see note 14)
Assets held in trust related to deferred compensation arrangements
Right-of-use assets (see note 13)
Equity investment recorded at cost (1)
Other
Total other assets, net
December 31,
2019
2018
(in thousands)
$
$
10,283 $
6,386
4,706
2,191
10,450
13,280
41,698
5,000
7,449
101,443 $
8,145
5,672
4,406
1,479
10,584
9,645
—
5,000
3,832
48,763
(1) On September 5, 2018, the Company invested $5.0 million in exchange for 100% of the Class A preferred units of Capital
Storage Partners, LLC (“Capital Storage”), a newly formed venture that acquired 22 self-storage properties located in Florida (4),
Oklahoma (5) and Texas (13). The Class A preferred units earn an 11% cumulative dividend prior to any other distributions. The
Company’s investment in Capital Storage and the related dividends are included in Other assets, net on the Company’s
consolidated balance sheets and in Other income on the Company’s consolidated statements of operations, respectively.
Environmental Costs
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 the Company’s stores indicates that a store is impacted by soil or groundwater
contamination from prior owners/operators or other sources, the Company will work with environmental consultants and where
appropriate, state governmental agencies, to ensure that the store is either cleaned up, that no cleanup is necessary because the low level of
contamination poses no significant risk to public health or the environment or that the responsibility for cleanup rests with a third party.
Revenue Recognition
Management has determined that all of our leases are operating leases. Rental income is recognized in accordance with the terms of the
leases, which generally are month-to-month.
The Company recognizes gains from sale of real estate in accordance with the guidance on transfer of nonfinancial assets. Payments
received from purchasers prior to closing are recorded as deposits. Profit on real estate sold is recognized when a valid contract exists, the
collectability of the sales price is reasonably assured and the control of the property has transferred.
Advertising and Marketing Costs
The Company incurs advertising and marketing costs primarily attributable to internet marketing and other media advertisements. The
Company incurred $11.5 million, $10.3 million and $9.7 million in advertising and marketing expenses for the years ended December 31,
2019, 2018 and 2017, 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, 2019, 2018 and 2017, the Company recognized $2.1 million, $1.6 million and $0.6 million,
respectively, of equity offering costs related to the issuance of common shares.
F-23
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 asset(s) using the weighted average rate of the Company’s outstanding debt. For the years ended
December 31, 2019, 2018 and 2017, the Company capitalized $3.0 million, $4.4 million and $5.6 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 $150.0 million as of
December 31, 2018, the fair values of which are included in Accounts payable, accrued expenses and other liabilities on the Company’s
consolidated balance sheets. The Company had no outstanding derivatives as of December 31, 2019.
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 approximately $3,909.1
million and $3,645.7 million as of December 31, 2019 and 2018, respectively.
Since the Company's initial quarter as a publicly-traded REIT, it has made regular quarterly distributions to its 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, 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 2019 consisted of a 78.413% ordinary income distribution, a 5.207% capital gain distribution and a 16.380%
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 2019, 2018 or 2017.
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 $0.7 million and $1.4 million as of December 31, 2019 and
2018, respectively.
Earnings per Share and Unit
Basic earnings per share and unit are calculated based on the weighted average number of common shares and restricted shares
outstanding during the period. Diluted earnings per share and unit is calculated by further adjusting for the dilutive impact of share
options, unvested restricted shares and contingently issuable shares outstanding during the period using the treasury stock method.
Potentially dilutive securities calculated under the treasury stock method were 702,000; 842,000 and 923,000 in 2019, 2018 and 2017,
respectively.
F-24
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.
Investments in Unconsolidated Real Estate Ventures
The Company accounts for its investments in unconsolidated real estate ventures under the equity method of accounting when it is
determined that the Company has the ability to exercise significant influence over the venture. Under the equity method, investments in
unconsolidated real estate ventures are recorded initially at cost, as investments in real estate ventures, and subsequently adjusted for
equity in earnings (losses), cash contributions, less distributions and impairments. On a periodic basis, management assesses whether there
are any indicators that the value of the Company’s investments in unconsolidated real estate ventures may be other than temporarily
impaired. An investment is impaired only if the fair value of the investment, as estimated by management, is less than the carrying value of
the investment and the decline is other than temporary. To the extent impairment 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.
The determination as to whether impairment exists requires significant management judgment about the fair value of the Company’s
ownership interest. Fair value is determined through various valuation techniques, including but not limited to, discounted cash flow
models, quoted market values and third-party appraisals. There were no impairment losses related to the Company’s investments in
unconsolidated real estate ventures recognized during the years ended December 31, 2019 and 2018.
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 standard became effective on January 1, 2020 and is not expected to have a material impact on
the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13 – Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments. The new guidance changes how entities measure credit losses for most financial assets. This standard requires an
entity to estimate its lifetime expected credit loss and record an allowance that, when deducted from the amortized cost basis of the
financial asset, presents the net amount expected to be collected on the financial asset. In November 2018, the FASB issued ASU No.
2018-19 – Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which clarifies that receivables arising from
operating leases are within the scope of the leasing standard (ASU No. 2016-02), and not within the scope of ASU No. 2016-13. The
standard became effective on January 1, 2020 and is not expected to have a material impact on the Company’s consolidated financial
statements.
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 determines whether lease expense is recognized based on an effective
interest method or on a straight line basis over the term of the lease. 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 are
accounted for similar to previous guidance for operating leases. The new standard requires lessors to account for leases using an approach
that is substantially equivalent to previous guidance for sales-type leases, direct financing leases and operating leases. The Company
adopted the standard on January 1, 2019, the date it became effective for public companies, using the modified retrospective approach
whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated. There was no net
cumulative effect adjustment to retained earnings as of January 1, 2019 as a result of this adoption. Upon adoption, the Company elected
the package of practical expedients permitted within the standard, which among other things, allows for the carryforward of historical
lease classification. The Company also elected the practical expedient provided to lessors in a subsequent amendment to the standard that
removed the requirement to separate lease and nonlease components, provided certain conditions were met. Refer to note 13 for the impact
of the adoption of ASU No. 2016-02 – Leases (Topic 842) on the Company’s consolidated financial statements.
F-25
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 approximately
16%, 16%, 10% and 8%, respectively, of the Company’s total revenues for the year ended December 31, 2019. The stores in Florida, New
York, Texas and California provided approximately 17%, 16%, 10% and 8%, respectively, of the Company’s total revenues for each of the
years ended December 31, 2018 and 2017.
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
2019
December 31,
(in thousands)
2018
$
858,541 $
3,619,594
128,111
93,598
4,699,844
(925,359)
3,774,485
$
$
806,916
3,343,173
176,583
136,783
4,463,455
(862,487)
3,600,968
F-26
The following table summarizes the Company’s acquisition and disposition activity for the years ended December 31, 2019, 2018 and
2017:
Asset/Portfolio
2019 Acquisitions:
Maryland Asset
Florida Assets
Arizona Asset
HVP III Assets
Georgia Asset
South Carolina Asset
Texas Asset
Florida Assets
California Asset
2019 Disposition:
Texas Asset
2018 Acquisitions:
Texas Asset
Texas Asset
Metro DC Asset
Nevada Asset
North Carolina Asset
California Asset
Texas Asset
California Asset
New York Asset
Illinois Asset
2018 Dispositions:
Arizona Assets
2017 Acquisitions:
Illinois Asset
Maryland Asset
California Asset
Texas Asset
Florida Asset
Illinois Asset
Florida Asset
Market
Transaction Date
Stores
(in thousands)
Number of Purchase / Sale Price
Baltimore / DC
Florida Markets - Other
Phoenix
Various (see note 4)
Atlanta
Charleston
Texas Markets - Major
Florida Markets - Other
Los Angeles
March 2019
April 2019
May 2019
June 2019
August 2019
August 2019
October 2019
November 2019
December 2019
1
2
1
18
1
1
1
3
1
29
$
$
22,000
19,000
1,550
128,250 (1)
14,600
3,300
7,300
32,100
18,500
246,600
Texas Markets - Major
October 2019
1
1
$
$
4,146
4,146
Texas Markets - Major
Texas Markets - Major
Baltimore / DC
Las Vegas
Charlotte
Los Angeles
Texas Markets - Major
San Diego
New York / Northern NJ
Chicago
January 2018
May 2018
July 2018
September 2018
September 2018
October 2018
October 2018
November 2018
November 2018
December 2018
Phoenix
November 2018
Chicago
Baltimore / DC
Sacramento
Texas Markets - Major
Florida Markets - Other
Chicago
Florida Markets - Other
April 2017
May 2017
May 2017
October 2017
October 2017
November 2017
December 2017
1
1
1
1
1
1
1
1
1
1
10
2
2
1
1
1
1
1
1
1
7
$
$
$
$
$
$
12,200
19,000
34,200
14,350
11,000
53,250
23,150
19,118
37,000
4,250
227,518
17,502
17,502
11,200
18,200
3,650
4,050
14,500
11,300
17,750
80,650
(1) Amount represents the purchase price for 90% of the ownership interest in 191 III CUBE LLC ("HVP III"), which at the time of
the acquisition owned 18 storage properties (see note 4).
F-27
4. INVESTMENT ACTIVITY
2019 Acquisitions
During the year ended December 31, 2019, the Company acquired 11 stores located in Arizona (1), California (1), Florida (5), Georgia
(1), Maryland (1), South Carolina (1) and Texas (1) for an aggregate purchase price of approximately $118.3 million. In connection with
these transactions, which were accounted for as asset acquisitions, the Company allocated the purchase price and acquisition related costs
to the tangible and intangible assets acquired based on fair value. Intangible assets consisted of in-place leases, which aggregated to $6.2
million at the time of the acquisitions and prior to amortization of such amounts. The estimated life of these in-place leases was 12 months
and the amortization expense that was recognized during 2019 was approximately $1.9 million. In connection with one of the acquisitions,
the Company paid $14.9 million of cash and issued OP Units that were valued at approximately $3.6 million as consideration for the
purchase price (see note 12).
Additionally, on June 6, 2019, the Company acquired its partner’s 90% ownership interest in HVP III, an unconsolidated real estate
venture in which the Company previously owned a 10% noncontrolling interest and that was accounted for under the equity method of
accounting. As of the date of acquisition, HVP III owned 18 stores located in Georgia (1), Massachusetts (7), North Carolina (1), South
Carolina (7) and Tennessee (2) (the “HVP III Assets”). The purchase price for the 90% ownership interest was $128.3 million, which was
comprised of cash consideration of $120.0 million and $8.3 million of the Company’s escrowed proceeds from HVP III’s sale
of 50 properties to an unaffiliated buyer on June 5, 2019 (see note 5). The HVP III Assets were recorded by the Company at
$137.5 million, which consisted of the $128.3 million purchase price plus the Company’s $10.6 million carryover basis of its previously
held equity interest in HVP III, offset by $1.4 million of acquired cash. As a result of the transaction, which was accounted for as an asset
acquisition, the HVP III Assets became wholly-owned by the Company and are now consolidated within its financial statements. No gain
or loss was recognized as a result of the transaction. In connection with the transaction, the Company allocated the value of the HVP III
Assets and acquisition related costs to the tangible and intangible assets acquired based on fair value. Intangible assets consisted of in-
place leases, which aggregated to $14.3 million at the time of the acquisition and prior to amortization of such amounts. The estimated life
of these in-place leases was 12 months and the amortization expense that was recognized during 2019 was approximately $8.3 million.
The following table summarizes the Company’s revenue and earnings associated with the 2019 acquisitions from the respective
acquisition dates, that are included in the consolidated statements of operations for the year ended December 31, 2019:
Total revenue
Net loss
For the year ended
December 31, 2019
(in thousands)
$
11,130
(6,020)
As of December 31, 2019, the Company had made aggregate deposits of $2.6 million associated with two stores that were under
contract to be acquired for an aggregate acquisition price of $57.5 million. The deposits are reflected in Other assets, net on the
Company’s consolidated balance sheets.
2019 Disposition
On October 7, 2019, the Company sold a self-storage property located in Texas for a sales price of $4.1 million. The Company recorded
a $1.5 million gain in connection with the sale.
Development Activity
As of December 31, 2019, the Company had invested in joint ventures to develop five self-storage properties located in Massachusetts
(1), New York (2), Pennsylvania (1) and Virginia (1). Construction for all projects is expected to be completed by the second quarter of
2021 (see note 12). As of December 31, 2019, development costs incurred to date for these projects totaled $77.7 million. Total
construction costs for these projects are expected to be $137.6 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, 2017. 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-28
Store Location
Number of
Stores
Date Opened
Waltham, MA (1)
Queens, NY (2)
Bayonne, NJ (2) (3)
Bronx, NY (2)
Brooklyn, NY (2)
Washington, D.C.
New York, NY (1)
North Palm Beach, FL
1
1
1
1
1
1
1
1
8
Q3 2019
Q2 2019
Q2 2019
Q3 2018
Q4 2017
Q3 2017
Q3 2017
Q1 2017
CubeSmart
Ownership
Interest
100%
100%
100%
100%
100%
100%
100%
100%
Total
Construction Costs
(in thousands)
$
$
18,000
47,500
25,100
92,100
49,300
27,800
81,200
9,700
350,700
(1) On September 18, 2017 and August 8, 2019, the Company, through two separate joint ventures in which the Company owned
a 90% interest in each and that were previously consolidated, completed the construction and opened for operation a store located in
New York, NY and a store located in Waltham, MA, respectively. On June 25, 2019, the Company acquired the noncontrolling
member’s 10% interest in the venture that owned the New York, NY store for $18.5 million, and on September 6, 2019, the
Company acquired the noncontrolling member’s 10% interest in the venture that owned the Waltham, MA store
for $2.6 million. Prior to these transactions, the noncontrolling member’s interest in each venture was reported in Noncontrolling
interests in subsidiaries on the consolidated balance sheets. Since the Company retained its controlling interest in each venture and
the stores are now wholly owned, these transactions were accounted for as equity transactions. The carrying amount of the
noncontrolling interest was reduced to zero to reflect the purchase and the difference between the purchase price paid by the
Company and the carrying amount of the noncontrolling interest, which aggregated to $16.1 million, was recorded as an adjustment
to equity attributable to the Company, with no gain or loss recorded. In conjunction with the Company’s acquisition of the
noncontrolling interest in the venture that owns the Waltham, MA store, the $10.5 million related party loan extended by the
Company to the venture during the construction period was repaid in full.
(2) These stores were previously owned by four separate consolidated joint ventures, in which the Company held a 51% ownership
interest in each. On March 28, 2018, the noncontrolling member in the venture that owned the Brooklyn, NY store put its 49%
interest in the venture to the Company for $20.4 million. On February 15, 2019, the noncontrolling member in the venture that
owned the Bronx, NY store put its 49% interest in the venture to the Company for $37.8 million. On June 25, 2019, the
noncontrolling member in the venture that owned the Bayonne, NJ store put its 49% interest in the venture to the Company for
$11.5 million. On September 17, 2019, the noncontrolling member in the venture that owned the Queens, NY store put its 49%
interest in the venture to the Company for $15.2 million. These amounts are included in Development costs in the consolidated
statements of cash flows.
(3) This store is subject to a ground lease.
During the fourth quarter of 2015, the Company, through two separate joint ventures in which the Company owned a 90% interest in
each and that were previously consolidated, completed the construction and opened for operation a store located in Brooklyn, NY and a
store located in Queens, NY. On June 2, 2017, the Company acquired the noncontrolling member’s 10% interest in the venture that owed
the Brooklyn, NY store, and on June 28, 2019, the Company acquired the noncontrolling member’s 10% interest in the venture that owned
the Queens, NY store, each for $9.0 million. Prior to these transactions, the noncontrolling member’s interest in each venture was reported
in Noncontrolling interests in subsidiaries on the consolidated balance sheets. Since the Company retained its controlling interest in each
venture and the stores are now wholly owned, these transactions were accounted for as equity transactions. The carrying amount of the
noncontrolling interest was reduced to zero to reflect the purchase and the difference between the purchase price paid by the Company and
the carrying amount of the noncontrolling interest which aggregated to $17.1 million, was recorded as an adjustment to equity attributable
to the Company, with no gain or loss recorded. In conjunction with the Company’s acquisition of the noncontrolling interest in each
venture, the $9.8 million and $12.4 million related party loans extended by the Company to the ventures during the construction period for
the Brooklyn, NY store and the Queens, NY store, respectively, were repaid in full.
F-29
2018 Acquisitions
During the year ended December 31, 2018, the Company acquired ten stores located throughout the United States, including one store
upon completion of construction and the issuance of a certificate of occupancy, for an aggregate purchase price of approximately $227.5
million. In connection with these transactions, which were accounted for as asset acquisitions, the Company allocated a portion of the
purchase price and acquisition related costs to the tangible and intangible assets acquired based on fair value. Intangible assets consist of
in-place leases, which aggregated $11.3 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, 2019 and 2018 was approximately $8.2 million and $3.1 million, respectively. In connection with one of the acquired stores, the
Company assumed a $7.2 million mortgage loan that was immediately repaid by the Company. The remainder of the purchase price was
funded with $0.2 million of cash and $4.8 million through the issuance of 168,011 OP Units (see note 12). Following a 13-month lock-up
period, the holder may tender the OP Units for redemption by the Operating Partnership for a cash amount per OP 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 OP Unit tendered for
redemption.
2018 Dispositions
On November 28, 2018, the Company sold two stores in Arizona for an aggregate sales price of approximately $17.5 million. In
connection with these sales, the Company recorded gains that totaled approximately $10.6 million.
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, which were accounted for as business combinations prior to the adoption of ASU No. 2017-
01, 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 the years
ended December 31, 2018 and 2017 was approximately $1.7 and $1.5 million, respectively. In connection with one of the acquired stores,
the Company assumed mortgage debt that was recorded at a fair value of $6.2 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 had a stated value of $25 and an annual distribution rate of 3% of the stated value. On
July 23, 2018, all of the Class C OP Units were exchanged for an aggregate of 46,322 common units of the Operating Partnership. Because
the Class C OP Units represented an unconditional obligation that the Company settled by issuing a variable number of its common shares
with a monetary value that was known at inception, the Class C OP Units were classified as a liability in Accounts payable, accrued
expenses and other liabilities on the Company’s consolidated balance sheets prior to redemption.
F-30
5. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES
The Company’s investments in real estate ventures, in which it holds a common ownership interest, are summarized as follows (in
thousands):
Unconsolidated Real Estate Ventures
191 IV CUBE LLC ("HVP IV") (1)
CUBE HHF Northeast Venture LLC ("HHFNE") (2)
191 III CUBE LLC ("HVP III") (3)
CUBE HHF Limited Partnership ("HHF") (4)
CubeSmart
Ownership
Interest
20%
10%
10%
50%
Number of Stores as of:
December 31,
2019
2018
Carrying Value of Investment as of:
December 31,
2019
2018
21
13
—
35
69
13 $
13
68
35
129 $
$
23,112
1,998
—
66,007
91,117 $
14,791
2,411
9,183
69,411
95,796
(1) The stores owned by HVP IV are located in Arizona (2), Connecticut (2), Florida (4), Georgia (2), Maryland (1), Minnesota (1)
Pennsylvania (1) and Texas (8). The Company’s total contribution to HVP IV in connection with these store acquisitions was
$26.3 million. As of December 31, 2019, HVP IV had $82.2 million outstanding on its $107.0 million loan facility, which bears
interest at LIBOR plus 1.70% per annum, and matures on May 16, 2021 with options to extend the maturity date through May 16,
2023, subject to satisfaction of certain conditions and payment of the extension fees as stipulated in the loan agreement. As of
December 31, 2019, HVP IV also had $55.5 million outstanding under a separate loan that bears interest at LIBOR plus 2.75%
per annum, and matures on June 9, 2022 with options to extend the maturity date through June 9, 2024, subject to satisfaction of
certain conditions and payment of the extension fees as stipulated in the loan agreement.
(2) The stores owned by HHFNE are located in Connecticut (3), Massachusetts (6), Rhode Island (2) and Vermont (2). The
Company’s total contribution to HHFNE in connection with these store acquisitions was $3.8 million. As of December 31, 2019,
HHFNE had an outstanding $45.0 million loan facility, which bears interest at LIBOR plus 1.20% per annum and matures on
December 16, 2024.
(3) On June 5, 2019, HVP III sold 50 stores located in Florida (3), Georgia (4), Michigan (17), North Carolina (3), South Carolina
(15) and Tennessee (8), to an unaffiliated third party buyer for an aggregate sales price of $293.5 million. As of the transaction
date, HVP III had five mortgage loans with an aggregate outstanding balance of $22.9 million, as well as $179.5 million
outstanding on its $185.5 million loan facility, all of which were defeased or repaid in full at the time of the sale. Net proceeds to
the venture from the transaction totaled $82.9 million. The venture recorded gains which aggregated to approximately $106.7
million in connection with the sale. Subsequent to the sale, the Company acquired its partner’s 90% ownership interest in HVP
III, which at the time of the acquisition owned the remaining 18 storage properties (see note 4).
(4) The stores owned by HHF are located in North Carolina (1) and Texas (34). As of December 31, 2019, HHF had an outstanding
$100.0 million secured loan, which bears interest at 3.59% per annum and matures on April 30, 2021.
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 (except for HVP III, which
was consolidated as of June 6, 2019). 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 earnings (losses) of real estate ventures on the Company’s consolidated statements of operations.
F-31
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, 2019 and 2018:
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,
2019 (1)
2018
(in thousands)
552,791 $
11,997
564,788 $
10,064 $
280,392
91,117
183,215
564,788 $
741,209
16,042
757,251
7,911
413,848
95,796
239,696
757,251
$
$
$
$
(1) Excludes HVP III as it was consolidated by the Company on June 6, 2019.
The following is a summary of results of operations of the Ventures for the years ended December 31, 2019, 2018 and 2017:
Total revenues
Operating expenses
Other expenses
Interest expense, net
Depreciation and amortization
Gains from sale of real estate, net
Net income (loss)
Company’s share of net income (loss)
2019
For the year ended December 31,
2018
(in thousands)
2017
$
$
$
72,582 $
(32,134)
(3,227)
(14,927)
(30,107)
106,667
98,854 $
11,122 $
90,111 $
(37,899)
(938)
(13,311)
(41,972)
—
(4,009) $
(865) $
81,058
(33,922)
(783)
(11,703)
(45,086)
—
(10,436)
(1,386)
The results of operations above include the periods from January 1, 2017 through June 6, 2019 (date of consolidation) for HVP III and
November 1, 2017 (date of initial store acquisition) through December 31, 2019 for HVP IV.
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 (1)
$300M 4.000% Guaranteed Notes due 2025 (2)
$300M 3.125% Guaranteed Notes due 2026
$350M 4.375% Guaranteed Notes due 2029
$350M 3.000% Guaranteed Notes due 2030
Principal balance outstanding
Less: Discount on issuance of unsecured senior notes, net
Less: Loan procurement costs, net
Total unsecured senior notes, net
$
250,000 $
300,000
300,000
300,000
350,000
350,000
1,850,000
(3,860)
(10,415)
250,000
300,000
300,000
300,000
—
—
1,150,000
(568)
(5,908)
$ 1,835,725 $ 1,143,524
December 31,
2019
2018
(in thousands)
Effective
Interest Rate
Issuance
Date
Maturity
Date
4.82 %
Jun-12
4.33 % Various (1)
3.99 % Various (2)
Aug-16
3.18 %
Jan-19
4.46 %
Oct-19
3.04 %
Jul-22
Dec-23
Nov-25
Sep-26
Feb-29
Feb-30
F-32
(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 tranches 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 tranches 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 1.5:1.0 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, 2019, 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, among other things, a $500.0 million unsecured revolving facility with a
maturity date of April 22, 2020. On June 19, 2019, the Company amended and restated, in its entirety, the Credit Facility (the "Amended
and Restated Credit Facility") which, subsequent to the amendment and restatement, is comprised of a $750.0 million unsecured revolving
credit facility (the "Revolver") maturing on June 19, 2024. Under the Amended and Restated Credit Facility, pricing on the Revolver is
dependent upon the Company’s unsecured debt credit ratings. At the Company’s current Baa2/BBB level, amounts drawn under the
Revolver are priced at 1.10% over LIBOR, inclusive of a facility fee of 0.15%. The Company incurred costs of $3.9 million in 2019 in
connection with amending and restating the Credit Facility and capitalized such costs as a component of Loan procurement costs, net of
amortization on the consolidated balance sheets.
As of December 31, 2019, borrowings under the Revolver had an effective weighted average interest rate of 2.86%. Additionally, as of
December 31, 2019, $749.3 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.
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, among other things, a $100.0 million unsecured term loan with a seven-year
maturity that was repaid on June 19, 2019.
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 (1)
Term Loan Facility
Unsecured term loan (2)
Principal balance outstanding
Less: Loan procurement costs, net
Total unsecured term loans, net
Carrying Value as of:
December 31,
Effective Interest
Rate as of
2019
2018
December 31, 2019
Maturity
Date
(in thousands)
$
— $
200,000
— %
Jan-19
—
—
—
— $
100,000
300,000
(201)
299,799
$
— %
Jan-20
(1) On January 31, 2019, the Company used a portion of the net proceeds from the issuance of $350.0 million of 4.375% Senior
Notes due 2029 (the “2029 Notes”) to repay all of the outstanding indebtedness under the unsecured term loan portion of the
Credit Facility.
F-33
(2) On June 19, 2019, the Company used an initial advance at closing of the Amended and Restated Credit Facility to repay all of the
outstanding indebtedness under the unsecured term loan portion of the Term Loan Facility that was scheduled to mature in
January 2020. Unamortized loan procurement costs of $0.1 million were written off in conjunction with the repayment.
Under the Amended and Restated Credit Facility, the Company’s ability to borrow under the Revolver is subject to ongoing compliance
with certain financial covenants which include, among other things, (1) a maximum total indebtedness to total asset value of 60.0%, and
(2) a minimum fixed charge coverage ratio of 1.5:1.0. As of and for the year ended December 31, 2019, the Operating Partnership was in
compliance with all of its financial covenants.
8. MORTGAGE LOANS AND NOTES PAYABLE
The Company’s mortgage loans and notes payable are summarized as follows:
Mortgage Loans and Notes Payable
YSI 33 (1)
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
$
(1) YSI 33 was repaid in full on July 1, 2019.
$
(in thousands)
— $
Carrying Value as of:
December 31,
2019
2018
Effective
Interest Rate
Maturity
Date
7,805
2,740
21,547
24,042
2,313
30,588
5,459
94,494
1,833
(287)
96,040 $
6.42 %
4.56 %
4.61 %
4.85 %
4.64 %
3.85 %
3.51 %
3.78 %
Jul-19
Nov-20
Nov-20
Jun-21
Jun-21
Jun-23
Jun-23
May-24
9,214
8,022
2,816
22,041
24,893
2,363
31,171
5,626
106,146
2,551
(451)
108,246
As of December 31, 2019 and 2018, the Company's mortgage loans and notes payable were secured by certain of its self-storage
properties with net book values of approximately $206.3 million and $231.0 million, respectively. The following table represents the
future principal payment requirements on the outstanding mortgage loans and notes payable as of December 31, 2019 (in thousands):
2020
2021
2022
2023
2024
2025 and thereafter
Total mortgage payments
Plus: Unamortized fair value adjustment
Less: Loan procurement costs, net
Total mortgage loans and notes payable, net
$
$
12,791
45,057
923
31,019
4,704
—
94,494
1,833
(287)
96,040
F-34
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, 2019:
Other comprehensive gain before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current-period other comprehensive income
Balance at December 31, 2018
Balance at December 31, 2019
(1) See note 10 for additional information about the effects of the amounts reclassified.
10. RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS
Unrealized Gains (Losses)
on Interest Rate Swaps
(in thousands)
$
$
230
70 (1)
300
(1,029)
(729)
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.
During 2018, the Company entered into interest rate swap agreements that qualified and were designated as cash flow hedges designed
to reduce the impact of interest rate changes on a forecasted issuance of long-term debt. Therefore, the interest rate swaps were recorded
on the consolidated balance sheets at fair value and the related gains or losses were 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.
The Company formally assessed, both at inception of the hedge and on an on-going basis, whether each derivative was highly-effective
in offsetting changes in cash flows of the hedged item. If management determined that the derivative was highly-effective as a hedge, then
the Company accounted for the derivative using hedge accounting, pursuant to which gains or losses inherent in the derivative did not
impact the Company’s results of operations. If management determined that the derivative was not highly-effective as a hedge or if a
derivative ceased to be a highly-effective hedge, the Company discontinued hedge accounting prospectively and reflected in its statement
of operations realized and unrealized gains and losses with respect to the derivative.
The following table summarizes the terms and fair values of the Company’s derivative financial instruments as of December 31, 2019
and 2018 (in thousands):
Hedge
Product
Hedge
Type
Notional Amount
December 31, 2019 December 31, 2018
Effective
Fair Value
Strike
Date
Maturity December 31, 2019 December 31, 2018
Swap Cash flow (1)
Swap Cash flow (1)
Swap Cash flow (1)
$
$
— $
—
—
— $
75,000
50,000
25,000
150,000
2.8015 %
2.8030 %
2.8020 %
6/28/2019
6/28/2019
6/28/2019
6/28/2029 $
6/28/2029
6/28/2029
$
— $
—
—
— $
(516)
(350)
(173)
(1,039)
(1) These interest rate swaps were entered into on December 24, 2018 to protect the Company against adverse fluctuations in interest
rates by reducing exposure to variability in cash flows relating to interest payments on a forecasted issuance of long-term debt.
On January 24, 2019, in conjunction with the issuance of the 2029 Notes, the Company settled these interest rate swaps for $0.8
million. The termination premium will be reclassified from accumulated other comprehensive loss as an increase to interest
expense over the life of the 2029 Notes, which mature on February 15, 2029.
The Company measured its derivative instruments at fair value and recorded them in the balance sheet as a liability. As of December 31,
2019, all derivative instruments had been settled. As of December 31, 2018, all derivative instruments were included in Accounts payable,
F-35
accrued expenses and other liabilities on the accompanying consolidated balance sheets. The effective portions of changes in the fair value
of the derivatives are reported in accumulated other comprehensive loss. Amounts reported in accumulated other comprehensive loss
related to derivatives are reclassified to interest expense as interest payments are made on the Company’s 2029 Notes. The change in
unrealized losses on interest rate swaps reflects a reclassification of $0.1 million of unrealized losses from accumulated other
comprehensive loss as an increase to interest expense during 2019. The Company estimates that $0.1 million will be reclassified as an
increase to interest expense in 2020.
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.
There were no financial assets or liabilities carried at fair value as of December 31, 2019. Financial assets and liabilities carried at fair
value as of December 31, 2018 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
(in thousands)
Level 3
— $
1,039 $
—
— $
1,039 $
—
$
$
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 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 the reporting dates, the Company has assessed the significance of the effect
of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation
adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its
derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
The fair values of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximate
their respective carrying values as of December 31, 2019 and 2018. The aggregate carrying value of the Company’s debt was $1,931.8
million and $1,747.1 million as of December 31, 2019 and 2018, respectively. The estimated fair value of the Company’s debt was
$2,037.6 million and $1,731.9 million as of December 31, 2019 and 2018, respectively. These estimates were based on a discounted cash
flow analysis assuming market interest rates for comparable obligations as of December 31, 2019 and 2018. 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
F-36
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 Joint Ventures
Noncontrolling interests in subsidiaries represent the ownership interests of third parties in the Company’s consolidated joint 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 joint ventures in the table below:
Consolidated Joint Ventures
Number
of Stores
Location
Date Opened / CubeSmart
Estimated
Opening
Ownership
Interest
December 31, 2019
Total Assets
Total Liabilities
CS Valley Forge Village Storage, LLC ("VFV") (1)
Shirlington Rd II, LLC ("SH2") (2)
CS 2087 Hempstead Tpk, LLC ("Hempstead") (3)
CS SDP Newtonville, LLC ("Newton") (1)
CS 1158 McDonald Ave, LLC ("McDonald Ave") (3)
Shirlington Rd, LLC ("SH1") (2)
1
1
1
1
1
1
6
Arlington, VA
King of Prussia, PA Q2 2021 (est.)
Q1 2021 (est.)
East Meadow, NY Q4 2020 (est.)
Q3 2020 (est.)
Q1 2020 (est.)
Q2 2015
Newton, MA
Brooklyn, NY
Arlington, VA
70%
90%
51%
90%
51%
90%
$
$
(in thousands)
$
4,279
8,965
12,538
10,351
41,995
14,905
93,033 $
856
339
3,289
3,827
10,713
162
19,186
(1) The Company has a related party commitment to VFV and Newton to fund all or a portion of the construction costs. As of
December 31, 2019, the Company has funded $3.1 million of a total $12.1 million loan commitment to Newton, which is
included in the total liability amount within the table above. This loan and the related interest were eliminated for consolidation
purposes. As of December 31, 2019, the Company had not funded any of its $12.4 million loan commitment to VFV.
(2) On March 7, 2019, the Company acquired the noncontrolling member’s ownership interest in SH1, inclusive of its promoted
interest in the venture, for $10.0 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, 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 $9.7 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 in SH1, the $12.2 million related party loan extended
by the Company to the venture during the construction period was repaid in full. Subsequently, the noncontrolling member re-
acquired a 10% interest in SH1 and a 10% interest in SH2 for a combined $4.8 million, which is included in Noncontrolling
interests in subsidiaries on the consolidated balance sheets.
(3) The noncontrolling members of Hempstead and McDonald Ave have the option to put their ownership interest in the ventures to
the Company for $6.6 million and $10.0 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 Hempstead and McDonald Ave for $6.6 million and $10.0 million, respectively, beginning on the second anniversary
of the respective store’s construction being substantially complete. The Company, at its sole discretion, may pay cash and/or issue
OP Units in exchange for the noncontrolling member’s interest in Hempstead and McDonald. The Company is accreting the
respective liabilities during the development periods and, as of December 31, 2019, has accrued $2.8 million and $9.7 million
related to Hempstead and McDonald Ave, respectively, which are included in Accounts payable, accrued expenses and other
liabilities on the Company’s consolidated balance sheets.
On May 30, 2019, the Company sold its 90% ownership interest in CS SJM E 92nd Street, LLC, a previously consolidated development
joint venture, for $3.7 million. In conjunction with the sale, $0.7 million of the $1.7 million related party loan extended by the Company to
the venture was repaid. The remaining $1.0 million was recorded as a note receivable and was repaid during the third quarter of 2019.
Additionally, as a result of the transaction, the Company was released from its obligations under the venture’s ground lease, and right-of-
use assets and lease liabilities totaling $13.4 million and $14.6 million, respectively, were removed from the Company’s consolidated
balance sheets.
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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% of the outstanding OP Units as of December 31, 2019 and 2018, 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 December 16, 2019, the Company acquired a store in California for $18.5 million. In conjunction with the closing, the Company
paid $14.9 million and issued 106,738 OP Units, valued at approximately $3.6 million, to pay the remaining consideration.
On January 31, 2018, the Company acquired a store in Texas for $12.2 million and assumed an existing mortgage loan with an
outstanding balance of approximately $7.2 million and immediately repaid the loan. In conjunction with the closing, the Company paid
$0.2 million in cash and issued 168,011 OP Units, valued at approximately $4.8 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. On July 23, 2018, all of the 58,400 Class C OP Units were
exchanged for an aggregate of 46,322 common units of the Operating Partnership.
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.
As of December 31, 2019 and 2018, 1,972,308 and 1,945,570 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, 2019 and 2018. As of December 31, 2019 and 2018, the Operating Partnership recorded an increase to OP Units owned by
third parties and a corresponding decrease to capital of $5.9 million and $0.3 million, respectively.
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13. LEASES
CubeSmart as Lessor
The Company derives revenue primarily from rents received from customers who rent cubes at its self-storage properties under month-
to-month leases for personal or business use. The self-storage lease agreements utilized by the Company vary slightly to comply with
state-specific laws and regulations, but generally provide for automatic monthly renewals, flexibility to increase rental rates over time as
market conditions permit and the collection of contingent fees such as administrative and late fees. None of the self-storage lease
agreements contain options that allow the customer to purchase the leased space at any time during, or at the expiration of, the lease term.
All self-storage leases in which the Company serves as lessor have been classified as operating leases. Accordingly, storage cubes are
carried at historical cost less accumulated depreciation and impairment, if any, and are included in Storage properties on the Company’s
consolidated balance sheets. Operating lease income for amounts received under the Company’s self-storage lease agreements is
recognized on a straight-line basis which, due to the month-to-month nature of the leases, results in the recognition of income during the
initial term and each subsequent monthly renewal using the then-in-place rent amount. Operating lease income is included in Rental
income within the Company’s consolidated statements of operations. Variable lease income related to the Company’s self-storage lease
agreements consists of administrative and late fees charged to customers. For the year ended December 31, 2019, administrative and late
fees totaled $22.6 million and are included in Other property related income within the Company’s consolidated statements of operations.
CubeSmart as Lessee
The Company serves as lessee in lease agreements for land, office space, automobiles and certain equipment, which have remaining
lease terms ranging from one year to 45 years. Certain of the Company’s leases contain provisions that (1) provide for one or more options
to renew, with renewal options that can extend the lease term from one year to 69 years, (2) allow for early termination at certain points
during the lease term and/or (3) give the Company the option to purchase the leased property. In all cases, the exercise of the lease
renewal, termination and purchase options, if provided for in the lease, are at the Company’s sole discretion. Certain of the Company’s
lease agreements, particularly its land leases, require rental payments that are periodically adjusted for inflation using a defined index.
None of the Company’s lease agreements contain any material residual value guarantees or material restrictive covenants. As a result of
the Company’s election of the package of practical expedients permitted within ASC 842, which among other things, allows for the
carryforward of historical lease classification, all of the Company’s lease agreements have been classified as operating leases. Lease
expense for payments related to the Company’s operating leases is recognized on a straight-line basis over the related lease term, which
includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the
Company’s obligation to make lease payments as specified in the lease. Right-of-use assets and lease liabilities related to the Company’s
operating leases are recognized at the lease commencement date based on the present value of the remaining lease payments over the lease
term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information
available surrounding the Company’s unsecured borrowing rates and implied secured spread at the lease commencement date in
determining the present value of lease payments. The right-of-use asset also includes any lease payments made at or before lease
commencement less any lease incentives. Upon adoption of ASC 842 on January 1, 2019, the Company had right-of-use assets and lease
liabilities related to its operating leases of $55.7 million and $60.7 million, respectively. As of December 31, 2019, the Company had
right-of-use assets and lease liabilities related to its operating leases of $41.7 million and $46.4 million, which are included in Other assets,
net and Accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets, respectively. As of
December 31, 2019, the Company’s weighted average remaining lease term and weighted average discount rate related to its operating
leases were 35.9 years and 4.74%, respectively.
For the year ended December 31, 2019, the Company’s lease cost consists of the following components, each of which is included in
Property operating expenses within the Company’s consolidated statements of operations:
Operating lease cost
Short-term lease cost (1)
Total lease cost
For the year ended
December 31, 2019
(in thousands)
$
$
3,304
1,227
4,531
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(1) Represents automobile leases that have a lease term of 12 months. The Company has made an accounting policy election not to
apply the recognition requirements of ASC 842 to this asset class. The lease cost associated with these leases is recognized on a
straight-line basis over the related lease term.
The following table represents the future operating lease liability maturities as of December 31, 2019 (in thousands):
2020
2021
2022
2023
2024
2025 and thereafter
Total operating lease payments
Less: Imputed interest
Present value of operating lease liabilities
$
$
2,273
2,302
2,459
2,523
2,373
91,241
103,171
(56,780)
46,391
During the year ended December 31, 2019, the cash paid for amounts included in the measurement of lease liabilities related to the
Company’s operating leases was approximately $2.5 million, which is included as an operating cash outflow within the consolidated
statements of cash flows. As of December 31, 2019, the Company has not entered into any lease agreements that are set to commence in
the future.
14. RELATED PARTY TRANSACTIONS
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 revenues at the managed stores. Total management fees for unconsolidated real
estate ventures or other entities in which the Company held an ownership interest for the years ending December 31, 2019, 2018 and 2017
were $4.0 million, $4.5 million and $3.8 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 reimbursements consist of amounts due for management fees, payroll
and other store expenses. The amounts due to the Company were $10.5 million and $10.6 million as of December 31, 2019 and 2018,
respectively, and are included in Other Assets, net on the Company’s consolidated balance sheets. Additionally, as discussed in note 12,
the Company had outstanding mortgage loans receivable from consolidated joint ventures of $3.1 million and $33.2 million as of
December 31, 2019 and 2018, 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, disposition and other fees payable from HVP III, HVP
IV and HHFNE to the Company upon the closing of a property transaction 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 $2.1 million, $0.6 million and $0.5
million in fees associated with property transactions during the years ended December 31, 2019, 2018 and 2017, respectively, which are
included in Other income on the consolidated statements of operations.
15. COMMITMENTS AND CONTINGENCIES
Development Commitments
The Company has agreements with developers for the construction of five new self-storage properties (see note 4), which will require
payments of approximately $56.7 million, due in installments upon completion of certain construction milestones, during 2020 and 2021.
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 claim expenses, insurance retention and litigation costs 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 unknown uncertainties. In the opinion of management, the Company has made adequate
F-40
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.
On January 11, 2019, a settlement agreement was entered into for a class action alleging violation of a state specific deceptive and unfair
trade practices act. During the year ended December 31, 2018, the Company recorded a $1.8 million charge related to this legal action,
which is included in General and administrative on the Company’s consolidated statements of operations. On August 2, 2019, the court
granted final approval of the settlement for the class action.
16. 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 on June 1, 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, 2019: (i) 4,015,223 common shares remained available for future awards under the 2007 Plan; (ii) 547,266
unvested restricted share awards were outstanding under the 2007 Plan; and (iii) 1,602,353 common shares were subject to outstanding
options under the 2007 Plan (with the outstanding options having a weighted average exercise price of $24.10 per share and a weighted
average term to maturity of 6.26 years).
Prior to the June 1, 2016 amendment, 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 on June 1, 2016, the
2007 Plan provides that any common shares made the subject of awards under the 2007 Plan will count against the Aggregate Share
Reserve as one (1) unit. The Aggregate Share Reserve and the computation of the number of common shares available for issuance is
subject to adjustment upon certain corporate transactions or events, including share splits, reverse share splits and recapitalizations. The
number of shares counted against the Aggregate Share Reserve includes the full number of shares subject to the award, and is not reduced
in the event shares are withheld to fund withholding tax obligations, or, in the case of options and share appreciation rights, where shares
are applied to pay the exercise price. If an option or other award granted under the 2007 Plan expires, is forfeited or otherwise terminates,
the common shares subject to any portion of the award that expires, is forfeited or that otherwise terminates, as the case may be, again
becomes available for issuance under the 2007 Plan.
The 2007 Plan is administered by the Compensation Committee of the Company’s Board of Trustees (the “Compensation Committee”),
which is appointed by the Board of Trustees. The Compensation Committee interprets the 2007 Plan and, subject to its right to delegate
authority to grant awards, determines the terms and provisions of option grants and share awards.
Subject to adjustment upon certain corporate transactions or events, a participant (other than a non-employee trustee) may not receive
awards under the 2007 Plan in any one calendar year covering more than 1,000,000 shares. Subject to adjustment upon certain corporate
transactions or events, a non-employee trustee may not receive awards under the 2007 Plan in any one calendar year covering more than
250,000 shares.
Under the 2007 Plan, the Compensation Committee determines the vesting schedule of each share award and option, subject to a one-
year minimum vesting requirement, but with permitted acceleration of vesting in the event of a participant’s death or disability, or in the
event of a change in control or certain changes in our capital structure. Notwithstanding the foregoing one-year minimum vesting
limitation, up to five percent of the shares subject to the Aggregate Share Reserve may be subject to awards that are not subject to such
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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.
Share Options
The fair values for options granted in 2019, 2018 and 2017 were estimated at the time the options were granted using the Black-Scholes
option-pricing model applying the following weighted average assumptions:
Assumptions:
2019
2018
2017
Risk-free interest rate
Expected dividend yield
Volatility (1)
Weighted average expected life of the options (2)
Weighted average grant date fair value of options granted per
2.7 %
3.9 %
32.00 %
6.0 years
2.5 %
3.7 %
32.00 %
6.0 years
2.2 %
3.5 %
33.00 %
6.0 years
share
$
6.35
$
6.24
$
6.12
(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 2019, 2018 and
2017 grants was based on the trading history of the Company’s shares.
In 2019, 2018 and 2017, the Company recognized compensation expense related to options issued to employees and executives of
approximately $1.8 million, $1.5 million and $1.5 million, respectively, which is included in General and administrative expense on the
Company’s consolidated statements of operations. During 2019, 324,409 share options were issued for which the fair value of the options
at their respective grant dates was approximately $2.1 million. The share options vest over three years. As of December 31, 2019, the
Company had approximately $2.0 million of unrecognized option compensation cost related to all grants that will be recorded over the
next three years.
The table below summarizes the option activity under the 2004 Plan and the 2007 Plan for the years ended December 31, 2019, 2018 and
2017:
Balance at December 31, 2016
Options granted
Options exercised
Balance at December 31, 2017
Options granted
Options canceled
Options exercised
Balance at December 31, 2018
Options granted
Options exercised
Balance at December 31, 2019
Vested or expected to vest at December 31, 2019
Exercisable at December 31, 2019
Number of Shares
Weighted Average
Remaining
Under Option
Strike Price
Contractual Term
Weighted Average
1,939,690 $
289,104
(395,621)
1,833,173 $
305,805
(74,748)
(405,227)
1,659,003 $
324,409
(381,059)
1,602,353 $
1,602,353 $
1,015,950 $
12.94
26.30
5.98
16.55
27.85
26.95
9.47
19.89
28.69
9.67
24.10
24.10
21.81
4.85
9.07
1.14
5.26
9.08
—
1.98
5.52
9.01
1.00
6.26
6.26
5.00
F-42
As of December 31, 2019, the aggregate intrinsic value of options outstanding, of options that vested or are expected to vest, and of
options that were exercisable was approximately $11.8 million. The aggregate intrinsic value of options exercised was approximately $9.1
million for the year ended December 31, 2019.
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. There were 180,607 restricted shares and share units issued during the year ended December 31, 2019, which
vest over three to five years. The fair value of the restricted shares and share units issued during the year ended December 31, 2019 was
approximately $5.8 million at their respective grant dates. There were 165,551 restricted shares and share units issued during the year
ended December 31, 2018 for which the fair value of the restricted shares and share units at their respective grant dates was approximately
$4.9 million. As of December 31, 2019 the Company had approximately $5.7 million of remaining unrecognized restricted share and share
unit compensation costs that will be recognized over the next five years. Restricted share awards are considered to be performance awards
and are valued using the share price on the grant date. The compensation expense recognized related to these awards and remaining
unrecognized compensation costs are included in the amounts disclosed above.
In 2019, 2018 and 2017, the Company recognized compensation expense related to restricted shares and share units issued to employees
and Trustees of approximately $4.9 million, $4.0 million and $4.1 million, respectively; these amounts were recorded in general and
administrative expense. The following table presents non-vested restricted share and share unit activity during 2019:
Non-Vested at January 1, 2019
Granted
Vested
Forfeited
Non-Vested at December 31, 2019
Number of Non-
Vested Restricted
Shares and Share Units
382,600
180,607
(66,392)
(6,851)
489,964
On January 1, 2019, 55,168 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 $2.1 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, 2021. The compensation expense recognized related to these awards and
remaining unrecognized compensation costs are included in the amounts disclosed above.
On January 23, 2018, 66,872 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 $1.9
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, 2020. The compensation expense recognized related to these awards
and remaining unrecognized compensation costs are included in the amounts disclosed above.
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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17. 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:
Net income
Noncontrolling interests in the Operating Partnership
Noncontrolling interest in subsidiaries
$
Net income attributable to the Company’s common shareholders
$
Weighted average basic shares outstanding
Share options and restricted share units
Weighted average diluted shares outstanding (1)
For the year ended December 31,
2018
2017
2019
(dollars and shares in thousands, except per share amounts)
170,771 $
(1,708)
54
169,117 $
165,488 $
(1,820)
221
163,889 $
190,874
702
191,576
184,653
842
185,495
135,611
(1,593)
270
134,288
180,525
923
181,448
Basic earnings per share attributable to common shareholders
Diluted earnings per share attributable to common shareholders
$
$
0.89 $
0.88 $
0.89 $
0.88 $
0.74
0.74
Earnings per common unit and capital
The following is a summary of the elements used in calculating basic and diluted earnings per common unit:
Net income
Operating Partnership interests of third parties
Noncontrolling interest in subsidiaries
Net income attributable to common unitholders
Weighted average basic units outstanding
Unit options and restricted share units
Weighted average diluted units outstanding (1)
For the year ended December 31,
2018
2017
2019
(dollars and units in thousands, except per unit amounts)
$
$
170,771 $
(1,708)
54
169,117 $
165,488 $
(1,820)
221
163,889 $
190,874
702
191,576
184,653
842
185,495
135,611
(1,593)
270
134,288
180,525
923
181,448
Basic earnings per unit attributable to common unitholders
Diluted earnings per unit attributable to common unitholders
$
$
0.89 $
0.88 $
0.89 $
0.88 $
0.74
0.74
(1) For the years ended December 31, 2019, 2018 and 2017, the Company declared cash dividends per common share/unit of $1.29,
$1.22, and $1.11, 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 1,972,308; 1,945,570
and 1,878,253 as of December 31, 2019, 2018 and 2017, respectively. There were 193,557,024; 187,145,103 and 182,215,735 common
units outstanding as of December 31, 2019, 2018 and 2017, respectively.
Common Shares
The Company maintains an at-the-market equity program that enables it to offer and sell up to 50.0 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, 2019, 2018 and 2017 is summarized below:
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For the year ended December 31,
2018
(dollars and shares in thousands, except per share amounts)
2019
2017
Number of shares sold
Average sales price per share
Net proceeds after deducting offering costs
$
$
5,899
33.64 $
196,304 $
4,291
31.09 $
131,835 $
1,036
29.13
29,642
The proceeds from the sales of common shares under the program during the years ended December 31, 2019, 2018 and 2017 were used
to fund acquisitions of storage properties and for general corporate purposes. As of December 31, 2019, 2018 and 2017, 4.6 million
common shares, 10.5 million common shares and 4.7 million common shares, respectively, remained available for issuance under the
Equity Distribution Agreements.
18. INCOME TAXES
Deferred income taxes are established for temporary differences between the 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, 2019 or 2018. As of December 31, 2019 and 2018, the Company had
net deferred tax assets of $0.8 million and $1.4 million, respectively, which are included in Other assets, net on the Company’s
consolidated balance sheets. The Company believes it is more likely than not the deferred tax assets will be realized.
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly financial information for the years ended December 31, 2019 and 2018:
Total revenues
Total operating expenses
Net income
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
March 31,
2019
June 30,
2019
September 30, December 31,
2019
2019
Three months ended
$
(in thousands, except per share amounts)
152,845 $
99,014
35,786
35,498
0.19
0.19
159,017 $
100,583
49,878
49,420
0.26
0.26
166,547 $
106,855
42,597
42,154
0.22
0.22
165,506
105,394
42,510
42,045
0.22
0.22
March 31,
2018
June 30,
2018
September 30, December 31,
2018
2018
Three months ended
Total revenues
Total operating expenses
Net income
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
$
(in thousands, except per share amounts)
142,877 $
92,464
34,799
34,423
0.19
0.19
147,815 $
92,915
38,751
38,410
0.21
0.21
153,370 $
93,774
43,302
42,900
0.23
0.23
153,882
98,775
48,636
48,156
0.26
0.26
The sum of quarterly earnings per share amounts do not necessarily equal the full year amounts.
F-45
CUBESMART
SCHEDULE III
REAL ESTATE AND RELATED DEPRECIATION
December 31, 2019
(dollars in thousands)
Initial Cost
Buildings
&
Costs
Subsequent
to
Gross Carrying Amount at
December 31, 2019
Buildings
Accumulated
Depreciation
(A)
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 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 I, CA
Long Beach II, CA
Los Angeles, 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 Diego, 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
Square
Footage
47,880
82,915
57,100
115,430
56,807
25,050
52,575
45,511
59,209
110,810
121,880
69,710
94,462
67,575
72,475
77,330
68,409
59,800
43,950
49,820
48,040
45,184
40,766
52,663
46,650
67,496
46,350
42,700
42,275
45,800
48,995
74,770
75,620
95,124
103,528
143,645
45,926
51,189
60,475
124,541
70,630
76,818
49,775
57,094
93,540
50,542
83,600
53,978
57,391
99,783
67,320
85,101
59,944
50,764
111,565
31,070
41,426
35,416
83,352
56,803
78,695
111,833
87,412
37,425
63,831
52,390
55,085
81,340
84,520
74,238
147,723
50,664
39,765
68,393
75,717
62,400
47,975
62,400
59,200
74,420
76,025
54,770
87,800
53,490
43,102
Encumbrances Land
327
1,518
951
1,199
201
298
920
731
706
1,436
2,115
930
1,159
443
584
941
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
3,424
23,289
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
1,185
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
Improvements Acquisition
551
229
205
171
1,301
259
403
311
505
255
336
111
94
1,793
128
784
2,162
1,157
1,150
391
411
420
291
406
448
516
387
444
415
365
502
499
277
224
341
319
1,896
188
1,135
1,104
1
137
325
591
470
380
481
433
304
1,855
645
547
478
486
638
1,201
1,393
1,350
245
680
482
721
18
218
493
482
947
1,088
887
2,363
219
486
237
396
611
111
456
287
501
183
92
347
591
404
589
1,257
7,485
4,688
11,846
2,265
1,153
2,739
2,176
2,101
7,082
10,429
12,277
5,716
4,879
3,761
3,283
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
13,987
25,867
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
16,740
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
Land
327
1,518
951
1,199
418
298
921
731
706
1,436
2,115
930
1,159
883
584
941
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
3,424
23,289
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
1,186
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
F-46
&
Improvements Total
1,958
1,631
9,231
7,713
5,844
4,893
13,216
12,017
3,420
3,002
1,499
1,201
3,617
2,696
2,889
2,158
2,928
2,222
8,773
7,337
12,880
10,765
13,318
12,388
6,969
5,810
6,438
5,555
4,473
3,889
4,698
3,757
5,648
5,060
3,115
2,731
3,134
2,743
2,611
2,078
3,261
2,586
2,558
2,043
2,115
1,685
3,237
2,567
2,950
2,361
3,505
2,780
2,135
1,710
2,279
1,840
3,239
2,567
2,840
2,253
3,378
2,670
8,825
6,433
5,926
4,292
12,715
10,608
9,158
6,634
12,803
9,763
3,277
2,845
7,057
5,899
3,202
2,646
16,674
13,536
17,412
13,988
49,293
26,004
6,894
4,991
3,544
2,676
10,575
8,870
5,300
3,877
10,259
7,460
4,196
3,101
4,748
3,849
4,828
4,156
7,347
5,996
6,272
5,102
4,931
3,647
4,452
3,300
8,807
6,721
1,623
1,441
2,407
2,101
2,187
1,945
6,293
4,421
4,514
3,731
7,777
6,487
8,202
6,510
17,943
16,757
2,911
2,135
6,538
5,315
3,172
2,381
6,775
5,597
5,876
4,977
8,870
5,790
6,223
5,105
16,384
11,755
5,977
4,382
4,481
3,259
6,394
4,651
4,390
3,047
10,350
9,069
2,598
1,827
3,109
2,453
3,409
2,763
8,665
7,235
14,029
12,201
2,780
1,901
5,347
3,663
3,982
2,714
2,952
2,290
Year
Acquired/
Developed
2005
2013
2013
2016
1998
2005
2006
2006
2006
2015
2014
2016
2015
1998
2015
2005 / 2019
2013
1998
1998
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2014
2005
2007
1997
2014
2001
2006
2019
2018
2005
2005
2014
2005
2005
2005
2006
1997
2006
2006
2005
2005
2005/2017
1997
1997
1997
2005
2006
2006
2006
2018
2005
2006
2005
2006
1998
2007
2001
2005
2005
2005
2005
2005
2016
2005
2006
2006
2012
2016
2005
2005
2005
2005
752
1,544
1,048
1,098
1,555
520
1,241
1,022
979
1,087
1,999
1,141
892
2,949
511
1,063
1,237
1,435
1,412
914
1,169
935
767
1,176
1,063
1,269
754
908
1,145
1,056
1,247
2,856
2,007
1,736
3,074
3,765
1,503
1,134
1,192
5,917
—
868
2,256
1,217
1,486
1,814
3,288
1,421
1,690
2,279
2,655
2,233
1,722
1,493
1,999
748
1,092
1,032
1,694
1,658
2,889
2,951
595
981
2,354
1,062
2,484
2,328
2,144
2,347
5,363
1,957
1,505
2,204
1,321
978
813
1,110
1,202
1,688
1,245
835
1,624
1,165
925
Initial Cost
Buildings
&
Costs
Subsequent
to
Gross Carrying Amount at
December 31, 2019
Buildings
&
Accumulated
Depreciation
(A)
Description
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
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
Washington V, 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
Ft. Myers IV, FL
Ft. Myers V, 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
Orlando VII, FL
Oviedo, FL
Palm Coast I, FL
Palm Coast II, FL
Square
Footage
48,700
50,629
50,925
45,816
52,875
54,905
46,925
52,725
60,113
44,885
63,700
50,850
42,270
35,640
30,181
82,225
87,000
26,425
78,405
72,075
28,907
84,515
62,685
82,452
78,215
72,298
114,200
37,968
61,725
61,514
67,368
76,514
68,389
88,063
76,857
67,955
78,846
90,147
180,888
58,315
80,985
57,280
67,563
75,770
94,257
97,208
70,343
49,662
67,504
83,325
81,554
69,682
62,370
79,735
64,970
65,840
95,525
82,573
67,375
75,495
158,778
86,920
92,510
49,079
56,185
71,595
69,232
53,660
65,380
50,171
46,500
67,160
151,620
76,695
80,080
48,100
65,850
80,205
40,625
81,454
45,825
63,706
76,150
59,580
63,184
101,190
76,801
75,377
67,275
78,705
49,276
47,400
122,490
Improvements Acquisition
2,422
1,727
431
568
477
1,686
552
410
175
1,364
942
2,171
294
361
66
462
713
288
546
1,555
195
798
1,025
463
107
160
170
1,662
1,957
469
266
162
434
1,191
2,595
108
201
210
1,804
1,768
1,357
2,041
847
278
182
23
2,522
105
993
182
181
164
124
199
218
1,058
1,218
450
152
493
7,795
203
243
1,300
198
438
416
2,345
2,188
711
1,889
1,864
898
1,047
151
2,759
4,387
4,302
693
203
57
43
238
362
259
811
203
143
158
1
637
123
432
880
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
18,770
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
8,287
7,763
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
9,142
2,824
2,735
7,450
Land
360
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
13,917
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
992
950
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
896
440
555
1,511
Encumbrances Land
78
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
13,908
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
992
950
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
896
440
555
1,511
F-47
Improvements Total
2,691
3,447
3,127
1,591
2,120
3,661
2,651
1,832
3,483
1,920
3,741
3,048
1,838
1,672
3,253
15,884
5,233
1,934
8,494
2,284
3,029
13,121
11,059
12,299
15,545
20,577
18,931
3,607
4,420
3,000
6,304
7,333
2,929
5,125
4,031
5,494
6,061
9,760
9,650
3,137
6,266
4,528
4,098
4,996
10,469
14,407
5,482
4,356
3,318
5,262
5,839
8,451
7,887
4,878
5,674
6,055
7,184
6,916
3,876
6,826
11,148
7,857
4,959
1,604
2,213
2,299
2,524
3,427
3,031
2,781
2,889
3,569
12,257
9,980
6,096
3,225
5,342
4,224
3,076
6,417
7,706
10,188
3,425
2,788
4,195
7,191
3,286
4,828
3,312
9,143
2,784
2,859
7,883
3,051
3,951
4,946
2,335
2,593
4,150
3,214
2,828
4,154
2,194
5,745
3,458
2,897
2,583
3,899
17,055
8,325
3,069
10,107
2,556
4,970
15,542
11,953
15,453
20,014
26,936
32,848
4,420
5,378
4,030
7,529
8,788
4,109
7,056
4,861
6,587
7,250
11,697
13,234
3,618
7,639
5,839
4,981
5,953
12,555
16,615
6,866
5,218
3,646
6,292
6,987
9,443
8,837
6,740
6,624
7,725
8,835
8,136
4,631
9,176
11,502
9,409
5,916
1,860
2,622
3,200
3,516
3,826
3,414
3,577
3,373
4,130
16,834
11,943
7,302
3,495
5,900
4,822
3,483
7,678
9,080
13,195
4,711
3,979
5,784
8,400
3,919
5,778
3,952
10,039
3,224
3,414
9,394
Year
Acquired/
Developed
1997
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
2018
2001
2001
2005
2014
2015
2004
2004
2000
2014
2012
2014
2004
1996
2001
1998
2001
2013
2014
2017
1999
2013
1999
2014
2014
2019
2019
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
2019
2006
2014
2014
1,344
1,833
1,421
811
1,009
2,069
1,174
879
677
975
1,833
1,601
902
812
782
1,649
2,642
993
2,173
1,183
1,487
3,219
4,050
3,094
1,795
1,209
843
1,665
2,058
1,358
1,141
1,047
1,107
2,077
2,236
905
1,431
1,856
3,890
1,648
2,741
2,317
1,941
1,076
1,856
908
2,802
842
1,726
941
1,041
155
145
2,045
2,193
2,341
2,758
2,673
644
2,619
5,618
1,435
759
854
537
862
995
1,862
1,466
1,200
1,554
1,873
5,324
2,773
1,277
1,673
2,845
2,255
1,655
1,073
751
615
1,499
1,086
1,830
2,882
953
1,128
560
21
1,151
561
1,529
Initial Cost
Buildings
&
Costs
Subsequent
to
Gross Carrying Amount at
December 31, 2019
Buildings
&
Accumulated
Depreciation
(A)
Description
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 I, FL
Winter Park II, FL
Winter Springs, FL
Alpharetta, GA
Atlanta I, GA
Atlanta II, GA
Austell, GA
Decatur, GA
Duluth, GA
Lawrenceville, GA
Lithia Springs, GA
Norcross I, GA
Norcross II, GA
Norcross III, GA
Norcross IV, GA
Norcross V, 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 I, IL
Glenview II, 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 I, MA
Brockton II, MA
East Bridgewater, MA
Fall River, MA
Franklin, MA
Haverhill, MA
Holbrook, MA
Lawrence, MA
Square
Footage
82,685
67,321
81,178
61,810
69,875
71,142
59,725
66,025
87,486
65,060
83,938
74,790
66,831
94,113
77,410
102,722
54,416
71,363
61,965
90,501
66,600
81,665
83,655
145,320
70,885
73,890
73,200
85,320
52,595
46,955
57,475
50,030
49,875
59,950
57,015
80,000
85,125
79,590
65,281
31,574
73,985
51,395
86,500
55,125
82,575
95,792
78,835
84,890
60,420
51,775
71,748
90,947
97,658
69,450
71,625
64,104
57,715
100,085
30,844
80,300
41,190
60,090
72,865
74,438
58,728
60,225
65,000
44,700
53,500
53,900
51,900
73,883
31,160
64,305
48,796
79,500
48,175
53,400
54,210
67,825
50,257
67,600
33,286
60,470
108,205
59,993
69,375
35,905
75,950
63,405
60,589
56,100
34,672
Improvements Acquisition
71
2,905
340
241
251
1,516
3,497
436
3,272
305
307
140
1,864
555
138
333
127
1
—
1,032
137
4
447
457
258
472
425
1,082
241
94
134
38
811
157
334
392
365
152
177
605
264
356
1,186
92
209
1,044
98
834
153
121
76
332
265
871
60
321
290
599
73
440
406
502
325
4,603
1,055
80
672
493
629
373
345
93
270
601
544
686
547
341
558
626
373
78
291
884
765
1,225
3
2
33
3
227
2
275
16,178
3,772
8,607
2,911
4,944
3,656
1,515
10,173
3,625
7,598
6,249
10,262
3,420
8,671
3,962
7,392
4,268
9,286
7,259
4,720
4,053
11,579
4,711
6,776
2,044
2,903
5,552
2,930
2,025
4,625
2,839
3,083
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
3,144
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
3,520
4,748
11,684
5,704
6,610
8,033
4,737
Land
2,387
953
1,640
453
1,003
529
383
2,721
685
1,390
2,670
2,291
835
2,129
804
1,499
866
1,897
1,248
917
822
1,890
1,643
616
373
546
719
632
366
938
576
881
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
725
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
1,900
1,039
1,794
2,034
669
1,688
585
Encumbrances Land
2,457
337
1,640
453
1,003
333
135
2,721
324
1,390
2,670
2,291
719
2,129
804
1,499
866
1,897
1,248
806
822
1,890
1,635
616
373
546
748
514
366
938
576
881
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
725
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
1,900
1,039
1,794
2,034
669
1,688
585
F-48
Improvements Total
16,319
5,530
7,284
2,584
5,194
3,955
4,404
10,609
5,904
6,039
5,203
10,402
4,034
7,114
4,100
7,724
4,394
9,287
7,259
4,045
4,191
11,583
4,502
6,224
1,976
2,945
6,006
3,087
1,979
4,719
2,973
3,121
2,558
2,119
3,480
4,510
4,658
5,877
5,793
3,308
3,058
2,215
5,216
3,212
8,463
14,161
4,134
12,796
6,538
5,265
9,611
11,523
12,951
4,158
13,213
2,999
5,729
8,539
3,217
4,606
2,062
3,255
3,934
6,385
4,021
3,769
3,041
2,602
2,873
1,636
2,013
7,919
718
1,798
3,184
3,992
2,229
3,315
3,002
3,537
2,980
5,667
2,908
7,051
16,594
5,619
3,523
4,750
11,717
5,707
6,837
8,035
5,012
18,706
6,483
8,924
3,037
6,197
4,484
4,787
13,330
6,589
7,429
7,873
12,693
4,869
9,243
4,904
9,223
5,260
11,184
8,507
4,962
5,013
13,473
6,145
6,840
2,349
3,491
6,725
3,719
2,345
5,657
3,549
4,002
3,087
2,517
4,230
6,170
6,395
6,499
6,550
3,736
3,702
3,146
6,228
3,845
10,138
16,828
4,967
15,223
7,834
6,309
11,207
11,523
15,558
5,722
14,711
4,445
6,832
12,279
3,942
6,127
3,188
4,124
4,481
8,382
5,326
4,518
4,742
4,100
3,946
3,376
2,707
9,504
1,256
3,245
4,250
5,190
3,300
4,470
3,859
4,330
3,923
6,801
3,446
8,567
19,805
6,196
5,423
5,789
13,511
7,741
7,506
9,723
5,597
Year
Acquired/
Developed
2016
1997
2007
2006
2014
1999
1996
2016
1997
2007
2007
2016
2001
2004
2012
2014
2014
2019
2019
2001
2012
2019
2006
1998
2011
2011
2015
2001
2011
2012
2012
2019
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
2018
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
2019
2019
2019
2019
2015
2019
2015
1,686
2,966
2,834
1,010
877
1,979
2,393
1,113
3,169
2,333
2,003
1,067
1,835
2,843
921
1,402
738
22
17
1,843
980
145
1,788
3,499
533
807
759
1,355
552
1,181
703
55
1,152
499
1,602
1,773
1,821
2,267
768
1,283
1,189
874
2,315
493
1,415
2,430
685
2,206
989
794
1,067
753
2,147
1,624
1,497
1,233
1,234
3,349
113
1,818
813
1,229
1,538
1,254
1,622
568
1,197
989
1,119
630
835
747
287
694
1,335
1,566
876
1,287
1,182
1,418
1,146
1,010
846
3,002
2,788
718
65
76
186
100
887
137
672
Initial Cost
Buildings
&
Costs
Subsequent
to
Gross Carrying Amount at
December 31, 2019
Buildings
&
Accumulated
Depreciation
(A)
Description
Leominster, MA
Medford, MA
Milford, MA
New Bedford, MA
Stoneham, MA
Tewksbury, MA
Walpole, MA
Waltham, MA
Annapolis I, MD
Annapolis II, 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
Charlotte III, NC
Charlotte IV, NC
Cornelius, NC
Pineville, NC
Raleigh, NC
Bayonne, NJ
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
Las Vegas VII, 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
Bronx XIII, NY
Brooklyn I, NY
Brooklyn II, NY
Brooklyn III, NY
Brooklyn IV, NY
Brooklyn V, NY
Square
Footage
54,048
58,675
44,950
69,775
62,200
62,402
74,980
87,840
92,302
76,765
93,750
63,657
77,840
79,600
84,225
80,365
63,475
87,045
74,100
52,830
162,896
97,270
84,325
66,717
62,240
100,928
81,850
109,300
42,165
111,750
69,000
53,683
69,037
37,700
59,270
77,747
48,675
96,867
50,550
54,910
51,700
65,450
105,550
91,280
105,704
36,025
70,400
38,684
27,896
84,070
70,550
38,484
100,425
96,025
76,026
84,705
83,121
52,565
67,803
53,569
57,826
57,485
92,070
65,927
58,798
57,536
75,150
48,732
49,570
84,600
90,527
107,226
92,732
94,525
61,380
67,864
99,028
105,850
74,415
54,704
45,970
78,700
30,550
147,800
159,805
46,425
100,983
201,195
64,656
60,845
41,610
37,560
47,070
Improvements Acquisition
2,669
344
3
2
308
283
569
—
84
50
1,711
139
365
62
156
656
251
598
90
115
4,001
2,669
81
247
112
351
986
911
542
982
1,779
67
86
2
1,113
160
477
—
177
1,765
240
330
815
2,928
4,650
196
430
742
799
361
527
995
2,741
327
3,404
6,242
710
1,602
480
449
1,460
608
661
392
437
406
124
604
623
133
384
190
175
194
672
1,259
1,773
278
163
261
381
235
353
1,555
621
384
105
305
458
533
190
219
149
1,519
7,165
6,638
9,950
7,679
7,579
13,069
14,491
13,938
17,890
5,997
6,295
4,280
13,332
10,757
8,313
5,695
9,000
11,750
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
8,211
1,425
4,991
9,169
2,398
23,007
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
11,483
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
68,378
10,172
9,073
13,570
11,184
11,636
Land
338
1,330
1,222
1,653
1,558
1,537
634
2,683
2,643
2,425
1,173
1,268
1,486
2,704
2,182
1,527
1,120
3,124
2,383
1,113
1,928
1,800
2,229
2,269
1,309
1,598
451
498
340
543
1,068
821
1,974
721
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
1,575
1,559
2,014
—
6,460
—
—
—
—
1,251
7,967
9,090
—
—
19,684
1,795
1,601
2,772
2,284
2,374
Encumbrances Land
5,459
7,805
2,740
21,547
24,042
90
1,330
1,222
1,653
1,558
1,537
634
2,683
2,643
2,425
1,050
1,277
1,486
2,704
2,182
1,527
1,155
3,124
2,383
1,113
1,409
1,541
2,229
2,269
1,309
1,598
385
498
320
543
782
821
1,974
721
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
1,575
1,559
2,014
—
6,459
—
—
—
—
1,245
7,967
9,090
—
—
19,622
1,795
1,601
2,772
2,283
2,374
F-49
Improvements Total
3,546
6,016
6,641
9,952
7,987
7,861
13,638
14,491
14,022
17,940
5,543
6,442
3,634
13,394
10,913
7,844
5,982
7,503
11,840
5,600
9,163
8,908
11,069
11,430
6,565
12,649
2,364
2,930
1,829
3,378
4,753
8,831
8,297
1,427
6,104
9,329
2,399
23,007
2,431
3,677
1,279
2,653
11,654
5,226
8,431
696
1,817
2,583
2,948
5,711
5,188
4,309
7,201
5,191
7,358
10,219
8,036
4,784
9,405
10,208
3,148
6,737
11,276
3,203
3,614
2,187
6,266
3,177
5,452
10,167
8,959
9,750
12,474
11,677
8,357
11,076
29,527
32,111
19,582
15,706
15,152
22,856
6,520
40,829
45,419
17,516
31,708
68,621
9,212
8,286
13,842
11,465
11,838
3,884
7,346
7,863
11,605
9,545
9,398
14,272
17,174
16,665
20,365
6,716
7,710
5,120
16,098
13,095
9,371
7,102
10,627
14,223
6,713
11,091
10,708
13,298
13,699
7,874
14,247
2,815
3,428
2,169
3,921
5,821
9,652
10,271
2,148
8,528
11,819
2,695
23,007
2,888
4,162
1,501
3,124
15,994
6,005
9,746
800
2,101
3,334
3,194
6,797
7,081
5,679
8,244
6,178
8,430
11,063
9,522
5,892
11,215
12,052
3,854
7,980
13,429
4,242
4,777
2,851
7,512
5,028
8,807
11,338
10,075
11,210
13,860
13,252
9,916
13,090
29,527
38,571
19,582
15,706
15,152
22,856
7,771
48,796
54,509
17,516
31,708
88,305
11,007
9,887
16,614
13,749
14,212
Year
Acquired/
Developed
1998
2007
2019
2019
2013
2014
2016
2019
2017
2019
2001
2013
2004
2015
2013
2011
2013
2005
2015
2013
2001
2001
2014
2014
2013
2016
2001
2001
2001
2001
2002
2016
2018
2019
2015
2015
1998
2019
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
2018
2015
2010
2011
2011
2011
2011
2011
2012
2012
2012
2012
2014
2016
2018
2010
2010
2011
2011
2011
1,787
2,183
109
156
1,684
1,425
1,365
218
1,091
427
2,422
1,354
1,400
1,883
2,122
2,099
1,192
2,909
1,675
1,186
4,154
4,038
2,087
2,168
1,397
1,164
1,095
1,433
825
1,581
1,987
772
340
29
790
1,231
1,256
670
567
1,940
356
616
4,877
2,725
4,471
170
529
1,120
1,512
1,319
2,063
1,936
3,814
1,231
3,732
3,760
1,683
2,077
1,321
1,324
1,459
1,521
2,330
1,518
1,680
1,049
1,043
1,615
2,694
962
903
888
1,039
431
1,206
3,301
7,651
8,312
5,088
4,087
3,946
5,692
1,607
10,059
10,744
2,696
3,664
3,327
2,700
2,472
3,598
2,990
3,065
Description
Brooklyn VI, NY
Brooklyn VII, NY
Brooklyn VIII, NY
Brooklyn IX, NY
Brooklyn X, NY
Brooklyn XI, NY
Brooklyn XII, NY
Flushing, 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
Queens III, NY
Riverhead, NY
Southold, NY
Staten Island, NY
Tuckahoe, NY
West Hempstead, NY
White Plains, NY
Woodhaven, NY
Wyckoff, NY
Yorktown, NY
Cleveland I, OH
Cleveland II, OH
Columbus I, OH
Columbus II, OH
Columbus III, OH
Columbus IV, OH
Columbus V, OH
Columbus VI, OH
Grove City, OH
Hilliard, OH
Lakewood, OH
Lewis Center, OH
Middleburg Heights, OH
North Olmsted I, OH
North Olmsted II, OH
North Randall, OH
Reynoldsburg, OH
Strongsville, OH
Warrensville Heights, OH
Westlake, OH
Conshohocken, PA
Exton, PA
Langhorne, PA
Levittown, PA
Malvern, PA
Montgomeryville, PA
Norristown, PA
Philadelphia I, PA
Philadelphia II, PA
Exeter, RI
Johnston, RI
Wakefield, RI
Charleston I, SC
Charleston II, SC
Goose Creek I, SC
Goose Creek II, SC
Mount Pleasant, SC
North Charleston I, SC
North Charleston II, SC
North Charleston III, SC
Woonsocket, RI
Antioch, TN
Nashville I, TN
Nashville II, TN
Nashville III, TN
Nashville IV, TN
Nashville V, TN
Nashville VI, TN
Nashville VII, TN
Nashville VIII, 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
Austin IX, TX
Carrollton, TX
Cedar Park, TX
College Station, TX
Cypress, TX
Square
Footage
74,180
72,725
61,525
46,980
55,913
110,050
131,813
64,995
60,372
89,735
92,780
88,800
44,076
63,385
94,944
78,350
47,759
82,875
90,578
80,566
38,490
59,945
96,573
51,358
83,395
85,924
50,455
60,440
78,879
46,000
58,325
71,905
36,659
51,200
60,950
73,325
63,525
89,290
89,290
39,332
76,224
93,200
48,672
47,850
80,297
67,245
43,683
90,281
62,750
81,285
57,750
64,838
77,730
18,820
84,145
61,521
96,639
68,279
41,275
77,275
47,895
58,840
40,950
52,475
41,419
72,671
54,755
56,885
54,424
79,100
75,985
108,490
83,174
101,525
102,450
74,560
72,416
65,681
71,234
62,170
59,645
64,310
70,585
65,258
67,850
63,150
71,023
61,038
78,498
77,380
86,725
26,550
58,161
Encumbrances Land
Accumulated
Depreciation
(A)
30,588
Initial Cost
Buildings
&
Costs
Subsequent
to
Gross Carrying Amount at
December 31, 2019
Buildings
&
4,210
5,604
4,982
2,966
3,739
10,093
7,249
17,177
2,029
2,043
5,391
5,700
1,673
3,167
42,022
225
1,141
5,158
6,208
13,663
1,068
2,079
1,919
2,363
2,237
3,295
2,015
1,961
2,382
525
290
1,234
769
326
443
838
701
1,756
1,361
405
1,056
63
63
290
515
1,290
570
525
509
1,726
541
1,019
926
2,959
975
662
1,461
1,012
547
1,061
823
606
570
771
409
1,434
755
809
763
1,049
588
405
593
416
992
895
2,749
1,116
1,363
714
2,239
734
1,030
862
1,050
1,150
1,429
2,935
1,321
661
3,350
812
360
Improvements Acquisition
170
460
147
168
3,133
250
29
85
81
2,776
445
284
1,227
470
148
4,237
90
1,203
508
—
234
355
938
349
276
1,043
236
408
230
365
263
165
387
138
158
161
155
330
365
701
159
2,449
1,607
1,294
3,282
392
438
3,312
336
350
259
615
1,403
1,753
469
1,100
2,980
318
167
132
204
30
4
3
134
46
2
9
54
517
395
1,148
365
458
545
892
174
3
5
140
324
489
365
473
332
337
363
76
48
152
439
224
213
20,638
27,452
24,561
14,620
7,703
35,385
40,230
17,356
10,737
11,658
26,413
28,101
4,827
2,713
38,753
2,514
5,624
12,339
25,815
32,025
1,149
2,238
9,463
17,411
11,030
18,049
11,219
11,113
11,720
2,592
1,427
3,151
3,788
1,607
2,182
4,128
3,454
4,485
3,476
854
5,206
704
704
1,129
2,323
3,295
3,486
766
2,508
8,508
2,668
5,023
5,296
18,198
4,809
3,142
8,334
4,990
2,697
5,229
4,058
1,763
1,986
5,307
2,641
9,826
5,349
2,129
2,038
5,172
4,906
3,379
4,950
3,469
8,274
4,311
8,443
8,592
8,820
3,519
2,038
3,894
5,468
4,250
5,175
5,669
6,263
7,007
9,643
3,261
7,950
740
1,773
Land
4,211
5,604
4,982
2,966
4,885
10,093
7,250
17,177
2,029
2,043
5,391
5,700
1,673
3,762
42,022
568
1,141
5,160
6,208
13,663
1,068
2,079
1,919
2,363
2,237
3,295
2,015
1,961
2,382
524
289
1,239
769
326
443
838
701
1,761
1,366
405
1,056
332
214
469
898
1,295
570
935
508
1,726
519
1,019
926
2,959
975
638
1,461
1,012
547
1,061
823
606
570
771
409
1,434
755
809
763
1,049
588
405
593
416
992
895
2,749
1,116
1,363
714
2,239
738
1,035
862
1,050
1,150
1,429
2,935
1,321
661
3,350
813
360
Improvements Total
20,915
28,077
24,708
14,789
9,690
35,635
40,258
17,441
10,818
11,698
27,001
28,385
5,394
18,944
38,901
5,598
5,714
13,540
26,323
32,025
1,104
2,189
10,401
11,989
11,304
16,595
10,158
10,036
11,963
2,607
1,437
2,841
4,175
1,746
2,339
4,289
3,609
4,194
3,354
1,397
5,364
2,482
1,809
2,096
3,994
3,233
3,089
3,463
2,453
8,851
2,949
5,638
4,978
19,949
5,272
4,372
7,967
5,308
2,864
5,362
4,263
1,793
1,990
5,310
2,775
9,872
5,351
2,138
2,092
5,688
4,533
3,939
4,621
3,590
7,574
5,203
8,617
8,595
8,825
3,660
2,013
3,819
5,170
4,723
5,507
6,007
6,626
7,083
9,691
3,413
8,389
777
1,986
25,126
33,681
29,690
17,755
14,575
45,728
47,508
34,618
12,847
13,741
32,392
34,085
7,067
22,706
80,923
6,166
6,855
18,700
32,531
45,688
2,172
4,268
12,320
14,352
13,541
19,890
12,173
11,997
14,345
3,131
1,726
4,080
4,944
2,072
2,782
5,127
4,310
5,955
4,720
1,802
6,420
2,814
2,023
2,565
4,892
4,528
3,659
4,398
2,961
10,577
3,468
6,657
5,904
22,908
6,247
5,010
9,428
6,320
3,411
6,423
5,086
2,399
2,560
6,081
3,184
11,306
6,106
2,947
2,855
6,737
5,121
4,344
5,214
4,006
8,566
6,098
11,366
9,711
10,188
4,374
4,252
4,557
6,205
5,585
6,557
7,157
8,055
10,018
11,012
4,074
11,739
1,590
2,346
2,313
F-50
Year
Acquired/
Developed
2011
2011
2014
2014
2015
2016
2017
2018
2015
2001
2011
2014
2005
2012
2017
1998
2014
2015
2016
2019
2005
2005
2013
2011
2012
2011
2011
2010
2011
2005
2005
2006
2014
2014
2014
2014
2014
2006
2006
1989
2014
1980
1979
1988
1998
2006
2007
1980
2005
2012
2012
2012
2001
2013
2012
2011
2001
2014
2014
2014
2014
2019
2019
2019
2019
2019
2019
2019
2019
2014
2005
2005
2005
2006
2006
2015
2015
2019
2019
2012
2005
2006
2006
2014
2014
2014
2015
2016
2018
2012
2016
2005
2012
5,410
7,242
4,462
2,672
1,336
4,163
2,697
527
1,414
5,133
7,007
4,554
2,288
4,696
2,661
2,938
941
1,916
3,538
1,002
569
1,120
2,153
3,103
2,625
4,594
2,610
2,875
3,115
1,191
672
1,291
693
301
394
713
601
1,846
1,469
1,098
898
1,245
945
1,815
1,933
1,450
1,234
1,732
1,152
2,054
676
1,276
2,250
3,289
1,223
1,168
3,290
990
486
890
684
34
34
84
27
159
85
39
37
900
2,043
1,654
2,068
1,596
3,357
901
1,128
139
144
877
877
1,570
2,130
884
946
1,014
857
944
646
775
1,068
332
478
Description
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
Fort Worth V, 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
Houston X, TX
Houston XI, TX
Humble, TX
Katy, TX
Keller, TX
Lewisville I, TX
Lewisville II, TX
Lewisville III, TX
Little Elm I, TX
Little Elm II, TX
Mansfield I, TX
Mansfield II, TX
Mansfield III, TX
McKinney I, TX
McKinney II, TX
McKinney III, TX
North Richland Hills, TX
Pearland, TX
Richmond, TX
Roanoke, TX
San Antonio I, TX
San Antonio II, TX
San Antonio III, TX
San Antonio IV, TX
Spring, TX
Murray I, UT
Murray II, UT
Salt Lake City I, UT
Salt Lake City II, UT
Alexandria, VA
Arlington, VA
Burke Lake, VA
Fairfax, VA
Fredericksburg I, VA
Fredericksburg II, VA
Leesburg, VA
Manassas, VA
McLearen, VA
Vienna, VA
Divisional Offices
Square
Footage
58,582
76,673
83,020
114,300
54,430
61,446
50,066
72,900
80,645
77,329
79,322
52,594
71,039
74,265
74,635
74,215
69,176
70,100
68,425
77,019
61,590
43,750
121,189
54,690
46,991
54,203
51,208
95,789
80,930
70,700
71,118
88,685
67,340
127,659
93,855
60,015
95,096
63,000
57,375
71,000
46,770
70,050
53,650
57,200
72,050
102,275
59,240
73,325
73,005
71,555
61,500
72,745
60,280
70,796
56,446
51,676
114,100
95,993
91,237
73,265
69,475
61,057
85,503
72,745
68,960
55,260
Initial Cost
Buildings
&
Costs
Subsequent
to
Gross Carrying Amount at
December 31, 2019
Buildings
Encumbrances Land
Improvements Acquisition Land
2,475
940
2,608
2,369
—
553
1,253
868
1,000
1,274
1,271
1,093
1,564
1,147
719
1,159
1,064
751
862
1,211
575
960
1,153
575
681
1,294
296
5,267
5,616
706
1,329
1,330
476
1,464
1,307
892
1,219
837
662
947
1,632
855
652
2,252
450
1,437
1,337
2,895
1,047
996
829
580
3,847
2,147
2,695
2,074
2,812
6,836
2,093
2,276
1,680
1,757
1,746
860
1,482
2,300
2,253
4,635
12,857
11,850
11,604
2,936
1,141
4,607
4,928
7,693
5,485
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
12,667
15,330
5,727
6,552
7,960
2,525
7,217
15,025
5,529
9,864
4,443
3,261
4,703
1,486
5,076
3,213
2,049
2,216
7,083
1,217
2,635
5,558
5,286
3,891
3,081
1,017
567
712
548
13,865
9,843
10,940
11,220
4,840
5,062
9,894
4,872
8,400
11,340
&
Improvements
2,284
4,894
13,198
11,947
11,706
2,978
1,280
4,355
5,133
7,732
5,558
2,911
4,168
5,967
3,821
5,871
5,425
4,077
4,309
8,693
906
1,414
7,197
5,064
3,548
6,772
1,668
12,681
15,435
5,861
6,648
7,696
2,630
7,736
15,270
5,671
10,011
4,203
3,430
4,909
1,534
4,800
3,289
1,935
2,838
7,348
1,279
2,499
5,191
4,908
4,069
2,919
1,376
1,106
1,113
822
14,138
9,946
10,570
11,544
4,601
4,819
8,813
4,571
7,511
11,522
956
3,619,594
(A)
Year
Accumulated
Depreciation Acquired/
Developed
2005
2013
2014
2015
2015
2006
2005
2006
2015
2016
2019
2005
2005
2006
2010
2014
2014
2006
2006
2016
2005
2005
2006
2011
2012
2012
2012
2018
2018
2015
2013
2006/2017
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
1,006
980
2,148
1,838
1,665
1,121
546
1,829
799
934
27
1,269
1,799
2,453
1,115
1,099
920
1,683
1,727
1,042
400
572
2,707
1,380
905
1,630
401
605
528
772
1,290
2,079
1,052
1,580
1,662
647
1,120
1,752
841
494
659
1,990
532
852
630
1,413
524
1,095
2,058
1,935
392
1,223
663
469
535
408
3,397
1,706
2,995
2,707
1,884
2,012
2,274
1,315
2,149
2,696
182
853,935
Total
4,759
5,834
15,806
14,316
11,706
3,547
2,533
5,229
6,133
9,006
6,829
4,004
5,732
7,121
4,540
7,030
6,489
4,844
5,171
9,904
1,482
2,375
8,188
6,047
4,229
8,066
1,964
17,948
21,051
6,567
7,977
9,027
3,122
9,200
16,577
6,563
11,230
5,046
4,092
5,856
3,168
5,657
3,941
4,187
3,288
8,785
2,616
5,394
6,243
5,904
4,898
3,499
5,224
3,253
3,809
2,759
16,950
16,782
12,663
13,820
6,281
6,576
10,559
5,431
8,993
13,822
956
4,478,135
510
258
341
97
102
538
378
419
205
39
73
221
277
690
345
157
178
687
328
134
495
740
1,825
5,863
194
394
210
14
105
134
94
351
543
520
245
142
147
343
169
206
290
349
77
266
621
264
288
396
326
345
178
330
576
712
587
440
276
103
1,230
322
435
448
208
371
267
182
956
336,395
2,475
940
2,608
2,369
—
569
1,253
874
1,000
1,274
1,271
1,093
1,564
1,154
719
1,159
1,064
767
862
1,211
576
961
991
983
681
1,294
296
5,267
5,616
706
1,329
1,331
492
1,464
1,307
892
1,219
843
662
947
1,634
857
652
2,252
450
1,437
1,337
2,895
1,052
996
829
580
3,848
2,147
2,696
1,937
2,812
6,836
2,093
2,276
1,680
1,757
1,746
860
1,482
2,300
858,541
36,603,609
837,399
3,530,854
(A) 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.
F-51
Activity in storage properties during the period from January 1, 2017 through December 31, 2019 was as follows (in thousands):
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
2019
2018
2017
4,463,455 $
364,324
(81,717)
(3,033)
(43,185)
4,699,844 $
4,161,715 $
381,182
(26,125)
(8,735)
(44,582)
4,463,455 $
3,998,180
247,546
(53,903)
(9,179)
(20,929)
4,161,715
862,487 $
145,233
(81,717)
(644)
925,359 $
3,774,485 $
752,925 $
138,510
(26,125)
(2,823)
862,487 $
3,600,968 $
671,364
135,732
(53,903)
(268)
752,925
3,408,790
$
$
$
$
$
* These amounts include equipment that is housed at the Company’s stores which is excluded from Schedule III above.
As of December 31, 2019, the aggregate cost of Storage properties for federal income tax purposes was approximately $4,945.3 million.
F-52
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Exhibit 4.23
The following description summarizes certain terms of the shares of beneficial interest of CubeSmart. This description does not purport to
be complete and is qualified in its entirety by reference to our declaration of trust, as amended, and our bylaws, as amended, each of
which is incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this Exhibit is a part. We encourage you to
read our declaration of trust, as amended, and our bylaws, as amended, and the applicable provisions of Maryland law for additional
information. Unless the context requires otherwise, all references to “we”, “us,” “our” and “CubeSmart” in this section refer solely to
CubeSmart and not to its subsidiaries.
Authorized Shares
Our declaration of trust provides that we may issue up to 440,000,000 shares of beneficial interest, par value $0.01 per share, which we
refer to as shares, of which 400,000,000 consist of common shares and 40,000,000 consist of preferred shares. There are no preferred
shares currently outstanding. Our board of trustees has authority, without shareholder approval, to reclassify any authorized but unissued
common shares in one or more classes or series of common shares, and to classify any authorized but unissued preferred shares and to
reclassify any previously classified but unissued preferred shares of any series from time to time into one or more series or common shares
or preferred shares.
Our declaration of trust provides that none of our shareholders will be personally liable, by reason of status as a shareholder, for any of our
debts, claims or other obligations.
Common Shares
Each common share generally entitles the holder thereof to one vote per share on all matters upon which shareholders are entitled to vote
and, except as provided with respect to any class or series of preferred shares that we may issue, the holders of common shares will
possess exclusive voting power on all matters as to which shareholders have voting rights. There is no cumulative voting in the election of
trustees. Our bylaws provide that a plurality of the votes cast at a meeting of shareholders duly called at which a quorum is present is
sufficient to elect a trustee and that a majority of the votes cast at a meeting of shareholders duly called at which a quorum is present is
sufficient to approve any other matter which may properly come before the meeting, unless a higher vote is required under our declaration
of trust or bylaws or applicable statute. Generally, shareholders have the right to vote on: (i) the election of trustees; (ii) mergers or
consolidations of CubeSmart and the sale by CubeSmart of all or substantially all of its assets; and (iii) certain amendments to our
declaration of trust. Shareholders also have the right to propose amendments or modifications to our bylaws and to vote on such
amendments and modifications. Approval of such matters would require the affirmative vote of the majority of the shares entitled to vote
on such matters. Our board of trustees may amend the declaration of trust without shareholder approval to maintain our qualification as a
real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended (the “Code”), or in any manner in which the
charter of a Maryland corporation may be amended without shareholder approval.
Subject to the preferences of any future class or series of preferred shares, holders of common shares are entitled to receive dividends and
distributions, if any, when authorized by our board of trustees, and payable out of assets legally available for the payment of dividends or
distributions. Holders of common shares are entitled to share ratably in our assets legally available for distribution to shareholders in the
event of our liquidation, dissolution or winding up, after payment of or adequate provision for all of our known debts and liabilities, and
subject to the preferential rights, if any, of the holders of any class or series of preferred shares that we may issue.
Holders of common shares have no preference, conversion, exchange, sinking fund, redemption or appraisal rights and have no preemptive
rights to subscribe for any of our securities. Subject to the restrictions on transfer of shares contained in the declaration of trust and to the
power of our board of trustees to create common shares with differing voting rights, all common shares have equal dividend, liquidation
and other rights.
The common shares are listed on the New York Stock Exchange under the symbol “CUBE.” The transfer agent and registrar for the
common shares is American Stock Transfer & Trust Co., LLC.
Preferred Shares
Our board of trustees is authorized, without shareholder approval, to classify and designate the rights, preferences, privileges and
restrictions of one or more classes or series of our authorized preferred shares. Prior to the issuance of a new class or series of preferred
shares, we would file with State Department of Assessments and Taxation of Maryland articles supplementary to set the preferences,
conversion or other rights, voting powers, restrictions and limitations as to dividends and other distributions, qualifications and terms and
conditions of redemption for such class or series. Any class or series of preferred shares that we may issue that ranks senior to common
shares as to dividends and distributions would limit our ability to pay dividends and distributions on common shares until full distributions
have been paid with respect to such preferred shares.
Our board of trustees could authorize, without shareholder approval, the issuance of preferred shares with terms and conditions that could
have the effect of discouraging, delaying or preventing a takeover, change of control or other transaction in which holders of some or a
majority of our outstanding common shares might have received a premium for their shares over the then-prevailing market price of such
shares.
Restrictions on Ownership and Transfer of Shares
In order for us to maintain our qualification as a REIT under the Code, our shares must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year. Also, no more than 50% of
the value of our outstanding shares may be owned, directly, indirectly or through attribution, by five or fewer individuals (as defined in the
Code to include certain entities).
Because our board of trustees believes that it is important for us to continue to qualify as a REIT, the declaration of trust, subject to certain
exceptions, contains restrictions on the percentage of shares that a person may own. Under the declaration of trust:
no person may own directly or indirectly, or be deemed to own through attribution, more than 9.8% (in value or number of shares,
whichever is more restrictive) of the issued and outstanding (a) common shares or (b) shares of any class or series of preferred
shares;
no person may beneficially or constructively own shares that would result in our being “closely held” under Section 856(h) of the
Code or otherwise cause us to fail to qualify as a REIT; and
no person may transfer shares if such transfer would result in shares being owned by fewer than 100 persons.
Our board of trustees may exempt a person that is not an individual from the 9.8% ownership limit if such person provides information and
makes representations to the board of trustees that are satisfactory to the board of trustees, in its reasonable discretion, to establish that
such person’s ownership in excess of the 9.8% limit would not jeopardize our qualification as a REIT.
Any person who acquires or attempts or intends to acquire beneficial or constructive ownership of shares that will or may violate any of
the foregoing restrictions on transferability and ownership will be required to give us immediate notice and provide such other information
to us as we may request in order to determine the effect of such transfer on our status as a REIT. If any transfer of shares or any other
event would otherwise result in any person violating the ownership limits described above, then the declaration of trust provides that (a)
the transfer will be void and of no force or effect with respect to the prohibited transferee with respect to that number of shares that
exceeds the ownership limits or that such number of shares will be automatically transferred to a charitable trust for the benefit of a
charitable beneficiary and (b) the prohibited transferee would not acquire any right or interest in the shares. The foregoing restrictions on
transferability and ownership would not apply if our board of trustees were to determine that it is no longer in our best interests to attempt
to qualify, or to continue to qualify, as a REIT.
All certificates evidencing shares bear a legend referring to the restrictions described above.
The declaration of trust expressly provides that the ownership limit and ownership restrictions on our shares shall not preclude the
settlement of any transaction entered into through the facilities of the New York Stock Exchange or any other national securities exchange
or quotation system over which shares may be traded from time to time. The fact that the settlement of any transaction occurs shall not
negate the effect of any other provision in the declaration of trust providing for ownership limit or ownership restrictions and any
transferee in such a transaction shall be subject to all of such other provisions.
Every owner of more than 5% (or such lower percentage as required by the Code or the regulations promulgated thereunder) of all classes
or series of shares, including common shares, is required to give written notice to us within 30 days after the end of each taxable year
stating the name and address of such owner, the number of shares of each class and series of shares that the owner beneficially owns and a
description of the manner in which such shares are held. Each such owner shall provide to us such additional information as we may
request in order to determine the effect, if any, of such beneficial ownership on our status as a REIT and to ensure compliance with the
ownership limitations. In addition, each shareholder is required, upon demand, to provide to us such information as we may request, in
good faith, in order to determine our status as a REIT and to comply with the requirements of any taxing authority or governmental
authority or to determine such compliance.
The ownership limitations in the declaration of trust could discourage, delay or prevent a takeover, change of control or other transaction
in which holders of some or a majority of our outstanding common shares might have received a premium for their shares over the then-
prevailing market price of such shares.
Subsidiary
101 OLD WINDSOR ROAD, LLC
1053 CROMWELL AVENUE, LLC
12250 El Dorado Parkway, LLC
12902 South 301 Highway, LLC
1575 NORTH BLAIRS BRIDGE ROAD, 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 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 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 TRS, LLC
2225 46TH ST, LLC
2301 TILLOTSON AVE, LLC
251 JAMAICA AVE, LLC
2701 S. CONGRESS AVENUE, LLC
2880 Exterior St, LLC
2880 EXTERIOR STREET TRS, LLC
295 E. Ocotillo Road, LLC
3068 CROPSEY AVENUE, LLC
3103 N. Decatur Road, LLC
38300 North Gantzel Road, LLC
4211 BELLAIRE BLVD., LLC
430 1ST AVENUE SOUTH, LLC
4370 Fountain Hills Drive NE, LLC
444 55TH STREET HOLDINGS TRS, LLC
444 55TH STREET HOLDINGS, LLC
444 55TH STREET VENTURE, 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
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Subsidiary
444 55TH STREET, LLC
4441 Alma Road, LLC
5 Old Lancaster Associates, LLC
500 MILDRED AVENUE PRIMOS, LLC
5505 Maple Ave, LLC
5700 WASHINGTON AVENUE, LLC
5715 BURNET ROAD, LLC
610 SAWDUST ROAD, LLC
7205 Vanderbilt Way, LLC
8552 BAYMEADOWS ROAD, LLC
9641 Annapolis Road, LLC
CONSHOHOCKEN GP II, LLC
CS 1158 MCDONALD AVE, LLC
CS 160 EAST 22ND ST, LLC
CS 2087 HEMPSTEAD TPK, LLC
CS ANNAPOLIS HOLDINGS, LLC
CS ANNAPOLIS, LLC
CS CAPITAL INVESTORS, LLC
CS FLORIDA AVENUE, LLC
CS SDP EVERETT BORROWER, LLC
CS SDP Everett, LLC
CS SDP Newtonville, LLC
CS SDP WALTHAM BORROWER, LLC
CS SDP WALTHAM, LLC
CS SHIRLINGTON, LLC
CS SJM E 92ND STREET OWNER, LLC
CS SJM E 92ND STREET, LLC
CS SNL NEW YORK AVE, LLC
CS SNL OPERATING COMPANY, LLC
CS VALLEY FORGE VILLAGE STORAGE, 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
Jurisdiction of Organization
Delaware
Delaware
Pennsylvania
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
Maryland
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Subsidiary
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 Surprise AZ, LLC
PSI Atlantic TRS, LLC
PSI Atlantic Villa Rica GA, LLC
PSI Atlantic Villa Rica Parcel Owner, LLC
PSI Atlantic, LLC
R STREET STORAGE ASSOCIATES, LLC
SHIRLINGTON RD II, LLC
SHIRLINGTON RD TRS, LLC
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.
Valley Forge Storage Venture, LLC
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
Jurisdiction of Organization
Delaware
Delaware
Delaware
Delaware
Ohio
Delaware
Delaware
Delaware
Delaware
Delaware
Florida
Delaware
Pennsylvania
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Luxembourg
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Subsidiary
YSI XXX LLC
YSI XXXI, LLC
YSI XXXIII, LLC
YSI XXXIIIA, LLC
YSI XXXVII, LLC
Jurisdiction of Organization
Delaware
Delaware
Delaware
Delaware
Delaware
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Trustees
CubeSmart:
We consent to the incorporation by reference in the registration statement (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 21, 2020, with respect to the consolidated balance sheets of CubeSmart as of December 31, 2019 and 2018, 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, 2019, 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, 2019, which reports appear in the
December 31, 2019 annual report on Form 10-K of CubeSmart and CubeSmart, L.P.
Our report on the Consolidated Financial Statements refers to a change in the method of accounting for leases.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 21, 2020
Exhibit 23.2
The Partners of CubeSmart, L.P. and the Board of Trustees of CubeSmart:
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statement (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 21, 2020, with respect to the consolidated balance sheets of CubeSmart, L.P. as of December 31, 2019 and 2018,
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, 2019, 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, 2019, which reports appear in the
December 31, 2019 annual report on Form 10-K of CubeSmart and CubeSmart, L.P.
Our report on the Consolidated Financial Statements refers to a change in the method of accounting for leases.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 21, 2020
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 21, 2020
/s/ Christopher P. Marr
Christopher P. Marr
Chief Executive Officer
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Timothy M. Martin, certify that:
1. I have reviewed this Annual Report on Form 10-K of CubeSmart;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Trustees (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
6
Date: February 21, 2020
/s/ Timothy M. Martin
Timothy M. Martin
Chief Financial Officer
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.3
I, Christopher P. Marr, certify that:
1. I have reviewed this Annual Report on Form 10-K of CubeSmart L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Trustees (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 21, 2020
/s/ Christopher P. Marr
Christopher P. Marr
Chief Executive Officer
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.4
I, Timothy M. Martin, certify that:
1. I have reviewed this Annual Report on Form 10-K of CubeSmart L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Trustees (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 21, 2020
/s/ Timothy M. Martin
Timothy M. Martin
Chief Financial Officer
Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
the
Sarbanes-Oxley Act of 2002
Exhibit 32.1
The undersigned, the Chief Executive Officer and Chief Financial Officer of CubeSmart (the “Company”), each hereby certifies,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(a) The Annual Report on Form 10-K of the Company for the year ended December 31, 2019 (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.
6
Date: February 21, 2020
Date: February 21, 2020
/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.
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, 2019 (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.
6
Date: February 21, 2020
Date: February 21, 2020
/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.
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 and the finalization of proposed guidance in a number of areas.
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 depends 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.
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.
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 21% (for tax years beginning after December 31, 2017 and 35% for tax years beginning on or
before 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.
If CubeSmart fails to satisfy one or more requirements for REIT qualification, other than the gross income tests and the
asset tests, and such failure is due to reasonable cause and not to willful neglect, it will be required to pay a penalty of
$50,000 for each such failure.
CubeSmart may elect to retain its net long-term capital gain and pay income tax on such gain.
CubeSmart will be subject to a 100% excise tax on transactions with a taxable REIT subsidiary that are not conducted on
an arm’s-length basis.
If CubeSmart acquires any asset from a C corporation (a corporation that generally is subject to full corporate-level tax)
in a transaction in which the adjusted basis of the assets in CubeSmart’s hands is determined by reference to the adjusted
tax basis of the asset in the hands of the C corporation, CubeSmart will pay tax at the highest regular corporate rate then
applicable (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 – Organizational Requirements - Recordkeeping
Requirements.”
The earnings of CubeSmart’s lower-tier entities, if any, that are subchapter C corporations, including taxable REIT
subsidiaries, are subject to federal corporate income tax.
In addition, we may be subject to a variety of taxes, including payroll taxes and state, local and foreign income, property
and other taxes on our assets and operations. We could also be subject to tax in situations and on transactions not presently contemplated.
Requirements for Qualification
(a) organizational requirements, (b) gross income tests, (c) asset tests and (d) annual distribution requirements.
To qualify as a REIT, CubeSmart must elect to be treated as a REIT, and CubeSmart must meet various
Organizational Requirements. A REIT is a corporation, trust or association that meets each of the following
requirements:
tax laws;
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
rules of attribution);
5) At least 100 persons are beneficial owners of its shares or ownership certificates (determined without reference to any
or fewer individuals, which the U.S. federal income tax laws define to include certain entities, during the last half of any taxable year;
6) Not more than 50% in value of its outstanding shares or ownership certificates is owned, directly or indirectly, by five
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 other administrative requirements established by the IRS that must be met to elect and
maintain REIT status;
U.S. federal income tax laws; and
8) It uses a calendar year for U.S. federal income tax purposes and complies with the recordkeeping requirements of the
income.
9) It meets certain other tests, described below, regarding the nature of its income and assets and the distribution of its
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.
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.
Recordkeeping Requirements. 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 recordkeeping 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 “Requirements for Qualification – Gross Income Tests - Prohibited
Transactions.” Overall, no more than 20% (25% for taxable years beginning before January 1, 2018) of the value of a REIT’s assets may
constitute stock or securities of one or more taxable REIT subsidiaries. For taxable years beginning after December 31, 2017, taxpayers
are subject to a limitation on their ability to deduct net business interest generally equal to 30% of adjusted taxable income, subject to
certain exceptions. This provision may limit the ability of our taxable REIT subsidiaries to deduct interest, which could increase their
taxable income.
Gross Income Tests. CubeSmart must satisfy two gross income tests annually to maintain its qualification as a REIT.
First, at least 75% of its gross income for each taxable year must consist of defined types of income that CubeSmart derives, directly or
indirectly, from investments relating to real property or mortgages on real property or qualified temporary investment income. Qualifying
income for purposes of that 75% gross income test generally includes:
rents from real property;
interest on debt secured by mortgages on real property or on interests in real property (including certain types of
mortgage-backed securities);
for taxable years beginning after December 31, 2015, interest on mortgage loans secured by both real and personal
property if the fair market value of such personal property does not exceed 15% of the total fair market value of all
property securing the loans;
dividends or other distributions on, and gain from the sale of, shares in other REITs (excluding dividends from its
taxable REIT subsidiaries);
gain from the sale of real estate assets (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);
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.”
which is qualifying income for purposes of the 75% and 95% gross income tests, only if the following conditions are met:
Rents from Real Property. Rent that CubeSmart receives from its real property will qualify as “rents from real property,”
First, the rent must not be based in whole or in part on the income or profits of any person. Such rent, however, will
qualify as “rents from real property” if it is based on percentages of receipts or sales and the percentages are fixed at the time the leases are
entered into, are not renegotiated during the term of the leases in a manner that has the effect of basing percentage rent on income or
profits, and conform with normal business practice.
Second, CubeSmart must not own, actually or constructively, 10% or more of the stock of any corporate tenant or the
assets or net profits of any tenant, referred to as a related party tenant, other than a taxable REIT subsidiary. The constructive ownership
rules generally provide that, if 10% or more in value of its shares is owned, directly or indirectly, by or for any person, CubeSmart is
considered as owning the stock owned, directly or indirectly, by or for such person. CubeSmart does not own any stock or any assets or net
profits of any tenant directly. However, because the constructive ownership rules are broad and it is not possible to monitor continually
direct and indirect transfers of its shares, no absolute assurance can be given that such transfers or other events of which CubeSmart has no
knowledge will not cause CubeSmart to own constructively 10% or more of a tenant (or a subtenant, in which case only rent attributable to
the subtenant is disqualified) other than a taxable REIT subsidiary at some future date.
Under an exception to the related-party tenant rule described in the preceding paragraph, rent that CubeSmart receives
from a taxable REIT subsidiary will qualify as “rents from real property” as long as (1) at least 90% of the leased space in the property is
leased to persons other than taxable REIT subsidiaries and related-party tenants, and (2) the amount paid by the taxable REIT subsidiary to
rent space at the property is substantially comparable to rents paid by other tenants of the property for comparable space. The
“substantially comparable” requirement must be satisfied when the lease is entered into, when it is extended, and when the lease is
modified, if the modification increases the rent paid by the taxable REIT subsidiary. If the requirement that at least 90% of the leased
space in the related property is rented to unrelated tenants is met when a lease is entered into, extended, or modified, such requirement will
continue to be met as long as there is no increase in the space leased to any taxable REIT subsidiary or related party tenant. Any increased
rent attributable to a modification of a lease with a taxable REIT subsidiary in which CubeSmart owns directly or indirectly more than
50% of the voting power or value of the stock (a “controlled taxable REIT subsidiary”) will not be treated as “rents from real property.”
Third, the rent attributable to the personal property leased in connection with a lease of real property must not be greater
than 15% of the total rent received under the lease. The rent attributable to personal property under a lease is the amount that bears the
same ratio to total rent under the lease for the taxable year as the average of the fair market values of the leased personal property at the
beginning and at the end of the taxable year bears to the average of the aggregate fair market values of both the real and personal property
covered by the lease at the beginning and at the end of such taxable year (the “personal property ratio”). With respect to each of its leases,
CubeSmart believes that the personal property ratio generally is less than 15%. Where that is not, or may in the future not be, the case,
CubeSmart believes that any income attributable to personal property will not jeopardize its ability to qualify as a REIT. There can be no
assurance, however, that the IRS would not challenge CubeSmart’s calculation of a personal property ratio, or that a court would not
uphold such assertion. If such a challenge were successfully asserted, CubeSmart could fail to satisfy the 75% or 95% gross income test
and thus lose its REIT status.
Fourth, CubeSmart cannot furnish or render non-customary services to the tenants of its properties, or manage or operate
its properties, other than through an independent contractor who is adequately compensated and from whom CubeSmart does not derive or
receive any income. However, CubeSmart need not provide services through an “independent contractor,” but instead may provide
services directly to its tenants, if the services are “usually or customarily rendered” in connection with the rental of space for occupancy
only and are not considered to be provided for the tenants’ convenience. In addition, CubeSmart may provide a minimal amount of “non-
customary” services to the tenants of a property, other than through an independent contractor, as long as its income from the services does
not exceed 1% of its income from the related property.
Finally, CubeSmart may own up to 100% of the stock of one or more taxable REIT subsidiaries, which may provide
non-customary services to CubeSmart’s tenants without tainting CubeSmart’s rents from the related properties. CubeSmart has not
performed, and does not intend to perform, any services other than customary ones for its tenants, other than services provided through
independent contractors or taxable REIT subsidiaries.
Tenants may be required to pay, in addition to base rent, reimbursements for certain amounts CubeSmart is obligated to
pay to third parties (such as a lessee’s proportionate share of a property’s operational or capital expenses), penalties for nonpayment or late
payment of rent or additions to rent. These and other similar 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:
the REIT has held the property for not less than two years;
the aggregate expenditures made by the REIT, or any partner of the REIT, during the four-year period preceding the date
of the sale that are includable in the basis of the property do not exceed 30% of the selling price of the property;
either (1) during the year in question, the REIT did not make more than seven sales of property other than foreclosure
property or sales to which Section 1033 of the Code applied, (2) the aggregate adjusted bases of all such properties sold
by the REIT during the year did not exceed 10% of the aggregate bases of all of the assets of the REIT at the beginning
of the year, (3) the aggregate fair market value of all such properties sold by the REIT during the year did not exceed
10% of the aggregate fair market value of all of the assets of the REIT at the beginning of the year, (4) (i) for taxable
years beginning after December 31, 2015, the aggregate adjusted bases of all such properties sold by the REIT during the
year did not exceed 20% of the aggregate bases of all of the assets of the REIT at the beginning of the year and (ii) the
average annual percentage of such properties sold by the REIT compared to all the REIT’s assets (measured by adjusted
tax bases) in the current and two prior years did not exceed 10%, or (5) (i) the aggregate fair market value of all such
properties sold by the REIT during the year did not exceed 20% of the aggregate fair market value of all assets of the
REIT at the beginning of the year and (ii) the average annual percentage of such properties sold by the REIT compared
to all the REIT’s assets (measured by fair market value) in the current and two prior years did not exceed 10%;
in the case of property not acquired through foreclosure or lease termination, the REIT has held the property for at least
two 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.
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:
that is acquired by a REIT as the result of the REIT having bid on such property at foreclosure, or having otherwise
reduced such property to ownership or possession by agreement or process of law, after there was a default or default
was imminent on a lease of such property or on indebtedness that such property secured;
for which the related loan or leased property was acquired by the REIT at a time when the default was not imminent or
anticipated; and
for which the REIT makes a proper election to treat the property as foreclosure property.
A REIT will not be considered to have foreclosed on a property where the REIT takes control of the property as a
mortgagee-in-possession and cannot receive any profit or sustain any loss except as a creditor of the mortgagor. Property generally ceases
to be foreclosure property at the end of the third taxable year following the taxable year in which the REIT acquired the property (or longer
if an extension is granted by the Secretary of the Treasury). This period (as extended, if applicable) terminates, and foreclosure property
ceases to be foreclosure property, on the first day:
on which a lease is entered into for the property that, by its terms, will give rise to income that does not qualify for
purposes of the 75% gross income test, or any amount is received or accrued, directly or indirectly, pursuant to a lease
entered into on or after such day that will give rise to income that does not qualify for purposes of the 75% gross income
test;
on which any construction takes place on the property, other than completion of a building or, any other improvement,
where more than 10% of the construction was completed before default became imminent; or
which is more than 90 days after the day on which the REIT acquired the property and the property is used in a trade or
business which is conducted by the REIT, other than through an independent contractor from whom the REIT itself does
not derive or receive any income.
Any gain from the sale of property for which a foreclosure property election has been made will not be subject to the
100% tax on gains from prohibited transactions described above, even if the property is held primarily for sale to customers in the ordinary
course of a trade or business. Income and gain from foreclosure property are qualifying income for the 75% and 95% gross income tests.
Hedging Transactions. From time to time, CubeSmart enters into hedging transactions with respect to its assets or
liabilities. CubeSmart’s hedging activities may include entering into interest rate swaps, caps, and floors, options to purchase such items,
and futures and forward contracts. Income and gain from “hedging transactions” will be excluded from gross income for purposes of both
the 75% and 95% gross income tests. A “hedging transaction” means either (1) any transaction entered into in the normal course of its
trade or business primarily to manage the risk of interest rate, price changes, or currency fluctuations with respect to borrowings made or
to be made, or ordinary obligations incurred or to be incurred, to acquire or carry real estate assets or (2) any transaction entered into
primarily to manage the risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the
75% or 95% gross income test (or any property which generates such income or gain). CubeSmart will be required to clearly identify any
such hedging transaction before the close of the day on which it was acquired, originated, or entered into and to satisfy other identification
requirements. No assurance can be given that its hedging activities will not give rise to income that does not qualify for purposes of either
or both of the gross income tests, and will not adversely affect CubeSmart’s ability to satisfy the REIT qualification requirements.
Effective for taxable years beginning after December 31, 2015, if CubeSmart has entered into a hedging transaction
described in (1) or (2), and a portion of the hedged indebtedness or property is extinguished or disposed of and, in connection with such
extinguishment or disposition, CubeSmart enters into a new clearly identified hedging transaction (a “New Hedge”), income from the
applicable hedge and income from the New Hedge (including gain from the disposition of such New Hedge) will not be treated as gross
income for purposes of the 95% and 75% gross income tests.
Foreign Currency Gain. Certain foreign currency gains will be excluded from gross income for purposes of one or both
of the gross income tests. “Real estate foreign exchange gain” will be excluded from gross income for purposes of the 75% gross income
test. Real estate foreign exchange gain generally includes foreign currency gain attributable to any item of income or gain that is qualifying
income for purposes of the 75% gross income test, foreign currency gain attributable to the acquisition or ownership of (or becoming or
being the obligor under) obligations secured by mortgages on real property or on interests in real property and certain foreign currency
gain attributable to certain “qualified business units” of a REIT. “Passive foreign exchange gain” will be excluded from gross income for
purposes of the 95% gross income test. Passive foreign exchange gain generally includes real estate foreign exchange gain as described
above, and also includes foreign currency gain attributable to any item of income or gain that is qualifying income for purposes of the 95%
gross income test and foreign currency gain attributable to the acquisition or ownership of (or becoming or being the obligor under) debt
obligations. Because passive foreign exchange gain includes real estate foreign exchange gain, real estate foreign exchange gain is
excluded from gross income for purposes of both the 75% and 95% gross income test. These exclusions for real estate foreign exchange
gain and passive foreign exchange gain do not apply to foreign currency gain derived from dealing, or engaging in substantial and regular
trading, in securities. Such gain is treated as nonqualifying income for purposes of both the 75% and 95% gross income tests.
Failure to Satisfy Gross Income Tests. If CubeSmart fails to satisfy one or both of the gross income tests for any taxable
year, CubeSmart nevertheless may qualify as a REIT for that year if it qualifies for relief under certain provisions of the U.S. federal
income tax laws. Those relief provisions will be available if:
CubeSmart’s failure to meet those tests is due to reasonable cause and not to willful neglect; and
following such failure for any taxable year, a schedule of the sources of its income is filed with the IRS in accordance
with regulations prescribed by the Secretary of the Treasury.
CubeSmart cannot predict, however, whether any failure to meet these tests will qualify for the relief provisions. As
discussed above in “Taxation of CubeSmart as a REIT,” even if the relief provisions apply, CubeSmart would incur a 100% tax on the
gross income attributable to the greater of (1) the amount by which it fails the 75% gross income test, or (2) the excess of 95% of its gross
income over the amount of gross income qualifying under the 95% gross income test, multiplied, in either case, by a fraction intended to
reflect its profitability.
each quarter of each taxable year.
Asset Tests. To maintain its qualification as a REIT, CubeSmart also must satisfy the following asset tests at the end of
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;
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.
securities may not exceed 5% of the value of its total assets, or the “5% asset test.”
Second, of CubeSmart’s investments not included in the 75% asset class, the value of its interest in any one issuer’s
voting power or value of any one issuer’s outstanding securities, or the “10% vote test” and “10% value test,” respectively.
Third, of CubeSmart’s investments not included in the 75% asset class, CubeSmart may not own more than 10% of the
may be represented by securities of one or more taxable REIT subsidiaries.
Fourth, not more than 20% (25% for taxable years beginning before January 1, 2018) of the value of CubeSmart’s assets
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.”
any securities issued by the partnership, without regard to the securities described in the last two bullet points above.
For purposes of the 10% value test, its proportionate share of the assets of a partnership is its proportionate interest in
Failure to Satisfy Asset Tests. CubeSmart will monitor the status of its assets for purposes of the various asset tests and
will manage its portfolio in order to comply at all times with such tests. If CubeSmart fails to satisfy the asset tests at the end of a calendar
quarter, it would not lose its REIT status if:
CubeSmart satisfied the asset tests at the end of the preceding calendar quarter; and
the discrepancy between the value of its assets and the asset test requirements arose from changes in the market values of
its assets and was not wholly or partly caused by the acquisition of one or more non-qualifying assets.
If the failure to satisfy the asset tests results from an acquisition of securities or other property during a quarter, the
failure can be cured by disposition of sufficient nonqualifying assets within 30 days after the close of that quarter. CubeSmart intends to
maintain adequate records of the value of its assets to ensure compliance with the asset tests, and to take such other action within 30 days
after the close of any quarter as may be required to cure any noncompliance. However, there can be no assurance that such other action
will always be successful. If CubeSmart fails to cure any noncompliance with the asset tests within such time period, its status as a REIT
would be lost.
In the event that, at the end of any calendar quarter, CubeSmart violates the 5% asset test, the 10% vote test or the 10%
value test described above, CubeSmart will not lose its REIT status if (i) the failure is de minimis (up to the lesser of 1% of its assets or
$10 million) and (ii) CubeSmart disposes of assets or otherwise complies with the asset tests within six months after the last day of the
quarter in which it identifies such failure. In the event the failure to meet the asset test is more than de minimis, CubeSmart will not lose its
REIT status if (i) the failure was due to reasonable cause and not to willful neglect, (ii) CubeSmart files a description of each asset causing
the failure with the IRS, (iii) CubeSmart disposes of assets or otherwise complies with the asset tests within six months after the last day of
the quarter in which CubeSmart identifies the failure, and (iv) CubeSmart pays a tax equal to the greater of $50,000 or 35% (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.
dividends and deemed distributions of retained capital gain, to its shareholders in an aggregate amount not less than the sum of
Annual Distribution Requirements. Each taxable year, CubeSmart must distribute dividends, other than capital gain
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.
For taxable years beginning after December 31, 2017, CubeSmart’s deduction for net business interest expense will
generally be limited to 30% of its taxable income, as adjusted for certain items of income, gain, deduction or loss. Any business interest
deduction that is disallowed due to this limitation may be carried forward to future taxable years. If CubeSmart is subject to this interest
expense limitation, its REIT taxable income for a taxable year may be increased. Taxpayers that conduct certain real estate businesses may
elect not to have this interest expense limitation apply to them, provided that they use an alternative depreciation system to depreciate
certain property. CubeSmart may be eligible to make this election. If CubeSmart makes this election, although it would not be subject to
the interest expense limitation described above, its depreciation deductions may be reduced and, as a result, its REIT taxable income for a
taxable year may be increased.
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.
case of distributions with declaration and record dates falling in the last three months of the calendar year, at least the sum of:
If CubeSmart fails to distribute during a calendar year, or by the end of January of the following calendar year in the
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 not
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. This REIT-level tax liability would reduce cash available for
distributions. All distributions to shareholders (to the extent of our current and accumulated earnings and profits) would be taxable as
dividends. This “double taxation” results from our failure to qualify as a REIT. In addition, if we fail to qualify as a REIT, we will not be
required to distribute any amounts to our shareholders and all distributions to shareholders will be taxable as regular corporate dividends to
the extent of our current and accumulated earnings and profits. In such event, corporate distributees may be eligible for the dividends-
received deduction. In addition, non-corporate shareholders, including individuals, may be eligible for the preferential tax rates on
qualified dividend income. Non-corporate shareholders, including individuals, generally may deduct up to 20% of dividends from a REIT,
other than capital gain dividends and dividends treated as qualified dividend income, for taxable years beginning after December 31, 2017
and before January 1, 2026 for purposes of determining their U.S. federal income tax (but not for purposes of the 3.8% Medicare tax),
subject to certain limitations. If we fail to qualify as a REIT, such shareholders may not claim this deduction with respect to dividends paid
by us. 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
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 treatment in such jurisdictions may differ from the U.S. federal income tax treatment described above.
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” below. The following discussion does not address state or local tax laws or any federal tax laws other than income tax laws.
Classification as Partnerships. CubeSmart is required to include in its income its distributive share of each
Partnership’s income and to deduct its distributive share of each Partnership’s losses but only if such Partnership is classified for U.S.
federal income tax purposes as a partnership (or an entity that is disregarded for U.S. federal income tax purposes if the entity has only one
owner or member), rather than as a corporation or an association taxable as a corporation.
U.S. federal income tax purposes if it:
An organization with at least two owners or members will be classified as a partnership, rather than as a corporation, for
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 “push out” 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 interest expense deduction to the sum of 30% 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 for
depreciation, amortization, or depletion. For partnerships, the interest deduction limitation 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 limitation 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. Disallowed interest expense is carried forward indefinitely (subject to special rules for partnerships). The interest
deduction limitation 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
limitations, 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 benefit 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
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.
Partnership Audit Rules. Congress recently revised the rules applicable to federal income tax audits of partnerships
(such as the Operating Partnership) and the collection of any tax resulting from any such audits or other tax proceedings, generally for
taxable years beginning after December 31, 2017. Under the new rules, a partnership itself may be liable for a tax computed by reference
to the hypothetical increase in partner-level taxes (including interest and penalties) resulting from an adjustment of partnership tax items
on audit, regardless of changes in the composition of the partners (or their relative ownership) between the year under audit and the year of
the adjustment. The new rules also include an elective alternative method under which the additional taxes resulting from the adjustment
are assessed against the affected partners, subject to a higher rate of interest than otherwise would apply. Although it is uncertain how
these new rules will be implemented, it is possible that they could result in partnerships in which we directly or indirectly invest being
required to pay additional taxes, interest and penalties as a result of an audit adjustment, and we, as a direct or indirect partner of those
partnerships could be required to bear the economic burden of those taxes, interest and penalties even though we, as a REIT, may not
otherwise have been required to pay additional corporate-level taxes as a result of the related audit adjustment. The changes created by
these new rules are sweeping and, in many respects, dependent on the promulgation of future regulations or other guidance by the U.S.
Treasury. Investors are urged to consult with their tax advisors with respect to those changes and their potential impact on their investment
in our shares.
Taxation of Shareholders
Taxation of Taxable U.S. Shareholders
income tax purposes, is:
The term “U.S. shareholder” means a holder of CubeSmart common shares or preferred shares that, for U.S. federal
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
beginning after December 31, 2017 and before January 1, 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. 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 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
beginning after December 31, 2017 and before January 1, 2026, generally individual shareholders are allowed to deduct 20% of the
aggregate amount of ordinary dividends distributed by us that are “qualified REIT dividends”, subject to certain limitations. Pursuant to
the Treasury regulations, in order for a dividend paid by a REIT to be eligible to be treated as a “qualified REIT dividend,” the shareholder
must meet two holding period-related requirements. First, the shareholder must hold the REIT shares for a minimum of 46 days during the
91-day period that begins 45 days before the date on which the REIT share becomes ex-dividend with respect to the dividend. Second, the
qualifying portion of the REIT dividend is reduced to the extent that the shareholder is under an obligation (whether pursuant to a short
sale or otherwise) to make related payments with respect to positions in substantially similar or related property. The 20% deduction does
not apply to REIT capital gain dividends or to REIT dividends that we designate as “qualified dividend income.” Like most of the other
changes made by the TCJA applicable to non-corporate taxpayers, the 20% deduction will expire on December 31, 2025 unless Congress
acts to extend it. Prospective investors should consult their tax advisors concerning these limitations on the ability to deduct all or a
portion of dividends received on shares of our common shares or preferred shares.
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”), 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 the U.S. shareholder’s allocable share of any retained capital gains, less the U.S. shareholder’s allocable
share of the tax paid by us on such retained capital gains and reduced by any returns of capital. However, a U.S. shareholder must treat any
loss upon a sale or exchange of common or preferred shares held by such shareholder for six months or less as a long-term capital loss to
the extent of capital gain dividends and any actual or deemed distributions from CubeSmart that such U.S. shareholder treats as long-term
capital gain. All or a portion of any loss that a U.S. shareholder realizes upon a taxable disposition of common or preferred shares may be
disallowed if the U.S. shareholder purchases other common shares or preferred shares within 30 days before or after the disposition.
If a U.S. shareholder recognizes a loss upon a subsequent disposition of CubeSmart shares in an amount that exceeds a
prescribed threshold, it is possible that the provisions of Treasury regulations involving “reportable transactions” could apply, with a
resulting requirement to separately disclose the loss generating transactions to the IRS. While these regulations are directed towards “tax
shelters,” they are written broadly, and apply to transactions that would not typically be considered tax shelters. Significant penalties apply
for failure to comply with these requirements. You should consult your tax advisor concerning any possible disclosure obligation with
respect to the receipt or disposition of CubeSmart shares, or transactions that might be undertaken directly or indirectly by us. 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
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. The current 20% deduction allowed by Section 199A of the Code, as added by the TCJA, with respect to ordinary
REIT dividends received by non-corporate taxpayers is allowed only for purposes of Chapter 1 of the Code and thus is apparently not
allowed as a deduction allocable to such dividends for purposes of determining the amount of net investment income subject to the 3.8%
Medicare tax, which is imposed under Chapter 2A of the Code. 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
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.
owning more than 10% of the value of its shares, or CubeSmart from becoming a pension-held REIT.
Certain restrictions on ownership and transfer of CubeSmart’s shares should generally prevent a tax-exempt entity from
tax consequences of the acquisition, ownership and disposition of CubeSmart shares.
Tax-exempt U.S. shareholders are urged to consult their tax advisor regarding the U.S. federal, state, local and foreign
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 United States
real property interest (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 21% of any distribution that CubeSmart
could designate as a capital gain dividend. A non-U.S. shareholder may receive a credit against its tax liability for the amount CubeSmart
withholds.
Effective December 18, 2015, our shares will not be treated as a USRPI when held, directly or indirectly, by a qualified
shareholder and, therefore, FIRPTA will not apply to such shares. However, certain investors in a qualified shareholder that owns more
than 10% of our shares (directly or indirectly) that are not themselves qualified shareholders may be subject to FIRPTA withholding. A
“qualified shareholder” is a foreign entity that (1)(i) is eligible for the benefits of a comprehensive income tax treaty with the United States
that includes an exchange of information program and the principal class of interests of which is listed and regularly traded on one or more
recognized stock exchanges (as defined in such comprehensive income tax treaty), or (ii) is a foreign partnership that is created or
organized under foreign law as a limited partnership in a jurisdiction that has an agreement for the exchange of information with respect to
taxes with the United States and has a class of limited partnership units which is regularly traded on the New York Stock Exchange or
Nasdaq Stock Market and the value of such class of limited partnership units is greater than 50% of the value of all of the partnership units
of the foreign partnership, (2) is a qualified collective investment vehicle, and (3) maintains records on the identity of each person who, at
any time during the foreign person’s taxable year, holds directly 5% or more of the class of interests described in (1)(i) or (ii). A
“qualified collective investment vehicle” is a foreign person that (x) under the comprehensive income tax treaty described in (1)(i) or (ii)
would be eligible for a reduced rate of withholding with respect to dividends paid by a REIT even if such person owned more than 10% of
the REIT, (y) is a publicly traded partnership that is a withholding foreign partnership, and would be treated as a United States real
property holding corporation if it were a United States corporation, or (z) which is designated as a qualified collective investment vehicle
by the Secretary of the Treasury and is either (1) fiscally transparent or (2) required to include dividends in its gross income, but is entitled
to a deduction for distributions to its equity investors. Additionally, effective December 18, 2015, qualified foreign pension funds will not
be subject to FIRPTA withholding. The rules concerning qualified shareholders and qualified foreign pension funds are complex and
investors who believe they may be qualified shareholders or qualified foreign pension funds should consult with their own tax advisors to
find out if these rules are applicable to them.
Distributions attributable to gain from sales or exchanges by CubeSmart of USRPIs are treated as ordinary dividends
(not subject to the 21% withholding tax under FIRPTA) if the distribution is made to a non-U.S. shareholder with respect to any class of
shares which is “regularly traded” on an established securities market located in the United States and if the non-U.S. shareholder did not
own more than 5% of such class of shares at any time during the taxable year. Such distributions will generally be subject to a 30% U.S.
withholding tax (subject to reduction under applicable treaty) but a non-U.S. shareholder will not be required to report the distribution on a
U.S. tax return. In addition, the branch profits tax will not apply to such distributions.
Taxation of Disposition of Shares. A non-U.S. shareholder generally will not incur tax under FIRPTA with respect to
gain on a sale of common shares or preferred shares as long as CubeSmart is a “domestically-controlled REIT,” which means that at all
times non-U.S. persons hold, directly or indirectly, less than 50% in value of all outstanding CubeSmart shares.
CubeSmart cannot assure you that this test will be met. Further, even if CubeSmart is a domestically controlled REIT,
pursuant to “wash sale” rules under FIRPTA, a non-U.S. shareholder may incur tax under FIRPTA. The “wash sale” rule applies to the
extent such non-U.S. shareholder disposes of CubeSmart shares during the 30-day period preceding a dividend payment, and such non-
U.S. shareholder (or a person related to such non-U.S. shareholder) acquires or enters into a contract or option to acquire CubeSmart
common shares or preferred shares within 61 days of the 1st day of the 30 day period described above, and any portion of such dividend
payment would, but for the disposition, be treated as a USRPI capital gain to such non-U.S. shareholder, then such non-U.S. shareholder
shall be treated as having USRPI capital gain in an amount that, but for the disposition, would have been treated as USRPI capital gain.
In addition, a non-U.S. shareholder that owns, actually or constructively, 10% or less of the outstanding common shares
or preferred shares at all times during a specified testing period will not incur tax under FIRPTA on gain from a sale of such common
shares or preferred shares if such shares are “regularly traded” on an established securities market. Because CubeSmart’s common shares
and preferred shares are “regularly traded” on an established securities market, CubeSmart expects that a non-U.S. shareholder generally
will not incur tax under FIRPTA on gain from a sale of common shares or preferred shares unless it owns or has owned more than 10% of
such common shares or preferred shares at any time during the five year period to such sale. Any gain subject to tax under FIRPTA will be
treated in the same manner as it would be in the hands of U.S. shareholders, subject to alternative minimum tax, but under a special
alternative minimum tax in the case of nonresident alien individuals, and the purchaser of the shares could be required to withhold 10% of
the purchase price and remit such amount to the IRS.
A non-U.S. shareholder generally will incur tax on gain not subject to FIRPTA if:
the gain is effectively connected with the conduct of the non-U.S. shareholder’s U.S. trade or business, in which case the
non-U.S. shareholder will be subject to the same treatment as U.S. shareholders with respect to the gain; or
the non-U.S. shareholder is a nonresident alien individual who was present in the U.S. for 183 days or more during the
taxable year and has a “tax home” in the United States, in which case the non-U.S. shareholder will incur a 30% tax on
capital gains.
Redemptions of Our Preferred Shares. Whenever we redeem any preferred shares, the treatment accorded to any
redemption by us for cash (as distinguished from a sale, exchange or other disposition) of our preferred shares to a non-U.S. shareholder of
such preferred shares can only be determined on the basis of the particular facts as to each holder at the time of redemption. In general, a
non-U.S. shareholder of our preferred shares will recognize capital gain or loss measured by the difference between the amount received
by the holder of such shares upon the redemption and such holder’s adjusted tax basis in the preferred shares redeemed (provided the
preferred shares are held as a capital asset) if such redemption (i) results in a “complete termination” of the holder’s interest in all classes
of our shares under Section 302(b)(3) of the Code, or (ii) is “not essentially equivalent to a dividend” with respect to the holder of the
preferred shares under Section 302(b)(1) of the Code. In applying these tests, there must be taken into account not only the preferred
shares being redeemed, but also such holder’s ownership of other classes and series of our shares and any options (including stock
purchase rights) to acquire any of the foregoing. The non-U.S. shareholder of our preferred shares also must take into account any such
securities (including options) which are considered to be owned by such holder by reason of the constructive ownership rules set forth in
Sections 318 and 302(c) of the Code.
If the non-U.S. shareholder of preferred shares owns (actually or constructively) none of our voting shares, or owns an
insubstantial amount of our voting shares, based upon current law, it is probable that the redemption of preferred shares from such a holder
would be considered to be “not essentially equivalent to a dividend.” However, whether a distribution is “not essentially equivalent to a
dividend” depends on all of the facts and circumstances, and a non-U.S. shareholder of our preferred shares intending to rely on any of the
tests in this or the preceding paragraph at the time of redemption should consult its tax advisor to determine their application to its
particular situation. If the redemption does not meet any of the tests under Section 302 of the Code, then the redemption proceeds received
from our preferred shares will be treated as a distribution on our shares as described under “Taxation of Shareholders — Taxation of Non-
U.S. Shareholders — Taxation of Distributions.”
If the redemption of a holder’s preferred shares is taxed as a dividend, the adjusted basis of such holder’s redeemed
preferred shares will be transferred to any other shares held by the holder. If the holder owns no other shares, under certain circumstances,
such basis may be transferred to a related person, or it may be lost entirely.
With respect to a redemption of our preferred shares that is treated as a distribution with respect to our shares, which is
not otherwise taxable as a dividend, the IRS has proposed Treasury regulations that would require any basis reduction associated with such
a redemption to be applied on a share-by-share basis which could result in taxable gain with respect to some shares, even though the
holder’s aggregate basis for the shares would be sufficient to absorb the entire amount of the redemption distribution (in excess of any
amount of such distribution treated as a dividend). Additionally, these proposed Treasury regulations would not permit the transfer of basis
in the redeemed shares of the preferred shares to the remaining shares held (directly or indirectly) by the redeemed holder. Instead, the
unrecovered basis in our preferred shares would be treated as a deferred loss to be recognized when certain conditions are satisfied. These
proposed Treasury regulations would be effective for transactions that occur after the date the regulations are published as final Treasury
regulations. There can, however, be no assurance as to whether, when, and in what particular form such proposed Treasury regulations will
ultimately be finalized.
Conversion of Our Preferred Shares into Common Shares. Except as provided below, a non-U.S. shareholder generally
will not recognize gain or loss upon the conversion of our preferred shares into our common shares, provided our preferred shares do not
constitute a USRPI. Even if our preferred shares do constitute a USRPI, provided our common shares also constitute a USRPI, a non-U.S.
shareholder generally will not recognize gain or loss upon a conversion of our preferred shares into our common shares provided certain
reporting requirements are satisfied. Except as provided below, a non-U.S. shareholder’s basis and holding period in the common shares
received upon conversion will be the same as those of the converted preferred shares (but the basis will be reduced by the portion of
adjusted tax basis allocated to any fractional common share exchanged for cash). Any common shares received in a conversion that are
attributable to accumulated and unpaid dividends on the converted preferred shares will be treated as a distribution on our shares as
described under “— Taxation of Shareholders — Taxation of Non-U.S. Shareholders — Taxation of Distributions.” Cash received upon
conversion in lieu of a fractional common share generally will be treated as a payment in a taxable exchange for such fractional common
share as described under “— Taxation of Shareholders — Taxation of Non-U.S. Shareholders — Taxation of Disposition of Shares.” Non-
U.S. shareholders should consult with their tax advisor regarding the U.S. federal income tax consequences of any transaction by which
such holder exchanges common shares received on a conversion of preferred shares for cash or other property.
Information Reporting and Backup Withholding Applicable to non-U.S. Shareholders
CubeSmart must report annually to the IRS and to each non-U.S. shareholder the amount of dividends paid to such
holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information
returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the non-U.S.
shareholder resides under the provisions of an applicable income tax treaty.
Payments of dividends or of proceeds from the disposition of shares made to a non-U.S. shareholder may be subject to
information reporting and backup withholding unless such holder establishes an exemption, for example, by properly certifying its non-
United States status on a properly completed IRS Form W-8 BEN or W-8BEN-E or another appropriate version of IRS Form W-8.
Notwithstanding the foregoing, backup withholding may apply if either CubeSmart or its paying agent has actual knowledge, or reason to
know, that a non-U.S. shareholder is a United States person.
as a refund or a credit against the shareholder’s income tax liability, provided the required information is timely furnished to the IRS.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed
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. Based upon proposed Treasury regulations, which may be relied
upon by taxpayers until the final Treasury regulations are issued, the FATCA withholding that was to be effective on January 1, 2019 with
respect to payments of the gross proceeds no longer applies. 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 Offered by the Operating Partnership
This section describes the material U.S. federal income tax consequences of owning the debt securities that the
Operating Partnership may offer. This summary is for general information only and is not tax advice. The tax consequences of owning any
particular issue of debt securities will be discussed in the applicable prospectus.
U.S. federal income tax purposes:
As used herein, a “U.S. Holder” means a beneficial owner of debt securities of the Operating Partnership, who is, for
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. The Treasury Department released proposed
Treasury regulations that would exclude from this rule any item of gross income for which a taxpayer uses a special method of accounting
required by certain sections of the Internal Revenue Code, including income subject to the timing rules for OID and de minimis OID,
income under the contingent payment debt instrument rules, income under the variable rate debt instrument rules,
and market discount (including de minimis market discount). The proposed Treasury regulations will be effective for taxable years
beginning after the date the final Treasury regulations are published. In the interim, taxpayers may rely on the proposed Treasury
regulations in certain cases. You should consult your tax advisors regarding the potential applicability of these rules to your investment in
the debt securities.
Taxation of Taxable U.S. Holders
that it is paid or accrued, in accordance with the U.S. Holder’s method of accounting for U.S. federal income tax purposes.
Interest. The stated interest on debt securities generally will be taxable to a U.S. Holder as ordinary income at the time
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. In that case, you should be aware that you generally must include OID in gross income in advance of
the receipt of cash attributable to that income. However, you generally will not be required to include separately in income cash payments
received on the debt securities, even if denominated as interest, to the extent those payments do not constitute “qualified stated interest,” as
defined below. If we determine that a particular debt security will be an OID debt security, we will disclose that determination in the
prospectus relating to those debt securities.
A debt security with an “issue price” that is less than the “stated redemption price at maturity” (the sum of all payments
to be made on the debt security other than “qualified stated interest”) generally will be issued with OID if that difference is at least 0.25%
of the stated redemption price at maturity multiplied by the number of complete years to maturity. The “issue price” of each debt security
in a particular offering will be the first price at which a substantial amount of that particular offering is sold to the public. The term
“qualified stated interest” means stated interest that is unconditionally payable in cash or in property, other than debt instruments of the
issuer, and the interest to be paid meets all of the following conditions:
it is payable at least once per year;
it is payable over the entire term of the debt security; and
it is payable at a single fixed rate or, subject to certain conditions, based on one or more interest indices.
disclose that determination in the prospectus relating to those debt securities.
If we determine that particular debt securities of a series will bear interest that is not qualified stated interest, we will
If you own a debt security issued with “de minimis” OID, which is discount that is not OID because it is less than 0.25%
of the stated redemption price at maturity multiplied by the number of complete years to maturity, you generally must include the de
minimis OID in income at the time principal payments on the debt securities are made in proportion to the amount paid. Any amount of de
minimis OID that you have included in income will be treated as capital gain.
Certain of the debt securities may contain provisions permitting them to be redeemed prior to their stated maturity at our
option and/or at your option. OID debt securities containing those features may be subject to rules that differ from the general
rules discussed herein. If you are considering the purchase of OID debt securities with those features, you should carefully examine the
applicable prospectus and should consult your own tax advisor with respect to those features since the tax consequences to you with
respect to OID will depend, in part, on the particular terms and features of the debt securities.
If you own OID debt securities with a maturity upon issuance of more than one year you generally must include OID in
income in advance of the receipt of some or all of the related cash payments using the “constant yield method” described in the following
paragraphs. This method takes into account the compounding of interest.
The amount of OID that you must include in income if you are the initial United States holder of an OID debt security is
the sum of the “daily portions” of OID with respect to the debt security for each day during the taxable year or portion of the taxable year
in which you held that debt security (“accrued OID”). The daily portion is determined by allocating to each day in any “accrual period” a
pro rata portion of the OID allocable to that accrual period. The “accrual period” for an OID debt security may be of any length and may
vary in length over the term of the debt security, provided that each accrual period is no longer than one year and each scheduled payment
of principal or interest occurs on the first day or the final day of an accrual period. The amount of OID allocable to any accrual period is an
amount equal to the excess, if any, of:
the debt security’s “adjusted issue price” at the beginning of the accrual period multiplied by its yield to maturity,
determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the
accrual period, over
the aggregate of all qualified stated interest allocable to the accrual period.
OID allocable to a final accrual period is the difference between the amount payable at maturity, other than a payment of
qualified stated interest, and the adjusted issue price at the beginning of the final accrual period. Special rules will apply for calculating
OID for an initial short accrual period. The “adjusted issue price” of a debt security at the beginning of any accrual period is equal to its
issue price increased by the accrued OID for each prior accrual period, determined without regard to the amortization of any acquisition or
bond premium, as described below, and reduced by any payments made on the debt security (other than qualified stated interest) on or
before the first day of the accrual period. Under these rules, you will generally have to include in income increasingly greater amounts of
OID in successive accrual periods. We are required to provide information returns stating the amount of OID accrued on debt securities
held of record by persons other than corporations and other exempt holders.
Floating rate debt securities are subject to special OID rules. In the case of an OID debt security that is a floating rate
debt security, both the “yield to maturity” and “qualified stated interest” will be determined solely for purposes of calculating the accrual
of OID as though the debt security will bear interest in all periods at a fixed rate generally equal to the rate that would be applicable to
interest payments on the debt security on its date of issue or, in the case of certain floating rate debt securities, the rate that reflects the
yield to maturity that is reasonably expected for the debt security. Additional rules may apply if either:
the interest on a floating rate debt security is based on more than one interest index; or
the principal amount of the debt security is indexed in any manner.
This discussion does not address the tax rules applicable to debt securities with an indexed principal amount. If you are
considering the purchase of floating rate OID debt securities or securities with indexed principal amounts, you should carefully examine
the prospectus relating to those debt securities, and should consult your own tax advisor regarding the U.S. federal income tax
consequences to you of holding and disposing of those debt securities.
You may elect to treat all interest on any debt securities as OID and calculate the amount includible in gross income
under the constant yield method described above. For purposes of this election, interest includes stated interest, acquisition discount, OID,
de minimis OID, market discount, de minimis market discount and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium. You must make this election for the taxable year in which you acquired the debt security, and you may not revoke
the election without the consent of the IRS. You should consult with your own tax advisor about this election.
Market Discount. If you purchase debt securities, other than OID debt securities, after original issuance for an amount
that is less than their stated redemption price at maturity, or, in the case of OID debt securities, their adjusted issue price, the amount of the
difference will be treated as “market discount” for U.S. federal income tax purposes, unless that difference is less than a specified de
minimis amount. Under the market discount rules, you will be required to treat any principal payment on, or any gain on the sale,
exchange, retirement or other disposition of, the debt securities as ordinary income to the extent of the market discount that you have not
previously included in income and are treated as having accrued on the debt securities at the time of their payment or disposition. In
addition, you may be required to defer, until the maturity of the debt securities or their earlier disposition in a taxable transaction, the
deduction of all or a portion of the interest expense on any indebtedness attributable to the debt securities. You may elect, on a debt
security-by-debt security basis, to deduct the deferred interest expense in a tax year prior to the year of disposition. You should consult
your own tax advisor before making this election.
Any market discount will be considered to accrue ratably during the period from the date of acquisition to the maturity
date of the debt securities, unless you elect to accrue on a constant interest method. You may elect to include market discount in income
currently as it accrues, on either a ratable or constant interest method, in which case the rule described above regarding deferral of interest
deductions will not apply. Your election to include market discount in income currently, once made, applies to all market discount
obligations acquired by you on or after the first taxable year to which your election applies and may not be revoked without the consent of
the IRS. You should consult your own tax advisor before making this election.
Acquisition Premium and Amortizable Bond Premium. If you purchase OID debt securities for an amount that is
greater than their adjusted issue price but equal to or less than the sum of all amounts payable on the debt securities after the purchase date
other than payments of qualified stated interest, you will be considered to have purchased those debt securities at an “acquisition
premium.” Under the acquisition premium rules, the amount of OID that you must include in gross income with respect to those debt
securities for any taxable year will be reduced by the portion of the acquisition premium properly allocable to that year.
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 generally
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 (except that we will be assumed to exercise call options in a manner that maximizes 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.
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 or other taxable disposition of such debt securities in an amount equal to the difference
between:
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 qualified 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 tax advisors 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. Subject to the discussions of backup withholding and “FATCA” below, 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 exemption,”
provided that:
interest paid on debt securities is not effectively connected with a non-U.S. Holder’s conduct of a trade or business in the
United States;
the non-U.S. Holder does not actually or constructively own 10% or more of the capital or profits interest in the
Operating Partnership;
the non-U.S. Holder is not
a controlled foreign corporation with respect to which the Operating Partnership is a “related person” within the
meaning of Section 864(d) of the Code; or
a bank that receives such interest on an extension of credit made pursuant to a loan agreement entered into in
the ordinary course of its trade or business; and
the beneficial owner of debt securities provides a certification, which is generally made on an IRS Form W-8BEN of W-
8BEN-E or other applicable form or a suitable substitute form and signed under penalties of perjury, that it is not a
United States person.
A payment of interest (including OID) to a non-U.S. Holder that does not qualify for the portfolio interest exemption and
that is not effectively connected to a United States trade or business will be subject to United States federal withholding tax at a rate of
30%, unless a United States income tax treaty applies to reduce or eliminate withholding.
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
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
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 as well as applicable U.S. and foreign tax
identification numbers.
provide different rules.
Non-U.S. Holders are urged to consult their own tax advisors regarding applicable income tax treaties, which may
Sale or Retirement of Debt Securities. Subject to the discussions of backup withholding and “FATCA” below, a non-
U.S. Holder generally will not be subject to U.S. federal income tax or withholding tax on gain realized on the sale, exchange or
redemption of debt securities unless:
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; 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. If you are an individual, your estate will not be subject to U.S. federal estate tax on the debt
securities beneficially owned by you at the time of your death, provided that any payment to you on the debt securities, including OID,
would be eligible for exemption from the 30% U.S. federal withholding tax under the “portfolio interest exemption” described above,
without regard to the certification requirement.
Information Reporting and Backup Withholding Applicable to Holders of Debt Securities
U.S. Holders
Certain U.S. Holders may be subject to information reporting requirements on payments of principal and interest
(including OID) on debt securities and payments of the proceeds of the sale, exchange, or redemption of debt securities, and backup
withholding, currently imposed at a rate of 28% (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.
The payment of the proceeds from the disposition of debt securities to or through a non-United States office of a non-
United States broker that is not a “United States related person” generally will not be subject to information reporting or backup
withholding. For this purpose, a “United States related person” is:
a controlled foreign corporation for U.S. federal income tax purposes;
a foreign person 50% or more of whose gross income from all sources for the three-year period ending with the close of
its taxable year preceding the payment, or for such part of the period that the broker has been in existence, is derived
from activities that are effectively connected with the conduct of a United States trade or business; or
a foreign partnership that at any time during the partnership’s taxable year is either engaged in the conduct of a trade or
business in the United States or of which 50% or more of its income or capital interests are held by United States
persons.
In the case of the payment of proceeds from the disposition of debt securities to or through a non-United States office of
a broker that is either a United States person or a United States related person, the payment may be subject to information reporting unless
the broker has documentary evidence in its files that the owner is a non-U.S. Holder and the broker has no knowledge or reason to know to
the contrary. Backup withholding will not apply to payments made through foreign offices of a broker that is a United States person or a
United States related person, absent actual knowledge that the payee is a United States person.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment
to a Holder will be allowed as a refund or a credit against such Holder’s U.S. federal income tax liability, provided that the requisite
procedures are followed.
withholding and the procedure for obtaining such an exemption, if applicable.
Holders of debt securities are urged to consult their tax advisors regarding their qualification for exemption from backup
FATCA Withholding
Under Sections 1471 through 1474 of the Code (such Sections commonly referred to as “FATCA”), 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.” Based upon
proposed Treasury regulations, which may be relied upon by taxpayers until the final Treasury regulations are issued, the FATCA
withholding that was to be effective on January 1, 2019 with respect to payments of the gross proceeds no longer applies. 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.
CORPORATE OFFICERS
Christopher P. Marr
President & Chief Executive Officer American Stock Transfer &
CORPORATE INFORMATION
Transfer Agent
Investor Relations
5 Old Lancaster Road
BOARD OF TRUSTEES
Marianne M. Keler
Chair of the Board
Partner,
Keler & Kershow, PLLC
Timothy M. Martin
Chief Financial Officer
Christopher P. Marr
President & Chief Executive Officer,
CubeSmart
Jeffrey P. Foster
Senior Vice President,
Chief Legal Officer & Secretary
Joel D. Keaton
Chief Operating Officer
symbol CUBE
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
Malvern, PA 19355
610.535.5000
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:
Annual Meeting
The annual meeting of
Investor Relations
5 Old Lancaster Road
shareholders will be held at
5 Old Lancaster Road
Malvern, PA 19355
610.535.5000
Malvern, PA 19355
on May 12, 2020 at 8:00 A.M.
Internet
Eastern Time
Corporate Headquarters
5 Old Lancaster Road
Malvern, PA 19355
Financial statements and other
information are available
electronically on CubeSmart's
website at
www.cubesmart.com
Piero Bussani
Chief Legal Officer &
Senior Vice President,
ReVantage Corporate Services
Dorothy Dowling
Chief Marketing Officer &
Senior Vice President of Sales,
BWH Hotel Group
John W. Fain
Senior Vice President,
Sales and Marketing (retired),
UPS Freight
John F. Remondi
President, Chief Executive Officer
& Director,
Navient
Jeffrey F. Rogatz
Managing Director,
Robert W. Baird & Co.
Deborah R. Salzberg
Partner,
RMS Investment Group
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, 2019, 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 Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based on assumptions and expectations that may not be realized
and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be
anticipated. Although the Company believes the expectations reflected in these forward-looking statements are based on reasonable assumptions, future
events and actual results, performance, transactions or achievements, financial and otherwise, may differ materially from the results, performance,
transactions or achievements expressed or implied by the forward-looking statements. Risk, uncertainties and other factors that might cause such
differences, some of which could be material, include but are not limited to: adverse changes in the national and local economic, business, real estate and
other market conditions; the effect of competition from existing and new self-storage properties and operators on the Company’s ability to maintain or
raise occupancy and rental rates; the failure to execute the Company’s business plan; reduced availability and increased costs 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 or future indebtedness; increases in interest rates and operating costs; counterparty non-performance related to the use of
derivative financial instruments; risks related the Company’s ability to maintain its qualification as a REIT for federal income tax purposes; the failure of
acquisition and developments to close on expected terms, or at all, or to perform as expected; 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; cyber 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,
zoning, use and occupancy laws or regulations; risks related to natural disasters or acts of violence, pandemics, active shooters, terrorism or war that affect
the markets in which the Company operates; potential environmental and other liabilities; uninsured or uninsurable losses and the ability to obtain
insurance coverage against risks and losses; the Company’s ability to attract and retain talent in the current labor market; 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.
5 Old Lancaster Road
Malvern, PA 19355
www.cubesmart.com