Table of Contents

 

2012 Annual Report

 


Table of Contents

 

[LOGO]

 


Table of Contents

 

(NYSE: CUBE) CubeSmart (NYSE: CUBE), a Maryland real estate investment trust, is one of the largest owners and operators of self-storage facilities in the United States. Our self-storage facilities are designed to offer affordable and easily-accessible storage space for our residential and commercial customers. As of December 31, 2012, we owned 381 self-storage facilities located in 22 states and in the District of Columbia containing an aggregate of approximately 25.5 million rentable square feet. In addition, as of December 31, 2012, we managed 133 properties for third parties, bringing the total number of properties we owned and/or managed to 514. In 2012, we continued to deliver on our core strategic objectives of: Producing robust organic growth through a deep operating platform and sound fundamental execution; Establishing a portfolio of high-quality, well-positioned storage assets concentrated in core markets with the most attractive long-term prospects; and Maintaining a conservative, unsecured balance sheet structure that provides an attractive longterm cost of capital and the flexibility to support our external growth objectives. The culmination of these efforts contributed to a 13.8% increase in FFO per share, as adjusted, and a 42% total return for common shareholders. In short, 2012 was a very good year for CubeSmart. Robust Organic Growth Fundamental execution starts with our people. At CubeSmart, we have worked diligently to build a service-oriented culture that fosters the delivery of exceptional service to both internal and external Customers. We recast our value proposition to our Customers with a new CubeSmart brand and Superstore service model, and established a dedicated Customer service and training department to champion our service culture. CubeSmart employees have never had a greater sense of morale and solidarity than they have today, and, importantly, have begun to receive external recognition for their outstanding Customer service – namely, an Inside Self Storage Best of Business Award for Customer Service and three Gold Stevie® Awards for Sales and Customer Service. We remain committed to building upon our exceptional operating platform, which continues to set us apart in an industry characterized by wide fragmentation and relatively unsophisticated competition. In 2012, we continued to refine our Internet marketing platform and benefited from increased website traffic, improved website conversion rates, and greater efficiency of our marketing spend. Likewise, aided by the implementation of our internally developed Customer relationship management system (eCRM), our award-winning National Sales Center continued to set new highs for reservation conversion rates. Finally, we continued to enhance our revenue management systems, which ensure that we are maximizing the revenue potential from every Customer demand opportunity. Supported by these initiatives, same-store net operating income grew by a historically strong 6.0% in 2012. Notably, this was supported by all-time high occupancy levels and same-store revenue growth that accelerated throughout the year.

 


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A Portfolio of High-Quality, Well-Positioned Storage Assets In 2012, we continued to significantly enhance our portfolio through acquisitions totaling $432.3 million, as well as the strategic disposition of 26 assets for $60 million. Our acquisitions included the purchase of 22 assets located predominantly in our core investment markets for $128.4 million, the successful purchase and integration of the remaining six assets from the previously announced Storage Deluxe transaction for $201.9 million, and the purchase of the remaining interests in two joint ventures. Today, CubeSmart has a very competitive, high-quality portfolio in place, with a streamlined and simplified property ownership structure and more than 62% of net operating income coming from our core investment markets, including industry leading exposure to what we would characterize as the greatest storage market in the world – New York City. Our third party management platform has been and continues to be an important part of our portfolio growth and enhancement initiatives. We continue to see significant and growing interest from private owners who are struggling to compete with the scale advantages and more sophisticated operating platforms enjoyed by CubeSmart and other large operators. In 2012, the number of stores in our thirdparty management program grew by nearly 30%, from 103 at the end of 2011 to 133 at the end of 2012. Importantly, our third-party management platform continues to be an attractive pipeline for acquisition opportunities. Notably, the significant growth in our third-party management platform came despite our acquisition of 14 stores from the program during the year. Since the launch of our third party management program in 2010, stores acquired from the program have accounted for more than $200 million of acquisition volume. This platform, combined with our deep industry relationships and disciplined investment process, provides us a significant competitive advantage as we continue to pursue our external growth objectives. A Conservative, Unsecured Balance Sheet Structure We have long communicated our objective of achieving and maintaining an unsecured balance sheet structure that affords significant financing and portfolio management flexibility, while supporting an attractive long-term cost of capital. In 2011, we reached a significant milestone along this path with the assignment of investment grade credit ratings from Moody’s and Standard & Poor’s. In 2012, our efforts culminated in the successful execution of our $250 million debut public bond offering. Additionally, with the repayment of $230 million in secured loans, the Company finished 2012 with a secured debt balance that represented just 9% of our total gross asset value. Today, CubeSmart’s financial position has never been stronger, and we have proven access to the full array of capital sources. In addition to our debut bond offering, and following a common equity offering and a debut preferred equity offering in 2011, we effectively utilized our “at-the-market” equity program for $102 million in net proceeds to support our external growth initiatives in 2012. Looking forward, we expect to continue to fund growth in a manner that maintains credit metrics consistent with our investment grade rating. Value Creation At CubeSmart, one of the values by which we live and work on a daily basis is to “Visualize Success.” Ultimately, we measure success by the value that we create for our shareholders. By this measure, 2012 was a very good year for CubeSmart and our shareholders. We thank you for your interest and support as we remain focused on continuing to deliver on our strategic objectives and, ultimately, to build shareholder value over time.

 


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-K

 

x         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2012

 

OR

 

o           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 000-54662 (CubeSmart, L.P.)

 

CUBESMART
CUBESMART, L.P.

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland (CubeSmart)

 

20-1024732 (CubeSmart)

Delaware (CubeSmart, L.P.)

 

34-1837021 (CubeSmart, L.P.)

(State or Other Jurisdiction of

 

(IRS Employer

Incorporation or Organization)

 

Identification No.)

 

 

 

460 East Swedesford Road

 

 

Suite 3000

 

 

Wayne, Pennsylvania

 

19087

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code (610) 293-5700

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common Shares, $0.01 par value per share, of CubeSmart

 

New York Stock Exchange

 

 

 

7.75% Series A Cumulative Redeemable

Preferred Shares of Beneficial Interest, par value $.01 per share, of CubeSmart

 

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

Yes x No o

CubeSmart, L.P.

Yes x No o

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

 

CubeSmart

Yes o No x

CubeSmart, L.P.

Yes o No x

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

 

CubeSmart

Yes x No o

CubeSmart, L.P.

Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

CubeSmart

Yes x No o

CubeSmart, L.P.

Yes x No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

 

CubeSmart

Yes x No o

CubeSmart, L.P.

Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

CubeSmart:

Large accelerated filer x

 

Accelerated filer o

 

Non-accelerated filer o

 

Smaller reporting company o

 

CubeSmart, L.P.:

Large accelerated filer o

 

Accelerated filer o

 

Non-accelerated filer x

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

CubeSmart

Yes o No x

CubeSmart, L.P.

Yes o No x

 

As of June 30, 2012, the last business day of CubeSmart’s most recently completed second fiscal quarter, the aggregate market value of common shares held by non-affiliates of CubeSmart was $1,431,731,476. As of February 26, 2013, the number of common shares of CubeSmart outstanding was 133,593,640.

 

As of June 30, 2012, the aggregate market value of the 4,408,730 units of limited partnership (the “Units”) held by non-affiliates of CubeSmart, L.P. was $51,449,879 based upon the last reported sale price of $11.67 per share on the New York Stock Exchange on June 30, 2012 of the common shares of CubeSmart, the sole general partner of CubeSmart, L.P. (For this computation, the market value of all Units beneficially owned by CubeSmart has been excluded.)

 

Documents incorporated by reference:  Portions of the Proxy Statement for the 2013 Annual Meeting of Shareholders of CubeSmart to be filed subsequently with the SEC are incorporated by reference into Part III of this report.

 

 

 



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EXPLANATORY NOTE

 

This report combines the annual reports on Form 10-K for the year ended December 31, 2012 of CubeSmart (the “Parent Company” or “CubeSmart”) and CubeSmart, L.P. (the “Operating Partnership”). The Parent Company is a Maryland real estate investment trust, or REIT, that owns its assets and conducts its operations through the Operating Partnership, a Delaware limited partnership, and subsidiaries of the Operating Partnership.  The Parent Company, the Operating Partnership and their consolidated subsidiaries are collectively referred to in this report as the “Company.” In addition, terms such as “we,” “us,” or “our” used in this report may refer to the Company, the Parent Company, or the Operating Partnership.

 

The Parent Company is the sole general partner of the Operating Partnership and, as of December 31, 2012, owned a 97.6% general partnership interest in the Operating Partnership. The remaining 2.4% interest consists of common units of limited partnership issued by the Operating Partnership to third parties in exchange for contributions of properties to the Operating Partnership. As the sole general partner of the Operating Partnership, the Parent Company has full and complete authority over the Operating Partnership’s day-to-day operations and management.

 

Management operates the Parent Company and the Operating Partnership as one enterprise. The management teams of the Parent Company and the Operating Partnership acting through its general partner are identical.

 

There are a few differences between the Parent Company and the Operating Partnership, which are reflected in the note disclosures in this report. The Company believes it is important to understand the differences between the Parent Company and the Operating Partnership in the context of how these entities operate as a consolidated enterprise. The Parent Company is a REIT, whose only material asset is its ownership of the partnership interests of the Operating Partnership and subsidiaries of the Operating Partnership.  As a result, the Parent Company does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing the debt obligations of the Operating Partnership and subsidiaries of the Operating Partnership. The Operating Partnership holds substantially all the assets of the Company and, directly or indirectly, holds the ownership interests in the Company’s real estate ventures. The Operating Partnership conducts the operations of the Company’s business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s direct or indirect incurrence of indebtedness or through the issuance of partnership units of the Operating Partnership or equity interests in subsidiaries of the Operating Partnership.

 

The Company believes that combining the annual reports on Form 10-K of the Parent Company and the Operating Partnership into a single report will:

 

·                  facilitate a better understanding by the investors of the Parent Company and the Operating Partnership by enabling them to view the business as a whole in the same manner as management views and operates the business;

·                  remove duplicative disclosures and provide a more straightforward presentation in light of the fact that a substantial portion of the disclosure applies to both the Parent Company and the Operating Partnership; and

·                  create time and cost efficiencies through the preparation of one combined report instead of two separate reports.

 

In order to highlight the differences between the Parent Company and the Operating Partnership, the separate sections in this report for the Parent Company and the Operating Partnership specifically refer to the Parent Company and the Operating Partnership. In the sections that combine disclosures of the Parent Company and the Operating Partnership, this report refers to such disclosures as those of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and real estate ventures and holds assets and debt, reference to the Company is appropriate because the business is one enterprise and the Parent Company operates the business through the Operating Partnership.

 

As general partner with control of the Operating Partnership, the Parent Company consolidates the Operating Partnership for financial reporting purposes. The Parent Company does not have significant assets other than its investment in the Operating Partnership. The substantive difference between the Parent Company’s and the Operating Partnership’s filings is the fact that the Parent Company is a REIT with public shares, while the Operating Partnership is a partnership with no publicly traded equity.

 

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In the financial statements, this difference is primarily reflected in the equity (or capital for Operating Partnership) section of the consolidated balance sheets and in the consolidated statements of equity (or capital) and comprehensive income (loss). Apart from the different equity treatment, the consolidated financial statements of the Parent Company and the Operating Partnership are nearly identical.  The separate discussions of the Parent Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company’s operations on a consolidated basis and how management operates the Company.

 

This report also includes separate Item 9A (Controls and Procedures) disclosures and separate Exhibit 31 and 32 certifications for each of the Parent Company and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Parent Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350.

 

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TABLE OF CONTENTS

 

PART I

 

 

 

5

 

 

 

 

 

Item 1.

 

Business

 

6

 

 

 

 

 

Item 1A.

 

Risk Factors

 

13

 

 

 

 

 

Item 1B.

 

Unresolved Staff Comments

 

25

 

 

 

 

 

Item 2.

 

Properties

 

26

 

 

 

 

 

Item 3.

 

Legal Proceedings

 

34

 

 

 

 

 

Item 4.

 

Mining Safety Disclosures

 

34

 

 

 

 

 

PART II

 

 

 

35

 

 

 

 

 

Item 5.

 

Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

 

35

 

 

 

 

 

Item 6.

 

Selected Financial Data

 

37

 

 

 

 

 

Item 7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

42

 

 

 

 

 

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 

57

 

 

 

 

 

Item 8.

 

Financial Statements and Supplementary Data

 

58

 

 

 

 

 

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

58

 

 

 

 

 

Item 9A.

 

Controls and Procedures

 

58

 

 

 

 

 

Item 9B.

 

Other Information

 

59

 

 

 

 

 

PART III

 

 

 

60

 

 

 

 

 

Item 10.

 

Trustees, Executive Officers and Corporate Governance

 

60

 

 

 

 

 

Item 11.

 

Executive Compensation

 

60

 

 

 

 

 

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

 

60

 

 

 

 

 

Item 13.

 

Certain Relationships and Related Transactions, and Trustee Independence

 

60

 

 

 

 

 

Item 14.

 

Principal Accountant Fees and Services

 

61

 

 

 

 

 

PART IV

 

 

 

62

 

 

 

 

 

Item 15.

 

Exhibits and Financial Statement Schedules

 

62

 

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PART I

 

Forward-Looking Statements

 

This Annual Report on Form 10-K and other statements and information publicly disseminated by the Parent Company and the Operating Partnership, contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, future events and actual results, performance, transactions or achievements, financial and otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forward-looking statements. Risks, uncertainties and other factors that might cause such differences, some of which could be material, include, but are not limited to:

 

·   national and local economic, business, real estate and other market conditions;

 

·         the competitive environment in which we operate, including our ability to maintain or raise rental rates;

 

·         the execution of our business plan;

 

·         the availability of external sources of capital;

 

·   financing risks, including the risk of over-leverage and the corresponding risk of default on our mortgage and other debt and potential inability to refinance existing indebtedness;

 

·         increases in interest rates and operating costs;

 

·         counterparty non-performance related to the use of derivative financial instruments;

 

·   our ability to maintain our Parent Company’s qualification as a real estate investment trust (“REIT”) for federal income tax purposes;

 

·         acquisition and development risks;

 

·         increases in taxes, fees, and assessments from state and local jurisdictions;

 

·         changes in real estate and zoning laws or regulations;

 

·         risks related to natural disasters;

 

·         potential environmental and other liabilities;

 

·         other factors affecting the real estate industry generally or the self-storage industry in particular; and

 

·         other risks identified from time to time, in other reports we file with the SEC or in other documents that we publicly disseminate.

 

Given these uncertainties and the other risks identified elsewhere in this Report, we caution readers not to place undue reliance on forward-looking statements.  We undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise except as may be required by securities laws.

 

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ITEM 1.  BUSINESS

 

Overview

 

We are a self-administered and self-managed real estate company focused primarily on the ownership, operation, management, acquisition and development of self-storage facilities in the United States.

 

As of December 31, 2012, we owned 381 self-storage facilities located in 22 states and in the District of Columbia containing an aggregate of approximately 25.5 million rentable square feet.  As of December 31, 2012, approximately 84.4% of the rentable square footage at our owned facilities was leased to approximately 182,000 tenants, and no single tenant represented a significant concentration of our revenues.  As of December 31, 2012 we owned facilities in the District of Columbia and the following 22 states:  Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Maryland, Massachusetts, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Utah, Virginia and Wisconsin.  In addition, as of December 31, 2012, we managed 133 properties for third parties, bringing the total number of properties we owned and/or managed to 514.   As of December 31, 2012 we managed facilities in the following 27 states: Alabama, Arizona, Arkansas , California, Colorado, Connecticut, Florida, Georgia, Illinois, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, and Virginia.

 

Our self-storage facilities are designed to offer affordable and easily-accessible storage space for our residential and commercial customers.  Our customers rent storage cubes for their exclusive use, typically on a month-to-month basis. Additionally, some of our facilities offer outside storage areas for vehicles and boats.  Our facilities are designed to accommodate both residential and commercial customers, with features such as wide aisles and load-bearing capabilities for large truck access.  All of our facilities have an on-site manager during business hours, and 256, or approximately 67%, of our owned facilities have a manager who resides in an apartment at the facility.  Our customers can access their storage cubes during business hours, and some of our facilities provide customers with 24-hour access through computer controlled access systems.  Our goal is to provide customers with the highest standard of facilities and service in the industry. To that end, approximately 76% of our owned facilities include climate controlled cubes, compared with the national average of 44% reported by the 2013 Self-Storage Almanac.

 

The Parent Company was formed in July 2004 as a Maryland REIT.  The Parent Company owns its assets and conducts its business through its operating partnership, CubeSmart, L.P. (our “Operating Partnership”), and its subsidiaries.  The Parent Company controls the Operating Partnership as its sole general partner and, as of December 31, 2012, owned an approximately 97.6% interest in the Operating Partnership.  The Operating Partnership has been engaged in virtually all aspects of the self-storage business, including the development, acquisition, management, ownership and operation of self-storage facilities.

 

Acquisition and Disposition Activity

 

As of December 31, 2012 and 2011, we owned 381 and 370 facilities, respectively, that contained an aggregate of 25.5 million and 24.4 million rentable square feet with occupancy rates of 84.4% and 78.4%, respectively.

 

A complete listing of, and additional information about, our facilities is included in Item 2 of this Annual Report on Form 10-K.  The following is a summary of our 2012, 2011 and 2010 acquisition and disposition activity:

 

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Facility/Portfolio

 

Location

 

Transaction Date

 

Number of Facilities

 

Purchase / Sales
Price (in thousands)

 

2012 Acquisitions:

 

 

 

 

 

 

 

 

 

Houston Asset

 

Houston, TX

 

February 2012

 

1

 

$

5,100

 

Dunwoody Asset

 

Dunwoody, GA

 

February 2012

 

1

 

6,900

 

Mansfield Asset

 

Mansfield, TX

 

June 2012

 

1

 

4,970

 

Texas Assets

 

Multiple locations in TX

 

July 2012

 

4

 

18,150

 

Allen Asset

 

Allen, TX

 

July 2012

 

1

 

5,130

 

Norwalk Asset

 

Norwalk, CT

 

July 2012

 

1

 

5,000

 

Storage Deluxe Assets

 

Multiple locations in NY and CT

 

February/ April/ August 2012

 

6

 

201,910

 

Eisenhower Asset

 

Alexandria, VA

 

August 2012

 

1

 

19,750

 

New Jersey Assets

 

Multiple locations in NJ

 

August 2012

 

2

 

10,750

 

Georgia/ Florida Assets

 

Multiple locations in GA and FL

 

August 2012

 

3

 

13,370

 

Peachtree Asset

 

Peachtree City, GA

 

August 2012

 

1

 

3,100

 

HSREV Assets

 

Multiple locations in PA, NY, NJ, VA and FL

 

September 2012

 

9

 

102,000

(a)

Leetsdale Asset

 

Denver, CO

 

September 2012

 

1

 

10,600

 

Orlando/ West Palm Beach Assets

 

Multiple locations in FL

 

November 2012

 

2

 

13,010

 

Exton/ Cherry Hill Assets

 

Multiple locations in NJ and PA

 

December 2012

 

2

 

7,800

 

Carrollton Asset

 

Carrollton, TX

 

December 2012

 

1

 

4,800

 

 

 

 

 

 

 

37

 

$

432,340

 

2012 Dispositions:

 

 

 

 

 

 

 

 

 

Michigan Assets

 

Multiple locations in MI

 

June 2012

 

3

 

$

6,362

 

Gulf Coast Assets

 

Multiple locations in LA, AL and MS

 

June 2012

 

5

 

16,800

 

New Mexico Assets (b)

 

Multiple locations in NM

 

August 2012

 

6

 

7,500

 

San Bernardino Asset

 

San Bernardino, CA

 

August 2012

 

1

 

5,000

 

Florida/ Tennessee Assets

 

Multiple locations in FL and TN

 

November 2012

 

3

 

6,550

 

Ohio Assets

 

Multiple locations in OH

 

November 2012

 

8

 

17,750

 

 

 

 

 

 

 

26

 

$

59,962

 

2011 Acquisitions:

 

 

 

 

 

 

 

 

 

Burke Lake Asset

 

Fairfax Station, VA

 

January 2011

 

1

 

$

14,000

 

West Dixie Asset

 

Miami, FL

 

April 2011

 

1

 

13,500

 

White Plains Asset

 

White Plains, NY

 

May 2011

 

1

 

23,000

 

Phoenix Asset

 

Phoenix, AZ

 

May 2011

 

1

 

612

 

Houston Asset

 

Houston, TX

 

June 2011

 

1

 

7,600

 

Duluth Asset

 

Duluth, GA

 

July 2011

 

1

 

2,500

 

Atlanta Assets

 

Atlanta, GA

 

July 2011

 

2

 

6,975

 

District Heights Asset

 

District Heights, MD

 

August 2011

 

1

 

10,400

 

Storage Deluxe Assets

 

Multiple locations in NY, CT and PA

 

November 2011

 

16

 

357,310

 

Leesburg Asset

 

Leesburg, VA

 

November 2011

 

1

 

13,000

 

Washington, DC Asset

 

Washington, DC

 

December 2011

 

1

 

18,250

 

 

 

 

 

 

 

27

 

$

467,147

 

2011 Dispositions:

 

 

 

 

 

 

 

 

 

Flagship Assets

 

Multiple locations in IN and OH

 

August 2011

 

18

 

$

43,500

 

Portage Asset

 

Portage, MI

 

November 2011

 

1

 

1,700

 

 

 

 

 

 

 

19

 

$

45,200

 

2010 Acquisitions:

 

 

 

 

 

 

 

 

 

Frisco Asset

 

Frisco, TX

 

July 2010

 

1

 

$

5,800

 

New York City Assets

 

New York, NY

 

September 2010

 

2

 

26,700

 

Northeast Assets

 

Multiple locations in NJ, NY and MA

 

November 2010

 

5

 

18,560

 

Manassas Asset

 

Manassas, VA

 

November 2010

 

1

 

6,050

 

Apopka Asset

 

Orlando, FL

 

November 2010

 

1

 

4,235

 

Wyckoff Asset

 

Queens, NY

 

December 2010

 

1

 

13,600

 

McLearen Asset

 

McLearen, VA

 

December 2010

 

1

 

10,200

 

 

 

 

 

 

 

12

 

$

85,145

 

2010 Dispositions:

 

 

 

 

 

 

 

 

 

Sun City Asset

 

Sun City, CA

 

October 2010

 

1

 

$

3,100

 

Inland Empire/Fayetteville Assets

 

Multiple locations in CA and NC

 

December 2010

 

15

 

35,000

 

 

 

 

 

 

 

16

 

$

38,100

 

 

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(a)         Purchase price listed represents the fair value of the assets at acquisition.

(b)         The Company issued financing in the amount of $5.3 million to the buyer in conjunction with the New Mexico Assets disposition.

 

The comparability of our results of operations is affected by the timing of acquisition and disposition activities during the periods reported. At December 31, 2012 and 2011, we owned 381 and 370 self-storage facilities and related assets, respectively. The following table summarizes the change in number of owned self-storage facilities from January 1, 2011 through December 31, 2012:

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Balance - January 1

 

370

 

363

 

Facilities acquired

 

6

 

1

 

Facilities sold

 

 

 

Balance - March 31

 

376

 

364

 

Facilities acquired

 

2

 

4

 

Facilities consolidated

 

 

(1

)

Facilities sold

 

(8

)

 

Balance - June 30

 

370

 

367

 

Facilities acquired

 

24

 

4

 

Facilities sold

 

(7

)

(18

)

Balance - September 30

 

387

 

353

 

Facilities acquired

 

5

 

18

 

Facilities sold

 

(11

)

(1

)

Balance - December 31

 

381

 

370

 

 

Financing and Investing Activities

 

The following summarizes certain financing activities during the year ended December 31, 2012:

 

·      Storage Deluxe Acquisition. During the year ended December 31, 2012, as part of the $560 million Storage Deluxe transaction involving 22 Class A self-storage facilities located primarily in the greater New York City area, the Company acquired the final six properties with a purchase price of approximately $201.9 million. The six properties purchased are located in New York and Connecticut.  In connection with the acquisitions, the Company allocated a portion of the purchase price to the intangible value of in-place leases which aggregated $12.3 million.

 

·      Facility Acquisitions.  In addition to the Storage Deluxe Acquisition, during the year ended December 31, 2012, we acquired 22 self-storage facilities located throughout the United States for an aggregate purchase price of approximately $128.4 million.  In connection with these acquisitions, we allocated a portion of the purchase price to the intangible value of in-place leases which aggregated $13.2 million.

 

·      Investments in Unconsolidated Real Estate Ventures.  On September 28, 2012, the Company purchased the remaining 50% ownership in a partnership that owned nine storage facilities, collectively the HSRE Venture (“HSREV”), for cash of $21.7 million. In addition, upon taking control of these assets, the Company repaid $59.3 million of mortgage loans related to the properties.  Following the acquisition, the Company wholly owns the nine storage facilities which are unencumbered and have a fair value of $102 million at the date of acquisition.  In connection with this acquisition, the Company allocated a portion of the fair value to the intangible value of in-place leases which aggregated $8.3 million.

 

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·      Facility Dispositions.   During the year ended December 31, 2012, we sold 26 self-storage facilities located throughout the United States for an aggregate sales price of approximately $60.0 million.  These sales resulted in the recognition of gains that totaled $9.8 million.

 

·      Investments in Consolidated Real Estate Ventures.  On August 13, 2012, the Company purchased the remaining 50% interest in the HART joint venture from Heitman for $61.1 million, and now owns 100% of HART. Accordingly, the Company wholly owns the 22 properties, which are unencumbered by any property-level secured debt.  The Company previously consolidated HART, and therefore the acquisition of the remaining 50% interest is reflected in the equity section of the accompanying consolidated balance sheets.   As a result of the transaction, the Company eliminated noncontrolling interest in subsidiaries of $38.7 million and recorded a reduction to additional paid in capital of $18.5 million.

 

·      Senior Note Issuance.  On June 26, 2012, the Operating Partnership issued $250 million in aggregate principal amount of unsecured senior notes due July 15, 2022 (the “senior notes”), which bear interest at a rate of 4.80%.  The indenture under which the unsecured senior notes were issued restricts the ability of the Operating Partnership and its subsidiaries to incur debt unless the Operating Partnership and its consolidated subsidiaries comply with a leverage ratio not to exceed 60% and an interest coverage ratio of less than 1.5:1 after giving effect to the incurrence of the debt.  The indenture also restricts the ability of the Operating Partnership and its subsidiaries to incur secured debt unless the Operating Partnership and its consolidated subsidiaries comply with a secured debt leverage ratio not to exceed 40% after giving effect to the incurrence of the debt.  The indenture also contains other financial and customary covenants, including a covenant not to own unencumbered assets with a value less than 150% of the unsecured indebtedness of the Operating Partnership and its consolidated subsidiaries. We are currently in compliance with all its financial covenants under the senior notes.

 

·      At The Market Program.  Pursuant to our sales agreement with Cantor Fitzgerald & Co. (the “Sales Agent”), dated April 3, 2009, as amended on January 26, 2011 and September 16, 2011 (as amended, the “Sales Agreement”), we may sell up to 20 million common shares at “at the market” prices. During the year ended December 31, 2012, we sold 7.9 million shares with an average sales price of $13.13 per share, resulting in gross proceeds of $103.8 million under the program.  The Company incurred $1.7 million of offering costs in conjunction with these sales.

 

Business Strategy

 

Our business strategy consists of several elements:

 

·         Maximize cash flow from our facilities — Our operating strategy focuses on maximizing sustainable rents at our facilities while achieving and sustaining occupancy targets.  We utilize our operating systems and experienced personnel to manage the balance between rental rates, discounts, and physical occupancy with an objective of maximizing our rental revenue.

 

·         Acquire facilities within targeted markets — During 2013, we intend to pursue selective acquisitions in markets that we believe have high barriers to entry, strong demographic fundamentals and demand for storage in excess of storage capacity.  We believe the self-storage industry will continue to afford us opportunities for growth through acquisitions due to the highly fragmented composition of the industry.

 

·         Dispose of facilities not in targeted markets — During 2013, we intend to continue to reduce exposure in slower growth, lower barrier-to-entry markets.   We intend to use proceeds from these transactions to fund acquisitions within target markets.

 

·         Grow our third party management business — We intend to pursue additional third party management opportunities in markets where we currently maintain management that can be extended to additional facilities.  We intend to leverage our current platform to take advantage of consolidation in the industry.  We plan to utilize our relationships with third party owners to help source future acquisitions.

 

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Investment and Market Selection Process

 

We maintain a disciplined and focused process in the acquisition and development of self-storage facilities.  Our investment committee, comprised of our named executive officers and led by Dean Jernigan, our Chief Executive Officer, oversees our investment process.  Our investment process involves six stages — identification, initial due diligence, economic assessment, investment committee approval (and when required, Board approval), final due diligence, and documentation.  Through our investment committee, we intend to focus on the following criteria:

 

·

Targeted markets — Our targeted markets include areas where we currently maintain management that can be extended to additional facilities, or where we believe that we can acquire a significant number of facilities efficiently and within a short period of time. We evaluate both the broader market and the immediate area, typically five miles around the facility, for its ability to support above-average demographic growth. We seek to increase our presence primarily in areas that we expect will experience growth, including the Northeastern and Middle Atlantic areas of the United States and areas within Georgia, Florida, Texas, Illinois and California and to enter new markets should suitable opportunities arise.

 

 

·

Quality of facility — We focus on self-storage facilities that have good visibility and are located near retail centers, which typically provide high traffic corridors and are generally located near residential communities and commercial customers.

 

 

·

Growth potential — We target acquisitions that offer growth potential through increased operating efficiencies and, in some cases, through additional leasing efforts, renovations or expansions. In addition to acquiring single facilities, we seek to invest in portfolio acquisitions, including those offering significant potential for increased operating efficiency and the ability to spread our fixed costs across a large base of facilities.

 

Segment

 

We have one reportable segment:  we own, operate, develop, manage and acquire self-storage facilities.

 

Concentration

 

Our self-storage facilities are located in major metropolitan areas as well as suburban areas and have numerous tenants per facility.  No single tenant represented a significant concentration of our 2012 revenues.  Our facilities in New York, Florida, California, and Texas provided approximately 16%, 15%, 10% and 10%, respectively, of our total 2012 revenues.  Our facilities in Florida, California, Texas and Illinois provided approximately 17%, 12%, 10% and 7%, respectively, of our total 2011 revenues.

 

Seasonality

 

We typically experience seasonal fluctuations in occupancy levels at our facilities, with the levels generally slightly higher during the summer months due to increased moving activity.

 

Financing Strategy

 

Although our organizational documents do not limit the amount of debt that we may incur, we maintain a capital structure that we believe is reasonable and prudent and that will enable us to have ample cash flow to cover debt service and make distributions to our shareholders.  As of December 31, 2012, our debt to total capitalization ratio (determined by dividing the carrying value of our total indebtedness by the sum of (a) the market value of the Parent Company’s outstanding common shares and units of the Operating Partnership held by third parties and (b) the carrying value of our total indebtedness) was approximately 34.2% compared to approximately 36.0% as of December 31, 2011.  Our ratio of debt to the depreciated cost of our real estate assets as of December 31, 2012 was approximately 49.0% compared to approximately 42.4% as of December 31, 2011.  We expect to finance additional investments in self-storage facilities through the most attractive available sources of capital at the time of the transaction, in a manner consistent with maintaining a strong financial position and future financial flexibility.  These capital sources may include borrowings under the revolving portion of our 2011 Credit Facility and additional secured or unsecured financings, sales of common or preferred shares of the Parent Company in public offerings or private placements, and issuances of common or preferred units in our Operating Partnership in exchange for contributed properties or cash and formations of joint ventures.  We also may sell facilities that we no longer view as core assets and reallocate the sales proceeds to fund other acquisitions.

 

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Competition

 

Over the last decade, new self-storage facility development has intensified the competition among self-storage operators in many market areas in which we operate.  Self-storage facilities compete based on a number of factors, including location, rental rates, security, suitability of the facility’s design to prospective customers’ needs and the manner in which the facility is operated and marketed.  In particular, the number of competing self-storage facilities in a particular market could have a material effect on our occupancy levels, rental rates and on the overall operating performance of our facilities.  We believe that the primary competition for potential customers of any of our self-storage facilities comes from other self-storage facilities within a three-mile radius of that facility.  We believe our facilities are well-positioned within their respective markets and we emphasize customer service, convenience, security and professionalism.

 

Our key competitors include local and regional operators as well as the other public self-storage REITS, including Public Storage, Sovran Self Storage and Extra Space Storage Inc.  These companies, some of which operate significantly more facilities than we do and have greater resources than we have, and other entities may generally be able to accept more risk than we determine is prudent for us, including risks with respect to the geographic proximity of facility investments and the payment of higher facility acquisition prices.  This competition may generally reduce the number of suitable acquisition opportunities available to us, increase the price required to consummate the acquisition of particular facilities and reduce the demand for self-storage space in areas where our facilities are located.  Nevertheless, we believe that our experience in operating, managing, acquiring, developing and obtaining financing for self-storage facilities should enable us to compete effectively.

 

Government Regulation

 

We are subject to various laws, ordinances and regulations, including regulations relating to lien sale rights and procedures and various federal, state and local environmental regulations that apply generally to the ownership of real property and the operation of self-storage facilities.

 

Under various federal, state and local laws, ordinances and regulations, an owner or operator of real property may become liable for the costs of removal or remediation of hazardous substances released on or in its property.  These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substances.  The presence of hazardous substances, or the failure to properly remediate such substances, when released, may adversely affect the property owner’s ability to sell the real estate or to borrow using the real estate as collateral, and may cause the property owner to incur substantial remediation costs.  In addition to claims for cleanup costs, the presence of hazardous substances on a property could result in a claim by a private party for personal injury or a claim by an adjacent property owner or user for property damage.  We may also become liable for the costs of removal or remediation of hazardous substances stored at the facilities by a customer even though storage of hazardous substances would be without our knowledge or approval and in violation of the customer’s storage lease agreement with us.

 

Our practice is to conduct or obtain environmental assessments in connection with the acquisition or development of facilities.  Whenever the environmental assessment for one of our facilities indicates that a facility is impacted by soil or groundwater contamination from prior owners/operators or other sources, we work with our environmental consultants and, where appropriate, state governmental agencies, to ensure that the facility is either cleaned up, that no cleanup is necessary because the low level of contamination poses no significant risk to public health or the environment, or that the responsibility for cleanup rests with a third party.  In certain cases, the Company has purchased environmental liability insurance coverage to indemnify the Company against claims for contamination or other adverse environmental conditions that may affect a property.

 

We are not aware of any environmental cleanup liability that we believe will have a material adverse effect on us.  We cannot assure you, however, that these environmental assessments and investigations have revealed or will reveal all potential environmental liabilities, that no prior owner created any material environmental condition not known to us or the independent consultant or that future events or changes in environmental laws will not result in the imposition of environmental liability on us.

 

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We have not received notice from any governmental authority of any material noncompliance, claim or liability in connection with any of our facilities, nor have we been notified of a claim for personal injury or property damage by a private party in connection with any of our facilities relating to environmental conditions.

 

We are not aware of any environmental condition with respect to any of our facilities that could reasonably be expected to have a material adverse effect on our financial condition or results of operations, and we do not expect that the cost of compliance with environmental regulations will have a material adverse effect on our financial condition or results of operations.  We cannot assure you, however, that this will continue to be the case.

 

Insurance

 

We carry comprehensive liability, fire, extended coverage and rental loss insurance covering all of the facilities in our portfolio.  We carry environmental insurance coverage on certain properties in our portfolio.  We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice.  We do not carry insurance for losses such as loss from riots, war or acts of God, and, in some cases, environmental hazards, because such coverage is not available or is not available at commercially reasonable rates.  Some of our policies, such as those covering losses due to terrorist activities, hurricanes, floods and earthquakes, are insured subject to limitations involving large deductibles or co-payments and policy limits that may not be sufficient to cover losses.  We also carry liability insurance to insure against personal injuries that might be sustained on our properties and director and officer liability insurance.

 

Offices

 

Our principal executive office is located at 460 E. Swedesford Road, Suite 3000, Wayne, PA  19087.  Our telephone number is (610) 293-5700.

 

Employees

 

As of December 31, 2012, we employed 1,409 employees, of whom 188 were corporate executive and administrative personnel and 1,221 were property level personnel.  We believe that our relations with our employees are good.  Our employees are not unionized.

 

Available Information

 

We file registration statements, proxy statements, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, with the SEC.  You may obtain copies of these documents by visiting the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, by calling the SEC at 1-800-SEC-0330 or by accessing the SEC’s website at www.sec.gov.  Our internet website address is www.cubesmart.com.  You also can obtain on our website, free of charge, a copy of our annual report on Form 10-K, the Operating Partnership’s registration statement on Form 10, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file such reports or amendments with, or furnish them to, the SEC.  Our internet website and the information contained therein or connected thereto are not intended to be incorporated by reference into this Annual Report on Form 10-K.

 

Also available on our website, free of charge, are copies of our Code of Business Conduct and Ethics, our Corporate Governance Guidelines, and the charters for each of the committees of our Board of Trustees — the Audit Committee, the Corporate Governance and Nominating Committee, and the Compensation Committee.  Copies of each of these documents are also available in print free of charge, upon request by any shareholder.  You can obtain copies of these documents by contacting Investor Relations by mail at 460 E. Swedesford Road, Suite 3000, Wayne, PA 19087.

 

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ITEM 1A.  RISK FACTORS

 

Overview

 

An investment in our securities involves various risks.  Investors should carefully consider the risks set forth below together with other information contained in this Annual Report. These risks are not the only ones that we may face. Additional risks not presently known to us, or that we currently consider immaterial, may also impair our business, financial condition, operating results and ability to make distributions to our shareholders.

 

Risks Related to our Business and Operations

 

Adverse macroeconomic and business conditions may significantly and negatively affect our rental rates, occupancy levels and therefore our results of operations.

 

We are susceptible to the effects of adverse macro-economic events that can result in higher unemployment, shrinking demand for products, large-scale business failures and tight credit markets.  Our results of operations are sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending, as well as to increased bad debts due to recessionary pressures.  A continuation of, or slow recovery from, ongoing adverse economic conditions affecting disposable consumer income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs, could reduce consumer spending or cause consumers to shift their spending to other products and services.  A general reduction in the level of discretionary spending or shifts in consumer discretionary spending could adversely affect our growth and profitability.

 

It is difficult to determine the breadth and duration of the economic and financial market problems and the many ways in which they may affect our customers and our business in general.  Nonetheless, continuation or further worsening of these difficult financial and macroeconomic conditions could have a significant adverse effect on our sales, profitability and results of operations.

 

Many states and local jurisdictions are facing severe budgetary problems which may have an adverse impact on our business and financial results.

 

Many states and jurisdictions are facing severe budgetary problems.  Action that may be taken in response to these problems, such as increases in property taxes on commercial properties, changes to sales taxes or other governmental efforts, including mandating medical insurance for employees, could adversely impact our business and results of operations.

 

Our financial performance is dependent upon the economic and other conditions of the markets in which our facilities are located.

 

We are susceptible to adverse developments in the markets in which we operate, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors.  Our facilities in New York, Florida, California, Texas, Illinois, New Jersey, and Tennessee accounted for approximately 16%, 15%, 10%, 10%, 6%, 5% and 4%, respectively, of our total 2012 revenues.  As a result of this geographic concentration of our facilities, we are particularly susceptible to adverse market conditions in these areas.  Any adverse economic or real estate developments in these markets, or in any of the other markets in which we operate, or any decrease in demand for self-storage space resulting from the local business climate could adversely affect our rental revenues, which could impair our ability to satisfy our debt service obligations and pay distributions to our shareholders.

 

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We face risks associated with facility acquisitions.

 

We intend to continue to acquire individual and portfolios of self-storage facilities.  These acquisitions would increase our size and may potentially alter our capital structure.  Although we believe that future acquisitions that we complete will enhance our financial performance, the success of acquisitions is subject to the risks that:

 

·                  acquisitions may fail to perform as expected;

 

·                  the actual costs of repositioning or redeveloping acquired facilities may be higher than our estimates;

 

·                  we may be unable to obtain acquisition financing on favorable terms;

 

·                  acquisitions may be located in new markets where we may have limited knowledge and understanding of the local economy, an absence of business relationships in the area or an unfamiliarity with local governmental and permitting procedures;

 

·                  there is only limited recourse, or no recourse, to the former owners of newly acquired facilities for unknown or undisclosed liabilities such as the clean-up of undisclosed environmental contamination; claims by tenants, vendors or other persons arising on account of actions or omissions of the former owners of the facilities; and claims by local governments, adjoining property owners, property owner associations, and easement holders for fees, assessments, taxes on other property-related changes.  As a result, if a liability were asserted against us based upon ownership of an acquired facility, we might be required to pay significant sums to settle it, which could adversely affect our financial results and cash flow.

 

In addition, we do not always obtain third-party appraisals of acquired facilities (and instead rely on value determinations by our senior management) and the consideration we pay in exchange for those facilities may exceed the value determined by third-party appraisals.

 

We will incur costs and will face integration challenges when we acquire additional facilities.

 

As we acquire or develop additional self-storage facilities, we will be subject to risks associated with integrating and managing new facilities, including customer retention and mortgage default risks. In the case of a large portfolio purchase, we could experience strains in our existing information management capacity.  In addition, acquisitions or developments may cause disruptions in our operations and divert management’s attention away from day-to-day operations.  Furthermore, our income may decline because we will be required to expense acquisition-related costs and amortize in future periods costs for acquired goodwill and other intangible assets.  Our failure to successfully integrate any future acquisitions into our portfolio could have an adverse effect on our operating costs and our ability to make distributions to our shareholders.

 

The acquisition of new facilities that lack operating history with us will make it more difficult to predict revenue potential.

 

We intend to continue to acquire additional facilities.  These acquisitions could fail to perform in accordance with expectations.  If we fail to accurately estimate occupancy levels, rental rates, operating costs or costs of improvements to bring an acquired facility up to the standards established for our intended market position, the performance of the facility may be below expectations.  Acquired facilities may have characteristics or deficiencies affecting their valuation or revenue potential that we have not yet discovered. We cannot assure you that the performance of facilities acquired by us will increase or be maintained under our management.

 

We depend on external sources of capital that are outside of our control; the unavailability of capital from external sources could adversely affect our ability to acquire or develop facilities, satisfy our debt obligations and/or make distributions to shareholders.

 

We depend on external sources of capital to fund acquisitions and facility development, to satisfy our debt obligations and to make distributions to our shareholders required to maintain our status as a REIT, and these sources of capital may not be available on favorable terms, if at all.  Our access to external sources of capital depends on a number of factors, including the market’s perception of our growth potential and our current and potential future earnings and our ability to continue to qualify as a REIT for federal income tax purposes.  If we are unable to obtain external sources of capital, we may not be able to acquire or develop facilities when strategic opportunities exist, satisfy our debt obligations or make distributions to shareholders that would permit us to qualify as a REIT or avoid paying tax on our REIT taxable income.

 

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Rising operating expenses could reduce our cash flow and funds available for future distributions.

 

Our facilities and any other facilities we acquire or develop in the future are and will be subject to operating risks common to real estate in general, any or all of which may negatively affect us.  Our facilities are subject to increases in operating expenses such as real estate and other taxes, personnel costs including the cost of providing specific medical coverage to our employees, utilities, insurance, administrative expenses and costs for repairs and maintenance.  If operating expenses increase without a corresponding increase in revenues, our profitability could diminish and limit our ability to make distributions to our shareholders.

 

We cannot assure you of our ability to pay dividends in the future.

 

Historically, we have paid quarterly distributions to our shareholders, and we intend to continue to pay quarterly dividends and to make distributions to our shareholders in amounts such that all or substantially all of our taxable income in each year, subject to certain adjustments, is distributed.  This, along with other factors, should enable us to continue to qualify for the tax benefits accorded to a REIT under the Internal Revenue Code.  We have not established a minimum dividends payment level, and all future distributions will be made at the discretion of our Board of Trustees.  Our ability to pay dividends will depend upon, among other factors:

 

·                  the operational and financial performance of our facilities;

 

·                  capital expenditures with respect to existing and newly acquired facilities;

 

·                  general and administrative costs associated with our operation as a publicly-held REIT;

 

·                  maintenance of our REIT status;

 

·                  the amount of, and the interest rates on, our debt;

 

·                  the absence of significant expenditures relating to environmental and other regulatory matters; and

 

·                  other risk factors described in this Annual Report on Form 10-K.

 

Certain of these matters are beyond our control and any significant difference between our expectations and actual results could have a material adverse effect on our cash flow and our ability to make distributions to shareholders.

 

If we are unable to promptly re-let our cubes or if the rates upon such re-letting are significantly lower than expected, then our business and results of operations would be adversely affected.

 

We derive revenues principally from rents received from customers who rent cubes at our self-storage facilities under month-to-month leases.  Any delay in re-letting cubes as vacancies arise would reduce our revenues and harm our operating results.  In addition, lower than expected rental rates upon re-letting could adversely affect our revenues and impede our growth.

 

Property ownership through joint ventures may limit our ability to act exclusively in our interest.

 

We have in the past co-invested with, and we may continue to co-invest with, third parties through joint ventures.  In any such joint venture, we may not be in a position to exercise sole decision-making authority regarding the facilities owned through joint ventures. Investments in joint ventures may, under certain circumstances, involve risks not present when a third party is not involved, including the possibility that joint venture partners might become bankrupt or fail to fund their share of required capital contributions.

 

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Joint venture partners may have business interests or goals that are inconsistent with our business interests or goals and may be in a position to take actions contrary to our policies or objectives.  Such investments also have the potential risk of impasse on strategic decisions, such as a sale, in cases where neither we nor the joint venture partner would have full control over the joint venture. In other circumstances, joint venture partners may have the ability without our agreement to make certain major decisions, including decisions about sales, capital expenditures and/or financing.  Any disputes that may arise between us and our joint venture partners could result in litigation or arbitration that could increase our expenses and distract our officers and/or Trustees from focusing their time and effort on our business.  In addition, we might in certain circumstances be liable for the actions of our joint venture partners, and the activities of a joint venture could adversely affect our ability to qualify as a REIT, even though we do not control the joint venture.

 

We face significant competition for tenants and acquisition and development opportunities.

 

Actions by our competitors may decrease or prevent increases of the occupancy and rental rates of our properties.  We compete with numerous developers, owners and operators of self-storage facilities, including other REITs, some of which own or may in the future own properties similar to ours in the same submarkets in which our properties are located and some of which may have greater capital resources.  In addition, due to the relatively low cost of each individual self-storage facility, other developers, owners and operators have the capability to build additional facilities that may compete with our facilities.

 

If our competitors build new facilities that compete with our facilities or offer space at rental rates below the rental rates we currently charge our tenants, we may lose potential tenants, and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants when our tenants’ leases expire.  As a result, our financial condition, cash flow, cash available for distribution, market price of our shares and ability to satisfy our debt service obligations could be materially adversely affected.  In addition, increased competition for customers may require us to make capital improvements to our facilities that we would not have otherwise made.  Any unbudgeted capital improvements we undertake may reduce cash available for distributions to our shareholders.

 

We also face significant competition for acquisitions and development opportunities.  Some of our competitors have greater financial resources than we do and a greater ability to borrow funds to acquire facilities.  These competitors may also be willing to accept more risk than we can prudently manage, including risks with respect to the geographic proximity of investments and the payment of higher facility acquisition prices.  This competition for investments may reduce the number of suitable investment opportunities available to us, may increase acquisition costs and may reduce demand for self-storage space in certain areas where our facilities are located and, as a result, adversely affect our operating results.

 

We may become subject to litigation or threatened litigation which may divert management’s time and attention, require us to pay damages and expenses or restrict the operation of our business.

 

We may become subject to disputes with commercial parties with whom we maintain relationships or other parties with whom we do business.  Any such dispute could result in litigation between us and the other parties.  Whether or not any dispute actually proceeds to litigation, we may be required to devote significant management time and attention to its successful resolution (through litigation, settlement or otherwise), which would detract from our management’s ability to focus on our business.  Any such resolution could involve the payment of damages or expenses by us, which may be significant.  In addition, any such resolution could involve our agreement with terms that restrict the operation of our business.

 

There are other commercial parties, at both a local and national level, that may assert that our use of our brand names and other intellectual property conflict with their rights to use brand names and other intellectual property that they consider to be similar to ours.  Any such commercial dispute and related resolution would involve all of the risks described above, including, in particular, our agreement to restrict the use of our brand name or other intellectual property.

 

We also could be sued for personal injuries and/or property damage occurring on our properties.  We maintain liability insurance with limits that we believe adequate to provide for the defense and/or payment of any damages arising from such lawsuits.  There can be no assurance that such coverage will cover all costs and expenses from such suits.

 

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Potential losses may not be covered by insurance, which could result in the loss of our investment in a facility and the future cash flows from the facility.

 

We carry comprehensive liability, fire, extended coverage and rental loss insurance covering all of the facilities in our portfolio.  We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice.  We do not carry insurance for losses such as loss from riots, war or acts of God, and, in some cases, flooding and environmental hazards, because such coverage is not available or is not available at commercially reasonable rates.  Some of our policies, such as those covering losses due to terrorism, hurricanes, floods and earthquakes, are insured subject to limitations involving large deductibles or co-payments and policy limits that may not be sufficient to cover losses.  If we experience a loss at a facility that is uninsured or that exceeds policy limits, we could lose the capital invested in that facility as well as the anticipated future cash flows from that facility.  Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it impractical or undesirable to use insurance proceeds to replace a facility after it has been damaged or destroyed.  In addition, if the damaged facilities are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these facilities were irreparably damaged.

 

Our insurance coverage may not comply with certain loan requirements.

 

Certain of our properties serve as collateral for our mortgage-backed debt, some of which we assumed in connection with our acquisition of facilities and requires us to maintain insurance at levels and on terms that are not commercially reasonable in the current insurance environment.   We may be unable to obtain required insurance coverage if the cost and/or availability make it impractical or impossible to comply with debt covenants.  If we cannot comply with a lender’s requirements, the lender could declare a default, which could affect our ability to obtain future financing and have a material adverse effect on our results of operations and cash flows and our ability to obtain future financing.  In addition, we may be required to self-insure against certain losses or our insurance costs may increase.

 

Potential liability for environmental contamination could result in substantial costs.

 

We are subject to federal, state and local environmental regulations that apply generally to the ownership of real property and the operation of self-storage facilities.  If we fail to comply with those laws, we could be subject to significant fines or other governmental sanctions.

 

Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at a facility and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by such parties in connection with contamination.  Such liability may be imposed whether or not the owner or operator knew of, or was responsible for, the presence of these hazardous or toxic substances.  The cost of investigation, remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to properly remediate such substances, may adversely affect our ability to sell or rent such facility or to borrow using such facility as collateral.  In addition, in connection with the ownership, operation and management of real properties, we are potentially liable for property damage or injuries to persons and property.

 

Our practice is to conduct or obtain environmental assessments in connection with the acquisition or development of additional facilities.  We carry environmental insurance coverage on certain properties in our portfolio.  We obtain or examine environmental assessments from qualified and reputable environmental consulting firms (and intend to conduct such assessments prior to the acquisition or development of additional facilities).  The environmental assessments received to date have not revealed, nor do we have actual knowledge of, any environmental liability that we believe will have a material adverse effect on us.  However, we cannot assure you that our environmental assessments have identified or will identify all material environmental conditions, that any prior owner of any facility did not create a material environmental condition not actually known to us or that a material environmental condition does not otherwise exist with respect to any of our facilities.

 

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Americans with Disabilities Act and applicable state accessibility act compliance may require unanticipated expenditures.

 

Under the Americans with Disabilities Act of 1990 and applicable state accessibility act laws (collectively, the “ADA”), all places of public accommodation are required to meet federal requirements related to physical access and use by disabled persons.  A number of other federal, state and local laws may also impose access and other similar requirements at our facilities.  A failure to comply with the ADA or similar state or local requirements could result in the governmental imposition of fines or the award of damages to private litigants affected by the noncompliance.  Although we believe that our facilities comply in all material respects with these requirements (or would be eligible for applicable exemptions from material requirements because of adaptive assistance provided), a determination that one or more of our facilities is not in compliance with the ADA or similar state or local requirements would result in the incurrence of additional costs associated with bringing the facilities into compliance.  If we are required to make substantial modifications to comply with the ADA or similar state or local requirements, we may be required to incur significant unanticipated expenditures, which could have an adverse effect on our operating costs and our ability to make distributions to our shareholders.

 

Privacy concerns could result in regulatory changes that may harm our business.

 

Personal privacy has become a significant issue in the jurisdictions in which we operate.  Many jurisdictions in which we operate have imposed restrictions and requirements on the use of personal information by those collecting such information. Changes to law or regulations affecting privacy, if applicable to our business, could impose additional costs and liability on us and could limit our use and disclosure of such information.

 

We face system security risks as we depend upon automated processes and the Internet.

 

We are increasingly dependent upon automated information technology processes.  While we attempt to mitigate this risk through offsite backup procedures and contracted data centers that include, in some cases, redundant operations, we could still be severely impacted by a catastrophic occurrence, such as a natural disaster or a terrorist event or cyber-attack.  In addition, an increasing portion of our business operations are conducted over the Internet, increasing the risk of viruses that could cause system failures and disruptions of operations despite our deployment of anti-virus measures.  Experienced computer programmers may be able to penetrate our network security and misappropriate our confidential information, create system disruptions or cause shutdowns.

 

Terrorist attacks and other acts of violence or war may adversely impact our performance and may affect the markets on which our securities are traded.

 

Terrorist attacks against our facilities, the United States or our interests, may negatively impact our operations and the value of our securities.  Attacks or armed conflicts could negatively impact the demand for self-storage facilities and increase the cost of insurance coverage for our facilities, which could reduce our profitability and cash flow.  Furthermore, any terrorist attacks or armed conflicts could result in increased volatility in or damage to the United States and worldwide financial markets and economy.

 

Risks Related to the Real Estate Industry

 

Our performance and the value of our self-storage facilities are subject to risks associated with our properties and with the real estate industry.

 

Our rental revenues and operating costs and the value of our real estate assets, and consequently the value of our securities, are subject to the risk that if our facilities do not generate revenues sufficient to meet our operating expenses, including debt service and capital expenditures, our cash flow and ability to pay distributions to our shareholders will be adversely affected.  Events or conditions beyond our control that may adversely affect our operations or the value of our facilities include but are not limited to:

 

·                  downturns in the national, regional and local economic climate;

 

·                  local or regional oversupply, increased competition or reduction in demand for self-storage space;

 

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·                  vacancies or changes in market rents for self-storage space;

 

·                  inability to collect rent from customers;

 

·                  increased operating costs, including maintenance, insurance premiums and real estate taxes;

 

·                  changes in interest rates and availability of financing;

 

·                  hurricanes, earthquakes and other natural disasters, civil disturbances, terrorist acts or acts of war that may result in uninsured or underinsured losses;

 

·                  significant expenditures associated with acquisitions and development projects, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property;

 

·                  costs of complying with changes in laws and governmental regulations, including those governing usage, zoning, the environment and taxes; and

 

·                  the relative illiquidity of real estate investments.

 

In addition, prolonged periods of economic slowdown or recession, rising interest rates or declining demand for self-storage, or the public perception that any of these events may occur, could result in a general decline in rental revenues, which could impair our ability to satisfy our debt service obligations and to make distributions to our shareholders.

 

Rental revenues are significantly influenced by demand for self-storage space generally, and a decrease in such demand would likely have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio.

 

Because our portfolio of facilities consists primarily of self-storage facilities, we are subject to risks inherent in investments in a single industry.  A decrease in the demand for self-storage space would have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio.  Demand for self-storage space has been and could be adversely affected by ongoing weakness in the national, regional and local economies, changes in supply of, or demand for, similar or competing self-storage facilities in an area and the excess amount of self-storage space in a particular market. To the extent that any of these conditions occur, they are likely to affect market rents for self-storage space, which could cause a decrease in our rental revenue.  Any such decrease could impair our ability to satisfy debt service obligations and make distributions to our shareholders.

 

Because real estate is illiquid, we may not be able to sell properties when appropriate.

 

Real estate property investments generally cannot be sold quickly.  Also, the tax laws applicable to REITs require that we hold our facilities for investment, rather than sale in the ordinary course of business, which may cause us to forgo or defer sales of facilities that otherwise would be in our best interest.  Therefore, we may not be able to dispose of facilities promptly, or on favorable terms, in response to economic or other market conditions, which may adversely affect our financial position.

 

Risks Related to our Qualification and Operation as a REIT

 

Failure to qualify as a REIT would subject us to U.S. federal income tax which would reduce the cash available for distribution to our shareholders.

 

We operate our business to qualify to be taxed as a REIT for federal income tax purposes.  We have not requested and do not plan to request a ruling from the IRS that we qualify as a REIT, and the statements in this Annual Report on Form 10-K are not binding on the IRS or any court.  As a REIT, we generally will not be subject to federal income tax on the income that we distribute currently to our shareholders.  Many of the REIT requirements, however, are highly technical and complex.

 

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The determination that we are a REIT requires an analysis of various factual matters and circumstances that may not be totally within our control.  For example, to qualify as a REIT, at least 95% of our gross income must come from specific passive sources, such as rent, that are itemized in the REIT tax laws.  In addition, to qualify as a REIT, we cannot own specified amounts of debt and equity securities of some issuers.  We also are required to distribute to our shareholders with respect to each year at least 90% of our REIT taxable income, excluding net capital gains.  The fact that we hold substantially all of our assets through the Operating Partnership and its subsidiaries further complicates the application of the REIT requirements for us.  Even a technical or inadvertent mistake could jeopardize our REIT status and, given the highly complex nature of the rules governing REITs and the ongoing importance of factual determinations, we cannot provide any assurance that we will continue to qualify as a REIT.  Furthermore, Congress and the IRS might make changes to the tax laws and regulations, and the courts might issue new rulings, that make it more difficult, or impossible, for us to remain qualified as a REIT.  If we fail to qualify as a REIT for federal income tax purposes and are able to avail ourselves of one or more of the statutory savings provisions in order to maintain our REIT status, we would nevertheless be required to pay penalty taxes of $50,000 or more for each such failure.

 

If we fail to qualify as a REIT for federal income tax purposes, and are unable to avail ourselves of certain savings provisions set forth in the Internal Revenue Code, we would be subject to federal income tax at regular corporate rates on all of our income.  As a taxable corporation, we would not be allowed to take a deduction for distributions to shareholders in computing our taxable income or pass through long term capital gains to individual shareholders at favorable rates.  We also could be subject to the federal alternative minimum tax and possibly increased state and local taxes.  We would not be able to elect to be taxed as a REIT for four years following the year we first failed to qualify unless the IRS were to grant us relief under certain statutory provisions.  If we failed to qualify as a REIT, we would have to pay significant income taxes, which would reduce our net earnings available for investment or distribution to our shareholders.  This likely would have a significant adverse effect on our earnings and likely would adversely affect the value of our securities. In addition, we would no longer be required to pay any distributions to shareholders.

 

Failure of the Operating Partnership (or a subsidiary partnership) to be treated as a partnership would have serious adverse consequences to our shareholders.

 

If the IRS were to successfully challenge the tax status of the Operating Partnership or any of its subsidiary partnerships for federal income tax purposes, the Operating Partnership or the affected subsidiary partnership would be taxable as a corporation.  In such event we would cease to qualify as a REIT and the imposition of a corporate tax on the Operating Partnership or a subsidiary partnership would reduce the amount of cash available for distribution from the Operating Partnership to us and ultimately to our shareholders.

 

To maintain our REIT status, we may be forced to borrow funds on a short term basis during unfavorable market conditions.

 

As a REIT, we are subject to certain distribution requirements, including the requirement to distribute 90% of our REIT taxable income, which may result in our having to make distributions at a disadvantageous time or to borrow funds at unfavorable rates.  Compliance with this requirement may hinder our ability to operate solely on the basis of maximizing profits.

 

We will pay some taxes even if we qualify as a REIT, which will reduce the cash available for distribution to our shareholders.

 

Even if we qualify as a REIT for federal income tax purposes, we will be required to pay certain federal, state and local taxes on our income and property.  For example, we will be subject to income tax to the extent we distribute less than 100% of our REIT taxable income, including capital gains.  Additionally, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which 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. 

 

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We cannot guarantee that sales of our properties would not be prohibited transactions unless we comply with certain statutory safe-harbor provisions.

 

In addition, any net taxable income earned directly by our taxable REIT subsidiaries, or through entities that are disregarded for federal income tax purposes as entities separate from our taxable REIT subsidiaries, will be subject to federal and possibly state corporate income tax.  We have elected to treat some of our subsidiaries as taxable REIT subsidiaries, and we may elect to treat other subsidiaries as taxable REIT subsidiaries in the future.  In this regard, several provisions of the laws applicable to REITs and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation.  For example, a taxable REIT subsidiary is limited in its ability to deduct certain interest payments made to an affiliated REIT.  In addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on some deductions taken by a taxable REIT subsidiary if the economic arrangements between the REIT, the REIT’s customers, and the taxable REIT subsidiary are not comparable to similar arrangements between unrelated parties.  Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to federal income tax on that income because not all states and localities follow the federal income tax treatment of REITs.  To the extent that we and our affiliates are required to pay federal, state and local taxes, we will have less cash available for distributions to our shareholders.

 

We face possible federal, state and local tax audits.

 

Because we are organized and qualify as a REIT, we are generally not subject to federal income taxes, but are subject to certain state and local taxes.  Certain entities through which we own real estate either have undergone, or are currently undergoing, tax audits.  Although we believe that we have substantial arguments in favor of our positions in the ongoing audits, in some instances there is no controlling precedent or interpretive guidance on the specific point at issue.  Collectively, tax deficiency notices received to date from the jurisdictions conducting the ongoing audits have not been material.  However, there can be no assurance that future audits will not occur with increased frequency or that the ultimate result of such audits will not have a material adverse effect on our results of operations.

 

Risks Related to our Debt Financings

 

We face risks related to current debt maturities, including refinancing risk.

 

Certain of our mortgages, bank loans, and unsecured debt (including our senior notes) will have significant outstanding balances on their maturity dates, commonly known as “balloon payments.”   We may not have the cash resources available to repay those amounts, and we may have to raise funds for such repayment either through the issuance of equity or debt securities, additional bank borrowings (which may include extension of maturity dates), joint ventures or asset sales.  Furthermore, we are restricted from incurring certain additional indebtedness and making certain other changes to our capital and debt structure under the terms of the senior notes and the indenture governing the senior notes.

 

There can be no assurance that we will be able to refinance our debt on favorable terms or at all.  To the extent we cannot refinance debt on favorable terms or at all, we may be forced to dispose of properties on disadvantageous terms or pay higher interest rates, either of which would have an adverse impact on our financial performance and ability to pay dividends to investors

 

As a result of our interest rate hedges, swap agreements and other, similar arrangements, we face counterparty risks.

 

We may be exposed to the potential risk of counterparty default or non-payment with respect to interest rate hedges, swap agreements, floors, caps and other interest rate hedging contracts that we may enter into from time to time, in which event we could suffer a material loss on the value of those agreements.  Although these agreements may lessen the impact of rising interest rates on us, they also expose us to the risk that other parties to the agreements will not perform or that we cannot enforce the agreements.  There is no assurance that our potential counterparties on these agreements will perform their obligations under such agreements.

 

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Financing our future growth plan or refinancing existing debt maturities could be impacted by negative capital market conditions.

 

Recently, domestic financial markets have experienced extreme volatility and uncertainty.  At times in recent years liquidity has tightened in the domestic financial markets, including the investment grade debt and equity capital markets for which we historically sought financing.  Consequently, there is greater uncertainty regarding our ability to access the credit markets in order to attract financing on reasonable terms nor can there be any assurance we can issue common or preferred equity securities at a reasonable price.  Our ability to finance new acquisitions and refinance future debt maturities could be adversely impacted by our inability to secure permanent financing on reasonable terms, if at all.

 

The terms and covenants relating to our indebtedness could adversely impact our economic performance.

 

Like other real estate companies that incur debt, we are subject to risks associated with debt financing, such as the insufficiency of cash flow to meet required debt service payment obligations and the inability to refinance outstanding indebtedness at maturity.  If our debt cannot be paid, refinanced or extended at maturity, we may not be able to make distributions to shareholders at expected levels or at all and may not be able to acquire new properties.  Failure to make distributions to our shareholders could result in our failure to qualify as a REIT for federal income tax purposes.  Furthermore, an increase in our interest expense could adversely affect our cash flow and ability to make distributions to shareholders.  If we do not meet our debt service obligations, any facilities securing such indebtedness could be foreclosed on, which would have a material adverse effect on our cash flow and ability to make distributions and, depending on the number of facilities foreclosed on, could threaten our continued viability.

 

Our 2012 Credit Facility contains (and any new or amended facility we may enter into from time to time will likely contain) customary affirmative and negative covenants, including financial covenants that, among other things, require us to comply with certain liquidity and net worth tests.  Our ability to borrow under the 2012 Credit Facility is (and any new or amended facility we may enter into from time to time will be) subject to compliance with such financial and other covenants.  In the event that we fail to satisfy these covenants, we would be in default under the 2012 Credit Facility and may be required to repay such debt with capital from other sources.  Under such circumstances, other sources of debt or equity capital may not be available to us, or may be available only on unattractive terms.  Moreover, the presence of such covenants in our credit agreements could cause us to operate our business with a view toward compliance with such covenants, which might not produce optimal returns for shareholders.

 

Increases in interest rates on variable rate indebtedness would increase our interest expense, which could adversely affect our cash flow and ability to make distributions to shareholders.  Rising interest rates could also restrict our ability to refinance existing debt when it matures.  In addition, an increase in interest rates could decrease the amounts that third parties are willing to pay for our assets, thereby limiting our ability to alter our portfolio promptly in relation to economic or other conditions.

 

Our organizational documents contain no limitation on the amount of debt we may incur.  As a result, we may become highly leveraged in the future.

 

Our organizational documents do not limit the amount of indebtedness that we or our Operating Partnership may incur.  We could alter the balance between our total outstanding indebtedness and the value of our assets at any time.  If we become more highly leveraged, then the resulting increase in debt service could adversely affect our ability to make payments on our outstanding indebtedness and to pay our anticipated distributions and/or the distributions required to maintain our REIT status, and could harm our financial condition.

 

Risks Related to our Organization and Structure

 

We are dependent upon our senior management team whose continued service is not guaranteed.

 

Our executive team, including our named executive officers, has extensive self-storage, real estate and public company experience.  Although we have employment agreements with members of our senior management team, we cannot provide any assurance that any of them will remain in our employment.  The loss of services of one or more members of our senior management team could adversely affect our operations and our future growth.

 

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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, 2012, we had 1,221 field personnel involved in the management and operation of our facilities.  The customer service, marketing skills and knowledge of local market demand and competitive dynamics of our facility managers are contributing factors to our ability to maximize our rental income and to achieve the highest sustainable rent levels at each of our facilities.  We compete with various other companies in attracting and retaining qualified and skilled personnel. Competitive pressures may require that we enhance our pay and benefits package to compete effectively for such personnel.  If there is an increase in these costs or if we fail to attract and retain qualified and skilled personnel, our business and operating results could be harmed.

 

Certain provisions of Maryland law could inhibit changes in control, which may discourage third parties from conducting a tender offer or seeking other change of control transactions that could involve a premium price for our shares or otherwise benefit our shareholders.

 

Certain provisions of Maryland law may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the holders of our common shares with the opportunity to realize a premium over the then-prevailing market price of those shares, including:

 

·         “business combination moratorium/fair price” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested shareholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the most recent date on which the shareholder becomes an interested shareholder, and thereafter imposes stringent fair price and super-majority shareholder voting requirements on these combinations; and

 

·         “control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in electing Trustees) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares” from a party other than the issuer) have no voting rights except to the extent approved by our shareholders by the affirmative vote of at least two thirds of all the votes entitled to be cast on the matter, excluding all interested shares, and are subject to redemption in certain circumstances.

 

We have opted out of these provisions of Maryland law.  However, our Board of Trustees may opt to make these provisions applicable to us at any time without shareholder approval.

 

Our Trustees also have the discretion, granted in our bylaws and Maryland law, without shareholder approval to, among other things (1) create a staggered Board of Trustees, and (2) amend our bylaws or repeal individual bylaws in a manner that provides the Board of Trustees with greater authority.  Any such action could inhibit or impede a third party from making a proposal to acquire us at a price that could be beneficial to our shareholders.

 

Our shareholders have limited control to prevent us from making any changes to our investment and financing policies.

 

Our Board of Trustees has adopted policies with respect to certain activities.  These policies may be amended or revised from time to time at the discretion of our Board of Trustees without a vote of our shareholders.  This means that our shareholders have limited control over changes in our policies.  Such changes in our policies intended to improve, expand or diversify our business may not have the anticipated effects and consequently may adversely affect our business and prospects, results of operations and share price.

 

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Our rights and the rights of our shareholders to take action against our Trustees and officers are limited.

 

Maryland law provides that a trustee or officer has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances.  Our declaration of trust and bylaws require us to indemnify our Trustees and officers for actions taken on behalf of the Company by them in those capacities to the extent permitted by Maryland law.  Accordingly, in the event that actions taken in good faith by any Trustee or officer impede our performance, our shareholders’ ability to recover damages from that Trustee or officer will be limited.

 

Our declaration of trust permits our Board of Trustees to issue preferred shares with terms that may discourage third parties from conducting a tender offer or seeking other change of control transactions that could involve a premium price for our shares or otherwise benefit our shareholders.

 

Our declaration of trust permits our Board of Trustees to issue up to 40,000,000 preferred shares, of which 3,100,000 shares have already been issued, having those preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications, or terms or conditions of redemption as determined by our Board.  In addition, our Board may reclassify any unissued common shares into one or more classes or series of preferred shares.  Thus, our Board could authorize, without shareholder approval, the issuance of preferred shares with terms and conditions that could have the effect of discouraging a takeover or other transaction in which holders of some or a majority of our shares might receive a premium for their shares over the then-prevailing market price of our shares.  We currently do not expect that the Board would require shareholder approval prior to such a preferred issuance.  In addition, any preferred shares that we issue would rank senior to our common shares with respect to the payment of distributions, in which case we could not pay any distributions on our common shares until full distributions have been paid with respect to such preferred shares.

 

Risks Related to our Securities

 

Additional issuances of equity securities may be dilutive to shareholders.

 

The interests of our shareholders could be diluted if we issue additional equity securities to finance future acquisitions or developments or to repay indebtedness.  Our Board of Trustees may authorize the issuance of additional equity securities, including preferred shares, without shareholder approval.  Our ability to execute our business strategy depends upon our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing, including common and preferred equity.

 

Many factors could have an adverse effect on the market value of our securities.

 

A number of factors might adversely affect the price of our securities, many of which are beyond our control.  These factors include:

 

·      increases in market interest rates, relative to the dividend yield on our shares.  If market interest rates go up, prospective purchasers of our securities may require a higher yield.  Higher market interest rates would not, however, result in more funds for us to distribute and, to the contrary, would likely increase our borrowing costs and potentially decrease funds available for distribution.  Thus, higher market interest rates could cause the market price of our equity securities to go down;

 

·      anticipated benefit of an investment in our securities as compared to investment in securities of companies in other industries (including benefits associated with tax treatment of dividends and distributions);

 

·      perception by market professionals of REITs generally and REITs comparable to us in particular;

 

·      level of institutional investor interest in our securities;

 

·      relatively low trading volumes in securities of REITs;

 

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·                  our results of operations and financial condition;

 

·                  investor confidence in the stock market generally; and

 

·                  additions and departures of key personnel.

 

The market value of our equity securities is based primarily upon the market’s perception of our growth potential and our current and potential future earnings and cash distributions.  Consequently, our equity securities may trade at prices that are higher or lower than our net asset value per equity security.  If our future earnings or cash distributions are less than expected, it is likely that the market price of our equity securities will diminish.

 

The market price of our common shares has been, and may continue to be, particularly volatile, and our shareholders may be unable to resell their shares at a profit.

 

The market price of our common shares has been subject to significant fluctuations and may continue to fluctuate or decline.  Between 2010 and December 31, 2012, the price of our common shares has been volatile, ranging from a high of $14.74 (on December 24, 2012) to a low of $6.14 (on February 25, 2010).  In the past several years, REIT securities have experienced high levels of volatility and significant declines in value from their historic highs.

 

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company.  If our stock price is volatile, we may become the target of securities litigation. Securities litigation could result in substantial costs and divert our management’s attention and resources from our business.

 

ITEM 1B.  UNRESOLVED STAFF COMMENTS

 

None.

 

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ITEM 2.  PROPERTIES

 

Overview

 

As of December 31, 2012, we owned 381 self-storage facilities located in 22 states and the District of Columbia; and aggregating approximately 25.5 million rentable square feet.  The following table sets forth certain summary information regarding our facilities by state as of December 31, 2012.

 

 

 

 

 

 

 

Total

 

% of Total

 

 

 

 

 

Number of

 

Number of

 

Rentable

 

Rentable

 

 

 

State

 

Facilities

 

Units

 

Square Feet

 

Square Feet

 

Occupancy

 

 

 

 

 

 

 

 

 

 

 

 

 

Florida

 

55

 

38,802

 

4,076,940

 

16.0

%

85.0

%

Texas

 

53

 

25,859

 

3,258,014

 

12.8

%

83.8

%

California

 

43

 

26,196

 

3,099,697

 

12.2

%

82.9

%

New York

 

30

 

34,219

 

2,127,114

 

8.4

%

84.7

%

Illinois

 

27

 

13,829

 

1,607,406

 

6.3

%

88.0

%

Arizona

 

24

 

11,931

 

1,283,093

 

5.0

%

83.5

%

Tennessee

 

23

 

12,327

 

1,606,973

 

6.3

%

84.0

%

New Jersey

 

21

 

13,418

 

1,386,285

 

5.4

%

81.9

%

Connecticut

 

20

 

9,089

 

1,041,681

 

4.1

%

85.0

%

Georgia

 

16

 

9,645

 

1,182,150

 

4.6

%

83.9

%

Ohio

 

15

 

8453

 

979,849

 

3.8

%

86.1

%

Virginia

 

9

 

6,722

 

692,015

 

2.7

%

83.9

%

Colorado

 

9

 

4,755

 

567,556

 

2.2

%

87.2

%

Maryland

 

6

 

5,117

 

596,912

 

2.3

%

84.4

%

North Carolina

 

6

 

3,873

 

463,062

 

1.8

%

82.2

%

Pennsylvania

 

7

 

4,829

 

513,880

 

2.0

%

84.5

%

Utah

 

4

 

2,207

 

239,623

 

0.9

%

87.5

%

Massachusetts

 

4

 

2,379

 

206,419

 

0.8

%

81.9

%

New Mexico

 

3

 

1,620

 

182,061

 

0.7

%

85.3

%

Washington DC

 

2

 

1,799

 

145,615

 

0.6

%

92.8

%

Nevada

 

2

 

885

 

97,446

 

0.4

%

85.6

%

Indiana

 

1

 

713

 

73,014

 

0.4

%

86.6

%

Wisconsin

 

1

 

486

 

58,500

 

0.3

%

81.2

%

Total/Weighted Average

 

381

 

239,153

 

25,485,304

 

100.0

%

84.4

%

 

Our Facilities

 

The following table sets forth certain additional information with respect to each of our facilities as of December 31, 2012. Our ownership of each facility consists of a fee interest in the facility held by our Operating Partnership, or one of its subsidiaries, except for five of our facilities, which are subject to ground leases.  In addition, small parcels of land at four of our other facilities are subject to ground leases.

 

26



Table of Contents

 

 

 

Year Acquired/

 

Year

 

Rentable

 

 

 

 

 

Manager

 

% Climate

 

Facility Location

 

Developed (1)

 

Built

 

Square Feet

 

Occupancy (2)

 

Units

 

Apartment (3)

 

Controlled (4)

 

Chandler, AZ

 

2005

 

1985

 

47,520

 

85.7

%

431

 

Y

 

6.9

%

Glendale, AZ

 

1998

 

1987

 

56,807

 

85.2

%

515

 

Y

 

0.0

%

Green Valley, AZ

 

2005

 

1985

 

25,050

 

77.0

%

258

 

N

 

8.0

%

Mesa I, AZ

 

2006

 

1985

 

52,375

 

87.9

%

485

 

N

 

0.0

%

Mesa II, AZ

 

2006

 

1981

 

45,361

 

82.2

%

391

 

Y

 

9.8

%

Mesa III, AZ

 

2006

 

1986

 

58,189

 

74.3

%

492

 

Y

 

4.5

%

Phoenix I, AZ

 

2006

 

1987

 

100,775

 

86.4

%

750

 

Y

 

9.0

%

Phoenix II, AZ

 

2006

 

1974

 

83,309

 

82.3

%

793

 

Y

 

2.6

%

Scottsdale, AZ

 

1998

 

1995

 

79,525

 

82.0

%

657

 

Y

 

9.7

%

Tempe, AZ

 

2005

 

1975

 

53,890

 

84.4

%

404

 

Y

 

13.0

%

Tucson I, AZ

 

1998

 

1974

 

59,350

 

79.9

%

485

 

Y

 

0.0

%

Tucson II, AZ

 

1998

 

1988

 

43,950

 

89.1

%

532

 

Y

 

100.0

%

Tucson III, AZ

 

2005

 

1979

 

49,832

 

76.9

%

482

 

N

 

0.0

%

Tucson IV, AZ

 

2005

 

1982

 

48,040

 

81.4

%

483

 

Y

 

3.7

%

Tucson V, AZ

 

2005

 

1982

 

45,184

 

83.3

%

418

 

Y

 

3.0

%

Tucson VI, AZ

 

2005

 

1982

 

40,766

 

86.5

%

412

 

Y

 

3.4

%

Tucson VII, AZ

 

2005

 

1982

 

52,688

 

85.4

%

590

 

Y

 

2.0

%

Tucson VIII, AZ

 

2005

 

1979

 

46,600

 

89.4

%

441

 

Y

 

0.0

%

Tucson IX, AZ

 

2005

 

1984

 

67,720

 

85.4

%

600

 

Y

 

1.9

%

Tucson X, AZ

 

2005

 

1981

 

46,350

 

81.6

%

411

 

N

 

0.0

%

Tucson XI, AZ

 

2005

 

1974

 

42,700

 

80.1

%

413

 

Y

 

0.0

%

Tucson XII, AZ

 

2005

 

1974

 

42,225

 

84.6

%

428

 

Y

 

4.8

%

Tucson XIII, AZ

 

2005

 

1974

 

45,792

 

80.2

%

512

 

Y

 

0.0

%

Tucson XIV, AZ

 

2005

 

1976

 

49,095

 

89.0

%

548

 

Y

 

8.8

%

Apple Valley I, CA

 

1997

 

1984

 

73,290

 

83.3

%

495

 

Y

 

0.0

%

Apple Valley II, CA

 

1997

 

1988

 

61,405

 

76.3

%

428

 

Y

 

5.3

%

Benicia, CA

 

2005

 

1988/93/05

 

74,770

 

82.5

%

731

 

Y

 

0.0

%

Cathedral City, CA †

 

2006

 

1982/92

 

110,974

 

83.3

%

624

 

Y

 

2.2

%

Citrus Heights, CA

 

2005

 

1987

 

75,620

 

85.2

%

671

 

Y

 

0.0

%

Diamond Bar, CA

 

2005

 

1988

 

102,984

 

91.4

%

900

 

Y

 

0.0

%

Escondido, CA

 

2007

 

2002

 

142,670

 

90.9

%

1,219

 

Y

 

6.5

%

Fallbrook, CA

 

1997

 

1985/88

 

46,620

 

81.9

%

447

 

Y

 

0.0

%

Lancaster, CA

 

2001

 

1987

 

60,675

 

71.2

%

327

 

N

 

0.0

%

Long Beach, CA

 

2006

 

1974

 

125,091

 

68.9

%

1,351

 

Y

 

0.0

%

Murrieta, CA

 

2005

 

1996

 

49,835

 

88.8

%

424

 

Y

 

2.9

%

North Highlands, CA

 

2005

 

1980

 

57,244

 

85.5

%

469

 

Y

 

0.0

%

Orangevale, CA

 

2005

 

1980

 

50,317

 

83.5

%

530

 

Y

 

0.0

%

Palm Springs I, CA

 

2006

 

1989

 

72,675

 

82.9

%

535

 

Y

 

0.0

%

Palm Springs II, CA †

 

2006

 

1982/89

 

122,550

 

77.8

%

579

 

Y

 

8.5

%

Pleasanton, CA

 

2005

 

2003

 

85,045

 

87.1

%

693

 

Y

 

0.0

%

Rancho Cordova, CA

 

2005

 

1979

 

53,978

 

87.2

%

453

 

Y

 

0.0

%

Rialto I, CA

 

2006

 

1987

 

57,391

 

84.7

%

437

 

Y

 

0.0

%

Rialto II, CA

 

1997

 

1980

 

99,803

 

75.4

%

716

 

N

 

0.0

%

Riverside I, CA

 

2006

 

1977

 

67,120

 

83.6

%

635

 

Y

 

0.0

%

Riverside II, CA

 

2006

 

1985

 

85,166

 

67.8

%

815

 

Y

 

3.9

%

Roseville, CA

 

2005

 

1979

 

59,869

 

85.3

%

545

 

Y

 

0.0

%

Sacramento I, CA

 

2005

 

1979

 

50,714

 

86.1

%

538

 

Y

 

0.0

%

Sacramento II, CA

 

2005

 

1986

 

61,888

 

70.9

%

549

 

Y

 

0.0

%

San Bernardino I, CA

 

1997

 

1987

 

31,070

 

86.5

%

232

 

N

 

0.0

%

San Bernardino II, CA

 

1997

 

1991

 

41,546

 

73.1

%

373

 

Y

 

0.0

%

San Bernardino III, CA

 

1997

 

1985/92

 

35,341

 

83.7

%

373

 

N

 

0.0

%

San Bernardino IV, CA

 

2005

 

2002/04

 

83,166

 

85.4

%

688

 

Y

 

11.6

%

San Bernardino V, CA

 

2006

 

1974

 

57,001

 

92.9

%

466

 

Y

 

4.2

%

San Bernardino VII, CA

 

2006

 

1978

 

78,729

 

92.7

%

604

 

Y

 

1.3

%

San Bernardino VIII, CA

 

2006

 

1977

 

95,029

 

80.6

%

816

 

Y

 

0.0

%

San Marcos, CA

 

2005

 

1979

 

37,430

 

91.0

%

242

 

Y

 

0.0

%

Santa Ana, CA

 

2006

 

1984

 

63,896

 

89.8

%

712

 

Y

 

2.0

%

South Sacramento, CA

 

2005

 

1979

 

52,165

 

81.0

%

411

 

Y

 

0.0

%

Spring Valley, CA

 

2006

 

1980

 

55,045

 

80.7

%

713

 

Y

 

0.0

%

Temecula I, CA

 

1998

 

1985/2003

 

81,550

 

82.9

%

687

 

Y

 

46.5

%

Temecula II, CA

 

2007

 

2003

 

84,398

 

83.6

%

630

 

Y

 

51.3

%

Thousand Palms, CA

 

2006

 

1988/01

 

74,305

 

89.9

%

674

 

Y

 

27.2

%

Vista I, CA

 

2001

 

1988

 

74,405

 

86.7

%

621

 

Y

 

0.0

%

Vista II, CA

 

2005

 

2001/02/03

 

148,081

 

80.3

%

1,270

 

Y

 

2.3

%

Walnut, CA

 

2005

 

1987

 

50,708

 

84.6

%

537

 

Y

 

9.2

%

West Sacramento, CA

 

2005

 

1984

 

40,040

 

85.0

%

478

 

Y

 

0.0

%

Westminster, CA

 

2005

 

1983/98

 

68,098

 

86.1

%

558

 

Y

 

0.0

%

Aurora, CO

 

2005

 

1981

 

75,867

 

87.8

%

613

 

Y

 

0.0

%

Colorado Springs I, CO

 

2005

 

1986

 

47,925

 

85.5

%

462

 

Y

 

0.0

%

Colorado Springs II, CO

 

2006

 

2001

 

62,300

 

83.1

%

433

 

Y

 

0.0

%

Denver I, CO

 

2006

 

1997

 

59,200

 

90.4

%

449

 

Y

 

0.0

%

Denver II, CO

 

2012

 

2007

 

74,520

 

85.8

%

675

 

N

 

91.0

%

Federal Heights, CO

 

2005

 

1980

 

54,770

 

84.7

%

544

 

Y

 

0.0

%

 

27



Table of Contents

 

 

 

Year Acquired/

 

Year

 

Rentable

 

 

 

 

 

Manager

 

% Climate

 

Facility Location

 

Developed (1)

 

Built

 

Square Feet

 

Occupancy (2)

 

Units

 

Apartment (3)

 

Controlled (4)

 

Golden, CO

 

2005

 

1985

 

87,382

 

91.5

%

640

 

Y

 

1.2

%

Littleton, CO

 

2005

 

1987

 

53,490

 

87.8

%

442

 

Y

 

37.4

%

Northglenn, CO

 

2005

 

1980

 

52,102

 

86.0

%

497

 

Y

 

0.0

%

Bloomfield, CT

 

1997

 

1987/93/94

 

48,700

 

87.1

%

438

 

Y

 

6.6

%

Branford, CT

 

1995

 

1986

 

50,679

 

84.3

%

434

 

Y

 

2.2

%

Bristol, CT

 

2005

 

1989/99

 

47,725

 

88.9

%

453

 

N

 

22.4

%

East Windsor, CT

 

2005

 

1986/89

 

46,016

 

78.6

%

301

 

N

 

0.0

%

Enfield, CT

 

2001

 

1989

 

52,875

 

88.8

%

366

 

Y

 

0.0

%

Gales Ferry, CT

 

1995

 

1987/89

 

54,230

 

75.6

%

597

 

N

 

6.5

%

Manchester I, CT (6)

 

2002

 

1999/00/01

 

47,025

 

81.4

%

455

 

N

 

37.5

%

Manchester II, CT

 

2005

 

1984

 

52,725

 

87.9

%

399

 

N

 

0.0

%

Milford, CT

 

1996

 

1975

 

44,885

 

91.6

%

376

 

Y

 

4.0

%

Monroe, CT

 

2005

 

1996/03

 

58,700

 

85.7

%

399

 

N

 

0.0

%

Mystic, CT

 

1996

 

1975/86

 

50,725

 

86.2

%

560

 

Y

 

2.3

%

Newington I, CT

 

2005

 

1978/97

 

42,620

 

86.1

%

246

 

N

 

0.0

%

Newington II, CT

 

2005

 

1979/81

 

36,140

 

85.2

%

195

 

N

 

0.0

%

Norwalk, CT

 

2012

 

2009

 

31,239

 

97.3

%

351

 

N

 

100.0

%

Old Saybrook I, CT

 

2005

 

1982/88/00

 

86,950

 

86.8

%

720

 

N

 

5.9

%

Old Saybrook II, CT

 

2005

 

1988/02

 

26,425

 

90.9

%

253

 

N

 

54.2

%

Shelton, CT

 

2011

 

2007

 

78,465

 

80.6

%

857

 

Y

 

85.7

%

South Windsor, CT

 

1996

 

1976

 

72,125

 

77.1

%

558

 

Y

 

1.1

%

Stamford, CT

 

2005

 

1997

 

28,957

 

87.9

%

362

 

N

 

32.8

%

Wilton, CT

 

2012

 

1966

 

84,475

 

85.4

%

769

 

Y

 

54.8

%

Washington I, DC

 

2008

 

2002

 

63,085

 

93.7

%

754

 

Y

 

96.5

%

Washington II, DC

 

2011

 

1929/98

 

82,530

 

92.1

%

1,045

 

N

 

99.0

%

Boca Raton, FL

 

2001

 

1998

 

37,958

 

89.1

%

605

 

N

 

68.2

%

Boynton Beach I, FL

 

2001

 

1999

 

61,749

 

87.6

%

755

 

Y

 

54.1

%

Boynton Beach II, FL

 

2005

 

2001

 

61,703

 

79.8

%

578

 

Y

 

82.3

%

Bradenton I, FL

 

2004

 

1979

 

68,391

 

80.3

%

585

 

N

 

2.7

%

Bradenton II, FL

 

2004

 

1996

 

87,960

 

86.2

%

849

 

Y

 

40.0

%

Cape Coral, FL

 

2000*

 

2000

 

76,627

 

82.9

%

855

 

Y

 

83.6

%

Coconut Creek, FL

 

2012

 

2001

 

78,783

 

89.8

%

756

 

N

 

48.1

%

Dania, FL

 

1996

 

1988

 

58,270

 

92.8

%

492

 

Y

 

26.9

%

Dania Beach, FL (6)

 

2004

 

1984

 

168,217

 

70.1

%

1,836

 

N

 

21.5

%

Davie, FL

 

2001*

 

2001

 

80,985

 

87.2

%

832

 

Y

 

55.7

%

Deerfield Beach, FL

 

1998*

 

1998

 

57,230

 

92.7

%

517

 

Y

 

38.9

%

Delray Beach, FL

 

2001

 

1999

 

67,813

 

85.6

%

819

 

Y

 

39.3

%

Fernandina Beach, FL

 

1996

 

1986

 

110,995

 

84.2

%

784

 

Y

 

35.3

%

Ft. Lauderdale, FL

 

1999

 

1999

 

70,063

 

91.4

%

695

 

Y

 

46.8

%

Ft. Myers, FL

 

1999

 

1998

 

67,510

 

69.7

%

589

 

Y

 

67.1

%

Jacksonville I, FL

 

2005

 

2005

 

80,296

 

95.0

%

705

 

N

 

100.0

%

Jacksonville II, FL

 

2007

 

2004

 

65,270

 

85.0

%

657

 

N

 

100.0

%

Jacksonville III, FL

 

2007

 

2003

 

65,580

 

87.9

%

675

 

N

 

100.0

%

Jacksonville IV, FL

 

2007

 

2006

 

77,425

 

90.6

%

705

 

N

 

100.0

%

Jacksonville V, FL

 

2007

 

2004

 

81,835

 

82.4

%

695

 

N

 

82.3

%

Kendall, FL

 

2007

 

2003

 

75,395

 

91.0

%

703

 

N

 

71.0

%

Lake Worth, FL †

 

1998

 

1998/02

 

161,808

 

92.1

%

1,355

 

Y

 

37.2

%

Lakeland I, FL

 

1994

 

1988

 

49,111

 

75.4

%

487

 

Y

 

79.4

%

Lutz I, FL

 

2004

 

2000

 

66,795

 

80.2

%

594

 

Y

 

36.9

%

Lutz II, FL

 

2004

 

1999

 

69,232

 

86.0

%

531

 

Y

 

20.6

%

Margate I, FL †

 

1996

 

1979/81

 

54,165

 

83.5

%

338

 

N

 

9.9

%

Margate II, FL †

 

1996

 

1985

 

65,186

 

78.5

%

424

 

Y

 

28.8

%

Merrit Island, FL

 

2002

 

2000

 

50,417

 

82.0

%

465

 

Y

 

56.7

%

Miami I, FL

 

1996

 

1995

 

46,825

 

93.9

%

560

 

Y

 

52.1

%

Miami II, FL

 

1996

 

1989

 

67,010

 

80.2

%

568

 

Y

 

7.9

%

Miami III, FL

 

2005

 

1988/03

 

150,735

 

86.0

%

1,518

 

N

 

86.9

%

Miami IV, FL

 

2011

 

2007

 

76,352

 

90.0

%

932

 

N

 

100.0

%

Naples I, FL

 

1996

 

1996

 

48,150

 

93.5

%

319

 

Y

 

26.6

%

Naples II, FL

 

1997

 

1985

 

65,850

 

90.7

%

627

 

Y

 

44.6

%

Naples III, FL

 

1997

 

1981/83

 

80,266

 

89.5

%

797

 

Y

 

23.7

%

Naples IV, FL

 

1998

 

1990

 

40,600

 

92.2

%

428

 

N

 

42.2

%

Ocoee, FL

 

2005

 

1997

 

76,250

 

80.2

%

620

 

Y

 

15.5

%

Orange City, FL

 

2004

 

2001

 

59,586

 

84.2

%

639

 

N

 

39.1

%

Orlando II, FL

 

2005

 

2002/04

 

63,084

 

85.9

%

577

 

N

 

74.2

%

Orlando III, FL

 

2006

 

1988/90/96

 

102,705

 

77.2

%

784

 

Y

 

12.4

%

Orlando IV, FL

 

2010

 

2009

 

76,565

 

89.0

%

637

 

N

 

64.4

%

Orlando V, FL

 

2012

 

2008

 

75,359

 

86.3

%

638

 

N

 

85.3

%

Oviedo, FL

 

2006

 

1988/1991

 

49,251

 

80.5

%

427

 

Y

 

3.2

%

Pembroke Pines, FL

 

1997

 

1997

 

67,321

 

88.5

%

696

 

Y

 

63.2

%

Royal Palm Beach II, FL

 

2007

 

2004

 

81,405

 

90.5

%

759

 

N

 

82.3

%

Sanford, FL

 

2006

 

1988/2006

 

61,810

 

86.9

%

437

 

Y

 

28.6

%

Sarasota, FL

 

1999

 

1998

 

71,402

 

79.9

%

524

 

Y

 

42.3

%

St. Augustine, FL

 

1996

 

1985

 

59,725

 

76.6

%

699

 

Y

 

29.9

%

 

28



Table of Contents

 

 

 

Year Acquired/

 

Year

 

Rentable

 

 

 

 

 

Manager

 

% Climate

 

Facility Location

 

Developed (1)

 

Built

 

Square Feet

 

Occupancy (2)

 

Units

 

Apartment (3)

 

Controlled (4)

 

Stuart, FL

 

1997

 

1995

 

87,037

 

82.5

%

955

 

Y

 

51.3

%

SW Ranches, FL

 

2007

 

2004

 

64,955

 

90.7

%

647

 

N

 

85.3

%

Tampa, FL

 

2007

 

2001/2002

 

83,738

 

86.9

%

790

 

N

 

28.5

%

West Palm Beach I, FL

 

2001

 

1997

 

68,051

 

88.0

%

975

 

Y

 

47.2

%

West Palm Beach II, FL

 

2004

 

1996

 

94,503

 

90.5

%

834

 

Y

 

73.9

%

West Palm Beach III, FL

 

2012

 

2008

 

85,460

 

69.4

%

919

 

Y

 

51.2

%

Alpharetta, GA

 

2001

 

1996

 

90,485

 

87.2

%

670

 

Y

 

75.1

%

Atlanta, GA

 

2012

 

2008

 

66,675

 

71.0

%

626

 

N

 

100.0

%

Austell , GA

 

2006

 

2000

 

83,875

 

81.8

%

646

 

Y

 

66.4

%

Decatur, GA

 

1998

 

1986

 

145,280

 

75.8

%

1,244

 

Y

 

2.7

%

Duluth II, GA

 

2012

 

2004

 

47,242

 

89.7

%

538

 

N

 

100.0

%

Duluth, GA

 

2011

 

2009

 

70,985

 

75.2

%

589

 

N

 

100.0

%

Lawrenceville, GA

 

2011

 

1999

 

73,765

 

82.0

%

597

 

N

 

24.4

%

Leisure City, GA

 

2012

 

2005

 

56,177

 

82.2

%

615

 

N

 

55.0

%

Norcross I, GA

 

2001

 

1997

 

85,420

 

89.2

%

582

 

Y

 

55.8

%

Norcross II, GA

 

2012

 

2007

 

47,270

 

90.6

%

499

 

Y

 

100.0

%

Norcross II, GA

 

2011

 

1996

 

52,020

 

95.2

%

396

 

N

 

57.0

%

Norcross III, GA

 

2012

 

2005

 

57,555

 

74.4

%

505

 

Y

 

81.6

%

Peachtree City I, GA

 

2001

 

1997

 

49,875

 

87.8

%

433

 

N

 

75.6

%

Peachtree City II, GA

 

2012

 

2005

 

57,100

 

93.9

%

430

 

N

 

47.7

%

Smyrna, GA

 

2001

 

2000

 

57,015

 

91.8

%

489

 

Y

 

100.0

%

Snellville, GA

 

2007

 

1996/1997

 

80,000

 

87.4

%

748

 

Y

 

27.1

%

Suwanee I, GA

 

2007

 

2000/2003

 

85,240

 

86.9

%

616

 

Y

 

28.9

%

Suwanee II, GA

 

2007

 

2005

 

79,590

 

85.2

%

575

 

N

 

61.8

%

Addison, IL

 

2004

 

1979

 

31,325

 

86.2

%

367

 

Y

 

0.0

%

Aurora, IL

 

2004

 

1996

 

74,435

 

86.0

%

555

 

Y

 

6.9

%

Bartlett, IL

 

2004

 

1987

 

51,425

 

89.8

%

408

 

Y

 

33.5

%

Bellwood, IL

 

2001

 

1999

 

86,650

 

86.2

%

739

 

Y

 

52.1

%

Des Plaines, IL (6)

 

2004

 

1978

 

74,400

 

81.9

%

635

 

N

 

0.0

%

Elk Grove Village, IL

 

2004

 

1987

 

64,129

 

88.1

%

623

 

Y

 

5.5

%

Glenview, IL

 

2004

 

1998

 

100,115

 

91.8

%

738

 

Y

 

100.0

%

Gurnee, IL

 

2004

 

1987

 

80,300

 

92.6

%

720

 

N

 

34.1

%

Hanover, IL

 

2004

 

1987

 

41,190

 

88.5

%

411

 

Y

 

0.4

%

Harvey, IL

 

2004

 

1987

 

60,090

 

86.9

%

575

 

Y

 

3.0

%

Joliet, IL

 

2004

 

1993

 

72,765

 

84.9

%

530

 

Y

 

100.0

%

Kildeer, IL

 

2004

 

1988

 

46,285

 

89.4

%

422

 

Y

 

0.0

%

Lombard, IL

 

2004

 

1981

 

57,764

 

88.1

%

544

 

Y

 

9.8

%

Mount Prospect, IL

 

2004

 

1979

 

65,000

 

91.5

%

587

 

Y

 

12.7

%

Mundelein, IL

 

2004

 

1990

 

44,700

 

89.6

%

491

 

Y

 

8.9

%

North Chicago, IL

 

2004

 

1985

 

53,350

 

90.1

%

427

 

N

 

0.0

%

Plainfield I, IL

 

2004

 

1998

 

53,900

 

90.0

%

404

 

N

 

3.3

%

Plainfield II, IL

 

2005

 

2000

 

51,900

 

93.7

%

355

 

N

 

22.8

%

Schaumburg, IL

 

2004

 

1988

 

31,160

 

83.5

%

321

 

N

 

5.6

%

Streamwood, IL

 

2004

 

1982

 

64,305

 

85.8

%

557

 

N

 

4.4

%

Warrensville, IL

 

2005

 

1977/89

 

48,796

 

86.6

%

377

 

N

 

0.0

%

Waukegan, IL

 

2004

 

1977

 

79,500

 

81.1

%

682

 

Y

 

8.4

%

West Chicago, IL

 

2004

 

1979

 

48,175

 

91.3

%

430

 

Y

 

0.0

%

Westmont, IL

 

2004

 

1979

 

53,450

 

86.3

%

377

 

Y

 

0.0

%

Wheeling I, IL

 

2004

 

1974

 

54,210

 

87.9

%

491

 

N

 

0.0

%

Wheeling II, IL

 

2004

 

1979

 

67,825

 

92.1

%

601

 

Y

 

7.3

%

Woodridge, IL

 

2004

 

1987

 

50,262

 

85.4

%

462

 

Y

 

6.7

%

Indianapolis, IN

 

2004

 

1976

 

73,014

 

86.6

%

713

 

Y

 

0.0

%

Boston I, MA

 

2010

 

1950

 

33,286

 

75.4

%

592

 

N

 

100.0

%

Boston II, MA

 

2002

 

2001

 

60,545

 

83.5

%

628

 

Y

 

100.0

%

Leominster, MA

 

1998

 

1987/88/00

 

53,823

 

81.3

%

500

 

Y

 

38.5

%

Medford, MA

 

2007

 

2001

 

58,765

 

84.5

%

659

 

Y

 

96.0

%

Baltimore, MD

 

2001

 

1999/00

 

93,350

 

83.4

%

809

 

Y

 

45.3

%

California, MD

 

2004

 

1998

 

77,865

 

79.7

%

720

 

Y

 

39.0

%

District Heights, MD

 

2011

 

2007

 

78,660

 

80.2

%

954

 

Y

 

90.3

%

Gaithersburg, MD

 

2005

 

1998

 

87,045

 

83.4

%

785

 

Y

 

42.0

%

Laurel, MD †

 

2001

 

1978/99/00

 

162,792

 

87.7

%

1,022

 

N

 

41.1

%

Temple Hills, MD

 

2001

 

2000

 

97,200

 

88.1

%

827

 

Y

 

68.5

%

Belmont, NC

 

2001

 

1996/97/98

 

81,600

 

86.1

%

586

 

N

 

23.1

%

Burlington I, NC

 

2001

 

1990/91/93/94/98

 

109,396

 

68.7

%

950

 

N

 

4.7

%

Burlington II, NC

 

2001

 

1991

 

42,305

 

77.2

%

394

 

Y

 

12.0

%

Cary, NC

 

2001

 

1993/94/97

 

112,086

 

87.9

%

794

 

N

 

7.5

%

Charlotte, NC

 

2002

 

1999

 

69,000

 

88.3

%

737

 

Y

 

52.8

%

Raleigh, NC

 

1998

 

1994/95

 

48,675

 

88.8

%

412

 

Y

 

8.2

%

Bordentown, NJ

 

2012

 

2006

 

50,600

 

81.5

%

385

 

N

 

18.8

%

Brick, NJ

 

1996

 

1981

 

51,725

 

82.5

%

432

 

N

 

0.0

%

Cherry Hill I, NJ

 

2010

 

2004

 

52,600

 

73.4

%

378

 

Y

 

0.0

%

Cherry Hill II, NJ

 

2012

 

2004

 

65,050

 

72.1

%

610

 

N

 

87.5

%

Clifton, NJ

 

2005

 

2001

 

105,550

 

89.0

%

1,018

 

Y

 

85.5

%

 

29



Table of Contents

 

 

 

Year Acquired/

 

Year

 

Rentable

 

 

 

 

 

Manager

 

% Climate

 

Facility Location

 

Developed (1)

 

Built

 

Square Feet

 

Occupancy (2)

 

Units

 

Apartment (3)

 

Controlled (4)

 

Cranford, NJ

 

1996

 

1987

 

91,250

 

89.4

%

851

 

Y

 

7.9

%

East Hanover, NJ

 

1996

 

1983

 

107,679

 

73.8

%

966

 

N

 

1.6

%

Egg Harbor I, NJ

 

2010

 

2005

 

36,025

 

85.4

%

293

 

N

 

12.6

%

Egg Harbor II, NJ

 

2010

 

2002

 

70,425

 

62.6

%

704

 

N

 

16.6

%

Elizabeth, NJ

 

2005

 

1925/97

 

38,830

 

82.7

%

674

 

N

 

0.0

%

Fairview, NJ

 

1997

 

1989

 

27,875

 

84.9

%

448

 

N

 

100.0

%

Freehold, NJ

 

2012

 

2002

 

81,495

 

87.3

%

760

 

N

 

56.4

%

Hamilton, NJ

 

2006

 

1990

 

70,550

 

82.2

%

614

 

Y

 

0.0

%

Hoboken, NJ

 

2005

 

1945/97

 

34,200

 

81.5

%

742

 

N

 

100.0

%

Linden, NJ

 

1996

 

1983

 

100,425

 

84.4

%

1,118

 

N

 

2.1

%

Lumberton, NJ

 

2012

 

2004

 

96,025

 

81.2

%

786

 

Y

 

27.8

%

Morris Township, NJ (6)

 

1997

 

1972

 

71,776

 

83.0

%

565

 

Y

 

1.3

%

Parsippany, NJ

 

1997

 

1981

 

66,325

 

83.6

%

566

 

Y

 

6.9

%

Randolph, NJ

 

2002

 

1998/99

 

52,465

 

82.1

%

541

 

Y

 

82.5

%

Sewell, NJ

 

2001

 

1984/98

 

57,830

 

87.7

%

454

 

N

 

5.3

%

Somerset, NJ

 

2012

 

2000

 

57,585

 

90.1

%

513

 

N

 

69.3

%

Albuquerque I, NM

 

2005

 

1985

 

65,927

 

79.7

%

609

 

Y

 

3.2

%

Albuquerque II, NM

 

2005

 

1985

 

58,598

 

89.4

%

527

 

Y

 

4.1

%

Albuquerque III, NM

 

2005

 

1986

 

57,536

 

87.7

%

484

 

Y

 

4.7

%

Las Vegas I, NV †

 

2006

 

1986

 

48,596

 

84.7

%

369

 

Y

 

5.4

%

Las Vegas II, NV

 

2006

 

1997

 

48,850

 

86.5

%

516

 

Y

 

75.2

%

Bronx I, NY

 

2010

 

1931/2004

 

68,813

 

84.1

%

1,322

 

N

 

96.5

%

Bronx II, NY (5)

 

2011

 

2006

 

90,270

 

92.5

%

831

 

N

 

58.3

%

Bronx III, NY

 

2011

 

2007

 

106,065

 

83.3

%

2,040

 

N

 

97.3

%

Bronx IV, NY (5)

 

2011

 

2007

 

75,580

 

76.5

%

1,314

 

N

 

96.7

%

Bronx V, NY (5)

 

2011

 

2007

 

54,683

 

85.6

%

1,095

 

N

 

100.0

%

Bronx VI, NY (5)

 

2011

 

2011

 

39,495

 

81.1

%

1,092

 

N

 

93.9

%

Bronx VII, NY (5)

 

2012

 

2005

 

78,575

 

80.1

%

1,524

 

N

 

100.0

%

Bronx VIII, NY

 

2012

 

1928

 

30,550

 

78.6

%

545

 

N

 

100.0

%

Bronx IX, NY

 

2012

 

1973

 

148,470

 

84.8

%

3,021

 

Y

 

99.0

%

Bronx X, NY

 

2012

 

2001

 

159,830

 

79.5

%

2,661

 

Y

 

65.8

%

Brooklyn I, NY

 

2010

 

1917/2004

 

57,020

 

81.5

%

861

 

N

 

83.0

%

Brooklyn II, NY

 

2011

 

2006

 

41,625

 

92.7

%

851

 

N

 

100.0

%

Brooklyn III, NY

 

2011

 

2006

 

37,467

 

90.3

%

793

 

N

 

100.0

%

Brooklyn IV, NY

 

2011

 

2007

 

46,945

 

86.9

%

887

 

N

 

100.0

%

Brooklyn V, NY

 

2011

 

2007

 

74,415

 

83.2

%

1,416

 

N

 

94.5

%

Brooklyn VI, NY

 

2011

 

2006

 

72,710

 

91.6

%

1,396

 

N

 

100.0

%

Jamaica I, NY

 

2001

 

2000

 

88,415

 

91.3

%

918

 

Y

 

30.7

%

Jamaica II, NY

 

2011

 

2010

 

91,325

 

84.8

%

1,473

 

N

 

84.5

%

New Rochelle I, NY

 

2005

 

1998

 

48,434

 

55.1

%

401

 

N

 

15.0

%

New Rochelle II, NY

 

2012

 

1917

 

63,295

 

85.1

%

1,029

 

Y

 

93.4

%

North Babylon, NY

 

1998

 

1988/99

 

78,188

 

91.8

%

651

 

N

 

9.0

%

Queens, NY

 

2010

 

1962/2003

 

60,945

 

93.2

%

1,148

 

N

 

25.3

%

Riverhead, NY

 

2005

 

1985/86/99

 

38,340

 

97.1

%

328

 

N

 

0.0

%

Southold, NY

 

2005

 

1989

 

59,745

 

81.6

%

599

 

N

 

3.0

%

Tuckahoe, NY

 

2011

 

2007

 

51,688

 

87.5

%

758

 

N

 

99.2

%

West Hempstead, NY

 

2012

 

2002

 

85,281

 

91.1

%

903

 

Y

 

30.8

%

White Plains, NY

 

2011

 

1938

 

87,705

 

84.7

%

1,508

 

N

 

77.2

%

Woodhaven, NY

 

2011

 

2008

 

50,665

 

80.5

%

1,029

 

N

 

90.5

%

Wyckoff, NY

 

2010

 

1910/2007

 

61,960

 

82.2

%

1,042

 

N

 

90.2

%

Yorktown, NY

 

2011

 

2006

 

78,615

 

83.3

%

783

 

Y

 

63.3

%

Cleveland I, OH

 

2005

 

1997/99

 

46,050

 

89.6

%

340

 

Y

 

5.0

%

Cleveland II, OH

 

2005

 

2000

 

58,425

 

82.5

%

565

 

Y

 

0.0

%

Columbus , OH

 

2006

 

1999

 

71,905

 

81.4

%

602

 

Y

 

25.6

%

Grove City, OH

 

2006

 

1997

 

89,290

 

83.1

%

773

 

Y

 

16.9

%

Hilliard, OH

 

2006

 

1995

 

89,690

 

85.2

%

777

 

Y

 

24.5

%

Lakewood, OH

 

1989*

 

1989

 

39,287

 

88.5

%

455

 

Y

 

24.6

%

Marblehead, OH

 

2005

 

1988/98

 

52,300

 

83.2

%

382

 

Y

 

0.0

%

Middleburg Heights, OH

 

1980*

 

1980

 

92,725

 

90.6

%

682

 

Y

 

3.8

%

North Olmsted I, OH

 

1979*

 

1979

 

48,665

 

85.5

%

442

 

Y

 

7.0

%

North Olmsted II, OH

 

1988*

 

1988

 

47,850

 

82.2

%

396

 

Y

 

14.2

%

North Randall, OH

 

1998*

 

1998/02

 

80,229

 

89.8

%

799

 

N

 

90.8

%

Reynoldsburg, OH

 

2006

 

1979

 

66,895

 

85.0

%

664

 

Y

 

0.0

%

Strongsville, OH

 

2007

 

1978

 

43,507

 

92.3

%

400

 

Y

 

100.0

%

Warrensville Heights, OH

 

1980*

 

1980/82/98

 

90,281

 

84.4

%

723

 

Y

 

0.0

%

Westlake, OH

 

2005

 

2001

 

62,750

 

90.0

%

453

 

Y

 

6.1

%

Conshohocken, PA

 

2012

 

2003

 

81,435

 

87.8

%

728

 

Y

 

35.0

%

Exton, PA

 

2012

 

2006

 

57,650

 

88.9

%

548

 

N

 

90.3

%

Langhorne, PA

 

2012

 

2001

 

65,150

 

85.3

%

670

 

Y

 

59.3

%

Levittown, PA

 

2001

 

2000

 

76,180

 

85.9

%

655

 

Y

 

36.3

%

Montgomeryville, PA

 

2012

 

2003

 

84,145

 

77.0

%

773

 

Y

 

47.9

%

Norristown, PA

 

2011

 

2005

 

52,031

 

81.8

%

501

 

N

 

86.8

%

Philadelphia, PA

 

2001

 

1999

 

97,289

 

85.6

%

954

 

N

 

47.1

%

 

30



Table of Contents

 

 

 

Year Acquired/

 

Year

 

Rentable

 

 

 

 

 

Manager

 

% Climate

 

Facility Location

 

Developed (1)

 

Built

 

Square Feet

 

Occupancy (2)

 

Units

 

Apartment (3)

 

Controlled (4)

 

Alcoa, TN

 

2005

 

1986

 

42,350

 

86.2

%

354

 

Y

 

0.0

%

Antioch, TN

 

2005

 

1985/98

 

76,160

 

88.5

%

618

 

Y

 

8.5

%

Cordova I, TN

 

2005

 

1987

 

54,125

 

88.6

%

387

 

Y

 

0.0

%

Cordova II, TN

 

2006

 

1995

 

67,700

 

76.5

%

711

 

Y

 

7.2

%

Knoxville I, TN

 

1997

 

1984

 

29,337

 

75.0

%

281

 

Y

 

6.8

%

Knoxville II, TN

 

1997

 

1985

 

37,900

 

77.5

%

326

 

Y

 

7.0

%

Knoxville III, TN

 

1998

 

1991

 

45,736

 

82.8

%

445

 

Y

 

6.9

%

Knoxville V, TN

 

1998

 

1977

 

42,790

 

80.0

%

373

 

N

 

0.0

%

Knoxville VI, TN

 

2005

 

1975

 

63,440

 

85.8

%

583

 

Y

 

0.0

%

Knoxville VII, TN

 

2005

 

1983

 

55,594

 

77.7

%

454

 

Y

 

0.0

%

Knoxville VIII, TN

 

2005

 

1978

 

95,868

 

70.8

%

763

 

Y

 

0.0

%

Memphis I, TN

 

2001

 

1999

 

92,320

 

89.7

%

699

 

N

 

57.1

%

Memphis II, TN

 

2001

 

2000

 

71,710

 

91.4

%

556

 

N

 

46.3

%

Memphis III, TN

 

2005

 

1983

 

40,507

 

80.4

%

347

 

Y

 

6.2

%

Memphis IV, TN

 

2005

 

1986

 

38,678

 

80.2

%

319

 

Y

 

4.1

%

Memphis V, TN

 

2005

 

1981

 

60,120

 

86.0

%

498

 

Y

 

0.0

%

Memphis VI, TN

 

2006

 

1985/93

 

108,996

 

82.3

%

875

 

Y

 

4.1

%

Memphis VII, TN

 

2006

 

1980/85

 

96,163

 

85.1

%

533

 

Y

 

0.0

%

Memphis VIII, TN †

 

2006

 

1990

 

96,060

 

75.8

%

548

 

Y

 

0.0

%

Nashville I, TN

 

2005

 

1984

 

103,910

 

86.2

%

695

 

Y

 

0.0

%

Nashville II, TN

 

2005

 

1986/00

 

83,484

 

87.7

%

632

 

Y

 

6.5

%

Nashville III, TN

 

2006

 

1985

 

101,575

 

91.4

%

598

 

Y

 

5.2

%

Nashville IV, TN

 

2006

 

1986/00

 

102,450

 

91.0

%

732

 

Y

 

7.0

%

Allen, TX

 

2012

 

2003

 

62,490

 

88.1

%

524

 

Y

 

40.2

%

Austin I, TX

 

2005

 

2001

 

59,520

 

84.0

%

538

 

Y

 

58.8

%

Austin II, TX

 

2006

 

2000/03

 

65,241

 

79.8

%

594

 

Y

 

38.9

%

Austin III, TX

 

2006

 

2004

 

70,560

 

81.9

%

580

 

Y

 

85.4

%

Baytown, TX

 

2005

 

1981

 

38,950

 

82.7

%

350

 

Y

 

0.0

%

Bryan, TX

 

2005

 

1994

 

60,450

 

63.2

%

495

 

Y

 

0.0

%

Carrollton, TX

 

2012

 

2002

 

77,420

 

71.2

%

549

 

Y

 

0.0

%

College Station, TX

 

2005

 

1993

 

26,559

 

74.8

%

346

 

N

 

0.0

%

Cypress, TX

 

2012

 

1998

 

58,141

 

75.1

%

442

 

N

 

42.3

%

Dallas, TX

 

2005

 

2000

 

59,324

 

88.7

%

534

 

Y

 

28.0

%

Denton, TX

 

2006

 

1996

 

60,836

 

87.5

%

462

 

Y

 

3.9

%

El Paso I, TX

 

2005

 

1980

 

59,952

 

91.5

%

513

 

Y

 

0.9

%

El Paso II, TX

 

2005

 

1980

 

48,704

 

94.8

%

412

 

Y

 

0.0

%

El Paso III, TX

 

2005

 

1980

 

71,252

 

80.6

%

585

 

Y

 

2.0

%

El Paso IV, TX

 

2005

 

1983

 

67,058

 

85.1

%

527

 

Y

 

3.2

%

El Paso V, TX

 

2005

 

1982

 

62,290

 

76.0

%

402

 

Y

 

0.0

%

El Paso VI, TX

 

2005

 

1985

 

36,620

 

92.1

%

257

 

Y

 

0.0

%

El Paso VII, TX †

 

2005

 

1982

 

34,545

 

35.4

%

5

 

N

 

0.0

%

Fort Worth I, TX

 

2005

 

2000

 

50,621

 

85.8

%

406

 

Y

 

26.6

%

Fort Worth II, TX

 

2006

 

2003

 

72,900

 

89.3

%

653

 

Y

 

49.0

%

Frisco I, TX

 

2005

 

1996

 

50,854

 

81.8

%

431

 

Y

 

17.5

%

Frisco II, TX

 

2005

 

1998/02

 

70,999

 

83.2

%

511

 

Y

 

25.2

%

Frisco III, TX

 

2006

 

2004

 

74,815

 

87.7

%

611

 

Y

 

86.0

%

Frisco IV, TX

 

2010

 

2007

 

74,835

 

89.3

%

512

 

N

 

16.4

%

Garland I, TX

 

2006

 

1991

 

70,100

 

93.1

%

679

 

Y

 

4.4

%

Garland II, TX

 

2006

 

2004

 

68,425

 

92.0

%

469

 

Y

 

39.6

%

Greenville I, TX

 

2005

 

2001/04

 

59,385

 

78.9

%

448

 

Y

 

28.8

%

Greenville II, TX

 

2005

 

2001

 

44,900

 

82.6

%

313

 

N

 

36.3

%

Houston I, TX

 

2005

 

1981

 

100,730

 

82.9

%

616

 

Y

 

0.0

%

Houston II, TX

 

2005

 

1977

 

71,300

 

87.9

%

391

 

Y

 

0.0

%

Houston III, TX

 

2005

 

1984

 

60,820

 

82.5

%

461

 

Y

 

4.4

%

Houston IV, TX

 

2005

 

1987

 

43,975

 

87.7

%

383

 

Y

 

6.1

%

Houston V, TX †

 

2006

 

1980/1997

 

126,180

 

81.8

%

1,013

 

Y

 

55.0

%

Houston VI, TX

 

2011

 

2002

 

54,680

 

89.4

%

588

 

N

 

100.0

%

Houston VII, TX

 

2012

 

1989

 

54,882

 

86.9

%

499

 

N

 

71.2

%

Houston VIII, TX

 

2012

 

1992

 

53,630

 

72.5

%

429

 

Y

 

39.1

%

Keller, TX

 

2006

 

2000

 

61,885

 

85.7

%

486

 

Y

 

21.1

%

La Porte, TX

 

2005

 

1984

 

44,850

 

89.4

%

426

 

Y

 

15.4

%

Lewisville, TX

 

2006

 

1996

 

58,140

 

84.6

%

429

 

Y

 

19.7

%

Mansfield I, TX

 

2006

 

2003

 

63,075

 

93.8

%

486

 

Y

 

38.4

%

Mansfield II, TX

 

2012

 

2002

 

58,400

 

95.2

%

484

 

Y

 

55.1

%

McKinney I, TX

 

2005

 

1996

 

47,020

 

84.9

%

362

 

Y

 

9.2

%

McKinney II, TX

 

2006

 

1996

 

70,050

 

81.5

%

537

 

Y

 

46.3

%

North Richland Hills, TX

 

2005

 

2002

 

57,200

 

83.5

%

433

 

Y

 

47.6

%

Pearland, TX

 

2012

 

1985

 

72,249

 

75.0

%

457

 

N

 

32.6

%

Roanoke, TX

 

2005

 

1996/01

 

59,500

 

91.5

%

450

 

Y

 

29.9

%

San Antonio I, TX

 

2005

 

2005

 

73,305

 

85.8

%

573

 

Y

 

79.0

%

San Antonio II, TX

 

2006

 

2005

 

73,230

 

88.8

%

670

 

N

 

82.3

%

San Antonio III, TX

 

2007

 

2006

 

71,775

 

84.6

%

569

 

N

 

87.4

%

 

31



Table of Contents

 

 

 

Year Acquired/

 

Year

 

Rentable

 

 

 

 

 

Manager

 

% Climate

 

Facility Location

 

Developed (1)

 

Built

 

Square Feet

 

Occupancy (2)

 

Units

 

Apartment (3)

 

Controlled (4)

 

Sherman I, TX

 

2005

 

1998

 

54,975

 

82.0

%

505

 

Y

 

21.1

%

Sherman II, TX

 

2005

 

1996

 

48,425

 

79.8

%

391

 

Y

 

30.9

%

Spring, TX

 

2006

 

1980/86

 

72,751

 

79.5

%

535

 

N

 

14.1

%

Murray I, UT

 

2005

 

1976

 

60,280

 

87.4

%

632

 

Y

 

0.0

%

Murray II, UT †

 

2005

 

1978

 

71,221

 

90.3

%

371

 

Y

 

2.6

%

Salt Lake City I, UT

 

2005

 

1976

 

56,446

 

83.9

%

724

 

Y

 

0.0

%

Salt Lake City II, UT

 

2005

 

1978

 

51,676

 

87.5

%

480

 

Y

 

0.0

%

Alexandria, VA

 

2012

 

2000

 

114,650

 

74.4

%

1,156

 

N

 

100.0

%

Burke Lake, VA

 

2011

 

2003

 

90,927

 

85.2

%

910

 

Y

 

72.5

%

Fairfax, VA

 

2012

 

1999

 

73,650

 

88.6

%

683

 

N

 

77.4

%

Fredericksburg I, VA

 

2005

 

2001/04

 

69,475

 

80.0

%

605

 

N

 

21.4

%

Fredericksburg II, VA

 

2005

 

1998/01

 

61,207

 

76.2

%

562

 

N

 

100.0

%

Leesburg, VA

 

2011

 

2001/04

 

85,503

 

89.9

%

890

 

Y

 

75.7

%

Mannasas, VA

 

2010

 

1998

 

73,045

 

83.4

%

638

 

Y

 

50.9

%

McLearen, VA

 

2010

 

2002

 

69,240

 

88.8

%

719

 

Y

 

90.0

%

Vienna, VA

 

2012

 

2000

 

54,318

 

94.6

%

559

 

Y

 

92.5

%

Milwaukee, WI

 

2004

 

1988

 

58,500

 

81.2

%

486

 

Y

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total/Weighted Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(381 facilities)

 

 

 

 

 

25,485,304

 

84.4

%

239,153

 

 

 

 

 

 

 


* Denotes facilities developed by us.

 

† Denotes facilities that contain commercial rentable square footage.  All of this commercial space, which was developed in conjunction with the self-storage cubes, is located within or adjacent to our self-storage facilities and is managed by our self-storage facility managers.  As of December 31, 2012, there was an aggregate of approximately 373,000 rentable square feet of commercial space at these facilities.

 

(1) Represents the year acquired for those facilities acquired from a third party or the year developed for those facilities developed by us.

 

(2) Represents occupied square feet divided by total rentable square feet at December 31, 2012.

 

(3) Indicates whether a facility has an on-site apartment where a manager resides.

 

(4) Represents the percentage of rentable square feet in climate-controlled cubes.

 

(5) We do not own the land at these facilities.  We lease the land pursuant to ground leases that expire between 2052 and 2059, but have renewal options.

 

(6) We have ground leases for certain small parcels of land adjacent to these facilities that expire between 2013 and 2019.

 

We have grown by adding facilities to our portfolio through acquisitions and development. The tables set forth below show the average occupancy, annual rent per occupied square foot, average occupied square feet and total revenues for our facilities owned as of December 31, 2012, and for each of the previous three years, grouped by the year during which we first owned or operated the facility.

 

32



Table of Contents

 

Facilities by Year Acquired - Average Occupancy

 

 

 

 

 

Rentable Square

 

Average Occupancy

 

Year Acquired (1)

 

# of Facilities

 

Feet

 

2012

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

2009 and earlier

 

306

 

20,308,555

 

82.6

%

79.3

%

77.2

%

2010

 

12

 

734,759

 

78.3

%

69.1

%

67.7

%

2011 (5)

 

26

 

1,795,171

 

82.3

%

78.7

%

 

2012

 

37

 

2,646,819

 

83.8

%

 

 

All Facilities Owned as of December 31, 2012

 

381

 

25,485,304

 

82.5

%

78.9

%

77.1

%

 

Facilities by Year Acquired - Annual Rent Per Occupied Square Foot (2)

 

 

 

 

 

Rent per Square Foot

 

Year Acquired (1)

 

# of Facilities

 

2012

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

2009 and earlier

 

306

 

$

11.80

 

$

11.98

 

$

11.96

 

2010

 

12

 

18.44

 

19.12

 

13.50

 

2011 (5)

 

26

 

24.01

 

22.80

 

 

2012

 

37

 

15.55

 

 

 

 

 

 

 

 

 

 

 

 

 

All Facilities Owned as of December 31, 2012

 

381

 

$

13.24

 

$

13.02

 

$

12.01

 

 

Facilities by Year Acquired - Average Occupied Square Feet (3)

 

 

 

 

 

Average Occupied Square Feet

 

Year Acquired (1)

 

# of Facilities

 

2012

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

2009 and earlier

 

306

 

$

16,769,285

 

$

16,117,150

 

$

15,680,890

 

2010

 

12

 

578,149

 

510,496

 

480,918

 

2011 (5)

 

26

 

1,476,913

 

1,409,521

 

 

2012

 

37

 

2,199,295

 

 

 

 

 

 

 

 

 

 

 

 

 

All Facilities Owned as of December 31, 2012

 

381

 

21,023,642

 

18,037,167

 

16,161,808

 

 

Facilities by Year Acquired - Total Revenues (dollars in thousands) (4)

 

 

 

 

 

Total Revenues

 

Year Acquired (1)

 

# of Facilities

 

2012

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

2009 and earlier

 

306

 

$

207,875

 

$

200,741

 

$

193,614

 

2010

 

12

 

11,181

 

10,108

 

1,663

 

2011 (5)

 

26

 

36,945

 

9,548

 

 

2012

 

37

 

19,028

 

 

 

 

 

 

 

 

 

 

 

 

 

All Facilities Owned as of December 31, 2012

 

381

 

$

275,029

 

$

220,397

 

$

195,277

 

 

33



Table of Contents

 


(1)  For facilities developed by us, “Year Acquired” represents the year in which such facilities were acquired by our operating partnership from an affiliated entity, which in some cases is later than the year developed.

 

(2)  Determined by dividing the aggregate rental revenue for each twelve-month period by the average of the month-end occupied square feet for the period.  Rental revenue includes the impact of promotional discounts, which reduce rental income over the promotional period, of $16.1 million, $13.3 million and$11.7 million, for the periods ended December 31, 2012, 2011 and 2010.

 

(3)  Represents the average of the aggregate month-end occupied square feet for the twelve-month period for each group of facilities.

 

(4)  Represents the result obtained by multiplying total income per occupied square foot by the average occupied square feet for the twelve-month period for each group of facilities.  This result will vary from amounts reported on the financial statements.

 

(5)  Facility count does not include the Phoenix parcel acquisition in 2011.  The parcel is adjacent to a property that was purchased in 2006 and is therefore consolidated with that property.

 

Planned Renovations and Improvements

 

We have a capital improvement and property renovation program that includes office upgrades, adding climate control at selected cubes, construction of parking areas, safety and security enhancements, and general facility upgrades.  For 2013, we anticipate spending approximately $7 million to $10 million associated with these capital expenditures and expect to enhance the safety and improve the aesthetic appeal of our facilities.

 

ITEM 3.  LEGAL PROCEEDINGS

 

We are involved in claims from time to time, which arise in the ordinary course of business.  In the opinion of management, we have made adequate provisions for potential liabilities, if any, arising from any such matters.  However, litigation is inherently unpredictable, and the costs and other effects of pending or future litigation, governmental investigations, legal and administrative cases and proceedings (whether civil or criminal), settlements, judgments and investigations, claims and changes in any such matters, could have a material adverse effect on our business, financial condition and operating results.

 

ITEM 4.  MINING SAFETY DISCLOSURES

 

Not applicable.

 

34



Table of Contents

 

PART II

 

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

As of December 31, 2012, there were approximately 61 registered record holders of the Parent Company’s common shares and 12 holders of the Operating Partnership’s Units (other than the Parent Company).  These figures do not include beneficial owners who hold shares in nominee name.  There is no established trading market for the Units of the Operating Partnership.  The following table shows the high and low closing prices per share for our common shares, as reported by the New York Stock Exchange, and the cash dividends declared with respect to such shares:

 

 

 

 

 

 

 

Cash Dividends

 

 

 

High

 

Low

 

Declared

 

2011

 

 

 

 

 

 

 

First quarter

 

$

10.57

 

$

9.20

 

$

0.070

 

Second quarter

 

$

11.39

 

$

9.93

 

$

0.070

 

Third quarter

 

$

11.15

 

$

8.53

 

$

0.070

 

Fourth quarter

 

$

10.66

 

$

8.04

 

$

0.080

 

 

 

 

 

 

 

 

 

2012

 

 

 

 

 

 

 

First quarter

 

$

12.14

 

$

10.30

 

$

0.080

 

Second quarter

 

$

12.81

 

$

10.90

 

$

0.080

 

Third quarter

 

$

13.48

 

$

11.69

 

$

0.080

 

Fourth quarter

 

$

14.67

 

$

12.59

 

$

0.110

 

 

For each quarter in 2011 and 2012, the Operating Partnership paid a cash distribution per Unit in an amount equal to the dividend paid on a common share for each such quarter.

 

Since our initial quarter as a publicly-traded REIT, we have made regular quarterly distributions to our shareholders.  Distributions to shareholders are usually taxable as ordinary income, although a portion of the distribution may be designated as capital gain or may constitute a tax-free return of capital.  Annually, we provide each of our shareholders a statement detailing distributions paid during the preceding year and their characterization as ordinary income, capital gain or return of capital.  The characterization of our dividends for 2012 was as follows: 81.7538% ordinary income distribution, 14.9075% capital gain distribution, and 3.3387% return of capital distribution from earnings and profits.

 

Distributions to 7.75% Series A Cumulative Redeemable Preferred Shareholders are usually taxable as ordinary income, although a portion of the distribution may be designated as capital gain or may constitute a tax-free return of capital.  Annually, we provide each of our shareholders a statement detailing preferred distributions paid during the preceding year and their characterization as ordinary income, capital gain or return of capital.  The characterization of our preferred dividends for 2012 was as follows: 84.5778% ordinary income distribution and 15.4222% capital gain distribution from earnings and profits.

 

We intend to continue to declare quarterly distributions.  However, we cannot provide any assurance as to the amount or timing of future distributions.  Under the revolving portion of our 2011 Credit Facility, we are restricted from paying distributions on our common shares that would exceed an amount equal to the greater of (i) 95% of our funds from operations, and (ii) such amount as may be necessary to maintain our REIT status.

 

To the extent that we make distributions in excess of our earnings and profits, as computed for federal income tax purposes, these distributions will represent a return of capital, rather than a dividend, for federal income tax purposes. Distributions that are treated as a return of capital for federal income tax purposes generally will not be taxable as a dividend to a U.S. shareholder, but will reduce the shareholder’s basis in its shares (but not below zero) and therefore can result in the shareholder having a higher gain upon a subsequent sale of such shares.  Return of capital distributions in excess of a shareholder’s basis generally will be treated as gain from the sale of such shares for federal income tax purposes.

 

35



Table of Contents

 

Share Performance Graph

 

The SEC requires us to present a chart comparing the cumulative total shareholder return on our common shares with the cumulative total shareholder return of (i) a broad equity index and (ii) a published industry or peer group index. The following chart compares the yearly cumulative total shareholder return for our common shares with the cumulative shareholder return of companies on (i) the S&P 500 Index, (ii) the Russell 2000 and (iii) the NAREIT All Equity REIT Index as provided by NAREIT for the period beginning December 31, 2007 and ending December 31, 2012.

 

 

 

 

Period Ending

 

Index

 

12/31/07

 

12/31/08

 

12/31/09

 

12/31/10

 

12/31/11

 

12/31/12

 

CubeSmart

 

100.00

 

52.03

 

87.82

 

115.84

 

133.17

 

188.85

 

S&P 500

 

100.00

 

63.00

 

79.68

 

91.68

 

93.61

 

108.59

 

Russell 2000

 

100.00

 

66.21

 

84.20

 

106.82

 

102.36

 

119.09

 

NAREIT All Equity REIT Index

 

100.00

 

62.27

 

79.70

 

101.98

 

110.42

 

132.18

 

 

There were no repurchases of the Parent Company’s common shares during the three-month period ended December 31, 2012.

 

36



Table of Contents

 

ITEM 6.  SELECTED FINANCIAL DATA

 

CUBESMART

 

The following table sets forth selected financial and operating data on a historical consolidated basis for the Parent Company.  The selected historical financial information for the five-year period ended December 31, 2012 was derived from the Parent Company’s financial statements, which have been audited by KPMG LLP.

 

The following data should be read in conjunction with the audited financial statements and notes thereto of the Parent Company and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this report.

 

37



Table of Contents

 

 

 

For the year ended December 31,

 

 

 

2012

 

2011

 

2010

 

2009

 

2008

 

 

 

(Dollars and shares in thousands, except per share data)

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

250,959

 

$

202,762

 

$

179,748

 

$

178,669

 

$

185,426

 

Other property related income

 

27,776

 

20,715

 

17,114

 

14,659

 

13,708

 

Property management fee income

 

4,341

 

3,768

 

2,829

 

56

 

 

Total revenues

 

283,076

 

227,245

 

199,691

 

193,384

 

199,134

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

110,821

 

94,630

 

85,779

 

83,968

 

84,716

 

Depreciation and amortization

 

113,874

 

65,955

 

58,876

 

63,825

 

66,924

 

General and administrative

 

26,131

 

24,693

 

25,406

 

22,569

 

24,964

 

Total operating expenses

 

250,826

 

185,278

 

170,061

 

170,362

 

176,604

 

OPERATING INCOME

 

32,250

 

41,967

 

29,630

 

23,022

 

22,530

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

Interest expense on loans

 

(40,715

)

(33,199

)

(37,794

)

(45,269

)

(52,014

)

Loan procurement amortization expense

 

(3,279

)

(5,028

)

(6,463

)

(2,339

)

(1,929

)

Loan procurement amortization expense - early repayment of debt

 

 

(8,167

)

 

 

 

Acquisition related costs

 

(3,086

)

(3,823

)

(759

)

 

 

Equity in losses of real estate ventures

 

(745

)

(281

)

 

 

 

Gain from remeasurement of investment in real estate venture

 

7,023

 

 

 

 

 

Other

 

256

 

(83

)

386

 

648

 

247

 

Total other expense

 

(40,546

)

(50,581

)

(44,630

)

(46,960

)

(53,696

)

LOSS FROM CONTINUING OPERATIONS

 

(8,296

)

(8,614

)

(15,000

)

(23,938

)

(31,166

)

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations

 

2,113

 

7,158

 

7,155

 

9,467

 

14,548

 

Net gain on disposition of discontinued operations

 

9,811

 

3,903

 

1,826

 

14,139

 

19,720

 

Total discontinued operations

 

11,924

 

11,061

 

8,981

 

23,606

 

34,268

 

NET INCOME (LOSS)

 

3,628

 

2,447

 

(6,019

)

(332

)

3,102

 

NET (INCOME) LOSS ATTRIBUTABLE TO NONCONROLLING INTERESTS

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests in the Operating Partnership

 

107

 

(35

)

381

 

60

 

(310

)

Noncontrolling interest in subsidiaries

 

(1,918

)

(2,810

)

(1,755

)

(665

)

 

NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY

 

1,817

 

(398

)

(7,393

)

(937

)

2,792

 

Distribution to Preferred Shares

 

(6,008

)

(1,218

)

 

 

 

NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS OF THE COMPANY

 

$

(4,191

)

$

(1,616

)

$

(7,393

)

$

(937

)

$

2,792

 

Basic and diluted loss per share from continuing operations attributable to common shareholders

 

$

(0.13

)

$

(0.12

)

$

(0.17

)

$

(0.32

)

$

(0.50

)

Basic and diluted earnings per share from discontinued operations attributable to common shareholders

 

$

0.10

 

$

0.10

 

$

0.09

 

$

0.31

 

$

0.55

 

Basic and diluted (loss) earnings per share attributable to common shareholders

 

$

(0.03

)

$

(0.02

)

$

(0.08

)

$

(0.01

)

$

0.05

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average basic and diluted shares outstanding (1)

 

124,548

 

102,976

 

93,998

 

70,988

 

57,621

 

 

 

 

 

 

 

 

 

 

 

 

 

AMOUNTS ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS:

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(15,829

)

$

(12,168

)

$

(15,907

)

$

(22,631

)

$

(28,663

)

Total discontinued operations

 

11,638

 

10,552

 

8,514

 

21,694

 

31,455

 

Net (loss) income

 

$

(4,191

)

$

(1,616

)

$

(7,393

)

$

(937

)

$

2,792

 

 

38



Table of Contents

 

 

 

At December 31,

 

 

 

2012

 

2011

 

2010

 

2009

 

2008

 

Balance Sheet Data (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Storage facilities, net

 

$

2,089,707

 

$

1,788,720

 

$

1,428,491

 

$

1,430,533

 

$

1,559,958

 

Total assets

 

2,150,319

 

1,875,979

 

1,478,819

 

1,598,870

 

1,597,659

 

Unsecured senior notes

 

250,000

 

 

 

 

 

Revolving credit facility

 

45,000

 

 

43,000

 

 

172,000

 

Unsecured term loan

 

500,000

 

400,000

 

200,000

 

 

200,000

 

Secured term loan

 

 

 

 

200,000

 

57,419

 

Mortgage loans and notes payable

 

228,759

 

358,441

 

372,457

 

569,026

 

548,085

 

Total liabilities

 

1,112,420

 

830,925

 

668,266

 

814,146

 

1,028,705

 

Noncontrolling interest in the Operating Partnership

 

47,990

 

49,732

 

45,145

 

45,394

 

46,026

 

CubeSmart shareholders’ equity

 

989,791

 

955,913

 

724,216

 

695,309

 

522,928

 

Noncontrolling interests in subsidiaries

 

118

 

39,409

 

41,192

 

44,021

 

 

Total liabilities and equity

 

2,150,319

 

1,875,979

 

1,478,819

 

1,598,870

 

1,597,659

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Data:

 

 

 

 

 

 

 

 

 

 

 

Number of facilities

 

381

 

370

 

363

 

367

 

387

 

Total rentable square feet (in thousands)

 

25,485

 

24,420

 

23,635

 

23,749

 

24,973

 

Occupancy percentage

 

84.4

%

78.4

%

76.3

%

75.2

%

78.9

%

Cash dividends declared per share (2) 

 

$

0.350

 

$

0.290

 

$

0.145

 

$

0.100

 

$

0.565

 

 


(1)         Excludes operating partnership units issued at our IPO and in connection with the acquisition of facilities subsequent to our IPO.  Operating partnership units have been excluded from the earnings per share calculations as the related income or loss is presented in Noncontrolling interests in the Operating Partnership.

 

(2)         The Company announced full quarterly dividends of $0.180 per common share on December 13, 2007,  February 27, 2008,  May 7, 2008, and August 6, 2008; dividends of $0.025 per common share on December 11, 2008, January 22, 2009, April 22, 2009, July 22, 2009, October 22, 2009, December 5, 2009, February 24, 2010, June 2, 2010, and August 4, 2010; dividends of $0.070 per common share on December 14, 2010, February 29, 2011,  June 1, 2011, and August 3, 2011; dividends of $0.080 and $0.393 per common and preferred shares, respectively, on December 8, 2011; dividends of $0.080 and $0.484 per common and preferred shares, respectively, on February 21, 2012, May 30, 2012 and August 1, 2012, and dividends of $0.110 and $0.484 per common and preferred shares, respectively, on December 10, 2012.

 

CUBESMART, L.P.

 

The following table sets forth selected financial and operating data on a historical consolidated basis for the Operating Partnership.  The selected financial data for the periods ended December 31, 2012, 2011, 2010, 2009 and 2008 have been derived from the historical consolidated financial statements of CubeSmart, L.P. and subsidiaries, which have been audited by KPMG LLP.

 

The following data should be read in conjunction with the audited financial statements and notes thereto of the operating Partnership and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this report.

 

39



Table of Contents

 

 

 

For the year ended December 31,

 

 

 

2012

 

2011

 

2010

 

2009

 

2008

 

 

 

(Dollars and shares in thousands, except per unit data)

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

250,959

 

$

202,762

 

$

179,748

 

$

178,669

 

$

185,426

 

Other property related income

 

27,776

 

20,715

 

17,114

 

14,659

 

13,708

 

Property management fee income

 

4,341

 

3,768

 

2,829

 

56

 

 

Total revenues

 

283,076

 

227,245

 

199,691

 

193,384

 

199,134

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

110,821

 

94,630

 

85,779

 

83,968

 

84,716

 

Depreciation and amortization

 

113,874

 

65,955

 

58,876

 

63,825

 

66,924

 

General and administrative

 

26,131

 

24,693

 

25,406

 

22,569

 

24,964

 

Total operating expenses

 

250,826

 

185,278

 

170,061

 

170,362

 

176,604

 

OPERATING INCOME

 

32,250

 

41,967

 

29,630

 

23,022

 

22,530

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

Interest expense on loans

 

(40,715

)

(33,199

)

(37,794

)

(45,269

)

(52,014

)

Loan procurement amortization expense

 

(3,279

)

(5,028

)

(6,463

)

(2,339

)

(1,929

)

Loan procurement amortization expense - early repayment of debt

 

 

(8,167

)

 

 

 

Acquisition related costs

 

(3,086

)

(3,823

)

(759

)

 

 

Equity in losses of real estate ventures

 

(745

)

(281

)

 

 

 

Gain from remeasurement of investment in real estate venture

 

7,023

 

 

 

 

 

Other

 

256

 

(83

)

386

 

648

 

247

 

Total other expense

 

(40,546

)

(50,581

)

(44,630

)

(46,960

)

(53,696

)

LOSS FROM CONTINUING OPERATIONS

 

(8,296

)

(8,614

)

(15,000

)

(23,938

)

(31,166

)

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations

 

2,113

 

7,158

 

7,155

 

9,467

 

14,548

 

Net gain on disposition of discontinued operations

 

9,811

 

3,903

 

1,826

 

14,139

 

19,720

 

Total discontinued operations

 

11,924

 

11,061

 

8,981

 

23,606

 

34,268

 

NET INCOME (LOSS)

 

3,628

 

2,447

 

(6,019

)

(332

)

3,102

 

NET LOSS (INCOME) ATTRIBUTABLE TO NONCONROLLING INTERESTS

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interest in subsidiaries

 

(1,918

)

(2,810

)

(1,755

)

(665

)

 

NET (LOSS) INCOME ATTRIBUTABLE TO CUBESMART L.P.

 

1,710

 

(363

)

(7,774

)

(997

)

3,102

 

Limited Partnership interest of third parties

 

107

 

(35

)

381

 

60

 

(310

)

NET (LOSS) INCOME ATTRIBUTABLE TO OPERATING PARTNER

 

1,817

 

(398

)

(7,393

)

(937

)

2,792

 

Distribution to Preferred Shares

 

(6,008

)

(1,218

)

 

 

 

NET(LOSS) INCOME ATTRIBUTABLE TO COMMON UNITHOLDERS

 

$

(4,191

)

$

(1,616

)

$

(7,393

)

$

(937

)

$

2,792

 

Basic and diluted loss per unit from continuing operations attributable to common unitholders

 

$

(0.13

)

$

(0.12

)

$

(0.17

)

$

(0.32

)

$

(0.50

)

Basic and diluted earnings per unit from discontinued operations attributable to common unitholders

 

$

0.10

 

$

0.10

 

$

0.09

 

$

0.31

 

$

0.55

 

Basic and diluted (loss) earnings per unit attributable to common unitholders

 

$

(0.03

)

$

(0.02

)

$

(0.08

)

$

(0.01

)

$

0.05

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average basic and diluted units outstanding (1)

 

124,548

 

102,976

 

93,998

 

70,988

 

57,621

 

 

 

 

 

 

 

 

 

 

 

 

 

AMOUNTS ATTRIBUTABLE TO COMMON UNITHOLDERS:

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(15,829

)

$

(12,168

)

$

(15,907

)

$

(22,631

)

$

(28,663

)

Total discontinued operations

 

11,638

 

10,552

 

8,514

 

21,694

 

31,455

 

Net (loss) income

 

$

(4,191

)

$

(1,616

)

$

(7,393

)

$

(937

)

$

2,792

 

 

40



Table of Contents

 

 

 

At December 31,

 

 

 

2012

 

2011

 

2010

 

2009

 

2008

 

Balance Sheet Data (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Storage facilities, net

 

$

2,089,707

 

$

1,788,720

 

$

1,428,491

 

$

1,430,533

 

$

1,559,958

 

Total assets

 

2,150,319

 

1,875,979

 

1,478,819

 

1,598,870

 

1,597,659

 

Unsecured senior notes

 

250,000

 

 

 

 

 

Revolving credit facility

 

45,000

 

 

43,000

 

 

172,000

 

Unsecured term loan

 

500,000

 

400,000

 

200,000

 

 

200,000

 

Secured term loan

 

 

 

 

200,000

 

57,419

 

Mortgage loans and notes payable

 

228,759

 

358,441

 

372,457

 

569,026

 

548,085

 

Total liabilities

 

1,112,420

 

830,925

 

668,266

 

814,146

 

1,028,705

 

Limited Partnership interest of third parties

 

47,990

 

49,732

 

45,145

 

45,394

 

46,026

 

CubeSmart L.P. Capital

 

989,791

 

955,913

 

724,216

 

695,309

 

522,928

 

Noncontrolling interests in subsidiaries

 

118

 

39,409

 

41,192

 

44,021

 

 

Total liabilities and capital

 

2,150,319

 

1,875,979

 

1,478,819

 

1,598,870

 

1,597,659

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Data:

 

 

 

 

 

 

 

 

 

 

 

Number of facilities

 

381

 

370

 

363

 

367

 

387

 

Total rentable square feet (in thousands)

 

25,485

 

24,420

 

23,635

 

23,749

 

24,973

 

Occupancy percentage

 

84.4

%

78.4

%

76.3

%

75.2

%

78.9

%

Cash dividends declared per unit (2) 

 

$

0.350

 

$

0.290

 

$

0.145

 

$

0.100

 

$

0.565

 

 


(1)         Excludes operating partnership units issued at our IPO and in connection with the acquisition of facilities subsequent to our IPO.  Operating partnership units have been excluded from the earnings per share calculations as the related income or loss is presented in Limited Partnership interest of third parties.

 

(2)         The Company announced full quarterly dividends of $0.180 per common unit on December 13, 2007,  February 27, 2008,  May 7, 2008, and August 6, 2008; dividends of $0.025 per common unit on December 11, 2008, January 22, 2009, April 22, 2009, July 22, 2009, October 22, 2009, December 5, 2009, February 24, 2010, June 2, 2010, and August 4, 2010; dividends of $0.070 per common unit on December 14, 2010, February 29, 2011,  June 1, 2011, and August 3, 2011; dividends of $0.080 and $0.393 per common and preferred units, respectively, on December 8, 2011; dividends of $0.080 and $0.484 per common and preferred units, respectively, on February 21, 2012, May 30, 2012 and August 1, 2012, and dividends of $0.110 and $0.484 per common and preferred units, respectively, on December 10, 2012.

 

41



Table of Contents

 

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report.  The Company makes certain statements in this section that are forward-looking statements within the meaning of the federal securities laws.  For a complete discussion of forward-looking statements, see the section in this report entitled “Forward-Looking Statements.”  Certain risk factors may cause actual results, performance or achievements to differ materially from those expressed or implied by the following discussion.  For a discussion of such risk factors, see the section in this report entitled “Risk Factors.”

 

Overview

 

The Company is an integrated self-storage real estate company, and as such we have in-house capabilities in the operation, design, development, leasing, management and acquisition of self-storage facilities.  The Parent Company’s operations are conducted solely through the Operating Partnership and its subsidiaries.  Effective September 14, 2011, the Parent Company changed its name from “U-Store-It Trust” to “CubeSmart” and the Operating Partnership changed its name from “U-Store-It, L.P.” to “CubeSmart, L.P.”  The Parent Company has elected to be taxed as a REIT for U.S. federal income tax purposes.  As of December 31, 2012 and December 31, 2011, the Company owned 381 and 370 self-storage facilities, respectively, totaling approximately 25.5 million rentable square feet and 24.4 million rentable square feet, respectively.  As of December 31, 2012 the Company owned facilities in the District of Columbia and the following 22 states:  Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Maryland, Massachusetts, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Utah, Virginia and Wisconsin.  In addition, as of December 31, 2012, the Company managed 133 properties for third parties bringing the total number of properties we owned and/or managed to 514.  As of December 31, 2012 we managed facilities in the following 27 states: Alabama, Arizona, Arkansas , California, Colorado, Connecticut, Florida, Georgia, Illinois, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, and Virginia.

 

The Company derives revenues principally from rents received from its customers who rent cubes at its self-storage facilities under month-to-month leases.  Therefore, our operating results depend materially on our ability to retain our existing customers and lease our available self-storage cubes to new customers while maintaining and, where possible, increasing our pricing levels.  In addition, our operating results depend on the ability of our customers to make required rental payments to us.  We have a decentralized approach to the management and operation of our facilities, which places an emphasis on local, market level oversight and control.  We believe this approach allows us to respond quickly and effectively to changes in local market conditions, and to maximize revenues by managing rental rates and occupancy levels.

 

The Company typically experiences seasonal fluctuations in the occupancy levels of our facilities, which are generally slightly higher during the summer months due to increased moving activity.

 

The United States continues to recover from an economic downturn that resulted in higher unemployment, stagnant employment growth, shrinking demand for products, large-scale business failures and tight credit markets.  Our results of operations may be sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending, as well as to increased bad debts due to recessionary pressures.  A continuation of — or slow recovery from — ongoing adverse economic conditions affecting disposable consumer income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs, and other matters could reduce consumer spending or cause consumers to shift their spending to other products and services.  A general reduction in the level of discretionary spending or shifts in consumer discretionary spending could adversely affect our growth and profitability.

 

In the future, the Company intends to focus on maximizing internal growth opportunities and selectively pursuing targeted acquisitions and developments of self-storage facilities.

 

The Company has one reportable segment:  we own, operate, develop, manage and acquire self-storage facilities.

 

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Table of Contents

 

The Company’s self-storage facilities are located in major metropolitan and rural areas and have numerous tenants per facility.  No single tenant represents a significant concentration of our revenues.  The facilities in New York, Florida, California, and Texas provided approximately 16%, 15%, 10% and 10%, respectively, of total revenues for the year ended December 31, 2012.

 

Summary of Critical Accounting Policies and Estimates

 

Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements included in this Annual Report on Form 10-K.  Certain of the accounting policies used in the preparation of these consolidated financial statements are particularly important for an understanding of the financial position and results of operations presented in the historical consolidated financial statements included in this report.  A summary of significant accounting policies is also provided in the notes to our consolidated financial statements (See Note 2 to the consolidated financial statements).  These policies require the application of judgment and assumptions by management and, as a result, are subject to a degree of uncertainty.  Due to this uncertainty, actual results could differ materially from estimates calculated and utilized by management.

 

Basis of Presentation

 

The accompanying consolidated financial statements include all of the accounts of the Company, and its majority-owned and/or controlled subsidiaries.  The portion of these entities not owned by the Company is presented as noncontrolling interests as of and during the periods presented.  All significant intercompany accounts and transactions have been eliminated in consolidation.

 

When the Company obtains an economic interest in an entity, the Company evaluates the entity to determine if the entity is deemed a variable interest entity (“VIE”), and if the Company is deemed to be the primary beneficiary, in accordance with authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) on the consolidation of VIEs.  When an entity is not deemed to be a VIE, the Company considers the provisions of additional FASB guidance to determine whether a general partner, or the general partners as a group, controls a limited partnership or similar entity when the limited partners have certain rights.  The Company consolidates (i) entities that are VIEs and of which the Company is deemed to be the primary beneficiary and (ii) entities that are non-VIEs which the Company controls and in which the limited partners do not have substantive participating rights, or the ability to dissolve the entity or remove the Company without cause.

 

Self-Storage Facilities

 

The Company records self-storage facilities at cost less accumulated depreciation.  Depreciation on the buildings and equipment is recorded on a straight-line basis over their estimated useful lives, which range from five to 40 years. Expenditures for significant renovations or improvements that extend the useful life of assets are capitalized.  Repairs and maintenance costs are expensed as incurred.

 

When facilities are acquired, the purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values.  When a portfolio of facilities is acquired, the purchase price is allocated to the individual facilities based upon an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates, which take into account the relative size, age and location of the individual facility along with current and projected occupancy and rental rate levels or appraised values, if available.  Allocations to the individual assets and liabilities are based upon comparable market sales information for land, buildings and improvements and estimates of depreciated replacement cost of equipment.

 

In allocating the purchase price for an acquisition, the Company determines whether the acquisition includes intangible assets or liabilities.  The Company allocated a portion of the purchase price to an intangible asset attributed to the value of in-place leases.  This intangible is generally amortized to expense over the expected remaining term of the respective leases.  Substantially all of the leases in place at acquired facilities are at market rates, as the majority of the leases are month-to-month contracts.  Accordingly, to date no portion of the purchase price has been allocated to above- or below-market lease intangibles.  To date, no intangible asset has been recorded for the value of tenant relationships, because the Company does not have any concentrations of significant tenants and the average tenant turnover is fairly frequent.

 

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Table of Contents

 

Long-lived assets classified as “held for use” are reviewed for impairment when events and circumstances such as declines in occupancy and operating results indicate that there may be impairment.  The carrying value of these long-lived assets is compared to the undiscounted future net operating cash flows, plus a terminal value, attributable to the assets to determine if the property’s basis is recoverable.  If a property’s basis is not considered recoverable, an impairment loss is recorded to the extent the net carrying value of the asset exceeds the fair value.  The impairment loss recognized equals the excess of net carrying value over the related fair value of the asset.

 

The Company considers long-lived assets to be “held for sale” upon satisfaction of the following criteria: (a) management commits to a plan to sell a facility (or group of facilities), (b) the facility is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such facilities, (c) an active program to locate a buyer and other actions required to complete the plan to sell the facility have been initiated, (d) the sale of the facility is probable and transfer of the asset is expected to be completed within one year, (e) the facility is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

 

Typically these criteria are all met when the relevant asset is under contract, significant non-refundable deposits have been made by the potential buyer, the assets are immediately available for transfer and there are no contingencies related to the sale that may prevent the transaction from closing.  However, each potential transaction is evaluated based on its separate facts and circumstances.  Properties classified as held for sale are reported at the lesser of carrying value or fair value less estimated costs to sell.

 

Revenue Recognition

 

Management has determined that all our leases with tenants are operating leases.  Rental income is recognized in accordance with the terms of the lease agreements or contracts, which generally are month-to-month.

 

The Company recognizes gains on disposition of properties only upon closing in accordance with the guidance on sales of real estate.  Payments received from purchasers prior to closing are recorded as deposits.  Profit on real estate sold is recognized using the full accrual method upon closing when the collectability of the sales price is reasonably assured and the Company is not obligated to perform significant activities after the sale.  Profit may be deferred in whole or part until the sale meets the requirements of profit recognition on sales under this guidance.

 

Share Based Payments

 

We apply the fair value method of accounting for contingently issued shares and share options issued under our equity incentive plans.  Accordingly, share compensation expense was recorded ratably over the vesting period relating to such contingently issued shares and options.  The Company has elected to recognize compensation expense on a straight-line method over the requisite service period.

 

Noncontrolling Interests

 

Noncontrolling interests are the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent.  The ownership interests in the subsidiary that are held by owners other than the parent are noncontrolling interests.  In accordance with authoritative guidance issued on noncontrolling interests in consolidated financial statements, such noncontrolling interests are reported on the consolidated balance sheets within equity/capital, separately from the Parent Company’s equity/capital.  The guidance also requires that noncontrolling interests are adjusted each period so that the carrying value equals the greater of its carrying value based on the accumulation of historical cost or its redemption value.  On the consolidated statements of operations, revenues, expenses and net income or loss from less-than-wholly-owned subsidiaries are reported at the consolidated amounts, including both the amounts attributable to the Parent Company and noncontrolling interests.  Presentation of consolidated equity/capital activity is included for both quarterly and annual financial statements, including beginning balances, activity for the period and ending balances for shareholders’ equity/capital, noncontrolling interests and total equity/capital.

 

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Table of Contents

 

Investments in Unconsolidated Real Estate Ventures

 

The Company accounts for its investments in unconsolidated real estate ventures under the equity method of accounting.  Under the equity method, investments in unconsolidated joint ventures are recorded initially at cost, as investments in real estate entities, and subsequently adjusted for equity in earnings (losses), cash contributions, less distributions and impairments. On a periodic basis, management also assesses whether there are any indicators that the fair value of the Company’s investments in unconsolidated real estate entities may be other than temporarily impaired. An investment is impaired only if the fair value of the investment, as estimated by management, is less than the carrying value of the investment and the decline is other than temporary. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the fair value of the investment, as estimated by management. The determination as to whether impairment exists requires significant management judgment about the fair value of its ownership interest. Fair value is determined through various valuation techniques, including but not limited to, discounted cash flow models, quoted market values and third party appraisals.

 

Income Taxes

 

The Company elected to be taxed as a real estate investment trust under Sections 856-860 of the Internal Revenue Code beginning with the period from October 21, 2004 (commencement of operations) through December 31, 2004.  In management’s opinion, the requirements to maintain these elections are being met.  Accordingly, no provision for federal income taxes has been reflected in the consolidated financial statements other than for operations conducted through our taxable REIT subsidiaries.

 

Earnings and profits, which determine the taxability of distributions to shareholders, differ from net income reported for financial reporting purposes due to differences in cost basis, the estimated useful lives used to compute depreciation, and the allocation of net income and loss for financial versus tax reporting purposes.

 

The Company is subject to a 4% federal excise tax if sufficient taxable income is not distributed within prescribed time limits.  The excise tax equals 4% of the annual amount, if any, by which the sum of (a) 85% of the Company’s ordinary income, (b) 95% of the Company’s net capital gains and c) 100% of prior year taxable income exceeds cash distributions and certain taxes paid by the Company.

 

Recent Accounting Pronouncements

 

In June 2011, the FASB issued an amendment to the accounting standard for the presentation of comprehensive income. The amendment requires entities to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In addition, the amendment requires entities to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented.  This amendment became effective for fiscal years and interim periods beginning after December 15, 2011. The Company’s adoption of the new standard as of January 1, 2012 did not have a material impact on its consolidated financial position or results of operations as the amendment related only to changes in financial statement presentation.

 

In May 2011, the FASB issued an update to the accounting standard for measuring and disclosing fair value.  The update modifies the wording used to describe the requirements for fair value measuring and for disclosing information about fair value measurements to improve consistency between U.S. GAAP and International Financial Reporting Standards (“IFRS”). This update is effective for the annual and interim periods beginning after December 15, 2011. The adoption of this guidance in 2012 did not have a material impact on our consolidated financial position or results of operations as its impact was limited to disclosure requirements.

 

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Table of Contents

 

Results of Operations

 

The following discussion of our results of operations should be read in conjunction with the consolidated financial statements and the accompanying notes thereto.  Historical results set forth in the consolidated statements of operations reflect only the existing facilities and should not be taken as indicative of future operations.  The Company considers its same-store portfolio to consist of only those facilities owned and operated on a stabilized basis at the beginning and at the end of the applicable years presented. We consider a property to be stabilized once it has achieved an occupancy rate representative of similar self-storage assets in the respective markets for a full year measured as of the most recent January 1 or has otherwise been placed in-service and has not been significantly damaged by natural disaster or undergone significant renovation.  Same-store results are considered to be useful to investors in evaluating our performance because they provide information relating to changes in facility-level operating performance without taking into account the effects of acquisitions, developments or dispositions.  At December 31, 2012, there were 313 same-store properties and 68 non same-store properties, of which 27 were 2011 acquisitions, 37 were 2012 acquisitions and four were properties that were not stabilized, damaged by natural disaster or had undergone significant renovation.  For analytical presentation, all percentages are calculated using the numbers presented in the financial statements contained in this Annual Report on Form 10-K.

 

The Company’s results of operations are affected by the acquisition and disposition activity during the 2012, 2011, and 2010 periods as described below.  At December 31, 2012, 2011, and 2010, the Company owned 381, 370, and 363 self-storage facilities and related assets, respectively.

 

·                  In 2012, 37 self-storage facilities were acquired for approximately $432.3 million (the “2012 Acquisitions”) and 26 self-storage facilities were sold for approximately $60.0 million (the “2012 Dispositions”).

 

·                  In 2011, 27 self-storage facilities were acquired for approximately $467.1 million (the “2011 Acquisitions”) and 19 self-storage facilities were sold for approximately $45.2 million (the “2011 Dispositions”).

 

·                  In 2010, 12 self-storage facilities were acquired for approximately $85.1 million (the “2010 Acquisitions”) and 16 self-storage facilities were sold for approximately $38.1 million (the “2010 Dispositions”).

 

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Table of Contents

 

Comparison of the Year Ended December 31, 2012 to the Year Ended December 31, 2011 (dollars in thousands)

 

 

 

 

 

Non Same-Store

 

Other/

 

 

 

 

 

 

 

 

 

 

 

Same-Store Property Portfolio

 

Properties

 

Eliminations

 

Total Portfolio

 

 

 

 

 

 

 

Increase/

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase/

 

%

 

 

 

2012

 

2011

 

(Decrease)

 

Change

 

2012

 

2011

 

2012

 

2011

 

2012

 

2011

 

(Decrease)

 

Change

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

196,556

 

$

191,222

 

$

5,334

 

3

%

$

54,403

 

$

11,540

 

$

 

$

 

$

250,959

 

$

202,762

 

$

48,197

 

24

%

Other property related income

 

20,331

 

17,811

 

2,520

 

14

%

5,473

 

1,314

 

1,972

 

1,590

 

27,776

 

20,715

 

7,061

 

34

%

Property management fee income

 

 

 

 

 

 

 

4,341

 

3,768

 

4,341

 

3,768

 

573

 

15

%

Total revenues

 

216,887

 

209,033

 

7,854

 

4

%

59,876

 

12,854

 

6,313

 

5,358

 

283,076

 

227,245

 

55,831

 

25

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

77,466

 

77,518

 

(52

)

0

%

19,511

 

5,090

 

13,844

 

12,022

 

110,821

 

94,630

 

16,191

 

17

%

NET OPERATING INCOME:

 

139,421

 

131,515

 

7,906

 

6

%

40,365

 

7,764

 

(7,531

)

(6,664

)

172,255

 

132,615

 

39,640

 

30

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property count

 

313

 

313

 

 

 

 

 

68

 

57

 

 

 

 

 

381

 

370

 

 

 

 

 

Total square footage

 

20,681

 

20,681

 

 

 

 

 

4,804

 

3,739

 

 

 

 

 

25,485

 

24,420

 

 

 

 

 

Period End Occupancy (1)

 

84.6

%

79.1

%

 

 

 

 

84.2

%

75.8

%

 

 

 

 

84.4

%

78.6

%

 

 

 

 

Period Average Occupancy (2)

 

82.6

%

79.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized annual rent per occupied sq ft (3)

 

$

11.51

 

$

11.67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

113,874

 

65,955

 

47,919

 

73

%

General and administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26,131

 

24,693

 

1,438

 

6

%

Subtotal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

140,005

 

90,648

 

49,357

 

54

%

Operating income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32,250

 

41,967

 

(9,717

)

-23

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense on loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(40,715

)

(33,199

)

(7,516

)

-23

%

Loan procurement amortization expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,279

)

(5,028

)

1,749

 

35

%

Loan procurement amortization expense - early repayment of debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,167

)

8,167

 

100

%

Acquisition related costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,086

)

(3,823

)

737

 

19

%

Equity in losses of real estate ventures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(745

)

(281

)

(464

)

-165

%

Gain from remeasurement of investments in real estate ventures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,023

 

 

7,023

 

100

%

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

256

 

(83

)

339

 

408

%

Total other expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(40,546

)

(50,581

)

10,035

 

20

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,296

)

(8,614

)

318

 

4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,113

 

7,158

 

(5,045

)

-70

%

Net gain on disposition of discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,811

 

3,903

 

5,908

 

151

%

Total discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,924

 

11,061

 

863

 

8

%

NET INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,628

 

2,447

 

1,181

 

48

%

NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

107

 

(35

)

142

 

406

%

Noncontrolling interests in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,918

)

(2,810

)

892

 

32

%

NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,817

 

$

(398

)

$

2,215

 

557

%

 


(1)              Represents occupancy at 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.  Square footage for non same-store assets acquired during 2012 are prorated based on the portion of the period the properties were owned.

 

Revenues

 

Rental income increased from $202.8 million in 2011 to $251.0 million in 2012, an increase of $48.2 million. This increase is primarily attributable to $42.9 million of additional income from the properties acquired in 2011 and 2012 and an increase in average occupancy on the same-store portfolio due to lowered rates which contributed to the $5.3 million increase in rental income during 2012 as compared to 2011.

 

Other property related income increased from $20.7 million in 2011 to $27.8 million in 2012, an increase of $7.1 million, or 34%.  This increase is primarily attributable to increased fee revenue and insurance commissions of $5.6 million during the year ended December 31, 2012 as compared to the year ended December 31, 2011, driven by a $4.2 million increase as a result of the 2011 and 2012 acquisitions.

 

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Table of Contents

 

Property management fee income increased to $4.3 million in 2012 from $3.8 million during 2011, an increase of $0.6 million.  This increase is attributable to an increase in management fees related to the third party management business (133 facilities as of December 31, 2012 compared to 103 facilities as of December 31, 2011).

 

Operating Expenses

 

Property operating expenses increased from $94.6 million in 2011 to $110.8 million in 2012, an increase of $16.2 million, or 17%.  This increase is primarily attributable to $14.4 million of increased expenses associated with newly acquired properties in 2012 as well as $1.8 million of increased expenses in other/eliminations associated with third party management contracts.

 

Depreciation and amortization increased from $66.0 million in 2011 to $113.9 million in 2012, an increase of $47.9 million, or 73%.  This increase is primarily attributable to depreciation and amortization expense related to the 2011 and 2012 acquisitions, including an increase in amortization of lease intangibles of $25.2 million recognized during the 2012 period.

 

Other Income (Expenses)

 

Interest expense increased from $33.2 million in 2011 to $40.7 million in 2012, an increase of $7.5 million, or 23%.  The increase is attributable to higher average outstanding debt during 2012 primarily resulting from debt associated with the Storage Deluxe acquisition and other 2012 acquisitions.  This increase was offset by lower interest expense related to the repayment of several fixed rate mortgages during the year.  These repayments utilized proceeds from the senior note offering and had higher effective rates than the effective interest rate of the senior notes.

 

Loan procurement amortization expense - early repayment of debt was $8.2 million for the year ended December 31, 2011, with no comparable expense during the 2012 period.  This expense is related to the write-off of unamortized loan procurement costs associated with the Prior Facility.

 

Equity in losses of real estate ventures was $0.7 million for the year ended December 31, 2012, compared to $0.3 million for the year ended December 31, 2011.  This expense is related to approximately three months of earnings attributable to the HSRE Venture during the 2011 period compared to nine months of earnings during the 2012 period.

 

Gain from remeasurement of investments in real estate ventures was $7.0 million for the year ended December 31, 2012, with no comparable gains during the 2011 period.  This gain is related to the HSREV interest remeasurement discussed in Item 1, from the purchase of the remaining 50% ownership in the venture.

 

Discontinued Operations

 

Income from discontinued operations decreased from $7.2 million for the year ended December 31, 2011 to $2.1 million for the year ended December 31, 2012.  The income during the 2012 period represents the results of operations during the year for the 26 assets sold during 2012.  Income during the 2011 period represents the results of operations during the year for the 26 assets sold during 2012 and the 19 assets sold during 2011.  Gains on disposition of discontinued operations increased from $3.9 million during 2011 to $9.8 million during 2012.  These gains are determined on a transactional basis and accordingly are not comparable across reporting periods.

 

Noncontrolling Interests in Subsidiaries

 

Net income attributable to noncontrolling interests in subsidiaries decreased to $1.9 million in the 2012 period from $2.8 million in the 2011 period, primarily as a result of the Company purchasing the remaining 50% interest from Heitman in 2012.  The 2011 period represents twelve months of operations of the venture, compared to 2012, which represented operations through August 13, 2012.

 

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Table of Contents

 

Comparison of the Year Ended December 31, 2011 to the Year Ended December 31, 2010 (dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Non Same-Store

 

Other/

 

 

 

 

 

 

 

 

 

 

 

Same-Store Property Portfolio

 

Properties

 

Eliminations

 

Total Portfolio

 

 

 

 

 

 

 

Increase/

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase/

 

%

 

 

 

2011

 

2010

 

(Decrease)

 

Change

 

2011

 

2010

 

2011

 

2010

 

2011

 

2010

 

(Decrease)

 

Change

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

191,222

 

$

179,568

 

$

11,654

 

6

%

$

11,540

 

$

180

 

$

 

$

 

$

202,762

 

$

179,748

 

$

23,014

 

13

%

Other property related income

 

17,811

 

14,824

 

2,987

 

20

%

1,314

 

1,698

 

1,590

 

592

 

20,715

 

17,114

 

3,601

 

21

%

Property management fee income

 

 

 

 

 

 

 

3,768

 

2,829

 

3,768

 

2,829

 

939

 

33

%

Total revenues

 

209,033

 

194,392

 

14,641

 

8

%

12,854

 

1,878

 

5,358

 

3,421

 

227,245

 

199,691

 

27,554

 

14

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

77,518

 

74,865

 

2,653

 

4

%

5,090

 

1,683

 

12,022

 

9,231

 

94,630

 

85,779

 

8,851

 

10

%

NET OPERATING INCOME:

 

131,515

 

119,527

 

11,988

 

10

%

7,764

 

195

 

(6,664

)

(5,810

)

132,615

 

113,912

 

18,703

 

16

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property count

 

313

 

313

 

 

 

 

 

57

 

50

 

 

 

 

 

370

 

363

 

 

 

 

 

Total square footage

 

20,681

 

20,681

 

 

 

 

 

3,739

 

2,954

 

 

 

 

 

24,420

 

23,635

 

 

 

 

 

Period End Occupancy (1)

 

79.1

%

77.0

%

 

 

 

 

75.8

%

71.4

%

 

 

 

 

78.6

%

76.3

%

 

 

 

 

Period Average Occupancy (2)

 

79.2

%

77.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized annual rent per occupied sq ft (3)

 

$

11.67

 

$

11.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

65,955

 

58,876

 

7,079

 

12

%

General and administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,693

 

25,406

 

(713

)

-3

%

Subtotal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90,648

 

84,282

 

6,366

 

8

%

Operating income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41,967

 

29,630

 

12,337

 

42

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense on loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(33,199

)

(37,794

)

4,595

 

12

%

Loan procurement amortization expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,028

)

(6,463

)

1,435

 

22

%

Loan procurement amortization expense - early repayment of debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,167

)

 

(8,167

)

100

%

Acquisition related costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,823

)

(759

)

(3,064

)

-404

%

Equity in losses of real estate ventures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(281

)

 

(281

)

100

%

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(83

)

386

 

(469

)

122

%

Total other expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50,581

)

(44,630

)

(5,951

)

-13

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,614

)

(15,000

)

6,386

 

43

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,158

 

7,155

 

3

 

0

%

Net gain on disposition of discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,903

 

1,826

 

2,077

 

114

%

Total discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,061

 

8,981

 

2,080

 

23

%

NET INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,447

 

(6,019

)

8,466

 

141

%

NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35

)

381

 

(416

)

-109

%

Noncontrolling interests in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,810

)

(1,755

)

(1,055

)

-60

%

NET LOSS ATTRIBUTABLE TO THE COMPANY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(398

)

$

(7,393

)

$

6,995

 

95

%

 


(1)              Represents occupancy at 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.  Square footage for non same-store assets acquired during 2012 are prorated based on the portion of the period the properties were owned.

 

Revenues

 

Rental income increased from $179.7 million in 2010 to $202.8 million in 2011, an increase of $23.0 million. This increase is primarily attributable to $11.4 million of additional income from the properties acquired in 2010 and 2011 and increases in average occupancy and scheduled annual rent per square foot on the same-store portfolio which contributed $11.7 million to the increase in rental income during 2011 as compared to 2010.

 

Other property related income increased from $17.1 million in 2010 to $20.7 million in 2011, an increase of $3.6 million, or 21%.  This increase is primarily attributable to increased fee revenue and insurance commissions of $3.7 million offset by a decrease in other property related income of $0.4 million related to the 2010 and 2011 acquisitions.

 

Property management fee income increased to $3.8 million in 2011 from $2.8 million during 2010, an increase of $1.0 million.  This increase is attributable to an increase in management fees related to the third party management business (103 facilities as of December 31, 2011 compared to 93 facilities as of December 31, 2010) and 12 months of management fees earned during the 2011 period related to the addition of 85 management contracts in April 2010, compared to eight months of similar activity during the 2010 period.

 

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Table of Contents

 

Operating Expenses

 

Property operating expenses increased from $85.8 million in 2010 to $94.6 million in 2011, an increase of $8.9 million, or 10%.  This increase is primarily attributable to $6.2 million of increased expenses associated with newly acquired properties and 12 months of expenses in the 2011 period related to the addition of 85 management contracts in April 2010, compared to only eight months of similar expenses in the 2010 period.  In addition, we experienced a $0.4 million increase in rebranding and store upgrade related expenses during the 2011 period as compared to the 2010 period.

 

Depreciation and amortization increased from $58.9 million in 2010 to $66.0 million in 2011, an increase of $7.1 million, or 12%.  This increase is primarily attributable to depreciation and amortization expense related to the 2010 and 2011 acquisitions recognized in 2011, with no corresponding expense recognized in 2010.

 

Other Income (Expenses)

 

Interest expense decreased from $37.8 million in 2010 to $33.2 million in 2011, a decrease of $4.6 million, or 12%.  Approximately $1.6 million of the reduced interest expense related to approximately $210 million of net mortgage loan repayments during the period from January 1, 2010 through December 31, 2011.   Interest expense also decreased as a result of lower interest rates on the 2011 Credit Facility during the 2011 period as compared to the interest rates on the Prior Facility during the 2010 period, offset by increased unsecured loan borrowings during the period.

 

Loan procurement amortization expense - early repayment of debt was $8.2 million for the year ended December 31, 2011, with no comparable expense during the 2010 period.  This expense is related to the write-off of unamortized loan procurement costs associated with the Prior Facility.

 

Acquisition related costs increased from $0.8 million during 2010 to $3.8 million during 2011 as a result of the acquisition of 27 self-storage facilities in 2011, including 16 facilities in the Storage Deluxe Acquisition, compared to 12 acquisitions during 2010.

 

Equity in losses of real estate ventures was $0.3 million for the year ended December 31, 2011, with no comparable expense during the 2010 period.  This expense is related to earnings attributable to the HSRE Venture, which was formed in September 2011.

 

Discontinued Operations

 

Gains on disposition of discontinued operations increased from $1.8 million in the 2010 period to $3.9 million in the 2011 period, an increase of $2.1 million. Gains during 2010 related to the sale of 16 assets during 2010, and gains during 2011 related to the sale of 19 assets during 2011.

 

Noncontrolling Interests in Subsidiaries

 

Noncontrolling interests in subsidiaries increased to $2.8 million in the 2011 period from $1.8 million in the 2010 period.  This increase is primarily a result of increased income related to the operations of our joint venture (“HART”), which was formed in August 2009 to own and operate 22 self-storage facilities.  The Company retained a 50% ownership interest in HART and accordingly presents the 50% of the related results that are allocated to the venture partner as an adjustment to net income (loss) when arriving at net income (loss) attributable to shareholders.

 

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Table of Contents

 

Non-GAAP Financial Measures

 

NOI

 

We define net operating income, which we refer to as “NOI,” as total continuing revenues less continuing property operating expenses.  NOI also can be calculated by adding back to net income (loss): interest expense on loans, loan procurement amortization expense, loan procurement amortization expense — early repayment of debt, acquisition related costs, equity in losses of real estate ventures, amounts attributable to noncontrolling interests, other expense, depreciation and amortization expense, general and administrative expense, and deducting from net income: income from discontinued operations, gains on disposition of discontinued operations, other income, gain on remeasurement of investment in real estate ventures and interest income.  NOI is not a measure of performance calculated in accordance with GAAP.

 

We use NOI as a measure of operating performance at each of our facilities, and for all of our facilities in the aggregate. NOI should not be considered as a substitute for operating income, net income, cash flows provided by operating, investing and financing activities, or other income statement or cash flow statement data prepared in accordance with GAAP.

 

We believe NOI is useful to investors in evaluating our operating performance because:

 

·         It is one of the primary measures used by our management and our facility managers to evaluate the economic productivity of our facilities, including our ability to lease our facilities, increase pricing and occupancy and control our property operating expenses;

 

·         It is widely used in the real estate industry and the self-storage industry to measure the performance and value of real estate assets without regard to various items included in net income that do not relate to or are not indicative of operating performance, such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets; and

 

·         We believe it helps our investors to meaningfully compare the results of our operating performance from period to period by removing the impact of our capital structure (primarily interest expense on our outstanding indebtedness) and depreciation of our basis in our assets from our operating results.

 

There are material limitations to using a measure such as NOI, including the difficulty associated with comparing results among more than one company and the inability to analyze certain significant items, including depreciation and interest expense, that directly affect our net income.  We compensate for these limitations by considering the economic effect of the excluded expense items independently as well as in connection with our analysis of net income.  NOI should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as total revenues, operating income and net income.

 

FFO

 

Funds from operations (“FFO”) is a widely used performance measure for real estate companies and is provided here as a supplemental measure of operating performance.  The April 2002 National Policy Bulletin of the National Association of Real Estate Investment Trusts (the “White Paper”), as amended, defines FFO as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property and real estate related impairment charges, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

 

Management uses FFO as a key performance indicator in evaluating the operations of the Company’s facilities. Given the nature of its business as a real estate owner and operator, the Company considers FFO a key measure of its operating performance that is not specifically defined by accounting principles generally accepted in the United States. The Company believes that FFO is useful to management and investors as a starting point in measuring its operational performance because it excludes various items included in net income that do not relate to or are not indicative of its operating performance such as gains (or losses) from sales of property, gains on remeasurement of investment in real estate ventures, impairments of depreciable assets, and depreciation, which can make periodic and peer analyses of operating performance more difficult. Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies.

 

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Table of Contents

 

FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance. FFO does not represent cash generated from operating activities determined in accordance with GAAP and is not a measure of liquidity or an indicator of our ability to make cash distributions. We believe that to further understand our performance, FFO should be compared with our reported net income and considered in addition to cash flows computed in accordance with GAAP, as presented in our Consolidated Financial Statements.

 

FFO, as adjusted

 

FFO, as adjusted represents FFO as defined above, excluding the effects of acquisition related costs, gains or losses from early extinguishment of debt, and other non-recurring items, which we believe are not indicative of the Company’s operating results.

 

The following table presents a reconciliation of loss to FFO and FFO, as adjusted, for the year ended December 31, 2012 and 2011 (in thousands):

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Net loss attributable to common shareholders

 

$

(4,191

)

$

(1,616

)

 

 

 

 

 

 

Add (deduct):

 

 

 

 

 

Real estate depreciation and amortization:

 

 

 

 

 

Real property - continuing operations

 

112,449

 

64,319

 

Real property - discontinued operations

 

1,504

 

3,116

 

Company’s share of unconsolidated real estate ventures

 

1,540

 

542

 

Noncontrolling interest’s share of consolidated real estate ventures

 

(1,049

)

(1,731

)

Gains on sale of real estate

 

(9,811

)

(3,903

)

Gain on remeasurement of investment in real estate venture

 

(7,023

)

 

Noncontrolling interests in the Operating Partnership

 

(107

)

35

 

 

 

 

 

 

 

FFO

 

$

93,312

 

$

60,762

 

 

 

 

 

 

 

Add (deduct):

 

 

 

 

 

Loan procurement amortization expense - early repayment of debt

 

 

8,167

 

Discontinued operations - settlement proceeds

 

 

(1,895

)

Acquisition related costs

 

3,086

 

3,823

 

 

 

 

 

 

 

FFO, as adjusted

 

$

96,398

 

$

70,857

 

 

 

 

 

 

 

Weighted-average diluted shares and units outstanding

 

131,021

 

109,085

 

 

Cash Flows

 

Comparison of the Year Ended December 31, 2012 to the Year Ended December 31, 2011

 

A comparison of cash flow related to operating, investing and financing activities for the years ended December 31, 2012 and 2011 is as follows:

 

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Table of Contents

 

 

 

Year Ended December 31,

 

 

 

Net cash provided by (used in):

 

2012

 

2011

 

Change

 

 

 

(in thousands)

 

 

 

Operating activities

 

$

118,428

 

$

84,327

 

$

34,101

 

Investing activities

 

$

(271,936

)

$

(442,100

)

$

170,164

 

Financing activities

 

$

148,934

 

$

360,951

 

$

(212,017

)

 

Cash provided by operating activities for the years ended December 31, 2012 and 2011 were $118.4 million and $84.3 million, respectively, an increase of $34.1 million.  Our increased cash flow from operating activities is primarily attributable to our 2012 acquisitions and increased net operating income levels on the same-store portfolio in the 2012 period as compared to the 2011 period.

 

Cash used in investing activities was $271.9 million in 2012 and $442.1 million in 2011.  Cash used in 2012 relates to the acquisition of 28 properties purchased during the year with a purchase price totaling $330.3 million (which includes assumed debt of $107.0 million) and 9 properties purchased related to the acquisition of the remaining interest in the HSREV real estate venture during 2012.  Cash used to fund these acquisitions was offset by $52.6 million in net cash proceeds from the disposition of 26 properties during the year.  Cash used in 2011 relates to the acquisition of 27 properties purchased during the year with a purchase price totaling $467.1 million (which includes 16 Storage Deluxe properties acquired for $357.3 million).

 

Cash provided by financing activities decreased to $148.9 million in 2012 from $361.0 million in 2011, a decrease of $212.0 million. During 2012 and 2011, we issued common shares for net proceeds of $102.1 million and $204.0 million, respectively.  Additionally, proceeds from revolving credit facility and unsecured term loans were $503.0 million in 2012 compared to $656.7 million during 2011, and principal payments on revolving credit facility, unsecured term loans and mortgages totaled $594.3 million during 2012 compared to $539.0 million during 2011.  These decreases were offset by proceeds received during 2012 relating to the unsecured senior notes of $249.6 million. The proceeds were used to fund increased acquisition activity during 2012, including $61.1 million paid to acquire the noncontrolling interest in the HART joint venture.

 

Comparison of the Year Ended December 31, 2011 to the Year Ended December 31, 2010

 

A comparison of cash flow related to operating, investing and financing activities for the years ended December 31, 2011 and 2010 is as follows:

 

 

 

Year Ended December 31,

 

 

 

Net cash provided by (used in):

 

2011

 

2010

 

Change

 

 

 

(in thousands)

 

 

 

Operating activities

 

$

84,327

 

$

71,517

 

$

12,810

 

Investing activities

 

$

(442,100

)

$

(44,783

)

$

(397,317

)

Financing activities

 

$

360,951

 

$

(123,611

)

$

484,562

 

 

Cash provided by operating activities for the years ended December 31, 2011 and 2010 were $84.3 million and $71.5 million, respectively, an increase of $12.8 million.  Our principal source of cash flows is from the operation of our properties. Our increased cash flow from operating activities is primarily attributable to our 2010 and 2011 acquisitions.

 

Cash used in investing activities increased from $44.8 million in 2010 to $442.1 million in 2011, an increase of $397.3 million.  The increase primarily relates to increased property acquisitions in 2011 (Storage Deluxe Acquisition with a purchase price totaling $357.3 million and 11 other property acquisitions with purchase prices totaling $109.8 million) compared to 2010 (12 property acquisitions with purchase price totaling $85.1 million).

 

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Table of Contents

 

Cash provided by (used in) financing activities increased from ($123.6) million in 2010 to $361.0 million in 2011, an increase of $484.6 million. The increase relates to the following:  (a) increased common and preferred share issuances of $231.3 million in 2011, as compared to 2010, primarily used to finance the Storage Deluxe Acquisition in November 2011, (b) a net increase in unsecured term loans of $200.0 million that was used to repay $93 million of borrowings under the revolving credit facility related to the financing of the Storage Deluxe Acquisition, and (c) a net decrease in payments on mortgage loans and notes payable of $156.9 million; offset by full repayment of revolving credit facility borrowings of $43 million during 2011, compared to prior year inflows of $43 million, and increased distributions of $19.3 million in 2011 as compared to 2010.

 

Liquidity and Capital Resources

 

Liquidity Overview

 

Our cash flow from operations has historically been one of our primary sources of liquidity to fund debt service, distributions and capital expenditures.  We derive substantially all of our revenue from customers who lease space from us at our facilities and fees earned from managing properties.  Therefore, our ability to generate cash from operations is dependent on the rents that we are able to charge and collect from our customers.  We believe that the facilities in which we invest — self-storage facilities — are less sensitive than other real estate product types to near-term economic downturns.  However, prolonged economic downturns will adversely affect our cash flows from operations.

 

In order to qualify as a REIT for federal income tax purposes, the Parent Company is required to distribute at least 90% of REIT taxable income, excluding capital gains, to our shareholders on an annual basis or pay federal income tax.  The nature of our business, coupled with the requirement that the Parent Company distribute a substantial portion of our income on an annual basis, will cause us to have substantial liquidity needs over both the short term and the long term.

 

Our short-term liquidity needs consist primarily of funds necessary to pay operating expenses associated with our facilities, refinancing of certain mortgage indebtedness, interest expense and scheduled principal payments on debt, expected distributions to limited partners and shareholders and recurring capital expenditures.  These funding requirements will vary from year to year, in some cases significantly.  We expect recurring capital expenditures in the 2013 fiscal year to be approximately $7 million to $10 million.  Our currently scheduled principal payments on debt, including borrowings outstanding on the 2011 Credit Facility and Term Loan Facility, are approximately $30.1 million in 2013.

 

Our most restrictive debt covenants limit the amount of additional leverage we can add; however, we believe cash flow from operations, access to our “at the market” program and access to our 2011 Credit Facility are adequate to execute our current business plan and remain in compliance with our debt covenants.

 

Our liquidity needs beyond 2013 consist primarily of contractual obligations which include repayments of indebtedness at maturity, as well as potential discretionary expenditures such as (i) non-recurring capital expenditures; (ii) redevelopment of operating facilities; (iii) acquisitions of additional facilities; and (iv) development of new facilities.  We will have to satisfy our needs through either additional borrowings, including borrowings under the revolving portion of our 2011 Credit Facility, sales of common or preferred shares and/or cash generated through facility dispositions and joint venture transactions.

 

Notwithstanding the discussion above, we believe that, as a publicly traded REIT, we will have access to multiple sources of capital to fund long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity.  However, we cannot provide any assurance that this will be the case.  Our ability to incur additional debt will be dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders.  In addition, dislocation in the United States debt markets may significantly reduce the availability and increase the cost of long-term debt capital, including conventional mortgage financing and commercial mortgage-backed securities financing.  There can be no assurance that such capital will be readily available in the future.  Our ability to access the equity capital markets will be dependent on a number of factors as well, including general market conditions for REITs and market perceptions about us.

 

As of December 31, 2012, we had approximately $4.5 million in available cash and cash equivalents.  In addition, we had approximately $254.8 million of availability for borrowings under our 2011 Credit Facility.

 

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Table of Contents

 

Bank Credit Facilities

 

On June 26, 2012, the Operating Partnership issued $250 million in aggregate principal amount of unsecured senior notes due July 15, 2022 (the “senior notes”) which bear interest at a rate of 4.80%.  The senior notes had an effective interest rate of 4.82% at December 31, 2012.  The indenture under which the unsecured senior notes were issued restricts the ability of the Operating Partnership and its subsidiaries to incur debt unless the Operating Partnership and its consolidated subsidiaries comply with a leverage ratio not to exceed 60% and an interest coverage ratio of less than 1.5:1 after giving effect to the incurrence of the debt.  The indenture also restricts the ability of the Operating Partnership and its subsidiaries to incur secured debt unless the Operating Partnership and its consolidated subsidiaries comply with a secured debt leverage ratio not to exceed 40% after giving effect to the incurrence of the debt.  The indenture also contains other financial and customary covenants, including a covenant not to own unencumbered assets with a value less than 150% of the unsecured indebtedness of the Operating Partnership and its consolidated subsidiaries. The Operating Partnership is currently in compliance with all of the financial covenants under the senior notes.

 

On September 29, 2010, we amended the Prior Facility.  The Prior Facility, as amended, consisted of a $200 million unsecured term loan and a $250 million unsecured revolving credit facility and had an outstanding balance of $43 million as of December 31, 2010.  The Prior Facility, as amended had a three-year term expiring on December 7, 2013, was unsecured, and borrowings on the facility incurred interest on a borrowing spread determined by our leverage levels plus LIBOR.

 

On June 20, 2011, we entered into an unsecured Term Loan Agreement (the “Term Loan Facility”) which consisted of a $100 million term loan with a five-year maturity and a $100 million term loan with a seven-year maturity.  The Term Loan Facility permits the Company to request additional advances of five-year or seven-year loans in minimum increments of $5 million provided that the aggregate of such additional advances does not exceed $50 million.  We incurred costs of $2.1 million in connection with executing the agreement and capitalized such costs as a component of loan procurement costs, net of amortization on the consolidated balance sheet.  Pricing on the Term Loan Facility ranges, depending on the Company’s leverage levels, from 1.90% to 2.75% over LIBOR for the five-year loan, and from 2.05% to 2.85% over LIBOR for the seven-year loan, and each loan has no LIBOR floor.  As of December 31, 2011, the Company had received two investment grade ratings, and therefore pricing on the Term Loan Facility ranges from 1.45% to 2.10% over LIBOR for the five-year loan, and from 1.60% to 2.25% over LIBOR for the seven-year loan.

 

On December 9, 2011, we entered into a new credit facility comprised of a $100 million unsecured term loan maturing in December 2014; a $200 million unsecured term loan maturing in March 2017; and a $300 million unsecured revolving facility maturing in December 2015 (the “Credit Facility”).  The Credit Facility replaces in its entirety our previous facility.

 

Pricing on the Credit Facility depends on our unsecured debt credit rating.  At our current Baa3/BBB- level, amounts drawn under the revolving facility are priced at 1.48% over LIBOR, with no LIBOR floor. Amounts drawn under the term loan portion of the Credit Facility are priced at 1.75% over LIBOR, with no LIBOR floor.

 

As of December 31, 2012, $200 million of unsecured term loan borrowings were outstanding under the Term Loan Facility, $300 million of unsecured term loan and $45 million of unsecured revolving loan borrowings were outstanding under the Credit Facility, and $254.8 million was available for borrowing on the unsecured revolving portion of the Credit Facility.  We had interest rate swaps as of December 31, 2012, that fix LIBOR on $200 million of borrowings under the Credit Facility maturing in March 2017 at 1.34%.  In addition, at December 31, 2012, we had interest rate swaps that fix LIBOR on both the five and seven-year term loans under the Term Loan Facility through their respective maturity dates.  The interest rate swap agreements fix thirty day LIBOR over the terms of the five and seven-year term loans at 1.80% and 2.47%, respectively.   As of December 31, 2012, borrowings under the Credit Facility and Term Loan Facility had a weighted average interest rate of 3.15%.

 

The Term Loan Facility and the term loans under the Credit Facility were fully drawn at December 31, 2012, and no further borrowings may be made under those term loans.  The Company’s ability to borrow under the revolving portion of the Credit Facility is subject to ongoing compliance with certain financial covenants which include:

 

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·         Maximum total indebtedness to total asset value of 60.0% at any time;

 

·         Minimum fixed charge coverage ratio of 1.50:1.00; and

 

·         Minimum tangible net worth of $821,211,200 plus 75% of net proceeds from equity issuances after June 30, 2010.

 

Further, under the Credit Facility and Term Loan Facility, we are restricted from paying distributions on our common shares that would exceed an amount equal to the greater of (i) 95% of our funds from operations, and (ii) such amount as may be necessary to maintain the Parent Company’s REIT status.

 

We are currently in compliance with all of our financial covenants and anticipate being in compliance with all of our financial covenants through the terms of the Credit Facility and Term Loan Facility.

 

At The Market Program.

 

Pursuant to our sales agreement with Cantor Fitzgerald & Co. (the “Sales Agent”), dated April 3, 2009, as amended on January 26, 2011 and September 16, 2011 (as amended, the “Sales Agreement”), we may sell up to 20 million common shares at “at the market” prices. During the year ended December 31, 2012, we sold 7.9 million common shares with an average sales price of $13.13 per share, resulting in gross proceeds of $103.8 million under the program ($163.8 million of gross proceeds and 16.1 million shares sold with an average sales price of $10.16 since program inception in 2009). The Company incurred $1.7 million of offering costs in conjunction with the 2012 sales.  The proceeds from the sales conducted during the year ended December 31, 2012 were used to fund acquisitions and pay down long-term debt.  As of December 31, 2012, 3.9 million common shares remain available for issuance under the Sales Agreement.

 

Other Material Changes in Financial Position

 

 

 

December 31,

 

Increase

 

 

 

2012

 

2011

 

(decrease)

 

 

 

(in thousands)

 

Selected Assets

 

 

 

 

 

 

 

Storage facilities, net

 

$

2,089,707

 

$

1,788,720

 

$

300,987

 

Investment in real estate ventures, at equity

 

$

 

$

15,181

 

$

(15,181

)

 

 

 

 

 

 

 

 

Selected Liabilities

 

 

 

 

 

 

 

Unsecured senior notes

 

$

250,000

 

$

 

$

250,000

 

Revolving credit facility

 

$

45,000

 

$

 

$

45,000

 

Unecured term loans

 

$

500,000

 

$

400,000

 

$

100,000

 

Mortgage loans and notes payable

 

$

228,759

 

$

358,441

 

$

(129,682

)

Accounts payable, accrued expenses and other liabilities

 

$

60,708

 

$

51,025

 

$

9,683

 

 

Storage facilities, net increased $301.0 million during 2012 primarily as a result of the acquisition of 37 facilities and fixed asset additions, offset by the disposition of 26 properties during the same period.  Investment in real estate ventures, at equity decreased by $15.2 million due to the purchase of the remaining 50% ownership in HSREV during 2012.  As a result of the acquisition, these properties are now included in Storage facilities, net.

 

Unsecured senior notes increased $250 million due to the issuance of $250 million in aggregate principal amount of unsecured senior notes due July 15, 2022 during 2012.  Our borrowing under the revolving portion of the 2011 Credit Facility increased $45.0 million as a result of additional borrowings made to help fund the 2012 acquisitions and repayment of multiple mortgages during the year.  Unsecured term loan borrowing increased by $100 million due to borrowings under the 2011 Credit Facility related to payments for the 2012 Acquisitions and the repayment of multiple mortgages in 2012.

 

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Mortgage loans and notes payable decreased $129.7 million due to scheduled principal payments and the repayment of several mortgages during the year.  Accounts payable, accrued expenses and other liabilities increased $9.7 million primarily due to an increase in derivative liabilities during 2012.

 

Contractual Obligations

 

The following table summarizes our known contractual obligations as of December 31, 2012 (in thousands):

 

 

 

Payments Due by Period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2018 and

 

 

 

Total

 

2013

 

2014

 

2015

 

2016

 

2017

 

thereafter

 

Mortgage loans and notes payable (a)

 

$

224,433

 

$

30,136

 

$

12,149

 

$

86,689

 

$

21,261

 

$

1,863

 

$

72,335

 

Revolving credit facility and unsecured term loans

 

545,000

 

 

100,000

 

45,000

 

100,000

 

200,000

 

100,000

 

Unsecured senior notes

 

250,000

 

 

 

 

 

 

250,000

 

Interest payments (b)

 

221,342

 

39,497

 

37,105

 

33,532

 

26,843

 

19,458

 

64,907

 

Ground leases and third party office lease

 

61,933

 

1,206

 

1,192

 

1,191

 

1,182

 

1,192

 

55,970

 

Related party office leases

 

998

 

499

 

499

 

 

 

 

 

Software and service contracts

 

2,451

 

2,451

 

 

 

 

 

 

Construction commitments

 

13,470

 

13,470

 

 

 

 

 

 

 

 

$

1,319,627

 

$

87,259

 

$

150,945

 

$

166,412

 

$

149,286

 

$

222,513

 

$

543,212

 

 


(a)  Amounts do not include unamortized discounts/premiums.

 

(b)  Interest under the Credit Facility and Term Loan Facility calculated using a weighted average rate of 3.15%.

 

We expect that the contractual obligations owed in 2013 will be satisfied by a combination of cash generated from operations and from draws on the revolving portion of the 2011 Credit Facility.

 

Off-Balance Sheet Arrangements

 

We do not have off-balance sheet arrangements, financings, or other relationships with other unconsolidated entities (other than our co-investment partnerships) or other persons, also known as variable interest entities not previously discussed.

 

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company’s future income, cash flows and fair values relevant to financial instruments depend upon prevailing interest rates.

 

Market Risk

 

Our investment policy relating to cash and cash equivalents is to preserve principal and liquidity while maximizing the return through investment of available funds.

 

Effect of Changes in Interest Rates on our Outstanding Debt

 

Our interest rate risk objectives are to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we manage our exposure to fluctuations in market interest rates for a portion of our borrowings through the use derivative financial instruments such as interest rate swaps or caps to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of our variable rate debt.

 

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The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market rates.  The range of changes chosen reflects our view of changes which are reasonably possible over a one-year period.  Market values are the present value of projected future cash flows based on the market rates chosen.

 

As of December 31, 2012 our consolidated debt consisted of $873.3 million of outstanding mortgages, unsecured senior notes and unsecured term loans that are subject to fixed rates, including variable rate debt that is effectively fixed through our use of interest rate swaps.  There was $150.4 million of outstanding credit facility borrowings subject to floating rates.  Changes in interest rates have different impacts on the fixed and variable rate portions of our debt portfolio.  A change in interest rates on the fixed portion of the debt portfolio impacts the net financial instrument position, but has no impact on interest incurred or cash flows.  A change in interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows, but does not impact the net financial instrument position.

 

If market rates of interest on our variable rate debt increase by 100 basis points, the increase in annual interest expense on our variable rate debt would decrease future earnings and cash flows by approximately $1.5 million a year.  If market rates of interest on our variable rate debt decrease by 100 basis points, the decrease in interest expense on our variable rate debt would increase future earnings and cash flows by approximately $1.5 million a year.

 

If market rates of interest increase by 1%, the fair value of our outstanding fixed-rate mortgage debt and unsecured term loans would decrease by approximately $29.8 million.  If market rates of interest decrease by 1%, the fair value of our outstanding fixed-rate mortgage debt and unsecured term loans would increase by approximately $32.0 million.

 

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Financial statements required by this item appear with an Index to Financial Statements and Schedules, starting on page F-1 of this report.

 

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A.  CONTROLS AND PROCEDURES

 

Controls and Procedures (Parent Company)

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, the Parent Company carried out an evaluation, under the supervision and with the participation of its management, including its chief executive officer and chief financial officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).

 

Based on that evaluation, the Parent Company’s chief executive officer and chief financial officer have concluded that the Parent Company’s disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information required to be disclosed by the Parent Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Parent Company’s management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

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Changes in Internal Controls Over Financial Reporting

 

There has been no change in the Parent Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during its most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

 

Management’s Report on Internal Control Over Financial Reporting

 

Management’s report on internal control over financial reporting is set forth on page F-2 of this Annual Report on Form 10-K, and is incorporated herein by reference. The effectiveness of the Parent Company’s internal control over financial reporting as of December 31, 2012 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its report which is included herein.

 

Controls and Procedures (Operating Partnership)

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, the Operating Partnership carried out an evaluation, under the supervision and with the participation of its management, including the Operating Partnership’s chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Operating Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act).

 

Based on that evaluation, the Operating Partnership’s chief executive officer and chief financial officer have concluded that the Operating Partnership’s disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information required to be disclosed by the Operating Partnership in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Operating Partnership’s management, including the Operating Partnership’s chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Controls Over Financial Reporting

 

There has been no change in the Operating Partnership’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

 

Management’s Report on Internal Control Over Financial Reporting

 

Management’s report on internal control over financial reporting is set forth on page F-2 of this Annual Report on Form 10-K, and is incorporated herein by reference. The effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2012 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its report which is included herein.

 

ITEM 9B.  OTHER INFORMATION

 

Not applicable.

 

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PART III

 

ITEM 10.  TRUSTEES, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

We have adopted a Code of Ethics for all of our employees, officers and trustees, including our principal executive officer and principal financial officer, which is available on our website at www.cubesmart.com.  We intend to disclose any amendment to, or a waiver from, a provision of our Code of Ethics on our website within four business days following the date of the amendment or waiver.

 

The remaining information required by this item regarding trustees, executive officers and corporate governance is hereby incorporated by reference to the material appearing in the Proxy Statement for the Annual Shareholders Meeting to be held in 2012 (the “Proxy Statement”) under the captions “Proposal 1: Election of Trustees,” “Executive Officers,” “Meetings and Committees of the Board of Trustees,” and “Shareholder Proposals and Nominations for the 2014 Annual Meeting.”  The information required by this item regarding compliance with Section 16(a) of the Exchange Act is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.”

 

ITEM 11.  EXECUTIVE COMPENSATION

 

The information required by this item is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement under the captions “Compensation Committee Report,” “Meetings and Committees of the Board of Trustees — Compensation Committee Interlocks and Insider Participation,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Potential Payments Upon Termination or Change in Control,” and “Trustee Compensation.”

 

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

 

The following table sets forth certain information regarding our equity compensation plans as of December 31, 2012.

 

Plan Category

 

Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights

 

Weighted-average
exercise price of
outstanding options,
warrants and rights

 

Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities
reflected in column(a)

 

 

 

(a)

 

(b)

 

(c)

 

Equity compensation plans approved by shareholders

 

5,257,864

(1)

$

10.50

(2)

3,191,615

 

Equity compensation plans not approved by shareholders

 

 

 

 

Total

 

5,257,864

 

$

10.50

 

3,191,615

 

 


(1)                                 Excludes 1,284,401 shares subject to outstanding restricted share unit awards.

 

(2)                                 This number reflects the weighted-average exercise price of outstanding options and has been calculated exclusive of outstanding restricted unit awards.

 

The information regarding security ownership of certain beneficial owners and management required by this item is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement under the caption “Security Ownership of Management” and “Security Ownership of Beneficial Owners.”

 

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND TRUSTEE INDEPENDENCE

 

The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the captions “Corporate Governance- Independence of Trustees,” “Policies and Procedures Regarding Review, Approval or Ratification of Transactions With Related Persons,” and “Transactions With Related Persons.”

 

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ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

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.”

 

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PART IV

 

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a) Documents filed as part of this report:

 

1. Financial Statements.

 

The response to this portion of Item 15 is submitted as a separate section of this report.

 

2. Financial Statement Schedules.

 

The response to this portion of Item 15 is submitted as a separate section of this report.

 

3. Exhibits.

 

The list of exhibits filed with this report is set forth in response to Item 15(b). The required exhibit index has been filed with the exhibits.

 

(b) Exhibits.  The following documents are filed as exhibits to this report:

 

3.1*

 

Articles of Amendment and Restatement of Declaration of Trust of U-Store-It Trust, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on November 2, 2004.

 

 

 

 

 

3.2*

 

Articles of Amendment of Declaration of Trust of CubeSmart, dated September 14, 2012, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on September 16, 2012.

 

 

 

 

 

3.3*

 

Articles Supplementary to Declaration of Trust of CubeSmart classifying and designating CubeSmart’s 7.75% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, incorporated by reference to Exhibit 3.3 to CubeSmart’s Form 8-A, filed on October 31, 2012.

 

 

 

 

 

3.4*

 

Third Amended and Restated Bylaws of CubeSmart, effective September 14, 2012, incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on September 16, 2012.

 

 

 

 

 

3.5*

 

Certificate of Limited Partnership of U-Store-It, L.P., incorporated by reference to Exhibit 3.1 to CubeSmart, L.P.’s Registration Statement on Form 10, filed on July 15, 2012.

 

 

 

 

 

3.6*

 

Amendment No. 1 to Certificate of Limited Partnership of CubeSmart, L.P., dated September 14, 2012, incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K, filed on September 16, 2012.

 

 

 

 

 

3.7*

 

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.

 

 

 

 

 

3.8*

 

Amendment No. 1 to Second Amended and Restated Agreement of Limited Partnership of CubeSmart, L.P. dated as of November 2, 2011, incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K, filed on September 16, 2011.

 

 

 

 

 

3.9*

 

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.

 

 

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4.1*

 

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.

 

 

 

 

 

4.2*

 

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.

 

 

 

 

 

4.3*

 

Indenture, dated as of September 16, 2011, among CubeSmart, L.P., CubeSmart and U.S. Bank National Association, incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-3, filed on September 16, 2011.

 

 

 

 

 

4.4*

 

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.

 

 

 

 

 

4.5*

 

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.

 

 

 

 

 

4.6*

 

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.

 

 

 

 

 

10.1

 

Settlement Agreement and Mutual Release, by and among U-Store-It Trust, U-Store-It, L.P., YSI Management LLC, U-Store-It Mini Warehouse Co., U-Store-It Development, LLC, Dean Jernigan, Kathleen A. Weigand, Robert J. Amsdell, Barry L. Amsdell, Todd C. Amsdell, Kyle V. Amsdell, Rising Tide Development LLC, and Amsdell and Amsdell, dated August 6, 2007, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on August 7, 2007.

 

 

 

 

 

10.2*

 

First Amendment to Lease, by and between U-Store-It, L.P. and Amsdell and Amsdell, dated August 6, 2007, amending Lease dated March 29, 2005, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed on August 7, 2007.

 

 

 

 

 

10.3*

 

First Amendment to Lease, by and between U-Store-It, L.P. and Amsdell and Amsdell, dated August 6, 2007, amending Lease dated December 5, 2005, incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed on August 7, 2007.

 

 

 

 

 

10.4*

 

First Amendment to Lease, by and between U-Store-It, L.P. and Amsdell and Amsdell, dated August 6, 2007, amending Lease dated December 5, 2005, incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K, filed on August 7, 2007.

 

 

 

 

 

10.5*

 

First Amendment to Lease, by and between U-Store-It, L.P. and Amsdell and Amsdell, dated August 6, 2007, amending Lease dated December 5, 2005, incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K, filed on August 7, 2007.

 

 

 

 

 

10.6*

 

First Amendment to Lease, by and between U-Store-It, L.P. and Amsdell and Amsdell, dated August 6, 2007, amending Lease dated December 5, 2005, incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K, filed on August 7, 2007.

 

 

 

 

 

10.7*

 

Lease, dated March 29, 2005, by and between Amsdell and Amsdell and U-Store-It, L.P., incorporated by reference to Exhibit 10.41 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, filed on March 31, 2005.

 

 

 

 

 

10.8*

 

Lease, dated June 29, 2005, by and between Amsdell and Amsdell and U-Store-It, L.P., incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, filed on August 12, 2005.

 

 

 

 

 

10.9*

 

Lease, dated June 29, 2005, by and between Amsdell and Amsdell and U-Store-It, L.P., incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, filed on August 12, 2005.

 

 

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10.10*†

 

Amended and Restated Executive Employment Agreement, dated June 29, 2010, by and between U-Store-It Trust and Dean Jernigan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on July 2, 2010.

 

 

 

 

 

10.11*†

 

Amended and Restated Executive Employment Agreement, dated January 24, 2011, by and between U-Store-It Trust and Christopher P. Marr, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on January 27, 2011.

 

 

 

 

 

10.12*†

 

Amended and Restated Executive Employment Agreement, dated June 29, 2010, by and between U-Store-It Trust and Timothy M. Martin, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on July 2, 2010.

 

 

 

 

 

10.13*†

 

Indemnification Agreement, dated as of October 27, 2004, by and among U-Store-It Trust, U-Store-It, L.P. and David J. LaRue (substantially identical agreements have been entered into with Dean Jernigan, Christopher P. Marr, Timothy M. Martin, Jeffrey P. Foster, Daniel William M. Diefenderfer III, Piero Bussani, John W. Fain, B. Hurwitz, Marianne M. Keler, and John F. Remondi), incorporated by reference to Exhibit 10.19 to the Company’s Current Report on Form 8-K, filed on November 2, 2004.

 

 

 

 

 

10.14*†

 

Amended and Restated Noncompetition Agreement, dated as of June 29, 2010, by and between U-Store-It Trust and Timothy M. Martin, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed on July 2, 2010.

 

 

 

 

 

10.15*†

 

Amended and Restated Noncompetition Agreement, dated as of January 24, 2011, by and between U-Store-It Trust and Christopher P. Marr, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on January 27, 2011.

 

 

 

 

 

10.16*†

 

Amended and Restated Noncompetition Agreement, dated as of June 29, 2010, by and between U-Store-It Trust and Dean Jernigan, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on July 2, 2010.

 

 

 

 

 

10.17*†

 

Nonqualified Share Option Agreement, dated as of June 5, 2006, by and between U-Store-It Trust and Christopher P. Marr, incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, filed on August 8, 2006.

 

 

 

 

 

10.18*†

 

Nonqualified Share Option Agreement, dated as of April 19, 2006, by and between U-Store-It Trust and Dean Jernigan, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed on April 24, 2006.

 

 

 

 

 

10.19*†

 

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.

 

 

 

 

 

10.20*†

 

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.

 

 

 

 

 

10.21*†

 

Form of Performance-Vested Restricted Share Agreement under the U-Store-It Trust 2004 Equity Incentive Plan, incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, filed on May 10, 2007

 

 

 

 

 

10.22*†

 

Form of Restricted Share Agreement under the U-Store-It Trust 2004 Equity Incentive Plan, incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, filed on May 10, 2007.

 

 

 

 

 

10.23*†

 

Form of Nonqualified Share Option Agreement under the U-Store-It Trust 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on January 25, 2008.

 

 

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10.24*†

 

Form of Restricted Share Agreement under the U-Store-It Trust 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on January 25, 2008.

 

 

 

 

 

10.25*†

 

U-Store-It Trust Trustees Deferred Compensation Plan, amended and restated effective January 1, 2009, incorporated by reference to Exhibit 10.78 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, filed on March 2, 2009.

 

 

 

 

 

10.26*†

 

U-Store-It Trust Executive Deferred Compensation Plan, amended and restated effective January 1, 2009, incorporated by reference to Exhibit 10.79 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, filed on March 2, 2009.

 

 

 

 

 

10.27*†

 

U-Store-It Trust Deferred Trustees Plan, effective as of May 31, 2005, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on June 6, 2005.

 

 

 

 

 

10.28*†

 

Amended and Restated U-Store It Trust 2007 Equity Incentive Plan, effective June 2, 2011, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on June 4, 2011.

 

 

 

 

 

10.29*†

 

2004 Equity Incentive Plan of U-Store-It Trust, effective as of October 19, 2004, incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8- K, filed on November 2, 2004.

 

 

 

 

 

10.31*

 

Sales Agreement dated April 3, 2009, among the U-Store-It Trust, U-Store-It, L.P., and Cantor Fitzgerald & Co., incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed on April 3, 2009.

 

 

 

 

 

10.32*

 

Amendment No. 1 to Sales Agreement, dated January 26, 2011, by and among U-Store-It Trust, U-Store It, L.P. and Cantor Fitzgerald & Co., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed January 27, 2011.

 

 

 

 

 

10.33*†

 

Amended and Restated Employment Letter Agreement, dated April 4, 2011, by and between U-Store-It Trust and Jeffrey P. Foster, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on April 6, 2011.

 

 

 

 

 

10.34*

 

Term Loan Agreement dated as of June 20, 2011 by and among U-Store-It, L.P., as Borrower, U-Store-It Trust, and Wells Fargo Securities, LLC and PNC Capital Markets LLC, as joint lead arrangers and joint bookrunners, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on June 23, 2011.

 

 

 

 

 

10.35*

 

Amendment No. 2 to the Sales Agreement, dated September 16, 2011 among CubeSmart, CubeSmart, L.P. and Cantor Fitzgerald & Co., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on September 16, 2011.

 

 

 

 

 

10.36*

 

Agreement for Purchase & Sale, dated as of October 24, 2011, by and between CubeSmart, L.P. and 200 East 135th Street LLC, 1880 Bartow Avenue LLC, 255 Exterior St LLC, 1376 Cromwell LLC, 175th Street DE LLC, Boston Rd LLC, Bronx River LLC, Bruckner Blvd LLC, 1980 White Plains Road, 552 Van Buren LLC, 481 Grand LLC, 2047 Pitkin LLC, Sheffield Ave LLC, Cropsey Ave LLC, 9826 Jamaica Ave LLC, 179 Jamaica Avenue Realty LLC, 714 Markley St LLC, Yorktown Heights Storage, LLC, Marbledale Rd LLC, New Rochelle Storage Partners, L.L.C., Wilton Storage Partners L.L.C. and Shelton Storage LLC, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on October 24, 2011.

 

 

 

 

 

10.37*

 

Registration Rights Agreement dated as of October 24, 2011 by and between CubeSmart and Wells Fargo Investment Holdings, LLC, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on October 24, 2011.

 

 

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10.38*

 

Waiver of Ownership Limitation, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on October 24, 2011.

 

 

 

 

 

10.40*

 

Purchase Agreement for Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, dated October 24, 2011, between CubeSmart and Wells Fargo Investment Holdings, LLC, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on October 31, 2011.

 

 

 

 

 

10.41*

 

Credit Agreement dated as of December 9, 2011 by and among CubeSmart, L.P., CubeSmart, Wells Fargo Securities, LLC and Merrill Lynch, Pierce Fenner & Smith Incorporated, as Revolver and Tranche A joint lead arrangers and joint bookrunners and Wells Fargo Securities, LLC, as Tranche B sole lead arranger and sole bookrunner, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on December 14, 2011.

 

 

 

 

 

10.42†

 

Form of Restricted Share Agreement under the CubeSmart 2007 Equity Incentive Plan.

 

 

 

 

 

10.43†

 

Form of Non-Qualified Share Option Agreement under the CubeSmart 2007 Equity Incentive Plan.

 

 

 

 

 

10.44* †

 

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.

 

 

 

 

 

10.45*

 

First Amendment to Credit Agreement, dated as of April 5, 2012, by and among CubeSmart, L.P., CubeSmart, Wells Fargo Bank, National Association and each of the lenders party to the credit agreement dated December 9, 2011, incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed on May 7, 2012.

 

 

 

 

 

10.46* †

 

Performance Share Unit Award and Agreement, dated May 30, 2012, between CubeSmart and Dean Jernigan, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on June 1, 2012.

 

 

 

 

 

10.47†

 

Form of Restricted Share Unit Award Agreement (2-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan.

 

 

 

 

 

10.48†

 

Form of Performance-Vested Restricted Share Unit Award Agreement under the CubeSmart 2007 Equity Incentive Plan.

 

 

 

 

 

12.1

 

Statement regarding Computation of Ratios of CubeSmart

 

 

 

 

 

12.2

 

Statement regarding Computation of Ratios of CubeSmart, L.P.

 

 

 

 

 

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

 

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.

 

 

 

 

 

31.2

 

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.

 

 

 

 

 

31.3

 

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.

 

 

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31.4

 

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.

 

 

 

 

 

32.1

 

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.

 

 

 

 

 

32.2

 

Certification of Chief Executive Officer and Chief Financial Officer of CubeSmart, L.P. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

99.1

 

Material Tax Considerations.

 

 

 

 

 

101

 

The following CubeSmart and CubeSmart, L.P. financial information for the year ended December 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statement of Equity, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements, detailed tagged and filed herewith.

 

 


*

 

Incorporated herein by reference as above indicated.

 

 

 

 

 

 

Denotes a management contract or compensatory plan, contract or arrangement.

 

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

CUBESMART

 

 

 

By:

/s/ Timothy M. Martin

 

 

Timothy M. Martin

 

 

Chief Financial Officer

 

Date: February 28, 2013

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

 

Signature

 

Title

 

Date

 

 

 

 

 

/s/ William M. Diefenderfer III

 

Chairman of the Board of Trustees

 

February 28, 2013

William M. Diefenderfer III

 

 

 

 

 

 

 

 

 

/s/ Dean Jernigan

 

Chief Executive Officer and Trustee

 

February 28, 2013

Dean Jernigan

 

(Principal Executive Officer)

 

 

 

 

 

 

 

/s/ Timothy M. Martin

 

Chief Financial Officer

 

February 28, 2013

Timothy M. Martin

 

(Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

/s/ Piero Bussani

 

Trustee

 

February 28, 2013

Piero Bussani

 

 

 

 

 

 

 

 

 

/s/ Marianne M. Keler

 

Trustee

 

February 28, 2013

Marianne M. Keler

 

 

 

 

 

 

 

 

 

/s/ David J. LaRue

 

Trustee

 

February 28, 2013

David J. LaRue

 

 

 

 

 

 

 

 

 

/s/ John F. Remondi

 

Trustee

 

February 28, 2013

John F. Remondi

 

 

 

 

 

 

 

 

 

/s/ Jeffrey F. Rogatz

 

Trustee

 

February 28, 2013

Jeffrey F. Rogatz

 

 

 

 

 

 

 

 

 

/s/ John W. Fain

 

Trustee

 

February 28, 2013

John W. Fain

 

 

 

 

 

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FINANCIAL STATEMENTS
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

Page No.

Consolidated Financial Statements of CUBESMART and CUBESMART L.P. (The “Company”)

 

 

 

Management’s Report on CubeSmart Internal Control Over Financial Reporting

F-2

 

 

Reports of Independent Registered Public Accounting Firm

F-3

 

 

CubeSmart and Subsidiaries Consolidated Balance Sheets as of December 31, 2012 and 2011

F-7

 

 

CubeSmart and Subsidiaries Consolidated Statements of Operations for the years ended December 31, 2012, 2011, and 2010

F-8

 

 

CubeSmart and Subsidiaries Consolidated Statements of Comprehensive Loss for the years ended December 31, 2012, 2011, and 2010

F-9

 

 

CubeSmart and Subsidiaries Consolidated Statements of Equity for the years ended December 31, 2012, 2011, and 2010

F-10

 

 

CubeSmart and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011, and 2010

F-11

 

 

CubeSmart L.P. and Subsidiaries Consolidated Balance Sheets as of December 31, 2012 and 2011

F-12

 

 

CubeSmart L.P. and Subsidiaries Consolidated Statements of Operations for the years ended December 31, 2012, 2011, and 2010

F-13

 

 

CubeSmart L.P. and Subsidiaries Consolidated Statements of Comprehensive Loss for the years ended December 31, 2012, 2011, and 2010

F-14

 

 

CubeSmart L.P. and Subsidiaries Consolidated Statements of Capital for the years ended December 31, 2012, 2011, and 2010

F-15

 

 

CubeSmart L.P. and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011, and 2010

F-16

 

 

Notes to Consolidated Financial Statements

F-17

 

F-1



Table of Contents

 

MANAGEMENT’S REPORT ON CUBESMART INTERNAL CONTROL OVER FINANCIAL REPORTING

 

Management of CubeSmart and CubeSmart L.P. (collectively, the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under Section 404 of the Sarbanes-Oxley Act of 2002, the Company’s management is required to assess the effectiveness of the Company’s internal control over financial reporting as of the end of each fiscal year, and report on the basis of that assessment whether the Company’s internal control over financial reporting is effective.

 

The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:

 

·                  pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and the disposition of the assets of the Company;

 

·                  provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that the receipts and expenditures of the Company are being made only in accordance with the authorization of the Company’s management and its Board of Trustees; and

 

·                  provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

 

There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of an internal control system may vary over time.

 

Under the supervision, and with the participation, of the Company’s management, including the principal executive officer and principal financial officer, we conducted a review, evaluation and assessment of the effectiveness of our internal control over financial reporting as of December 31, 2012, based upon the Committee of Sponsoring Organizations of the Treadway Commission (COSO) criteria. In performing its assessment of the effectiveness of internal control over financial reporting, management has concluded that, as of December 31, 2012, the Company’s internal control over financial reporting was effective based on the COSO framework.

 

The effectiveness of our internal control over financial reporting as of December 31, 2012, has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report that appears herein.

 

February 28, 2013

 

F-2



Table of Contents

 

Report of Independent Registered Public Accounting Firm

 

The Board of Trustees and Shareholders of

CubeSmart:

 

We have audited the accompanying consolidated balance sheets of CubeSmart as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss, equity, and cash flows for each of the years in the three-year period ended December 31, 2012. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index.  These consolidated financial statements and financial statement schedule are the responsibility of CubeSmart’s management.  Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CubeSmart as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), CubeSmart’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2013, expressed an unqualified opinion on the effectiveness of CubeSmart’s internal control over financial reporting.

 

 

/s/ KPMG LLP

 

 

 

 

 

Philadelphia, Pennsylvania

 

February 28, 2013

 

 

F-3



Table of Contents

 

Report of Independent Registered Public Accounting Firm

 

The Partners of

CubeSmart, L.P.:

 

We have audited the accompanying consolidated balance sheets of CubeSmart, L.P. as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss, capital, and cash flows for each of the years in the three-year period ended December 31, 2012. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index.  These consolidated financial statements and financial statement schedule are the responsibility of CubeSmart, L.P.’s management.  Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CubeSmart, L.P. as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), CubeSmart, L.P.’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2013, expressed an unqualified opinion on the effectiveness of CubeSmart, L.P.’s internal control over financial reporting.

 

 

/s/ KPMG LLP

 

 

 

 

 

Philadelphia, Pennsylvania

 

February 28, 2013

 

 

F-4



Table of Contents

 

Report of Independent Registered Public Accounting Firm

 

The Board of Trustees and Shareholders of

CubeSmart:

 

We have audited CubeSmart’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). CubeSmart’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on CubeSmart Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, CubeSmart maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of CubeSmart as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss, equity, and cash flows for each of the years in the three-year period ended December 31, 2012, and our report dated February 28, 2013 expressed an unqualified opinion on those consolidated financial statements.

 

 

/s/ KPMG LLP

 

 

 

 

 

Philadelphia, Pennsylvania

 

February 28, 2013

 

 

F-5



Table of Contents

 

Report of Independent Registered Public Accounting Firm

 

The Partners of

CubeSmart, L.P.:

 

We have audited CubeSmart, L.P’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). CubeSmart, L.P.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on CubeSmart Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, CubeSmart, L.P. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of CubeSmart, L.P. as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss, capital, and cash flows for each of the years in the three-year period ended December 31, 2012, and our report dated February 28, 2013 expressed an unqualified opinion on those consolidated financial statements.

 

 

/s/ KPMG LLP

 

 

 

 

 

Philadelphia, Pennsylvania

 

February 28, 2013

 

 

F-6



Table of Contents

 

CUBESMART AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Storage facilities

 

$

2,443,022

 

$

2,107,469

 

Less: Accumulated depreciation

 

(353,315

)

(318,749

)

Storage facilities, net

 

2,089,707

 

1,788,720

 

Cash and cash equivalents

 

4,495

 

9,069

 

Restricted cash

 

6,070

 

11,291

 

Loan procurement costs, net of amortization

 

8,253

 

8,073

 

Investment in real estate ventures, at equity

 

 

15,181

 

Other assets, net

 

41,794

 

43,645

 

Total assets

 

$

2,150,319

 

$

1,875,979

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

Unsecured senior notes

 

$

250,000

 

$

 

Revolving credit facility

 

45,000

 

 

Unsecured term loan

 

500,000

 

400,000

 

Mortgage loans and notes payable

 

228,759

 

358,441

 

Accounts payable, accrued expenses and other liabilities

 

60,708

 

51,025

 

Distributions payable

 

16,419

 

11,401

 

Deferred revenue

 

11,090

 

9,568

 

Security deposits

 

444

 

490

 

Total liabilities

 

1,112,420

 

830,925

 

 

 

 

 

 

 

Noncontrolling interests in the Operating Partnership

 

47,990

 

49,732

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

7.75% Series A Preferred shares $.01 par value, 3,220,000 shares authorized, 3,100,000 shares issued and outstanding at December 31, 2012 and December 31, 2011, respectively

 

31

 

31

 

Common shares $.01 par value, 200,000,000 shares authorized, 131,794,547 and 122,058,919 shares issued and outstanding at December 31, 2012 and December 31, 2011, respectively

 

1,318

 

1,221

 

Additional paid in capital 

 

1,418,463

 

1,309,505

 

Accumulated other comprehensive loss

 

(19,796

)

(12,831

)

Accumulated deficit

 

(410,225

)

(342,013

)

Total CubeSmart shareholders’ equity

 

989,791

 

955,913

 

Noncontrolling interest in subsidiaries

 

118

 

39,409

 

Total equity

 

989,909

 

995,322

 

Total liabilities and equity

 

$

2,150,319

 

$

1,875,979

 

 

See accompanying notes to the consolidated financial statements.

 

F-7



Table of Contents

 

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

 

 

For the year ended December 31,

 

 

 

2012

 

2011

 

2010

 

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

Rental income

 

$

250,959

 

$

202,762

 

$

179,748

 

Other property related income

 

27,776

 

20,715

 

17,114

 

Property management fee income

 

4,341

 

3,768

 

2,829

 

Total revenues

 

283,076

 

227,245

 

199,691

 

OPERATING EXPENSES

 

 

 

 

 

 

 

Property operating expenses

 

110,821

 

94,630

 

85,779

 

Depreciation and amortization

 

113,874

 

65,955

 

58,876

 

General and administrative

 

26,131

 

24,693

 

25,406

 

Total operating expenses

 

250,826

 

185,278

 

170,061

 

OPERATING INCOME

 

32,250

 

41,967

 

29,630

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

Interest expense on loans

 

(40,715

)

(33,199

)

(37,794

)

Loan procurement amortization expense

 

(3,279

)

(5,028

)

(6,463

)

Loan procurement amortization expense - early repayment of debt

 

 

(8,167

)

 

Acquisition related costs

 

(3,086

)

(3,823

)

(759

)

Equity in losses of real estate ventures

 

(745

)

(281

)

 

Gain from remeasurement of investment in real estate venture

 

7,023

 

 

 

Other

 

256

 

(83

)

386

 

Total other expense

 

(40,546

)

(50,581

)

(44,630

)

 

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

(8,296

)

(8,614

)

(15,000

)

 

 

 

 

 

 

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

Income from discontinued operations

 

2,113

 

7,158

 

7,155

 

Gain on disposition of discontinued operations

 

9,811

 

3,903

 

1,826

 

Total discontinued operations

 

11,924

 

11,061

 

8,981

 

NET INCOME (LOSS)

 

3,628

 

2,447

 

(6,019

)

NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 

 

 

 

 

Noncontrolling interests in the Operating Partnership

 

107

 

(35

)

381

 

Noncontrolling interest in subsidiaries

 

(1,918

)

(2,810

)

(1,755

)

NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY

 

1,817

 

(398

)

(7,393

)

Distribution to Preferred Shares

 

(6,008

)

(1,218

)

 

NET LOSS ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS

 

$

(4,191

)

$

(1,616

)

$

(7,393

)

Basic and diluted loss per share from continuing operations attributable to common shareholders

 

$

(0.13

)

$

(0.12

)

$

(0.17

)

Basic and diluted earnings per share from discontinued operations attributable to common shareholders

 

$

0.10

 

$

0.10

 

$

0.09

 

Basic and diluted loss per share attributable to common shareholders

 

$

(0.03

)

$

(0.02

)

$

(0.08

)

 

 

 

 

 

 

 

 

Weighted-average basic and diluted shares outstanding

 

124,548

 

102,976

 

93,998

 

 

 

 

 

 

 

 

 

AMOUNTS ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS:

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(15,829

)

$

(12,168

)

$

(15,907

)

Total discontinued operations

 

11,638

 

10,552

 

8,514

 

Net loss

 

$

(4,191

)

$

(1,616

)

$

(7,393

)

 

See accompanying notes to the consolidated financial statements.

 

F-8



Table of Contents

 

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

 

 

 

Year Ended December 31,

 

 

 

2012

 

2011

 

2010

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

3,628

 

$

2,447

 

$

(6,019

)

Other comprehensive (loss) gain:

 

 

 

 

 

 

 

Unrealized loss on interest rate swap

 

(7,466

)

(12,394

)

 

Unrealized gain (loss) on foreign currency translation

 

172

 

151

 

(268

)

OTHER COMPREHENSIVE LOSS

 

(7,294

)

(12,243

)

(268

)

COMPREHENSIVE LOSS

 

(3,666

)

(9,796

)

(6,287

)

Comprehensive income attributable to noncontrolling interests in the Operating Partnership

 

445

 

503

 

394

 

Comprehensive loss attributable to noncontrolling interests in subsidiaries

 

(1,927

)

(2,815

)

(1,747

)

COMPREHENSIVE LOSS ATTRIBUTABLE TO THE COMPANY

 

$

(5,148

)

$

(12,108

)

$

(7,640

)

 

See accompanying notes to the consolidated financial statements.

 

F-9



Table of Contents

 

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)

 

 

 

Common Shares

 

Preferred Shares

 

Additional
Paid in

 

Accumulated
Other
Comprehensive

 

Accumulated

 

Total
Shareholders’

 

Noncontrolling
Interest in

 

Total

 

Noncontrolling
Interests in the
Operating

 

 

 

Number

 

Amount

 

Number

 

Amount

 

Capital

 

Loss

 

Deficit

 

Equity

 

Subsidiaries

 

Equity

 

Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2009

 

92,655

 

$

927

 

 

$

 

$

974,926

 

$

(874

)

$

(279,670

)

$

695,309

 

$

44,021

 

$

739,330

 

$

45,394

 

Contributions from noncontrolling interests in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

15

 

 

 

Issuance of common shares, net

 

5,610

 

56

 

 

 

 

 

47,517

 

 

 

 

 

47,573

 

 

 

47,573

 

 

 

Issuance of restricted shares

 

203

 

2

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

 

 

Conversion from units to shares

 

73

 

1

 

 

 

 

 

674

 

 

 

 

 

675

 

 

 

675

 

(675

)

Exercise of stock options

 

56

 

 

 

 

 

 

 

194

 

 

 

 

 

194

 

 

 

194

 

 

 

Amortization of restricted shares

 

 

 

 

 

 

 

 

 

1,759

 

 

 

 

 

1,759

 

 

 

1,759

 

 

 

Share compensation expense

 

 

 

 

 

 

 

 

 

1,882

 

 

 

 

 

1,882

 

 

 

1,882

 

 

 

Adjustment for noncontrolling interest in operating partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,510

)

(1,510

)

 

 

(1,510

)

1,510

 

Net (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,393

)

(7,393

)

1,755

 

(5,638

)

(381

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

(247

)

 

 

(247

)

(8

)

(255

)

(13

)

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,028

)

(14,028

)

(4,591

)

(18,619

)

(690

)

Balance at December 31, 2010

 

98,597

 

$

986

 

 

$

 

$

1,026,952

 

$

(1,121

)

$

(302,601

)

$

724,216

 

$

41,192

 

$

765,408

 

$

45,145

 

Contributions from noncontrolling interests in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

1

 

 

 

Issuance of common shares, net

 

23,140

 

231

 

 

 

 

 

203,788

 

 

 

 

 

204,019

 

 

 

204,019

 

 

 

Issuance of preferred shares, net

 

 

 

 

 

3,100

 

31

 

74,817

 

 

 

 

 

74,848

 

 

 

74,848

 

 

 

Issuance of restricted shares

 

235

 

3

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

3

 

 

 

Conversion from units to shares

 

63

 

1

 

 

 

 

 

623

 

 

 

 

 

624

 

 

 

624

 

(624

)

Exercise of stock options

 

24

 

 

 

 

 

 

 

121

 

 

 

 

 

121

 

 

 

121

 

 

 

Amortization of restricted shares

 

 

 

 

 

 

 

 

 

1,677

 

 

 

 

 

1,677

 

 

 

1,677

 

 

 

Share compensation expense

 

 

 

 

 

 

 

 

 

1,527

 

 

 

 

 

1,527

 

 

 

1,527

 

 

 

Adjustment for noncontrolling interest in operating partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,082

)

(7,082

)

 

 

(7,082

)

7,082

 

Net (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

(398

)

(398

)

2,810

 

2,412

 

35

 

Other comprehensive (loss) gain:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on interest rate swap

 

 

 

 

 

 

 

 

 

 

 

(11,849

)

 

 

(11,849

)

 

 

(11,849

)

(545

)

Unrealized gain on foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

139

 

 

 

139

 

5

 

144

 

7

 

Preferred share distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,218

)

(1,218

)

 

 

(1,218

)

 

 

Common share distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,714

)

(30,714

)

(4,599

)

(35,313

)

(1,368

)

Balance at December 31, 2011

 

122,059

 

$

1,221

 

3,100

 

$

31

 

$

1,309,505

 

$

(12,831

)

$

(342,013

)

$

955,913

 

$

39,409

 

$

995,322

 

$

49,732

 

Contributions from noncontrolling interests in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares, net

 

7,900

 

79

 

 

 

 

 

102,000

 

 

 

 

 

102,079

 

 

 

102,079

 

 

 

Issuance of restricted shares

 

246

 

2

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

 

 

Conversion from units to shares

 

1,380

 

14

 

 

 

 

 

19,233

 

 

 

 

 

19,247

 

 

 

19,247

 

(19,247

)

Exercise of stock options

 

210

 

2

 

 

 

 

 

1,627

 

 

 

 

 

1,629

 

 

 

1,629

 

 

 

Amortization of restricted shares

 

 

 

 

 

 

 

 

 

3,352

 

 

 

 

 

3,352

 

 

 

3,352

 

 

 

Share compensation expense

 

 

 

 

 

 

 

 

 

1,198

 

 

 

 

 

1,198

 

 

 

1,198

 

 

 

Adjustment for noncontrolling interest in operating partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,520

)

(19,520

)

 

 

(19,520

)

19,520

 

Acquisition of noncontrolling interest

 

 

 

 

 

 

 

 

 

(18,452

)

 

 

 

 

(18,452

)

(38,532

)

(56,984

)

(132

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

1,817

 

1,817

 

1,918

 

3,735

 

(107

)

Other comprehensive (loss) gain:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on interest rate swap

 

 

 

 

 

 

 

 

 

 

 

(7,124

)

 

 

(7,124

)

 

 

(7,124

)

(342

)

Unrealized gain on foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

159

 

 

 

159

 

9

 

168

 

4

 

Preferred share distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,008

)

(6,008

)

 

 

(6,008

)

 

 

Common share distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,501

)

(44,501

)

(2,686

)

(47,187

)

(1,438

)

Balance at December 31, 2012

 

131,795

 

$

1,318

 

3,100

 

$

31

 

$

1,418,463

 

$

(19,796

)

$

(410,225

)

$

989,791

 

$

118

 

$

989,909

 

$

47,990

 

 

See accompanying notes to the consolidated financial statements.

 

F-10



Table of Contents

 

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

For the Year Ended December 31,

 

 

 

2012

 

2011

 

2010

 

Operating Activities

 

 

 

 

 

 

 

Net income (loss)

 

$

3,628

 

$

2,447

 

$

(6,019

)

Adjustments to reconcile net income (loss) to cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

118,573

 

73,702

 

70,850

 

Gain on disposition of discontinued operations

 

(9,811

)

(3,903

)

(1,826

)

Gain from remeasurement of investment in real estate venture

 

(7,023

)

 

 

Equity compensation expense

 

4,550

 

3,204

 

3,641

 

Accretion of fair market value adjustment of debt

 

(707

)

(89

)

(255

)

Loan procurement amortization expense - early repayment of debt

 

 

8,167

 

 

Equity in losses of real estate venture

 

745

 

281

 

 

Changes in other operating accounts:

 

 

 

 

 

 

 

Other assets

 

(2,125

)

(585

)

(427

)

Restricted cash

 

3,545

 

(853

)

3,889

 

Accounts payable and accrued expenses

 

6,899

 

2,634

 

1,437

 

Other liabilities

 

154

 

(678

)

227

 

Net cash provided by operating activities

 

$

118,428

 

$

84,327

 

$

71,517

 

Investing Activities

 

 

 

 

 

 

 

Acquisitions, additions and improvements to storage facilities

 

(247,413

)

(471,188

)

(104,441

)

Cash paid for remaining interest in real estate ventures

 

(81,158

)

 

 

Investment in real estate venture, at equity

 

 

(15,462

)

 

Cash distributed from real estate venture

 

909

 

 

 

Proceeds from sales of properties, net

 

52,630

 

44,460

 

37,304

 

Proceeds from notes receivable

 

 

 

20,112

 

Decrease in restricted cash

 

3,096

 

90

 

2,242

 

Net cash used in by investing activities

 

$

(271,936

)

$

(442,100

)

$

(44,783

)

Financing Activities

 

 

 

 

 

 

 

Proceeds from:

 

 

 

 

 

 

 

Unsecured senior notes

 

249,638

 

 

 

Revolving credit facility

 

403,000

 

256,700

 

95,000

 

Mortgage loans and notes payable

 

 

3,537

 

 

Unsecured term loans

 

100,000

 

400,000

 

 

Principal payments on:

 

 

 

 

 

 

 

Revolving credit facility

 

(358,000

)

(299,700

)

(52,000

)

Unsecured term loans

 

 

(200,000

)

 

Mortgage loans and notes payable

 

(236,340

)

(39,321

)

(196,205

)

Settlement of hedge transactions

 

(195

)

 

 

Proceeds from issuance of common shares, net

 

102,079

 

204,019

 

47,573

 

Proceeds from issuance of preferred shares, net

 

 

74,848

 

 

Exercise of stock options

 

1,629

 

121

 

194

 

Contributions from noncontrolling interests in subsidiaries

 

 

1

 

15

 

Acquisition of noncontrolling interest

 

(61,113

)

 

 

Distributions paid to common shareholders

 

(39,755

)

(27,849

)

(9,407

)

Distributions paid to preferred shareholders

 

(5,724

)

 

 

Distributions paid to noncontrolling interests in Operating Partnership

 

(1,454

)

(1,322

)

(482

)

Distributions paid to noncontrolling interest in subsidiaries

 

(2,686

)

(4,599

)

(4,591

)

Loan procurement costs

 

(2,145

)

(5,484

)

(3,708

)

Net cash provided by (used in) financing activities

 

$

148,934

 

$

360,951

 

$

(123,611

)

(Decrease) increase in cash and cash equivalents

 

(4,574

)

3,178

 

(96,877

)

Cash and cash equivalents at beginning of year

 

9,069

 

5,891

 

102,768

 

Cash and cash equivalents at end of year

 

$

4,495

 

$

9,069

 

$

5,891

 

Supplemental Cash Flow and Noncash Information

 

 

 

 

 

 

 

Cash paid for interest, net of interest capitalized

 

$

33,578

 

$

33,265

 

$

38,346

 

Supplemental disclosure of noncash activities:

 

 

 

 

 

 

 

Acquisition related contingent consideration

 

$

 

$

 

$

1,777

 

Consolidation of real estate venture

 

$

13,527

 

$

 

$

 

Derivative valuation adjustment

 

$

(7,271

)

$

(12,394

)

$

 

Foreign currency translation adjustment

 

$

172

 

$

151

 

$

(268

)

Mortgage loan assumption - acquisition of storage facility

 

$

107,011

 

$

21,827

 

$

 

 

See accompanying notes to the consolidated financial statements.

 

F-11



Table of Contents

 

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Storage facilities

 

$

2,443,022

 

$

2,107,469

 

Less: Accumulated depreciation

 

(353,315

)

(318,749

)

Storage facilities, net

 

2,089,707

 

1,788,720

 

Cash and cash equivalents

 

4,495

 

9,069

 

Restricted cash

 

6,070

 

11,291

 

Loan procurement costs, net of amortization

 

8,253

 

8,073

 

Investment in real estate ventures, at equity

 

 

15,181

 

Other assets, net

 

41,794

 

43,645

 

Total assets

 

$

2,150,319

 

$

1,875,979

 

 

 

 

 

 

 

LIABILITIES AND CAPITAL

 

 

 

 

 

 

 

 

 

 

 

Unsecured senior notes

 

$

250,000

 

$

 

Revolving credit facility

 

45,000

 

 

Unsecured term loan

 

500,000

 

400,000

 

Mortgage loans and notes payable

 

228,759

 

358,441

 

Accounts payable, accrued expenses and other liabilities

 

60,708

 

51,025

 

Distributions payable

 

16,419

 

11,401

 

Deferred revenue

 

11,090

 

9,568

 

Security deposits

 

444

 

490

 

Total liabilities

 

1,112,420

 

830,925

 

 

 

 

 

 

 

Limited Partnership interest of third parties

 

47,990

 

49,732

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

 

 

 

Operating Partner

 

1,009,587

 

968,744

 

Accumulated other comprehensive loss

 

(19,796

)

(12,831

)

Total CubeSmart L.P. capital

 

989,791

 

955,913

 

Noncontrolling interests in subsidiaries

 

118

 

39,409

 

Total capital

 

989,909

 

995,322

 

Total liabilities and capital

 

$

2,150,319

 

$

1,875,979

 

 

See accompanying notes to the consolidated financial statements.

 

F-12



Table of Contents

 

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per common unit data)

 

 

 

For the year ended December 31,

 

 

 

2012

 

2011

 

2010

 

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

Rental income

 

$

250,959

 

$

202,762

 

$

179,748

 

Other property related income

 

27,776

 

20,715

 

17,114

 

Property management fee income

 

4,341

 

3,768

 

2,829

 

Total revenues

 

283,076

 

227,245

 

199,691

 

OPERATING EXPENSES

 

 

 

 

 

 

 

Property operating expenses

 

110,821

 

94,630

 

85,779

 

Depreciation and amortization

 

113,874

 

65,955

 

58,876

 

General and administrative

 

26,131

 

24,693

 

25,406

 

Total operating expenses

 

250,826

 

185,278

 

170,061

 

OPERATING INCOME

 

32,250

 

41,967

 

29,630

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

Interest expense on loans

 

(40,715

)

(33,199

)

(37,794

)

Loan procurement amortization expense

 

(3,279

)

(5,028

)

(6,463

)

Loan procurement amortization expense - early repayment of debt

 

 

(8,167

)

 

Acquisition related costs

 

(3,086

)

(3,823

)

(759

)

Equity in losses of real estate ventures

 

(745

)

(281

)

 

Gain from remeasurement of investment in real estate venture

 

7,023

 

 

 

Other

 

256

 

(83

)

386

 

Total other expense

 

(40,546

)

(50,581

)

(44,630

)

 

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

(8,296

)

(8,614

)

(15,000

)

 

 

 

 

 

 

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

Income from discontinued operations

 

2,113

 

7,158

 

7,155

 

Gain on disposition of discontinued operations

 

9,811

 

3,903

 

1,826

 

Total discontinued operations

 

11,924

 

11,061

 

8,981

 

NET INCOME (LOSS)

 

3,628

 

2,447

 

(6,019

)

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 

 

 

 

 

Noncontrolling interest in subsidiaries

 

(1,918

)

(2,810

)

(1,755

)

NET INCOME (LOSS) ATTRIBUTABLE TO CUBESMART L.P.

 

1,710

 

(363

)

(7,774

)

Limited Partnership interest of third parties

 

107

 

(35

)

381

 

NET INCOME (LOSS) ATTRIBUTABLE TO OPERATING PARTNER

 

1,817

 

(398

)

(7,393

)

Distribution to Preferred Units

 

(6,008

)

(1,218

)

 

NET LOSS ATTRIBUTABLE TO COMMON UNITHOLDERS

 

$

(4,191

)

$

(1,616

)

$

(7,393

)

Basic and diluted loss per unit from continuing operations attributable to common unitholders

 

$

(0.13

)

$

(0.12

)

$

(0.17

)

Basic and diluted earnings per unit from discontinued operations attributable to common unitholders

 

$

0.10

 

$

0.10

 

$

0.09

 

Basic and diluted loss per unit attributable to common unitholders

 

$

(0.03

)

$

(0.02

)

$

(0.08

)

 

 

 

 

 

 

 

 

Weighted-average basic and diluted units outstanding

 

124,548

 

102,976

 

93,998

 

 

 

 

 

 

 

 

 

AMOUNTS ATTRIBUTABLE TO COMMON UNITHOLDERS:

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(15,829

)

$

(12,168

)

$

(15,907

)

Total discontinued operations

 

11,638

 

10,552

 

8,514

 

Net loss

 

$

(4,191

)

$

(1,616

)

$

(7,393

)

 

See accompanying notes to the consolidated financial statements.

 

F-13



Table of Contents

 

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

 

 

 

Year Ended December 31,

 

 

 

2012

 

2011

 

2010

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

3,628

 

$

2,447

 

$

(6,019

)

Other comprehensive (loss) gain:

 

 

 

 

 

 

 

Unrealized loss on interest rate swap

 

(7,466

)

(12,394

)

 

Unrealized gain (loss) on foreign currency translation

 

172

 

151

 

(268

)

OTHER COMPREHENSIVE LOSS

 

(7,294

)

(12,243

)

(268

)

COMPREHENSIVE LOSS

 

(3,666

)

(9,796

)

(6,287

)

Comprehensive income attributable to noncontrolling interests in the Operating Partnership

 

445

 

503

 

394

 

Comprehensive loss attributable to noncontrolling interests in subsidiaries

 

(1,927

)

(2,815

)

(1,747

)

COMPREHENSIVE LOSS ATTRIBUTABLE TO THE COMPANY

 

$

(5,148

)

$

(12,108

)

$

(7,640

)

 

See accompanying notes to the consolidated financial statements.

 

F-14



Table of Contents

 

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CAPITAL

(in thousands)

 

 

 

Number of

 

Number of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common OP
Units

 

Preferred OP
Units

 

Operating

 

Accumulated Other
Comprehensive

 

Total
Cubesmart L.P.

 

Noncontrolling
Interest in

 

Total

 

Operating
Partnership interest

 

 

 

Oustanding

 

Oustanding

 

Partner

 

(Loss) Income

 

Capital

 

Subsidiaries

 

Capital

 

of third parties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2009

 

92,655

 

 

$

696,183

 

$

(874

)

$

695,309

 

$

44,021

 

$

739,330

 

$

45,394

 

Contributions from noncontrolling interests in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

15

 

15

 

 

 

Issuance of common OP units, net

 

5,610

 

 

 

47,573

 

 

 

47,573

 

 

 

47,573

 

 

 

Issuance of restricted OP units

 

203

 

 

 

2

 

 

 

2

 

 

 

2

 

 

 

Exercise of OP unit options

 

56

 

 

 

194

 

 

 

194

 

 

 

194

 

 

 

Conversion from units to shares

 

73

 

 

 

675

 

 

 

675

 

 

 

675

 

(675

)

Amortization of restricted OP units

 

 

 

 

 

1,759

 

 

 

1,759

 

 

 

1,759

 

 

 

OP unit compensation expense

 

 

 

 

 

1,882

 

 

 

1,882

 

 

 

1,882

 

 

 

Adjustment for Limited Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interest of third parties

 

 

 

 

 

(1,510

)

 

 

(1,510

)

 

 

(1,510

)

1,510

 

Net (loss) income

 

 

 

 

 

(7,393

)

 

 

(7,393

)

1,755

 

(5,638

)

(381

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on foreign currency translation

 

 

 

 

 

 

 

(247

)

(247

)

(8

)

(255

)

(13

)

Distributions

 

 

 

 

 

(14,028

)

 

 

(14,028

)

(4,591

)

(18,619

)

(690

)

Balance at December 31, 2010

 

98,597

 

 

$

725,337

 

$

(1,121

)

$

724,216

 

$

41,192

 

$

765,408

 

$

45,145

 

Contributions from noncontrolling interests in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

1

 

1

 

 

 

Issuance of common OP units, net

 

23,140

 

 

 

204,019

 

 

 

204,019

 

 

 

204,019

 

 

 

Issuance of preferred OP units, net

 

 

 

3,100

 

74,848

 

 

 

74,848

 

 

 

74,848

 

 

 

Issuance of restricted OP units

 

235

 

 

 

3

 

 

 

3

 

 

 

3

 

 

 

Exercise of OP unit options

 

24

 

 

 

121

 

 

 

121

 

 

 

121

 

 

 

Conversion from units to shares

 

63

 

 

 

624

 

 

 

624

 

 

 

624

 

(624

)

Amortization of restricted OP units

 

 

 

 

 

1,677

 

 

 

1,677

 

 

 

1,677

 

 

 

OP unit compensation expense

 

 

 

 

 

1,527

 

 

 

1,527

 

 

 

1,527

 

 

 

Net (loss) income

 

 

 

 

 

(398

)

 

 

(398

)

2,810

 

2,412

 

35

 

Adjustment for Limited Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interest of third parties

 

 

 

 

 

(7,082

)

 

 

(7,082

)

 

 

(7,082

)

7,082

 

Other comprehensive (loss) gain:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on interest rate swap

 

 

 

 

 

 

 

(11,849

)

(11,849

)

 

 

(11,849

)

(545

)

Unrealized gain on foreign currency translation

 

 

 

 

 

 

 

139

 

139

 

5

 

144

 

7

 

Preferred unit distributions

 

 

 

 

 

(1,218

)

 

 

(1,218

)

 

 

(1,218

)

 

 

Common unit distributions

 

 

 

 

 

(30,714

)

 

 

(30,714

)

(4,599

)

(35,313

)

(1,368

)

Balance at December 31, 2011

 

122,059

 

3,100

 

$

968,744

 

$

(12,831

)

$

955,913

 

$

39,409

 

$

995,322

 

$

49,732

 

Contributions from noncontrolling interests in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common OP units, net

 

7,900

 

 

 

102,079

 

 

 

102,079

 

 

 

102,079

 

 

 

Issuance of restricted OP units

 

246

 

 

 

2

 

 

 

2

 

 

 

2

 

 

 

Exercise of OP unit options

 

210

 

 

 

1,629

 

 

 

1,629

 

 

 

1,629

 

 

 

Conversion from units to shares

 

1,380

 

 

 

19,247

 

 

 

19,247

 

 

 

19,247

 

(19,247

)

Amortization of restricted OP units

 

 

 

 

 

3,352

 

 

 

3,352

 

 

 

3,352

 

 

 

OP unit compensation expense

 

 

 

 

 

1,198

 

 

 

1,198

 

 

 

1,198

 

 

 

Net income (loss)

 

 

 

 

 

1,817

 

 

 

1,817

 

1,918

 

3,735

 

(107

)

Adjustment for Limited Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interest of third parties

 

 

 

 

 

(19,520

)

 

 

(19,520

)

 

 

(19,520

)

19,520

 

Acquisition of noncontrolling interest

 

 

 

 

 

(18,452

)

 

 

(18,452

)

(38,532

)

(56,984

)

(132

)

Other comprehensive (loss) gain:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on interest rate swap

 

 

 

 

 

 

 

(7,124

)

(7,124

)

 

 

(7,124

)

(342

)

Unrealized gain on foreign currency translation

 

 

 

 

 

 

 

159

 

159

 

9

 

168

 

4

 

Preferred unit distributions

 

 

 

 

 

(6,008

)

 

 

(6,008

)

 

 

(6,008

)

 

 

Common unit distributions

 

 

 

 

 

(44,501

)

 

 

(44,501

)

(2,686

)

(47,187

)

(1,438

)

Balance at December 31, 2012

 

131,795

 

3,100

 

$

1,009,587

 

$

(19,796

)

$

989,791

 

$

118

 

$

989,909

 

$

47,990

 

 

See accompanying notes to the consolidated financial statements.

 

F-15



Table of Contents

 

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

For the Year Ended December 31,

 

 

 

2012

 

2011

 

2010

 

Operating Activities

 

 

 

 

 

 

 

Net income (loss)

 

$

3,628

 

$

2,447

 

$

(6,019

)

Adjustments to reconcile net income (loss) to cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

118,573

 

73,702

 

70,850

 

Gain on disposition of discontinued operations

 

(9,811

)

(3,903

)

(1,826

)

Gain from remeasurement of investment in real estate venture

 

(7,023

)

 

 

Equity compensation expense

 

4,550

 

3,204

 

3,641

 

Accretion of fair market value adjustment of debt

 

(707

)

(89

)

(255

)

Loan procurement amortization expense - early repayment of debt

 

 

8,167

 

 

Equity in losses of real estate venture

 

745

 

281

 

 

Changes in other operating accounts:

 

 

 

 

 

 

 

Other assets

 

(2,125

)

(585

)

(427

)

Restricted cash

 

3,545

 

(853

)

3,889

 

Accounts payable and accrued expenses

 

6,899

 

2,634

 

1,437

 

Other liabilities

 

154

 

(678

)

227

 

Net cash provided by operating activities

 

$

118,428

 

$

84,327

 

$

71,517

 

Investing Activities

 

 

 

 

 

 

 

Acquisitions, additions and improvements to storage facilities

 

(247,413

)

(471,188

)

(104,441

)

Cash paid for remaining interest in real estate ventures

 

(81,158

)

 

 

Investment in real estate venture, at equity

 

 

(15,462

)

 

Distributions from real estate venture

 

909

 

 

 

Proceeds from sales of properties, net

 

52,630

 

44,460

 

37,304

 

Proceeds from notes receivable

 

 

 

20,112

 

Decrease in restricted cash

 

3,096

 

90

 

2,242

 

Net cash used in investing activities

 

$

(271,936

)

$

(442,100

)

$

(44,783

)

Financing Activities

 

 

 

 

 

 

 

Proceeds from:

 

 

 

 

 

 

 

Unsecured senior notes

 

249,638

 

 

 

Revolving credit facility

 

403,000

 

256,700

 

95,000

 

Mortgage loans and notes payable

 

 

3,537

 

 

Unsecured term loans

 

100,000

 

400,000

 

 

Principal payments on:

 

 

 

 

 

 

 

Revolving credit facility

 

(358,000

)

(299,700

)

(52,000

)

Unsecured term loans

 

 

(200,000

)

 

Mortgage loans and notes payable

 

(236,340

)

(39,321

)

(196,205

)

Settlement of hedge transactions

 

(195

)

 

 

Proceeds from issuance of common OP units, net

 

102,079

 

204,019

 

47,573

 

Proceeds from issuance of preferred OP units, net

 

 

74,848

 

 

Exercise of unit options

 

1,629

 

121

 

194

 

Contributions from noncontrolling interests in subsidiaries

 

 

1

 

15

 

Acquisition of noncontrolling interest

 

(61,113

)

 

 

Distributions paid to common unitholders

 

(41,209

)

(29,171

)

(9,889

)

Distributions paid to preferred unitholders

 

(5,724

)

 

 

Distributions paid to noncontrolling interest in subsidiaries

 

(2,686

)

(4,599

)

(4,591

)

Loan procurement costs

 

(2,145

)

(5,484

)

(3,708

)

Net cash provided by (used in) financing activities

 

$

148,934

 

$

360,951

 

$

(123,611

)

(Decrease) increase in cash and cash equivalents

 

(4,574

)

3,178

 

(96,877

)

Cash and cash equivalents at beginning of year

 

9,069

 

5,891

 

102,768

 

Cash and cash equivalents at end of year

 

$

4,495

 

$

9,069

 

$

5,891

 

Supplemental Cash Flow and Noncash Information

 

 

 

 

 

 

 

Cash paid for interest, net of interest capitalized

 

$

33,578

 

$

33,265

 

$

38,346

 

Supplemental disclosure of noncash activities:

 

 

 

 

 

 

 

Acquisition related contingent consideration

 

$

 

$

 

$

1,777

 

Consolidation of real estate venture

 

$

13,527

 

$

 

$

 

Derivative valuation adjustment

 

$

(7,271

)

$

(12,394

)

$

 

Foreign currency translation adjustment

 

$

172

 

$

151

 

$

(268

)

Mortgage loan assumption - acquisition of storage facility

 

$

107,011

 

$

21,827

 

$

 

 

See accompanying notes to the consolidated financial statements.

 

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Table of Contents

 

CUBESMART AND CUBESMART L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.  ORGANIZATION AND NATURE OF OPERATIONS

 

CubeSmart (the “Parent Company”) operates as a self-managed and self-administered real estate investment trust (“REIT”) with its operations conducted solely through CubeSmart, L.P. and its subsidiaries.  CubeSmart, L.P., a Delaware limited partnership (the “Operating Partnership”), operates through an umbrella partnership structure, with the Parent Company, a Maryland REIT, as its sole general partner.  Effective September 14, 2011, the Parent Company changed its name from “U-Store-It Trust” to “CubeSmart” and the Operating Partnership changed its name from “U-Store-It, L.P.” to “CubeSmart, L.P.”  In the notes to the consolidated financial statements, we use the terms “the Company”, ‘we” or “our” to refer to the Parent Company and the Operating Partnership together, unless the context indicates otherwise.   The Company’s self-storage facilities (collectively, the “Properties”) are located in 22 states throughout the United States and the District of Columbia and are presented under one reportable segment: we own, operate, develop, manage and acquire self-storage facilities.

 

As of December 31, 2012, the Parent Company owned approximately 97.6% of the partnership interests (“OP Units”) of the Operating Partnership.  The remaining OP Units, consisting exclusively of limited partner interests, are held by persons who contributed their interests in properties to us in exchange for OP Units.  Under the partnership agreement, these persons have the right to tender their OP Units for redemption to the Operating Partnership at any time for cash equal to the fair value of an equivalent number of common shares of the Parent Company.  In lieu of delivering cash, however, the Parent Company, as the Operating Partnership’s general partner, may, at its option, choose to acquire any OP Units so tendered by issuing common shares in exchange for the tendered OP Units.  If the Parent Company so chooses, its common shares will be exchanged for OP Units on a one-for-one basis.  This one-for-one exchange ratio is subject to adjustment to prevent dilution.  With each such exchange or redemption, the Parent Company’s percentage ownership in the Operating Partnership will increase.  In addition, whenever the Parent Company issues common or other classes of its shares, it contributes the net proceeds it receives from the issuance to the Operating Partnership and the Operating Partnership issues to the Parent Company an equal number of OP Units or other partnership interests having preferences and rights that mirror the preferences and rights of the shares issued.  This structure is commonly referred to as an umbrella partnership REIT or “UPREIT.”

 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The accompanying consolidated financial statements include all of the accounts of the Company, and its majority-owned and/or controlled subsidiaries.  The portion of these entities not owned by the Company is presented as noncontrolling interests as of and during the periods consolidated.  All significant intercompany accounts and transactions have been eliminated in consolidation.

 

When the Company obtains an economic interest in an entity, the Company evaluates the entity to determine if the entity is deemed a variable interest entity (“VIE”), and if the Company is deemed to be the primary beneficiary, in accordance with authoritative guidance issued on the consolidation of VIEs. When an entity is not deemed to be a VIE, the Company considers the provisions of additional guidance to determine whether a general partner, or the general partners as a group, controls a limited partnership or similar entity when the limited partners have certain rights. The Company consolidates (i) entities that are VIEs and of which the Company is deemed to be the primary beneficiary and (ii) entities that are non-VIEs which the Company controls and which the limited partners do not have the ability to dissolve or remove the Company without cause nor substantive participating rights.

 

Noncontrolling Interests

 

The FASB issued authoritative guidance regarding noncontrolling interests in consolidated financial statements which was effective on January 1, 2009.  The guidance states that noncontrolling interests are the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent.  The ownership interests in the subsidiary that are held by owners other than the parent are noncontrolling interests.  Under the guidance, such noncontrolling interests are reported on the consolidated balance sheets within equity, separately from the Company’s equity.  On the consolidated statements of operations, revenues, expenses and net income or loss from less-than-wholly-owned subsidiaries are reported at the consolidated amounts, including both the amounts attributable to the Company and noncontrolling interests.  Presentation of consolidated equity activity is included for both quarterly and annual financial statements, including beginning balances, activity for the period and ending balances for shareholders’ equity, noncontrolling interests and total equity.

 

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However, per the FASB issued authoritative guidance on the classification and measurement of redeemable securities, securities that are redeemable for cash or other assets at the option of the holder, not solely within the control of the issuer, must be classified outside of permanent equity.  This would result in certain outside ownership interests being included as redeemable noncontrolling interests outside of permanent equity in the consolidated balance sheets.  The Company makes this determination based on terms in applicable agreements, specifically in relation to redemption provisions.  Additionally, with respect to noncontrolling interests for which the Company has a choice to settle the contract by delivery of its own shares, the Company considered the FASB issued guidance on accounting for derivative financial instruments indexed to, and potentially settled in, a Company’s own stock to evaluate whether the Company controls the actions or events necessary to issue the maximum number of shares that could be required to be delivered under share settlement of the contract.  The guidance also requires that noncontrolling interests are adjusted each period so that the carrying value equals the greater of its carrying value based on the accumulation of historical cost or its redemption fair value.

 

The consolidated results of the Company include results attributable to units of the Operating Partnership that are not owned by the Company.  These interests were issued in the form of Operating Partnership units and were a component of the consideration the Company paid to acquire certain self-storage facilities.  Limited partners who acquired Operating Partnership units have the right to require the Operating Partnership to redeem part or all of their Operating Partnership units for, at the Company’s option, an equivalent number of common shares of the Company or cash based upon the fair value of an equivalent number of common shares of the Company.  However, the operating agreement contains certain circumstances that could result in a net cash settlement outside the control of the Company, as the Company does not have the ability to settle in unregistered shares.  Accordingly, consistent with the guidance discussed above, the Company will continue to record these noncontrolling interests outside of permanent equity in the consolidated balance sheets.  Net income or loss related to these noncontrolling interests is excluded from net income or loss in the consolidated statements of operations.  The Company has adjusted the carrying value of its noncontrolling interests subject to redemption value to the extent applicable.  Based on the Company’s evaluation of the redemption value of the redeemable noncontrolling interest, the Operating Partnership reflected these interests at their redemption value at December 31, 2012, as the estimated redemption value exceeded their carrying value. The Operating Partnership recorded an increase to OP Units owned by third parties and a corresponding decrease to capital of $19.5 million at December 31, 2012.  Disclosure of such redemption provisions is provided in Note 9.

 

Noncontrolling interests are the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent.  The ownership interests in the subsidiary that are held by owners other than the parent are noncontrolling interests. Noncontrolling interests are reported on the consolidated balance sheets within equity, separately from the Company’s equity.  On the consolidated statements of operations, revenues, expenses and net income or loss from less-than-wholly-owned subsidiaries are reported at the consolidated amounts, including both the amounts attributable to the Company and noncontrolling interests.  Presentation of consolidated equity activity is included for both quarterly and annual financial statements, including beginning balances, activity for the period and ending balances for shareholders’ equity, noncontrolling interests and total equity.

 

Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Although we believe the assumptions and estimates we made are reasonable and appropriate, as discussed in the applicable sections throughout these consolidated financial statements, different assumptions and estimates could materially impact our reported results.  The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions and changes in market conditions could impact our future operating results.

 

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Table of Contents

 

Storage Facilities

 

Storage facilities are carried at historical cost less accumulated depreciation and impairment losses.  The cost of storage facilities reflects their purchase price or development cost.  Costs incurred for the renovation of a storage facility are capitalized to the Company’s investment in that property.  Acquisition costs, ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives.

 

Purchase Price Allocation

 

When facilities are acquired, the purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values.  When a portfolio of facilities is acquired, the purchase price is allocated to the individual facilities based upon the fair value determined using an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates, which take into account the relative size, age and location of the individual facility along with current and projected occupancy and rental rate levels or appraised values, if available.  Allocations to the individual assets and liabilities are based upon comparable market sales information for land, buildings and improvements and estimates of depreciated replacement cost of equipment.

 

In allocating the purchase price for an acquisition, the Company determines whether the acquisition includes intangible assets or liabilities.  The Company allocated a portion of the purchase price to an intangible asset attributed to the value of in-place leases.  This intangible is generally amortized to expense over the expected remaining term of the respective leases.  Substantially all of the leases in place at acquired facilities are at market rates, as the majority of the leases are month-to-month contracts.   Accordingly, to date no portion of the purchase price has been allocated to above- or below-market lease intangibles.  To date, no intangible asset has been recorded for the value of tenant relationships, because the Company does not have any concentrations of significant tenants and the average tenant turnover is fairly frequent.

 

Depreciation and Amortization

 

The costs of self-storage facilities and improvements are depreciated using the straight-line method based on useful lives ranging from five to 40 years.

 

Impairment of Long-Lived Assets

 

We evaluate long-lived assets for impairment when events and circumstances such as declines in occupancy and operating results indicate that there may be impairment.  The carrying value of these long-lived assets is compared to the undiscounted future net operating cash flows, plus a terminal value, attributable to the assets to determine if the property’s basis is recoverable.  If a property’s basis is not considered recoverable, an impairment loss is recorded to the extent the net carrying value of the asset exceeds the fair value.  The impairment loss recognized equals the excess of net carrying value over the related fair value of the asset.

 

Long-Lived Assets Held for Sale

 

We consider long-lived assets to be “held for sale” upon satisfaction of the following criteria: (a) management commits to a plan to sell a facility (or group of facilities), (b) the facility is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such facilities, (c) an active program to locate a buyer and other actions required to complete the plan to sell the facility have been initiated, (d) the sale of the facility is probable and transfer of the asset is expected to be completed within one year, (e) the facility is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

 

Typically these criteria are all met when the relevant asset is under contract, significant non-refundable deposits have been made by the potential buyer, the assets are immediately available for transfer and there are no contingencies related to the sale that may prevent the transaction from closing.  However, each potential transaction is evaluated based on its separate facts and circumstances.  Properties classified as held for sale are reported at the lesser of carrying value or fair value less estimated costs to sell.

 

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Cash and Cash Equivalents

 

Cash and cash equivalents are highly-liquid investments with original maturities of three months or less.  The Company may maintain cash equivalents in financial institutions in excess of insured limits, but believes this risk is mitigated by only investing in or through major financial institutions.

 

Restricted Cash

 

Restricted cash consists of purchase deposits and cash deposits required for debt service requirements, capital replacement, and expense reserves in connection with the requirements of our loan agreements.

 

Loan Procurement Costs

 

Loan procurement costs related to borrowings were $11.7 million and $13.0 million at December 31, 2012 and 2011, respectively, and are reported net of accumulated amortization of $3.4 million and $4.9 million as of December 31, 2012 and 2011, respectively. The costs are amortized over the estimated life of the related debt using the effective interest method and reported as loan procurement amortization expense.

 

Other Assets

 

Other assets is comprised of the following as of December 31, 2012 and 2011 (in thousands):

 

 

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Intangible assets, net of accumulated amortization

 

$

21,670

 

$

23,185

 

Deposits on future settlements

 

 

9,318

 

Accounts receivable

 

10,209

 

3,676

 

Prepaid insurance

 

1,805

 

1,397

 

Prepaid real estate taxes

 

1,556

 

1,114

 

Others

 

6,554

 

4,955

 

 

 

 

 

 

 

Total

 

$

41,794

 

$

43,645

 

 

Environmental Costs

 

Our practice is to conduct or obtain environmental assessments in connection with the acquisition or development of additional facilities.  Whenever the environmental assessment for one of our facilities indicates that a facility is impacted by soil or groundwater contamination from prior owners/operators or other sources, we will work with our environmental consultants and where appropriate, state governmental agencies, to ensure that the facility is either cleaned up, that no cleanup is necessary because the low level of contamination poses no significant risk to public health or the environment, or that the responsibility for cleanup rests with a third party.

 

Revenue Recognition

 

Management has determined that all of our leases are operating leases.  Rental income is recognized in accordance with the terms of the leases, which generally are month-to-month.

 

The Company recognizes gains on disposition of properties only upon closing in accordance with the guidance on sales of real estate.  Payments received from purchasers prior to closing are recorded as deposits.  Profit on real estate sold is recognized using the full accrual method upon closing when the collectability of the sales price is reasonably assured and the Company is not obligated to perform significant activities after the sale.  Profit may be deferred in whole or part until the sale meets the requirements of profit recognition on sales under this guidance.

 

Advertising and Marketing Costs

 

The Company incurs advertising and marketing costs primarily attributable to internet marketing campaigns and other media advertisements.  The Company incurred $8.1 million, $6.9 million and $6.6 million in advertising and marketing expenses for the years ended 2012, 2011 and 2010, respectively.

 

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Equity Offering Costs

 

Underwriting discounts and commissions, financial advisory fees and offering costs are reflected as a reduction to additional paid-in capital.  For the year ended December 31, 2012 and 2011, the Company recognized $1.7 million and $0.8 million of equity offering costs related to the issuance of common and preferred shares during the years, respectively.

 

Other Property Related Income

 

Other property related income consists of late fees, administrative charges, tenant insurance commissions, sales of storage supplies and other ancillary revenues and is recognized in the period that it is earned.

 

Capitalized Interest

 

The Company capitalizes interest incurred that is directly associated with construction activities until the asset is placed into service.  Interest is capitalized to the related assets using a weighted-average rate of the Company’s outstanding debt. The Company capitalized $0.2 million for the year ended December 31, 2012, and $0.1 million during each of the years ended 2011 and 2010.

 

Derivative Financial Instruments

 

The Company carries all derivatives on the balance sheet at fair value.  The Company determines the fair value of derivatives by observable prices that are based on inputs not quoted on active markets, but corroborated by market data.  The accounting for changes in the fair value of a derivative instrument depends on whether the derivative has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it.  The Company’s use of derivative instruments has been limited to cash flow hedges of certain interest rate risks.  Additionally, the Company had interest rate swap agreements for notional principal amounts aggregating $400 million at December 31, 2012, which are included in accounts payable, accrued expenses and other liabilities.

 

Income Taxes

 

The Company elected to be taxed as a real estate investment trust under Sections 856-860 of the Internal Revenue Code beginning with the period from October 21, 2004 (commencement of operations) through December 31, 2004.  In management’s opinion, the requirements to maintain these elections are being met.  Accordingly, no provision for federal income taxes has been reflected in the consolidated financial statements other than for operations conducted through our taxable REIT subsidiaries.

 

Earnings and profits, which determine the taxability of distributions to shareholders, differ from net income reported for financial reporting purposes due to differences in cost basis, the estimated useful lives used to compute depreciation, and the allocation of net income and loss for financial versus tax reporting purposes.  The tax basis in the Company’s assets was $2.3 billion as of December 31, 2012 and $2.0 billion as of December 31, 2011.

 

Distributions to shareholders are usually taxable as ordinary income, although a portion of the distribution may be designated as capital gain or may constitute a non-dividend distribution.  Annually, the Company provides each of its shareholders a statement detailing the tax characterization of dividends paid during the preceding year as ordinary income, capital gain or a non-dividend distribution.  The characterization of the Company’s dividends for 2012 consisted of an 81.7538% ordinary income distribution, a 14.9075% capital gain distribution, and a 3.3387% non-dividend distribution.

 

Distributions to 7.75% Series A Cumulative Redeemable Preferred Shareholders are usually taxable as ordinary income, although a portion of the distribution may be designated as capital gain or may constitute a non-dividend distribution.  Annually, we provide each of our shareholders a statement detailing preferred distributions paid during the preceding year and their characterization as ordinary income, capital gain or non-dividend distribution.  The characterization of our preferred dividends for 2012 was as follows: 84.5778% ordinary income distribution and 15.4222% capital gain distribution.

 

The Company is subject to a 4% federal excise tax if sufficient taxable income is not distributed within prescribed time limits.  The excise tax equals 4% of the annual amount, if any, by which the sum of (a) 85% of the Company’s ordinary income, (b) 95% of the Company’s net capital gains and c) 100% of prior taxable income exceeds cash distributions and certain taxes paid by the Company.  No excise tax was incurred in 2012, 2011, or 2010.

 

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Table of Contents

 

Taxable REIT subsidiaries, such as the TRS, are subject to federal and state income taxes.  Our taxable REIT subsidiaries have a net deferred tax asset related to expenses which are deductible for tax purposes in future periods of $0.7 million and $0.4 million, respectively, as of December 31, 2012 and 2011.

 

Earnings per Share and Unit

 

Basic earnings per share and unit is calculated based on the weighted average number of common shares and restricted shares outstanding during the period.  Diluted earnings per share and unit is calculated by further adjusting for the dilutive impact of share options, unvested restricted shares and contingently issuable shares outstanding during the period using the treasury stock method.  Potentially dilutive securities calculated under the treasury stock method of 2,000,000, 1,378,000 and 1,177,000 in 2012, 2011 and 2010, respectively, were not included in the calculation of diluted earnings per share and unit, as they were identified as anti-dilutive.

 

Share Based Payments

 

We apply the fair value method of accounting for contingently issued shares and share options issued under our incentive award plan.  Accordingly, share compensation expense is recorded ratably over the vesting period relating to such contingently issued shares and options.  The Company has recognized compensation expense on a straight-line method over the requisite service period.

 

Foreign Currency

 

The financial statements of foreign subsidiaries are translated to U.S. Dollars using the period-end exchange rate for assets and liabilities and an average exchange rate for each period for revenues, expenses, and capital expenditures.  The local currency is the functional currency for the Company’s foreign subsidiaries.  Translation adjustments for foreign subsidiaries are recorded as a component of accumulated other comprehensive loss in shareholders’ equity.  The Company recognizes transaction gains and losses arising from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency in earnings as incurred.  The Pound, which represents the functional currency used by USIFB, LLP, our joint venture in England, was translated at an end-of-period exchange rate of approximately 1.625924 and 1.54902 U.S. Dollars per Pound at December 31, 2012 and December 31, 2011, respectively, and an average exchange rate of 1.585074 and 1.60377 U.S. Dollars per Pound for the years ended December 31, 2012 and December 31, 2011, respectively.  Accordingly, the Company recorded unrealized gains of $0.2 million on foreign currency translation for the years ended December 31, 2012 and 2011, respectively.

 

Investments in Unconsolidated Real Estate Ventures

 

The Company accounts for its investments in unconsolidated Real Estate Ventures under the equity method of accounting.  Under the equity method, investments in unconsolidated joint ventures are recorded initially at cost, as Investments in Real Estate Ventures, and subsequently adjusted for equity in earnings (losses), cash contributions, less distributions. On a periodic basis, management also assesses whether there are any indicators that the value of the Company’s investments in unconsolidated Real Estate Ventures may be other than temporarily impaired. An investment is impaired only if the fair value of the investment, as estimated by management, is less than the carrying value of the investment and the decline is other than temporary. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the fair value of the investment, as estimated by management. The determination as to whether impairment exists requires significant management judgment about the fair value of its ownership interest. Fair value is determined through various valuation techniques, including but not limited to, discounted cash flow models, quoted market values and third party appraisals.

 

Recent Accounting Pronouncements

 

In June 2011, the Financial Accounting Standards Board (FASB) issued an amendment to the accounting standard for the presentation of comprehensive income. The amendment requires entities to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In addition, the amendment requires entities to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. This amendment is effective for fiscal years and interim periods beginning after December 15, 2011. The Company’s adoption of the new standard on January 1, 2012 did not have a material impact on its consolidated financial position or results of operations as the amendment related only to changes in financial statement presentation.

 

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Table of Contents

 

In May 2011, the FASB issued an update to the accounting standard for measuring and disclosing fair value.  The update modifies the wording used to describe the requirements for fair value measuring and for disclosing information about fair value measurements to improve consistency between U.S. GAAP and International Financial Reporting Standards (“IFRS”). This update is effective for the annual and interim periods beginning after December 15, 2011. The adoption of this guidance in 2012 did not have a material impact on our consolidated financial position or results of operations as its impact was limited to disclosure requirements.

 

Concentration of Credit Risk

 

The storage facilities are located in major metropolitan and rural areas and have numerous tenants per facility.  No single tenant represents a significant concentration of our revenues.  The facilities in New York, Florida, California, and Texas provided total revenues of approximately 16%, 15%, 10% and 10%, respectively, for the year ended December 31, 2012.  The facilities in Florida, California, Texas and Illinois provided total revenues of approximately 17%, 12%, 10% and 7%, respectively, for the year ended December 31, 2011.

 

3.  STORAGE FACILITIES

 

The following summarizes the real estate assets of the Company as of December 31, 2012 and December 31, 2011:

 

 

 

December 31,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(in thousands)

 

Land

 

$

462,626

 

$

417,067

 

Buildings and improvements

 

1,828,388

 

1,574,769

 

Equipment

 

143,836

 

110,371

 

Construction in progress

 

8,172

 

5,262

 

Total

 

2,443,022

 

2,107,469

 

Less accumulated depreciation

 

(353,315

)

(318,749

)

Storage facilities — net

 

$

2,089,707

 

$

1,788,720

 

 

The Company completed the following acquisitions, dispositions and consolidations for the years ended December 31, 2012, 2011 and 2010:

 

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Table of Contents

 

Facility/Portfolio

 

Location

 

Transaction Date

 

Number of Facilities

 

Purchase / Sales
Price (in thousands)

 

2012 Acquisitions:

 

 

 

 

 

 

 

 

 

Houston Asset

 

Houston, TX

 

February 2012

 

1

 

$

5,100

 

Dunwoody Asset

 

Dunwoody, GA

 

February 2012

 

1

 

6,900

 

Mansfield Asset

 

Mansfield, TX

 

June 2012

 

1

 

4,970

 

Texas Assets

 

Multiple locations in TX

 

July 2012

 

4

 

18,150

 

Allen Asset

 

Allen, TX

 

July 2012

 

1

 

5,130

 

Norwalk Asset

 

Norwalk, CT

 

July 2012

 

1

 

5,000

 

Storage Deluxe Assets

 

Multiple locations in NY and CT

 

February/ April/ August 2012

 

6

 

201,910

 

Eisenhower Asset

 

Alexandria, VA

 

August 2012

 

1

 

19,750

 

New Jersey Assets

 

Multiple locations in NJ

 

August 2012

 

2

 

10,750

 

Georgia/ Florida Assets

 

Multiple locations in GA and FL

 

August 2012

 

3

 

13,370

 

Peachtree Asset

 

Peachtree City, GA

 

August 2012

 

1

 

3,100

 

HSREV Assets

 

Multiple locations in PA, NY, NJ, VA and FL

 

September 2012

 

9

 

102,000

(a)

Leetsdale Asset

 

Denver, CO

 

September 2012

 

1

 

10,600

 

Orlando/ West Palm Beach Assets

 

Multiple locations in FL

 

November 2012

 

2

 

13,010

 

Exton/ Cherry Hill Assets

 

Multiple locations in NJ and PA

 

December 2012

 

2

 

7,800

 

Carrollton Asset

 

Carrollton, TX

 

December 2012

 

1

 

4,800

 

 

 

 

 

 

 

37

 

$

432,340

 

2012 Dispositions:

 

 

 

 

 

 

 

 

 

Michigan Assets

 

Multiple locations in MI

 

June 2012

 

3

 

$

6,362

 

Gulf Coast Assets

 

Multiple locations in LA, AL and MS

 

June 2012

 

5

 

16,800

 

New Mexico Assets (b)

 

Multiple locations in NM

 

August 2012

 

6

 

7,500

 

San Bernardino Asset

 

San Bernardino, CA

 

August 2012

 

1

 

5,000

 

Florida/ Tennessee Assets

 

Multiple locations in FL and TN

 

November 2012

 

3

 

6,550

 

Ohio Assets

 

Multiple locations in OH

 

November 2012

 

8

 

17,750

 

 

 

 

 

 

 

26

 

$

59,962

 

2011 Acquisitions:

 

 

 

 

 

 

 

 

 

Burke Lake Asset

 

Fairfax Station, VA

 

January 2011

 

1

 

$

14,000

 

West Dixie Asset

 

Miami, FL

 

April 2011

 

1

 

13,500

 

White Plains Asset

 

White Plains, NY

 

May 2011

 

1

 

23,000

 

Phoenix Asset

 

Phoenix, AZ

 

May 2011

 

1

 

612

 

Houston Asset

 

Houston, TX

 

June 2011

 

1

 

7,600

 

Duluth Asset

 

Duluth, GA

 

July 2011

 

1

 

2,500

 

Atlanta Assets

 

Atlanta, GA

 

July 2011

 

2

 

6,975

 

District Heights Asset

 

District Heights, MD

 

August 2011

 

1

 

10,400

 

Storage Deluxe Assets

 

Multiple locations in NY, CT and PA

 

November 2011

 

16

 

357,310

 

Leesburg Asset

 

Leesburg, VA

 

November 2011

 

1

 

13,000

 

Washington, DC Asset

 

Washington, DC

 

December 2011

 

1

 

18,250

 

 

 

 

 

 

 

27

 

$

467,147

 

2011 Dispositions:

 

 

 

 

 

 

 

 

 

Flagship Assets

 

Multiple locations in IN and OH

 

August 2011

 

18

 

$

43,500

 

Portage Asset

 

Portage, MI

 

November 2011

 

1

 

1,700

 

 

 

 

 

 

 

19

 

$

45,200

 

2010 Acquisitions:

 

 

 

 

 

 

 

 

 

Frisco Asset

 

Frisco, TX

 

July 2010

 

1

 

$

5,800

 

New York City Assets

 

New York, NY

 

September 2010

 

2

 

26,700

 

Northeast Assets

 

Multiple locations in NJ, NY and MA

 

November 2010

 

5

 

18,560

 

Manassas Asset

 

Manassas, VA

 

November 2010

 

1

 

6,050

 

Apopka Asset

 

Orlando, FL

 

November 2010

 

1

 

4,235

 

Wyckoff Asset

 

Queens, NY

 

December 2010

 

1

 

13,600

 

McLearen Asset

 

McLearen, VA

 

December 2010

 

1

 

10,200

 

 

 

 

 

 

 

12

 

$

85,145

 

2010 Dispositions:

 

 

 

 

 

 

 

 

 

Sun City Asset

 

Sun City, CA

 

October 2010

 

1

 

$

3,100

 

Inland Empire/Fayetteville Assets

 

Multiple locations in CA and NC

 

December 2010

 

15

 

35,000

 

 

 

 

 

 

 

16

 

$

38,100

 

 

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Table of Contents

 


(a)         Purchase price listed represents the fair value of the assets at acquisition.

 

(b)         The Company issued financing in the amount of $5.3 million to the buyer in conjunction with the New Mexico Assets disposition.

 

4.  ACQUISITIONS

 

Storage Deluxe Acquisition

 

During 2012, as part of the $560 million Storage Deluxe transaction involving 22 Class A self-storage facilities located primarily in the greater New York City area, the Company acquired the final six properties with a purchase price of approximately $201.9 million. The six properties purchased are located in New York and Connecticut.  In connection with the acquisitions, the Company allocated a portion of the purchase price to the intangible value of in-place leases which aggregated $12.3 million.  The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during 2012 was approximately $7.9 million.  In connection with the six acquired facilities, the Company assumed mortgage debt, and recorded the debt at a fair value of $93.1 million, which includes an outstanding principal balance totaling $88.9 million and a net premium of $4.2 million in addition to the face value of the assumed debt to reflect the fair values of the debt at the time of assumption.

 

On November 3, 2011, the Company acquired 16 properties from Storage Deluxe for a purchase price of approximately $357.3 million. The 16 properties purchased are located in New York, Connecticut and Pennsylvania.  In connection with this acquisition, the Company allocated a portion of the purchase price to the intangible value of in-place leases which aggregated $18.1 million.  The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during 2012 was approximately $15.1 million.

 

Other 2012 Acquisitions

 

On September 28, 2012, the Company purchased, from its joint venture partner, the remaining 50% ownership in HSREV.  See note 5 — “Investment in Unconsolidated Real Estate Ventures” for additional discussion of this acquisition.

 

During 2012, the Company acquired an additional 22 self-storage facilities located throughout the United States for an aggregate purchase price of approximately $128.4 million.  In connection with these acquisitions, the Company allocated a portion of the purchase price to the intangible value of in-place leases which aggregated $13.2 million. The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during 2012 was approximately $4.8 million.  In connection with two of the acquired facilities, the Company assumed mortgage debt, and recorded the debt at a fair value of $13.9 million, which includes an outstanding principal balance totaling $13.4 million and a net premium of $0.5 million in addition to the face value of the assumed debt to reflect the fair values of the debt at the time of assumption.

 

Other 2011 Acquisitions

 

During 2011, the Company acquired 11 self-storage facilities, in addition to the aforementioned Storage Deluxe Acquisition, located throughout the United States for an aggregate purchase price of approximately $109.8 million.  In connection with these acquisitions, the Company allocated a portion of the purchase price to the intangible value of in-place leases which aggregated $7.0 million.  The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during 2012 was approximately $4.2 million.  In connection with three of the acquisitions, the Company assumed mortgage debt, and recorded the debt at a fair value of $21.8 million, which included an outstanding principal balance totaling $21.4 million and a net premium of $0.4 million in addition to the face value of the assumed debt to reflect the fair values of the debt at the time of assumption.

 

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Table of Contents

 

5.  INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES

 

On September 26, 2011, the Company contributed $15.4 million in cash for a 50% interest in HSREV, a partnership that owned nine storage facilities in Pennsylvania, Virginia, New York, New Jersey and Florida. The other partner held the remaining 50% interest in the partnership.  HSREV was not consolidated because the Company was not the primary beneficiary, the limited partners had the ability to dissolve or remove the Company without cause and the Company did not possess substantive participating rights.  The Company accounts for its unconsolidated interests in its Real Estate Ventures using the equity method.  The Company’s investment in HSREV was included in Investment in real estate ventures, at equity on the Company’s consolidated balance sheet and earnings attributable to HSREV were presented in Equity in losses of real estate ventures on the Company’s consolidated statements of operations.

 

As noted in Note 4 — “Acquisitions,” on September 28, 2012, the Company purchased the remaining 50% ownership in HSREV, for cash of $21.7 million. In addition, upon taking control of these assets, the Company repaid $59.3 million of mortgage loans related to the properties.  Following the acquisition, the Company wholly owns the nine storage facilities which are unencumbered and have a fair value of $102 million.  In connection with this acquisition, the Company allocated a portion of the fair value to the intangible value of in-place leases which aggregated $8.3 million. The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during 2012 was approximately $2.1 million.  As described above, the Company previously accounted for its investment in HSREV using the equity method. As a result of this transaction, the Company obtained control of HSREV. The Company’s original 50% interest was remeasured and as a result, during 2012, the Company recorded a gain of approximately $7.0 million, which is reflected in Gain on remeasurement of investment in real estate venture on the accompanying statements of operations.

 

The amounts reflected in the following tables are based on the historical financial information of the real estate venture.

 

The following is a summary of the financial position of the real estate venture as of December 31, 2011 (in thousands):

 

 

 

December 31,

 

 

 

2011

 

 

 

 

 

Assets

 

 

 

Net property

 

$

78,677

 

Other assets

 

2,242

 

Total Assets

 

$

80,919

 

 

 

 

 

Liabilities and equity

 

 

 

Other liabilities

 

$

867

 

Debt (a)

 

60,083

 

Equity:

 

 

 

CubeSmart (b)

 

9,984

 

Joint venture partner

 

9,985

 

Total Liabilities and equity

 

$

80,919

 

 


(a)         The real estate venture’s debt was due to mature on July 31, 2014, with interest payable at 6%.  HSREV’s creditors had no recourse to the general credit of the Company.

 

(b)         The difference between the Company’s share of the net assets of the unconsolidated real estate ventures and the Company’s investment in real estate ventures per the accompanying consolidated balance sheets relates primarily to purchase price adjustments that are recorded by the Company on its financial statements in accordance with GAAP, but are not reflected in the above summary of the financial position of the real estate venture.

 

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Table of Contents

 

The following is a summary of results of operations of the real estate venture for the years ended December 31, 2012 and 2011 (in thousands).

 

 

 

Year ended December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Revenue

 

$

7,229

 

$

9,354

 

Operating expenses

 

3,010

 

3,879

 

Interest expense, net

 

2,690

 

3,969

 

Depreciation and amortization

 

2,691

 

4,115

 

Net loss

 

(1,162

)

(2,609

)

Company’s share of loss

 

(745

)

(281

)

 

The results of operations above include the periods from September 26, 2011(date of acquisition) through December 31, 2011, and January 1, 2012 through September 28, 2012 (date of disposition), the date of the Company’s acquisition of the remaining 50% interest.

 

6.  UNSECURED SENIOR NOTES

 

On June 26, 2012, the Operating Partnership issued $250 million in aggregate principal amount of unsecured senior notes due July 15, 2022 (the “senior notes”) which bear interest at a rate of 4.80%.  The senior notes had an effective interest rate of 4.82% at December 31, 2012.  The indenture under which the unsecured senior notes were issued restricts the ability of the Operating Partnership and its subsidiaries to incur debt unless the Operating Partnership and its consolidated subsidiaries comply with a leverage ratio not to exceed 60% and an interest coverage ratio of less than 1.5:1 after giving effect to the incurrence of the debt.  The indenture also restricts the ability of the Operating Partnership and its subsidiaries to incur secured debt unless the Operating Partnership and its consolidated subsidiaries comply with a secured debt leverage ratio not to exceed 40% after giving effect to the incurrence of the debt.  The indenture also contains other financial and customary covenants, including a covenant not to own unencumbered assets with a value less than 150% of the unsecured indebtedness of the Operating Partnership and its consolidated subsidiaries. The Operating Partnership is currently in compliance with all of the financial covenants under the senior notes.

 

7.  REVOLVING CREDIT FACILITY AND UNSECURED TERM LOANS

 

On September 29, 2010, the Company amended the Prior Facility.  The Prior Facility, as amended, consisted of a $200 million unsecured term loan and a $250 million unsecured revolving credit facility and had an outstanding balance of $43 million as of December 31, 2010.  As amended, the Prior Facility had a three-year term expiring on December 7, 2013, was unsecured, and borrowings on the facility incurred interest on a borrowing spread determined by our leverage levels plus LIBOR.

 

On June 20, 2011, the Company entered into an unsecured Term Loan Agreement (the “Term Loan Facility”) which consisted of a $100 million term loan with a five-year maturity and a $100 million term loan with a seven-year maturity.  The Term Loan Facility permits the Company to request additional advances of five-year or seven-year loans in minimum increments of $5 million provided that the aggregate of such additional advances does not exceed $50 million.  The Company incurred costs of $2.1 million in connection with executing the agreement and capitalized such costs as a component of loan procurement costs, net of amortization on the consolidated balance sheet.  Initially, pricing on the Term Loan Facility ranged, depending on the Company’s leverage levels, from 1.90% to 2.75% over LIBOR for the five-year loan, and from 2.05% to 2.85% over LIBOR for the seven-year loan, and each loan has no LIBOR floor.  As of December 31, 2011, the Company had received two investment grade ratings, and therefore pricing on the Term Loan Facility now ranges from 1.45% to 2.10% over LIBOR for the five-year loan and from 1.60% to 2.25% over LIBOR for the seven-year loan.

 

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On December 9, 2011, the Company entered into a new credit facility comprised of a $100 million unsecured term loan maturing in December 2014; a $200 million unsecured term loan maturing in March 2017; and a $300 million unsecured revolving facility maturing in December 2015 (the “Credit Facility”).  The Credit Facility replaced in its entirety the Prior Facility.

 

Pricing on the Credit Facility depends on the Company’s unsecured debt credit rating.  At our current Baa3/BBB- level, amounts drawn under the revolving facility are priced at 1.48% over LIBOR, with no LIBOR floor. Amounts drawn under the term loan portion of the Credit Facility are priced at 1.75% over LIBOR, with no LIBOR floor.

 

As of December 31, 2012, $200 million of unsecured term loan borrowings were outstanding under the Term Loan Facility, $300 million of unsecured term loans and $45 million of unsecured revolving loan borrowings were outstanding under the Credit Facility, and $254.8 million was available for borrowing on the unsecured revolving portion of the Credit Facility.  The Company had interest rate swaps as of December 31, 2012, that fix LIBOR on $200 million of borrowings under the Credit Facility maturing in March 2017 at 1.34%.  In addition, at December 31, 2012, the Company had interest rate swaps that fix LIBOR on both the five and seven-year term loans under the Term Loan Facility through their respective maturity dates.  The interest rate swap agreements fix thirty day LIBOR over the terms of the five and seven-year term loans at 1.80% and 2.47%, respectively.  As of December 31, 2012, borrowings under the Credit Facility and Term Loan Facility had an effective weighted average interest rate of 3.15%.

 

The Term Loan Facility and the term loans under the Credit Facility were fully drawn at December 31, 2012, and no further borrowings may be made under those term loans.  The Company’s ability to borrow under the revolving portion of the Credit Facility is subject to ongoing compliance with certain financial covenants which include:

 

·         Maximum total indebtedness to total asset value of 60.0% at any time;

 

·         Minimum fixed charge coverage ratio of 1.50:1.00; and

 

·         Minimum tangible net worth of $821,211,200 plus 75% of net proceeds from equity issuances after June 30, 2010.

 

Further, under the Credit Facility and Term Loan Facility, the Company is restricted from paying distributions on our common shares that would exceed an amount equal to the greater of (i) 95% of our funds from operations, and (ii) such amount as may be necessary to maintain the Parent Company’s REIT status.

 

The Company is currently in compliance with all of its financial covenants and anticipates being in compliance with all of its financial covenants through the terms of the Credit Facility and Term Loan Facility.

 

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Table of Contents

 

8.  MORTGAGE LOANS AND NOTES PAYABLE

 

The Company’s mortgage loans and notes payable are summarized as follows:

 

 

 

Carrying Value as of:

 

 

 

 

 

 

 

December 31,

 

December 31,

 

Effective

 

Maturity

 

Mortgage Loan

 

2012

 

2011

 

Interest Rate

 

Date

 

 

 

(in thousands)

 

 

 

 

 

YSI 53

 

$

 

$

9,100

 

5.93

%

Jul-12

 

YSI 6

 

 

74,834

 

5.13

%

Aug-12

 

YASKY

 

 

80,000

 

4.96

%

Sep-12

 

YSI 14

 

 

1,703

 

5.97

%

Jan-13

 

YSI 7

 

2,962

 

3,032

 

6.50

%

Jun-13

 

YSI 8

 

1,692

 

1,733

 

6.50

%

Jun-13

 

YSI 9

 

1,862

 

1,906

 

6.50

%

Jun-13

 

YSI 17

 

3,846

 

3,987

 

6.32

%

Jul-13

 

YSI 27

 

461

 

481

 

5.59

%

Nov-13

 

YSI 30

 

6,765

 

7,049

 

5.59

%

Nov-13

 

USIFB

 

7,221

 

7,125

 

3.49

%

Dec-13

 

YSI 11

 

2,276

 

2,350

 

5.87

%

Jan-14

 

YSI 5

 

3,001

 

3,100

 

5.25

%

Jan-14

 

YSI 28

 

1,460

 

1,509

 

5.59

%

Mar-14

 

YSI 37

 

 

2,174

 

7.25

%

Aug-14

 

YSI 44

 

 

1,070

 

7.00

%

Sep-14

 

YSI 41

 

 

3,775

 

6.60

%

Sep-14

 

YSI 45

 

 

5,353

 

6.75

%

Oct-14

 

YSI 48

 

 

24,870

 

7.25

%

Nov-14

 

YSI 50

 

 

2,260

 

6.75

%

Dec-14

 

YSI 10

 

3,928

 

4,011

 

5.87

%

Jan-15

 

YSI 15

 

1,784

 

1,832

 

6.41

%

Jan-15

 

YSI 52

 

4,721

 

4,884

 

5.44

%

Jan-15

 

YSI 58

 

8,974

 

 

2.97

%

Jan-15

 

YSI 29

 

13,060

 

 

3.69

%

Aug-15

 

YSI 20

 

58,524

 

60,551

 

5.97

%

Nov-15

 

YSI 59

 

9,603

 

 

4.82

%

Mar-16

 

YSI 60

 

3,725

 

 

5.04

%

Aug-16

 

YSI 51

 

7,325

 

7,423

 

6.36

%

Oct-16

 

YSI 31

 

 

13,414

 

6.75

%

Jun-19

(a)

YSI 35

 

4,373

 

4,464

 

6.90

%

Jul-19

(a)

YSI 32

 

 

5,950

 

6.75

%

Jul-19

(a)

YSI 33

 

10,930

 

11,157

 

6.42

%

Jul-19

 

YSI 39

 

 

3,867

 

6.50

%

Sep-19

(a)

YSI 47

 

 

3,091

 

6.63

%

Jan-20

(a)

YSI 26

 

9,102

 

 

4.56

%

Nov-20

 

YSI 57

 

3,195

 

 

4.61

%

Nov-20

 

YSI 55

 

24,502

 

 

4.85

%

Jun-21

 

YSI 24

 

29,141

 

 

4.64

%

Jun-21

 

Unamortized fair value adjustment

 

4,326

 

386

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total mortgage loans and notes payable

 

$

228,759

 

$

358,441

 

 

 

 

 

 

F-29



Table of Contents

 


(a)                 These borrowings have a fixed interest rate for the first five years of their term, which then resets and remains constant over the final five years of the loan term.

 

As of December 31, 2012 and 2011, the Company’s mortgage loans payable were secured by certain of its self-storage facilities with net book values of approximately $440 million and $514 million, respectively. The following table represents the future principal payment requirements on the outstanding mortgage loans and notes payable at December 31, 2012 (in thousands):

 

2013

 

$

30,136

 

2014

 

12,149

 

2015

 

86,689

 

2016

 

21,261

 

2017

 

1,863

 

2018 and thereafter

 

72,335

 

Total mortgage payments

 

224,433

 

Plus: Unamortized fair value adjustment

 

4,326

 

Total mortgage indebtedness

 

$

228,759

 

 

The Company currently intends to fund its 2013 principal payment requirements from cash provided by operating activities, new debt originations, and/or additional borrowings under our unsecured 2011 Credit Facility ($254.8 million available as of December 31, 2012).

 

9.  NONCONTROLLING INTERESTS

 

Variable Interests in Consolidated Real Estate Joint Ventures

 

On August 13, 2009, the Company, through a wholly-owned affiliate, formed a joint venture (“HART”) with an affiliate of Heitman, LLC (“Heitman”) to own and operate 22 self-storage facilities, which are located throughout the United States.  Upon formation, Heitman contributed approximately $51 million of cash to a newly-formed limited partnership and the Company contributed certain unencumbered wholly-owned properties with an agreed upon value of approximately $102 million to such limited partnership.  In exchange for its contribution of those properties, the Company received a cash distribution from HART of approximately $51 million and retained a 50% interest in HART.  The Company was the managing partner of HART and managed the properties owned by HART in exchange for a market rate management fee.  The Company determined that HART was a variable interest entity, and that the Company was the primary beneficiary.  Accordingly, the Company consolidated the assets, liabilities and results of operations of HART.  The 50% interest that was owned by Heitman was reflected as noncontrolling interest in subsidiaries within permanent equity, separate from the Company’s equity on the consolidated balance sheets.

 

On August 13, 2012, the Company purchased the remaining 50% interest in HART from Heitman for $61.1 million, and now owns 100% of HART. Accordingly, the Company wholly owns the properties which are unencumbered by any property-level secured debt.  The Company previously consolidated HART, and therefore the acquisition of the remaining 50% interest is reflected in the equity section of the accompanying consolidated balance sheets.  As a result of the transaction, the Company eliminated noncontrolling interest in subsidiaries of $38.7 million and recorded a reduction to additional paid in capital of $18.5 million.

 

USIFB, LLP (“the Venture”) was formed to own, operate, acquire and develop self-storage facilities in England.  The Company owns a 97% interest in the Venture through a wholly-owned subsidiary and the Venture commenced operations at two facilities in London, England during 2008.  The Company determined that the Venture is a variable interest entity, and that the Company is the primary beneficiary.  Accordingly, the Company consolidates the assets, liabilities and results of operations of the Venture.  At December 31, 2012, the Venture had total assets of $11.8 million and total liabilities of $7.9 million, including two mortgage loans totaling $7.2 million secured by storage facilities with a net book value of $11.6 million.  At December 31, 2012, the Venture’s creditors had no recourse to the general credit of the Company.

 

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Table of Contents

 

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 Limited Partnership held by third parties for which CubeSmart has a choice to settle the redemption by delivery of its own shares, the Operating Partnership considered the guidance regarding accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own shares, to evaluate whether CubeSmart controls the actions or events necessary to presume share settlement. The guidance also requires that noncontrolling interests classified outside of permanent capital be adjusted each period to the greater of the carrying value based on the accumulation of historical cost or the redemption value.

 

Approximately 2.4% of the outstanding OP Units as of December 31, 2012 and 3.7% of the outstanding OP Units as of December 31, 2011 were not owned by the general partner. The interests in the Operating Partnership represented by these OP Units were a component of the consideration that the Operating Partnership paid to acquire certain self-storage facilities. The holders of the OP Units are limited partners in the Operating Partnership and have the right to require CubeSmart to redeem all or part of their OP Units for, at the general partner’s option, an equivalent number of common shares of CubeSmart or cash based upon the fair value of an equivalent number of common shares of CubeSmart. However, the partnership agreement contains certain provisions that could result in a settlement outside the control of CubeSmart and the Operating Partnership, as CubeSmart does not have the ability to settle in unregistered shares.  Accordingly, consistent with the guidance, the Operating Partnership will record the OP Units owned by third parties outside of permanent capital in the consolidated balance sheets. Net income or loss related to the OP Units owned by third parties is excluded from net income or loss attributable to Operating Partner in the consolidated statements of operations.

 

The per Unit cash redemption amount would equal the average of the closing prices of the common shares of CubeSmart on the New York Stock Exchange for the 10 trading days ending prior to CubeSmart’s receipt of the redemption notice for the applicable Unit. At December 31, 2012 and 2011, 3,293,730 and 4,674,136 OP units, respectively, were outstanding and the calculated aggregate redemption value of outstanding OP units was based upon CubeSmart’s average closing share prices. Based on the Company’s evaluation of the redemption value of the redeemable noncontrolling interest, the Company has reflected these interests at their redemption value at December 31, 2012 and 2011, as the estimated redemption value exceeded their carrying value. The Operating Partnership recorded an increase to OP Units owned by third parties and a corresponding decrease to capital of $19.5 million and $7.1 million at December 31, 2012 and 2011, respectively.

 

10.  RELATED PARTY TRANSACTIONS

 

Corporate Office Leases

 

Subsequent to its entry into lease agreements with related parties for office space, the Operating Partnership entered into sublease agreements with various unrelated tenants for the related office space.  Each of these properties are part of Airport Executive Park, a 50-acre office and flex development located in Cleveland, Ohio, which is owned by former executives. Our independent Trustees approved the terms of, and entry into, each of the office lease agreements by the Operating Partnership.  The table below shows the office space subject to these lease agreements and certain key provisions, including the term of each lease agreement, the period for which the Operating Partnership may extend the term of each lease agreement, and the minimum and maximum rents payable per month during the term.

 

F-31



Table of Contents

 

Office Space

 

Approximate
 Square Footage

 

Maturity
Date

 

Period of
Extension Option (1)

 

Fixed Minimum
Rent Per Month

 

Fixed
Maximum Rent
Per Month

 

The Parkview Building — 6745 Engle Road; and 6751 Engle Road

 

21,900

 

12/31/2014

 

Five-year

 

$

25,673

 

$

31,205

 

6745 Engle Road — Suite 100

 

2,212

 

12/31/2014

 

Five-year

 

$

3,051

 

$

3,709

 

6745 Engle Road — Suite 110

 

1,731

 

12/31/2014

 

Five-year

 

$

2,387

 

$

2,901

 

6751 Engle Road — Suites C and D

 

3,000

 

12/31/2014

 

Five-year

 

$

3,137

 

$

3,771

 

 


(1)         Our Operating Partnership may extend the lease agreement beyond the termination date by the period set forth in this column at prevailing market rates upon the same terms and conditions contained in each of the lease agreements.

 

In addition to monthly rent, the office lease agreements provide that our Operating Partnership reimburse for certain maintenance and improvements to the leased office space.  The total amounts of lease payments incurred under the six office leases during the years ended December 31, 2012 and December 31, 2011 were approximately $0.5 million.

 

Total future minimum rental payments due in accordance with the related party lease agreements and total future cash receipts due from our subtenants as of December 31, 2012 are as follows:

 

 

 

Due to Related Party

 

Due from Subtenant

 

 

 

Amount

 

Amount

 

 

 

(in thousands)

 

 

 

 

 

 

 

2013

 

$

499

 

$

314

 

2014

 

499

 

315

 

 

 

$

998

 

$

629

 

 

11.  DISCONTINUED OPERATIONS

 

For the years ended December 31, 2012, 2011 and 2010, discontinued operations relates to 26 properties that the Company sold during 2012, 19 properties that the Company sold during 2011, and 16 properties that the Company sold during 2010.  Each of the sales during 2012, 2011 and 2010 resulted in the recognition of a gain, which in the aggregate totaled $9.8 million, $3.9 million, and $1.8 million, respectively.

 

The following table summarizes the revenue and expense information for the period the Company owned the properties classified as discontinued operations during the years ended December 31, 2012, 2011 and 2010 (in thousands):

 

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Table of Contents

 

 

 

For the year ended December 31,

 

 

 

2012

 

2011

 

2010

 

REVENUES

 

 

 

 

 

 

 

Rental income

 

$

6,278

 

$

13,445

 

$

21,316

 

Other property related income

 

748

 

3,410

 

2,117

 

Total revenues

 

7,026

 

16,855

 

23,433

 

OPERATING EXPENSES

 

 

 

 

 

 

 

Property operating expenses

 

3,409

 

6,570

 

10,498

 

Depreciation and amortization

 

1,504

 

3,127

 

5,780

 

Total operating expenses

 

4,913

 

9,697

 

16,278

 

OPERATING INCOME

 

2,113

 

7,158

 

7,155

 

Income from discontinued operations

 

2,113

 

7,158

 

7,155

 

Gain on disposition of discontinued operations

 

9,811

 

3,903

 

1,826

 

Income from discontinued operations

 

$

11,924

 

$

11,061

 

$

8,981

 

 

12.  COMMITMENTS AND CONTINGENCIES

 

The Company currently owns five self-storage facilities subject to ground leases and four other self-storage facilities having only parcels of land that are subject to ground leases. The Company recorded ground rent expense of approximately $1.2 million, $0.3 million, and $0.2 million for the years ended December 31, 2012, 2011 and 2010, respectively.  Total future minimum rental payments under non-cancelable ground leases are as follows:

 

 

 

Ground Lease

 

 

 

Amount

 

 

 

(in thousands)

 

 

 

 

 

2013

 

$

1,206

 

2014

 

1,192

 

2015

 

1,191

 

2016

 

1,182

 

2017

 

1,192

 

2018 and thereafter

 

55,970

 

 

 

$

61,933

 

 

The Company has a development agreement for the construction of a new corporate office headquarters and storage facility which will require payments of approximately $13.5 million, due in installments upon completion of certain construction milestones, during 2013.

 

The Company has been named as a defendant in lawsuits in the ordinary course of business.  In most instances, these claims are covered by the Company’s liability insurance coverage.  Management believes that the ultimate settlement of the suits will not have a material adverse effect on the Company’s financial statements.

 

13.  RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS

 

The Company’s use of derivative instruments is limited to the utilization of interest rate agreements or other instruments to manage interest rate risk exposures and not for speculative purposes. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure, as well as to hedge specific transactions. The counterparties to these arrangements are major financial institutions with which the Company and its subsidiaries may also have other financial relationships. The Company is potentially exposed to credit loss in the event of non-performance by these counterparties. However, because of the high credit ratings of the counterparties, the Company does not anticipate that any of the counterparties will fail to meet these obligations as they come due. The Company does not hedge credit or property value market risks.

 

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The Company has entered into interest rate swap agreements that qualify and are designated as cash flow hedges designed to reduce the impact of interest rate changes on its variable rate debt.  Therefore, the interest rate swaps are recorded in the consolidated balance sheet at fair value and the related gains or losses are deferred in shareholders’ equity as Accumulated Other Comprehensive Loss.  These deferred gains and losses are amortized into interest expense during the period or periods in which the related interest payments affect earnings.  However, to the extent that the interest rate swaps are not perfectly effective in offsetting the change in value of the interest payments being hedged, the ineffective portion of these contracts is recognized in earnings immediately.

 

The Company formally assesses, both at inception of a hedge and on an on-going basis, whether each derivative is highly-effective in offsetting changes in cash flows of the hedged item. If management determines that a derivative is highly-effective as a hedge, then the Company accounts for the derivative using hedge accounting, pursuant to which gains or losses inherent in the derivative do not impact the Company’s results of operations.  If management determines that a derivative is not highly-effective as a hedge or if a derivative ceases to be a highly-effective hedge, the Company will discontinue hedge accounting prospectively and will reflect in its statement of operations realized and unrealized gains and losses in respect of the derivative.

 

The following table summarizes the terms and fair values of the Company’s derivative financial instruments at December 31, 2012 and December 31, 2011, respectively (dollars in thousands):

 

Hedge

 

 

 

Notional

 

 

 

 

 

 

 

Year Ended December 31,

 

Product

 

Hedge Type

 

Amount

 

Strike

 

Effective Date

 

Maturity

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

 

Cash flow

(a)

$

40,000

 

1.8025

%

6/20/2011

 

6/20/2016

 

$

(1,873

)

$

(1,494

)

Swap

 

Cash flow

(a)

$

40,000

 

1.8025

%

6/20/2011

 

6/20/2016

 

(1,875

)

(1,502

)

Swap

 

Cash flow

(a)

$

20,000

 

1.8025

%

6/20/2011

 

6/20/2016

 

(937

)

(727

)

Swap

 

Cash flow

(a)

$

75,000

 

1.3360

%

12/30/2011

 

3/31/2017

 

(2,378

)

(907

)

Swap

 

Cash flow

(a)

$

50,000

 

1.3360

%

12/30/2011

 

3/31/2017

 

(1,583

)

(484

)

Swap

 

Cash flow

(a)

$

50,000

 

1.3360

%

12/30/2011

 

3/31/2017

 

(1,583

)

(485

)

Swap

 

Cash flow

(a)

$

25,000

 

1.3375

%

12/30/2011

 

3/31/2017

 

(799

)

(319

)

Swap

 

Cash flow

(a)

$

40,000

 

2.4590

%

6/20/2011

 

6/20/2018

 

(3,433

)

(2,553

)

Swap

 

Cash flow

(a)

$

40,000

 

2.4725

%

6/20/2011

 

6/20/2018

 

(3,470

)

(2,628

)

Swap

 

Cash flow

(a)

$

20,000

 

2.4750

%

6/20/2011

 

6/20/2018

 

(1,734

)

(1,295

)

 

 

 

 

$

400,000

 

 

 

 

 

 

 

$

(19,665

)

$

(12,394

)

 


(a)         Hedging unsecured variable rate debt by fixing 30-day LIBOR.

 

The Company measures its derivative instruments at fair value and records them in the balance sheet as either an asset or liability.  As of December 31, 2012 and 2011, all derivative instruments were included in accounts payable, accrued expenses and other liabilities in the accompanying consolidated balance sheets.  The effective portions of changes in the fair value of the derivatives are reported in accumulated other comprehensive income (loss). Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The change in unrealized loss on interest rate swap reflects a reclassification of $6.0 million of unrealized losses from accumulated other comprehensive loss as an increase to interest expense during 2012. During 2013, the Company estimates that an additional $6.1 million will be reclassified as an increase to interest expense.

 

14.  FAIR VALUE MEASUREMENTS

 

The Company applies the methods of fair value as described in authoritative guidance, to value its financial assets and liabilities. As defined in the guidance, fair value is based on the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

 

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Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

 

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

 

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

 

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible, as well as considering counterparty credit risk in its assessment of fair value.

 

Financial assets and liabilities carried at fair value as of December 31, 2012 are classified in the table below in one of the three categories described above (dollars in thousands):

 

 

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

Interest Rate Swap Derivative Liabilities

 

$

 

$

19,665

 

$

 

 

 

 

 

 

 

 

 

Total liabilities at fair value

 

$

 

$

19,665

 

$

 

 

 

Financial assets and liabilities carried at fair value as of December 31, 2011 are classified in the table below in one of the three categories described above (dollars in thousands):

 

 

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

Interest Rate Swap Derivative Liabilities

 

$

 

$

12,394

 

$

 

 

 

 

 

 

 

 

 

Total liabilities at fair value

 

$

 

$

12,394

 

$

 

 

Financial assets and liabilities carried at fair value were classified as Level 2 inputs.  For financial liabilities that utilize Level 2 inputs, the Company utilizes both direct and indirect observable price quotes, including LIBOR yield curves, bank price quotes for forward starting swaps, NYMEX futures pricing and common stock price quotes. Below is a summary of valuation techniques for Level 2 financial liabilities:

 

·                  Interest rate swap derivative assets and liabilities — valued using LIBOR yield curves at the reporting date. Counterparties to these contracts are most often highly rated financial institutions, none of which experienced any significant downgrades in 2012 that would reduce the amount owed by the Company.  Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and the counterparties. However, as of December 31, 2012 we have assessed the significance of the effect of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

 

The following are fair value measurements recorded on a nonrecurring basis as of December 31, 2012.  There were no nonrecurring fair value measurements as of December 31, 2011 (in thousands):

 

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Table of Contents

 

 

 

Fair Value Measurements as of December 31, 2012

 

 

 

Balance

 

Level 1

 

Level 2

 

Level 3

 

Total
Gains (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in real estate ventures, at equity

 

$

 

$

 

$

 

$

20,579

 

$

7,023

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

 

$

 

$

 

$

20,579

 

$

7,023

 

 


(1)         Represents gain on remeasurement of investment in real estate venture.  See note 5 — “Investment in Unconsolidated Real Estate Ventures” for additional discussion.

 

Fair value for those assets measured using Level 3 inputs was determined through the use of a direct capitalization approach. The direct capitalization approach applies a projected yield for the investment to the estimated stabilized income for the property.  Yield rates utilized in this approach are derived from market transactions as well as other financial and industry data. The yield rates used in determining the fair value of HSREV ranged from 6%-7%.

 

The fair values of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximates their respective carrying values at December 31, 2012 and 2011.  The Company had fixed interest rate loans with a carrying value of $873.3 million and $758.4 million at December 31, 2012 and 2011, respectively.  The estimated fair values of these fixed rate loans were $866.9 million and $736.3 million at December 31, 2012 and 2011, respectively.  The Company had variable interest rate loans with a carrying value of $150.4 million at December 31, 2012.  The estimated fair value of the variable interest rate loan approximates its carrying value due to its floating rate nature and market spreads.  This estimate is based on a discounted cash flow analysis assuming market interest rates for comparable obligations at December 31, 2012.  The Company estimates the fair value of its fixed rate debt and the credit spreads over variable market rates on its variable rate debt by discounting the future cash flows of each instrument at estimated market rates or credit spreads consistent with the maturity of the debt obligation with similar credit policies, which is classified within level 2 of the fair value hierarchy. Rates and credit spreads take into consideration general market conditions and maturity.

 

15.  SHARE-BASED COMPENSATION PLANS

 

On June 2, 2010 the Company’s shareholders approved an amendment and restatement of the Company’s 2007 Equity Incentive Plan, a share-based employee compensation plan originally approved by shareholders on May 8, 2007 (as amended and restated, the “2007 Plan”).  On October 19, 2004, the Company’s sole shareholder approved a share-based employee compensation plan, the 2004 Equity Incentive Plan (the “2004 Plan” and collectively with the 2007 Plan, the “Plans”).  The purpose of the Plans is to attract and retain highly qualified executive officers, Trustees and key employees and other persons and to motivate such officers, Trustees, key employees and other persons to serve the Company and its affiliates to expend maximum effort to improve the business results and earnings of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company.  To this end, the Plans provide for the grant of share options, share appreciation rights, restricted shares, share units, unrestricted shares, dividend equivalent rights and cash awards.  Any of these awards may, but need not, be made as performance incentives to reward attainment of annual or long-term performance goals.  Share options granted under the Plans may be non-qualified share options or incentive share options.

 

The Plans are administered by the Compensation Committee of the Company’s Board of Trustees (the “Compensation Committee”), which is appointed by the Board of Trustees. The Compensation Committee interprets the Plans and, subject to its right to delegate authority to grant awards, determines the terms and provisions of option grants and share awards.

 

The 2007 Plan uses a “Fungible Units” methodology for computing the maximum number of common shares available for issuance under the 2007 Plan.  The Fungible Units methodology assigns weighted values to different types of awards under the 2007 Plan without assigning specific numerical limits for different types of awards.  Upon shareholder approval of the amendment and restatement of the 2007 plan in June 2010, a “Fungible Pool Limit” was established consisting of 4,728,561 shares plus any common shares restored to availability upon expiration or forfeiture of then-currently outstanding options or restricted share awards (consisting of 372,135 shares).

 

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The 2007 Plan provides that any common shares made the subject of awards in the form of options or share appreciation rights shall be counted against the Fungible Pool Limit as one (1) unit.  Any common shares made the subject of awards under the 2007 Plan in the form of restricted shares or share units (each a “Full-Value Award”) shall be counted against the Fungible Pool Limit as 1.66 units.  The Fungible Pool Limit and the computation of the number of common shares available for issuance are subject to adjustment upon certain corporate transactions or events, including share splits, reverse share splits and recapitalizations.  The number of shares counted against the Fungible Pool Limit includes the full number of shares subject to the award, and is not reduced in the event shares are withheld to fund withholding tax obligations, or, in the case of options and share appreciation rights, where shares are applied to pay the exercise price.  If an option or other award granted under the 2007 Plan expires, is forfeited or otherwise terminates, the common shares subject to any portion of such option or other award that expires, is forfeited or that otherwise terminates, as the case may be, will again become available for issuance under the 2007 Plan.

 

In addition to the overall limit on the number of shares that may be subject to awards under the 2007 Plan, the 2007 Plan limits the number of shares that may be the subject of awards during the three-year period ending December 31, 2012.  Specifically, the average of the following three ratios (each expressed as a percentage) shall not exceed the greater of two percent (2%) or the mean of the Company’s GICS peer group for the three-year period beginning January 1, 2010 and ending December 31, 2012.  The three ratios would correspond to the three calendar years in the three-year period ending December 31, 2012, and each ratio would be computed as (i) the number of shares subject to awards granted in the applicable year divided by (ii) the sum of the number of common shares and units of the Company’s operating partnership (“OP Units”) exchangeable into common shares outstanding at the end of such year.  Solely for purposes of calculating the number of shares subject to awards under this limitation, shares underlying Full-Value Awards will be taken into account in the numerator of the foregoing ratios as 1.5 shares.

 

Subject to adjustment upon certain corporate transactions or events, a participant may not receive awards (with shares subject to awards being counted, depending on the type of award, in the proportions ranging from 1.0 to 1.66), as described above in any one calendar year covering more than 1,000,000 units.

 

With respect to the 2004 Plan, a total of 3 million common shares are reserved for issuance under the 2004 Plan. The maximum number of common shares underlying equity awards that may be granted to an individual participant under the 2004 Plan during any calendar year is 400,000 for options or share appreciation rights and 100,000 for restricted shares or restricted share units. The maximum number of common shares that can be awarded under the Plan to any person, other than pursuant to an option, share appreciation rights or time-vested restricted shares, is 250,000 per calendar year under the 2004 Plan.  To the extent that options expire unexercised or are terminated, surrendered or canceled, the options and share awards become available for future grants under the 2004 Plan, unless the 2004 Plan has been terminated.

 

Under the Plans, the Compensation Committee determines the vesting schedule of each share award and option. The exercise price for options is equivalent to the fair value of the underlying common shares at the grant date. The Compensation Committee also determines the term of each option, which shall not exceed 10 years from the grant date.

 

Share Options

 

The fair values for options granted in 2012, 2011, and 2010 were estimated at the time the options were granted using the Black-Scholes option-pricing model applying the following weighted average assumptions:

 

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Table of Contents

 

Assumptions:

 

2012

 

2011

 

2010

 

Risk-free interest rate

 

2.0

%

3.3

%

3.7

%

Expected dividend yield

 

4.5

%

4.8

%

5.4

%

Volatility (a)

 

52.22

%

54.60

%

57.60

%

Weighted average expected life of the options (b)

 

9.59 years

 

9.9 years

 

9.9 years

 

Weighted average grant date fair value of options granted per share

 

$

3.94

 

$

3.40

 

$

2.60

 

 


(a)  Expected volatility is based upon the level of volatility historically experienced.

(b)  Expected life is based upon our expectations of stock option recipients’ expected exercise and termination patterns.

 

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options. In addition, option-pricing models require the input of highly subjective assumptions, including the expected stock price volatility. Volatility for the 2010, 2011, and 2012 grants was based on the trading history of the Company’s shares.

 

In 2012, 2011, and 2010, the Company recognized compensation expense related to options issued to employees and executives of approximately $1.2 million, $1.5 million and $1.9 million, respectively, which was recorded in general and administrative expense.  Approximately 222,421 share options were issued during 2012 for which the fair value of the options at their respective grant dates was approximately $0.9 million, which vest over three and five years.  As of December 31, 2012, the Company had approximately $1.1 million of unrecognized option compensation cost related to all grants that will be recorded over the next five years.

 

The table below summarizes the option activity under the Plan for the years ended December 31, 2012, 2011 and 2010:

 

 

 

 

 

 

 

Weighted Average

 

 

 

Number of Shares

 

Weighted Average

 

Remaining

 

 

 

Under Option

 

Exercise Price

 

Contractual Term

 

Balance at December 31, 2009

 

4,546,304

 

$

10.71

 

7.95

 

Options granted

 

574,556

 

7.32

 

9.06

 

Options canceled

 

(50,875

)

12.71

 

 

Options exercised

 

(56,225

)

3.46

 

8.11

 

Balance at December 31, 2010

 

5,013,760

 

$

10.38

 

7.18

 

Options granted

 

346,882

 

9.38

 

9.11

 

Options canceled

 

(80,924

)

9.40

 

 

Options exercised

 

(24,000

)

5.06

 

6.84

 

Balance at December 31, 2011

 

5,255,718

 

$

10.35

 

6.33

 

Options granted

 

222,421

 

11.48

 

9.14

 

Options canceled

 

(10,375

)

9.01

 

 

Options exercised

 

(209,900

)

7.89

 

6.08

 

Balance at December 31, 2012

 

5,257,864

 

$

10.50

 

5.49

 

 

 

 

 

 

 

 

 

Vested or expected to vest at December 31, 2012

 

5,257,864

 

$

10.50

 

5.49

 

Exercisable at December 31, 2012

 

4,549,227

 

$

10.69

 

5.13

 

 

At December 31, 2012, the aggregate intrinsic value of options outstanding, of options that vested or expected to vest and of options that were exercisable was approximately $27.6 million.  The aggregate intrinsic value of options exercised was approximately $2.6 million for the year ended December 31, 2012.

 

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Table of Contents

 

Restricted Shares

 

The Company applies the fair value method of accounting for contingently issued shares.  As such, each grant is recognized ratably over the related vesting period.  Approximately 595,000 restricted shares were issued during 2012 for which the fair value of the restricted shares at their respective grant dates was approximately $6.9 million, which vest over three and five years.  During 2011, approximately 314,000 restricted shares were issued for which the fair value of the restricted shares at their respective grant dates was approximately $2.6 million.  As of December 31, 2012 the Company had approximately $5.3 million of remaining unrecognized restricted share compensation costs that will be recognized over the next four years.  Restricted share awards are considered to be performance awards and are valued using the stock price on the grant date.

 

In 2012, 2011 and 2010, the Company recognized compensation expense related to restricted shares issued to employees and Trustees of approximately $3.9 million, $2.2 million, and $1.8 million, respectively; these amounts were recorded in general and administrative expense.  The following table presents non-vested restricted share activity during 2012:

 

 

 

Number of Non-

 

 

 

Vested Restricted

 

 

 

Shares

 

Non-Vested at January 1, 2012

 

559,433

 

Granted

 

595,348

 

Vested

 

(299,161

)

Forfeited

 

(2,480

)

Non-Vested at December 31, 2012

 

853,140

 

 

On January 25, 2012, 49,981 restricted share units were granted to certain executives.  The restricted share units were granted in the form of deferred share units with a market condition, entitling the holders thereof to receive common shares at a future date.  The deferred share units will be awarded based on the Company’s total return to shareholders with respect to a specified peer group consisting of publicly traded companies over a three-year period.  The fair value of the restricted share units on the grant date was approximately $0.8 million.  The Company used a Monte Carlo simulation analysis to estimate the fair value of the awards.  The restricted share units will cliff vest upon the third anniversary of the effective date, or December 31, 2014.

 

On May 30, 2012, 274,668 restricted share units were granted to the Company’s chief executive officer.  The restricted share units were granted in the form of deferred share units with a market condition, entitling the holder thereof to receive common shares at a future date.  The deferred share units will be awarded based on the price return of the Company’s stock price over a two-year period.  The fair value of the restricted share units on the grant date was approximately $3.0 million.  The Company used a Monte Carlo simulation analysis to estimate the fair value of the award.  The restricted share units will cliff vest on December 31, 2013.

 

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Table of Contents

 

16.  EARNINGS PER SHARE AND UNIT AND SHAREHOLDERS’ EQUITY AND CAPITAL

 

Earnings per share and Shareholders’ Equity

 

The following is a summary of the elements used in calculating basic and diluted earnings per share:

 

 

 

For the year ended December 31,

 

 

 

2012

 

2011

 

2010

 

 

 

(Dollars and shares in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(8,296

)

$

(8,614

)

$

(15,000

)

Noncontrolling interests in the Operating Partnership

 

393

 

474

 

848

 

Noncontrolling interest in subsidiaries

 

(1,918

)

(2,810

)

(1,755

)

Distribution to Preferred Shares (1)

 

(6,008

)

(1,218

)

 

Loss from continuing operations attributable to the Company’s common shareholders

 

$

(15,829

)

$

(12,168

)

$

(15,907

)

 

 

 

 

 

 

 

 

Total discontinued operations

 

11,924

 

11,061

 

8,981

 

Noncontrolling interests in the Operating Partnership

 

(286

)

(509

)

(467

)

Total discontinued operations attributable to the Company’s common shareholders

 

$

11,638

 

$

10,552

 

$

8,514

 

 

 

 

 

 

 

 

 

Net loss attributable to the Company’s common shareholders

 

$

(4,191

)

$

(1,616

)

$

(7,393

)

 

 

 

 

 

 

 

 

Weighted-average shares outstanding

 

124,548

 

102,976

 

93,998

 

Share options and restricted share units (2) 

 

 

 

 

Weighted-average diluted shares outstanding (3)

 

124,548

 

102,976

 

93,998

 

 

 

 

 

 

 

 

 

Earning (loss) per Common Share:

 

 

 

 

 

 

 

Continuing operations

 

$

(0.13

)

$

(0.12

)

$

(0.17

)

Discontinued operations

 

0.10

 

0.10

 

0.09

 

Basic and diluted loss per share

 

$

(0.03

)

$

(0.02

)

$

(0.08

)

 

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Table of Contents

 

Earnings per unit and Capital

 

The following is a summary of the elements used in calculating basic and diluted earnings per unit:

 

 

 

For the year ended December 31,

 

 

 

2012

 

2011

 

2010

 

 

 

(Dollars and units in thousands, except per unit amounts)

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(8,296

)

$

(8,614

)

$

(15,000

)

Limited Partnership interest of third parties

 

393

 

474

 

848

 

Noncontrolling interest in subsidiaries

 

(1,918

)

(2,810

)

(1,755

)

Distribution to Preferred units (1)

 

(6,008

)

(1,218

)

 

Loss from continuing operations attributable to common unitholders

 

$

(15,829

)

$

(12,168

)

$

(15,907

)

 

 

 

 

 

 

 

 

Total discontinued operations

 

11,924

 

11,061

 

8,981

 

Limited Partnership interest of third parties

 

(286

)

(509

)

(467

)

Total discontinued operations attributable to common unitholders

 

$

11,638

 

$

10,552

 

$

8,514

 

 

 

 

 

 

 

 

 

Net loss attributable to common unitholders

 

$

(4,191

)

$

(1,616

)

$

(7,393

)

 

 

 

 

 

 

 

 

Weighted-average units outstanding

 

124,548

 

102,976

 

93,998

 

Unit options and restricted unit units (2)

 

 

 

 

Weighted-average diluted units outstanding (3)

 

124,548

 

102,976

 

93,998

 

 

 

 

 

 

 

 

 

Earning (loss) per Common unit:

 

 

 

 

 

 

 

Continuing operations

 

$

(0.13

)

$

(0.12

)

$

(0.17

)

Discontinued operations

 

0.10

 

0.10

 

0.09

 

Basic and diluted loss per unit

 

$

(0.03

)

$

(0.02

)

$

(0.08

)

 


(1)  For the year ended December 31, 2012, 2011 and 2010, the Company declared cash dividends per preferred share/unit of $1.936, $0.393 and $0.000, respectively.

 

(2) For the years ended December 31, 2012, 2011 and 2010, the potentially dilutive shares/units of approximately 2,000,000, 1,378,000, and 1,177,000 respectively, were not included in the earnings per share/unit calculation as their effect is antidilutive.

 

(3) For the years ended December 31, 2012, 2011 and 2010, the Company declared cash dividends per common share/unit of $0.350, $0.290 and $0.145, respectively.

 

The Operating Partnership units and common units have essentially the same economic characteristics as they unit equally in the total net income or loss and distributions of the Operating Partnership.  An Operating Partnership unit may be redeemed for cash, or at the Company’s option, common units on a one-for-one basis.  Outstanding noncontrolling interest units in the Operating Partnership were 3,293,730, 4,674,136 and 4,737,136 as of December 31, 2012, 2011 and 2010, respectively.  There were 131,794,547 and 122,058,919 common units outstanding as of December 31, 2012 and 2011, respectively.

 

Issuance of Common and Preferred Shares

 

On September 16, 2011, the Company amended its sales agreement with Cantor Fitzgerald & Co. (the “Sales Agent”) dated April 3, 2009 and as amended on January 26, 2011 to increase the number of common shares that the Sales Agent may sell under the Sales Agreement from 15 million to 20 million. During the year ended December 31, 2011 the Company sold 140,000 shares under the program at an average sales price of $10.75 per share resulting in gross proceeds of $1.5 million.  During the year ended December 31, 2012 the Company sold 7.9 million shares under the program at an average sales price of $13.13 per share resulting in gross proceeds of $103.8 million ($163.8 million of gross proceeds and 16.1 million shares sold with an average sales price of $10.16 since program inception in 2009).

 

F-41



Table of Contents

 

On October 28, 2011, the Company completed a public offering of 23 million common shares at a public offering price of $9.20, which reflects the full exercise by the underwriters of their option to purchase 3 million shares to cover over-allotments. The Company received approximately $202.5 million in net proceeds from the offering after deducting the underwriting discount and other estimated offering expenses.

 

During November 2011, the Company completed an underwritten public offer of 3.1 million of the Company’s Series A preferred shares at a public offering price of $25.00 per share for gross proceeds of $77.5 million. The financing provided approximately $74.8 million in net proceeds to the Company after deducting the underwriting discount and offering expenses.

 

The Company used the net proceeds from the 2011 common and preferred public offerings to fund a portion of the cash purchase price of the Storage Deluxe Acquisition on November 3, 2011.  The Company used the net proceeds from the 2012 common offerings to fund the 2012 acquisitions and pay down multiple mortgages during the year.

 

17.  INCOME TAXES

 

Deferred income taxes are established for temporary differences between financial reporting basis and tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse.  A valuation allowance for deferred tax assets is provided if the Company believes that it is more likely than not that all or some portion of the deferred tax asset will not be realized.  No valuation allowance was recorded at December 31, 2012 or 2011.  The Company had net deferred tax assets of $0.7 million and $0.4 million, which are included in other assets as of December 31, 2012 and 2011, respectively.  The Company believes it is more likely than not the deferred tax assets will be realized.

 

The following table discloses the income tax rates for the periods identified below:

 

 

 

For the year ended December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Effective income tax rate

 

 

 

 

 

Statutory federal income tax rate

 

34

%

34

%

State and local income taxes

 

4

%

4

%

Effective income tax rate

 

38

%

38

%

 

The following table discloses the Company’s deferred tax assets and liabilities as of December 31, 2012 and 2011, which are included in other assets on the consolidated balance sheets:

 

 

 

As of December 31,

 

 

 

2012

 

2011

 

2010

 

 

 

(dollars in thousands)

 

 

 

Assets

 

Liabilities

 

Assets

 

Liabilities

 

Assets

 

Liabilities

 

Deferred taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

Share based compensation

 

$

3,684

 

$

3,347

 

$

3,349

 

$

3,045

 

$

2,971

 

$

2,689

 

Other

 

400

 

 

134

 

 

34

 

 

Deferred taxes

 

$

4,084

 

$

3,347

 

$

3,483

 

$

3,045

 

$

3,005

 

$

2,689

 

 

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Table of Contents

 

18.  PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

 

During the year ended December 31, 2012, the Company acquired 37 self-storage facilities for an aggregate purchase price of approximately $432.3 million (see note 3).

 

The condensed consolidated pro forma financial information set forth below reflects adjustments to the Company’s historical financial data to give effect to each of the acquisitions and related financing activity (including the issuance of common shares) that occurred during 2012 and 2011 as if each had occurred as of January 1, 2011 and 2010, respectively.  The unaudited pro forma information presented below does not purport to represent what the Company’s actual results of operations would have been for the periods indicated, nor does it purport to represent the Company’s future results of operations.

 

The following table summarizes, on a pro forma basis, the Company’s consolidated results of operations for the year ended December 31, 2012 and 2011 based on the assumptions described above:

 

 

 

2012

 

2011

 

 

 

(unaudited)

 

 

 

(in thousands, except per share data)

 

 

 

 

 

 

 

Pro forma revenue

 

$

304,564

 

$

286,882

 

Pro forma income (loss) from continuing operations

 

22,248

 

(40,638

)

(Loss) earnings per common share from continuing

 

 

 

 

 

Basic and diluted — as reported

 

$

(0.13

)

$

(0.12

)

Basic and diluted — as pro forma

 

0.16

 

(0.42

)

 

The following summarizes the amounts of revenue and earnings of the 2012 and 2011 acquisitions since the acquisition dates included in the consolidated statements of operations for the years ended December 31, 2012 and 2011:

 

 

 

Year ended December 31,

 

 

 

2012

 

2011

 

 

 

(in thousands)

 

Total revenue

 

$

56,093

 

$

10,007

 

Net loss

 

(27,562

)

(4,151

)

 

19.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

 

The following is a summary of quarterly financial information for the years ended December 31, 2012 and 2011 (in thousands, except per share data):

 

F-43



Table of Contents

 

 

 

Three months ended

 

 

 

March 31,

 

June 30,

 

September 30,

 

December 31,

 

 

 

2012

 

2012

 

2012

 

2012

 

Total revenues

 

$

64,602

 

$

67,775

 

$

73,329

 

$

77,370

 

Total operating expenses

 

57,817

 

60,408

 

65,339

 

67,262

 

Net income (loss) attributable to the Company

 

(3,843

)

2,543

 

1,636

 

1,481

 

Basic and diluted earnings (loss) per share

 

(0.04

)

0.01

 

 

 

 

 

 

Three months ended

 

 

 

March 31,

 

June 30,

 

September 30,

 

December 31,

 

 

 

2011

 

2011

 

2011

 

2011

 

Total revenues

 

$

53,228

 

$

54,989

 

$

57,700

 

$

61,328

 

Total operating expenses

 

44,202

 

45,028

 

44,686

 

51,362

 

Net income (loss) attributable to the Company

 

(117

)

902

 

6,828

 

(8,011

)

Basic and diluted earnings (loss) per share

 

0.00

 

0.01

 

0.07

 

(0.08

)

 

The summation of quarterly earnings per share amounts do not necessarily equal the full year amounts.  The above information was updated to reclassify amounts to discontinued operations (see note 12).

 

20. SUBSEQUENT EVENTS

 

None

 

F-44



Table of Contents

 

CUBESMART

SCHEDULE III

REAL ESTATE AND RELATED DEPRECIATION

December 31, 2012

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying Amount

 

 

 

 

 

 

 

 

 

 

 

Initial Cost

 

 

 

at December 31, 2012

 

 

 

 

 

Description

 

Square Footage

 

Encumbrances

 

Land

 

Building and
Improvements

 

Costs Subsequent to
Acquisition

 

Land

 

Building and
Improvements

 

Total

 

Accumulated
Depreciation (F)

 

Year Acquired
/ Developed

 

Chandler, AZ

 

47,520

 

 

 

327

 

1,257

 

262

 

327

 

1,290

 

1,617

 

335

 

2005

 

Glendale, AZ

 

56,807

 

 

 

201

 

2,265

 

991

 

418

 

2,934

 

3,352

 

1,143

 

1998

 

Green Valley, AZ

 

25,050

 

 

 

298

 

1,153

 

127

 

298

 

1,070

 

1,368

 

252

 

2005

 

Mesa I, AZ

 

52,375

 

 

 

920

 

2,739

 

145

 

921

 

2,413

 

3,334

 

581

 

2006

 

Mesa II, AZ

 

45,361

 

 

 

731

 

2,176

 

174

 

731

 

1,904

 

2,635

 

467

 

2006

 

Mesa III, AZ

 

58,189

 

 

 

706

 

2,101

 

163

 

706

 

1,858

 

2,564

 

453

 

2006

 

Phoenix I, AZ

 

100,775

 

 

 

1,134

 

3,376

 

296

 

1,135

 

3,023

 

4,158

 

732

 

2006

 

Phoenix II, AZ

 

83,309

 

 

 

756

 

2,251

 

1,401

 

847

 

2,957

 

3,804

 

554

 

2006/2011

 

Scottsdale, AZ

 

79,525

 

 

 

443

 

4,879

 

1,688

 

883

 

5,920

 

6,803

 

2,296

 

1998

 

Tempe, AZ

 

53,890

 

 

 

749

 

2,159

 

175

 

749

 

2,030

 

2,779

 

464

 

2005

 

Tucson I, AZ

 

59,350

 

 

 

188

 

2,078

 

941

 

384

 

2,755

 

3,139

 

1,066

 

1998

 

Tucson II, AZ

 

43,950

 

 

 

188

 

2,078

 

1,009

 

391

 

2,802

 

3,193

 

1,021

 

1998

 

Tucson III, AZ

 

49,832

 

(A)

 

532

 

2,048

 

167

 

533

 

1,855

 

2,388

 

441

 

2005

 

Tucson IV, AZ

 

48,040

 

(A)

 

674

 

2,595

 

179

 

675

 

2,353

 

3,028

 

561

 

2005

 

Tucson V, AZ

 

45,184

 

(A)

 

515

 

1,980

 

236

 

515

 

1,860

 

2,375

 

437

 

2005

 

Tucson VI, AZ

 

40,766

 

(A)

 

440

 

1,692

 

164

 

440

 

1,549

 

1,989

 

372

 

2005

 

Tucson VII, AZ

 

52,688

 

(A)

 

670

 

2,576

 

222

 

670

 

2,387

 

3,057

 

572

 

2005

 

Tucson VIII, AZ

 

46,600

 

(A)

 

589

 

2,265

 

174

 

589

 

2,088

 

2,677

 

485

 

2005

 

Tucson IX, AZ

 

67,720

 

(A)

 

724

 

2,786

 

344

 

725

 

2,614

 

3,339

 

619

 

2005

 

Tucson X, AZ

 

46,350

 

(A)

 

424

 

1,633

 

181

 

425

 

1,505

 

1,930

 

359

 

2005

 

Tucson XI, AZ

 

42,700

 

(A)

 

439

 

1,689

 

377

 

439

 

1,777

 

2,216

 

422

 

2005

 

Tucson XII, AZ

 

42,225

 

(A)

 

671

 

2,582

 

259

 

672

 

2,428

 

3,100

 

548

 

2005

 

Tucson XIII, AZ

 

45,792

 

(A)

 

587

 

2,258

 

216

 

587

 

2,112

 

2,699

 

489

 

2005

 

Tucson XIV, AZ

 

49,095

 

 

 

707

 

2,721

 

450

 

708

 

2,637

 

3,345

 

588

 

2005

 

Apple Valley I, CA

 

73,290

 

 

 

140

 

1,570

 

1,540

 

476

 

2,566

 

3,042

 

1,066

 

1997

 

Apple Valley II, CA

 

61,405

 

 

 

160

 

1,787

 

1,211

 

431

 

2,505

 

2,936

 

1,010

 

1997

 

Benicia, CA

 

74,770

 

 

 

2,392

 

7,028

 

125

 

2,392

 

6,080

 

8,472

 

1,388

 

2005

 

Cathedral City, CA

 

110,974

 

 

 

2,194

 

10,046

 

283

 

2,195

 

8,033

 

10,228

 

2,825

 

2006

 

Citrus Heights, CA

 

75,620

 

(A)

 

1,633

 

4,793

 

207

 

1,634

 

4,259

 

5,893

 

1,003

 

2005

 

Diamond Bar, CA

 

102,984

 

 

 

2,522

 

7,404

 

150

 

2,524

 

6,461

 

8,985

 

1,551

 

2005

 

Escondido, CA

 

142,670

 

 

 

3,040

 

11,804

 

142

 

3,040

 

9,592

 

12,632

 

1,610

 

2007

 

Fallbrook, CA

 

46,620

 

 

 

133

 

1,492

 

1,726

 

432

 

2,719

 

3,151

 

969

 

1997

 

Lancaster, CA

 

60,675

 

 

 

390

 

2,247

 

934

 

556

 

2,681

 

3,237

 

845

 

2001

 

Long Beach, CA

 

125,091

 

 

 

3,138

 

14,368

 

391

 

3,138

 

12,848

 

15,986

 

2,822

 

2006

 

Murrieta, CA

 

49,835

 

 

 

1,883

 

5,532

 

129

 

1,903

 

4,796

 

6,699

 

1,098

 

2005

 

North Highlands, CA

 

57,244

 

(A)

 

868

 

2,546

 

273

 

868

 

2,373

 

3,241

 

570

 

2005

 

Orangevale, CA

 

50,317

 

(A)

 

1,423

 

4,175

 

232

 

1,423

 

3,746

 

5,169

 

892

 

2005

 

Palm Springs I, CA

 

72,675

 

 

 

1,565

 

7,164

 

104

 

1,566

 

6,306

 

7,872

 

1,394

 

2006

 

Palm Springs II, CA

 

122,550

 

 

 

2,131

 

9,758

 

326

 

2,132

 

8,728

 

10,860

 

1,900

 

2006

 

Pleasanton, CA

 

85,045

 

 

 

2,799

 

8,222

 

15

 

2,799

 

6,993

 

9,792

 

1,608

 

2005

 

Rancho Cordova, CA

 

53,978

 

(A)

 

1,094

 

3,212

 

229

 

1,095

 

2,933

 

4,028

 

692

 

2005

 

Rialto I, CA

 

57,391

 

 

 

899

 

4,118

 

169

 

899

 

3,718

 

4,617

 

819

 

2006

 

Rialto II, CA

 

99,803

 

 

 

277

 

3,098

 

1,682

 

672

 

3,984

 

4,656

 

1,665

 

1997

 

Riverside I, CA

 

67,120

 

 

 

1,351

 

6,183

 

189

 

1,351

 

5,540

 

6,891

 

1,232

 

2006

 

Riverside II, CA

 

85,166

 

 

 

1,170

 

5,359

 

316

 

1,170

 

4,941

 

6,111

 

1,077

 

2006

 

Roseville, CA

 

59,869

 

(A)

 

1,284

 

3,767

 

303

 

1,284

 

3,487

 

4,771

 

836

 

2005

 

Sacramento I, CA

 

50,714

 

(A)

 

1,152

 

3,380

 

219

 

1,152

 

3,051

 

4,203

 

732

 

2005

 

Sacramento II, CA

 

61,888

 

(A)

 

1,406

 

4,128

 

203

 

1,407

 

3,682

 

5,089

 

865

 

2005

 

San Bernardino I, CA

 

31,070

 

 

 

51

 

572

 

1,142

 

182

 

1,398

 

1,580

 

483

 

1997

 

San Bernardino II, CA

 

41,546

 

 

 

112

 

1,251

 

1,152

 

306

 

1,876

 

2,182

 

743

 

1997

 

San Bernardino III, CA

 

35,341

 

 

 

98

 

1,093

 

1,035

 

242

 

1,649

 

1,891

 

630

 

1997

 

San Bernardino IV, CA

 

83,166

 

 

 

1,872

 

5,391

 

82

 

1,872

 

4,756

 

6,628

 

1,135

 

2005

 

San Bernardino V, CA

 

57,001

 

 

 

783

 

3,583

 

436

 

783

 

3,493

 

4,276

 

771

 

2006

 

San Bernardino VII, CA

 

78,729

 

 

 

1,475

 

6,753

 

236

 

1,290

 

6,243

 

7,533

 

1,379

 

2006

 

San Bernardino VIII, CA

 

95,029

 

 

 

1,691

 

7,741

 

261

 

1,692

 

6,059

 

7,751

 

2,262

 

2006

 

San Marcos, CA

 

37,430

 

 

 

775

 

2,288

 

107

 

776

 

2,031

 

2,807

 

484

 

2005

 

Santa Ana, CA

 

63,896

 

 

 

1,223

 

5,600

 

232

 

1,223

 

5,059

 

6,282

 

1,118

 

2006

 

South Sacramento, CA

 

52,165

 

(A)

 

790

 

2,319

 

227

 

791

 

2,150

 

2,941

 

510

 

2005

 

Spring Valley, CA

 

55,045

 

 

 

1,178

 

5,394

 

507

 

1,178

 

5,157

 

6,335

 

1,145

 

2006

 

Temecula I, CA

 

81,550

 

 

 

660

 

4,735

 

1,185

 

899

 

5,485

 

6,384

 

1,063

 

1998

 

Temecula II, CA

 

84,398

 

 

 

3,080

 

5,839

 

143

 

3,080

 

5,053

 

8,133

 

853

 

2007

 

Thousand Palms, CA

 

74,305

 

 

 

1,493

 

6,835

 

422

 

1,493

 

6,241

 

7,734

 

1,365

 

2006

 

Vista I, CA

 

74,405

 

 

 

711

 

4,076

 

2,259

 

1,118

 

5,407

 

6,525

 

1,586

 

2001

 

Vista II, CA

 

148,081

 

 

 

4,629

 

13,599

 

115

 

4,629

 

11,683

 

16,312

 

2,670

 

2005

 

 

F-45



Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying Amount

 

 

 

 

 

 

 

 

 

 

 

Initial Cost

 

 

 

at December 31, 2012

 

 

 

 

 

Description

 

Square Footage

 

Encumbrances

 

Land

 

Building and
Improvements

 

Costs Subsequent to
Acquisition

 

Land

 

Building and
Improvements

 

Total

 

Accumulated
Depreciation (F)

 

Year Acquired
/ Developed

 

Walnut, CA

 

50,708

 

 

 

1,578

 

4,635

 

148

 

1,595

 

4,044

 

5,639

 

934

 

2005

 

West Sacramento, CA

 

40,040

 

(D)

 

1,222

 

3,590

 

143

 

1,222

 

3,184

 

4,406

 

726

 

2005

 

Westminster, CA

 

68,098

 

 

 

1,740

 

5,142

 

277

 

1,743

 

4,535

 

6,278

 

1,099

 

2005

 

Aurora, CO

 

75,867

 

(A)

 

1,343

 

2,986

 

271

 

1,343

 

2,723

 

4,066

 

624

 

2005

 

Colorado Springs I, CO

 

47,925

 

 

 

771

 

1,717

 

282

 

771

 

1,657

 

2,428

 

376

 

2005

 

Colorado Springs II, CO

 

62,300

 

1,784

 

657

 

2,674

 

201

 

656

 

2,388

 

3,044

 

515

 

2006

 

Denver I, CO

 

59,200

 

 

 

673

 

2,741

 

184

 

674

 

2,432

 

3,106

 

574

 

2006

 

Denver II, CO

 

74,520

 

 

 

1,430

 

7,053

 

1

 

1,430

 

7,053

 

8,483

 

56

 

2012

 

Federal Heights, CO

 

54,770

 

(A)

 

878

 

1,953

 

232

 

879

 

1,791

 

2,670

 

396

 

2005

 

Golden, CO

 

87,382

 

(A)

 

1,683

 

3,744

 

351

 

1,684

 

3,425

 

5,109

 

773

 

2005

 

Littleton, CO

 

53,490

 

(A)

 

1,268

 

2,820

 

164

 

1,268

 

2,476

 

3,744

 

556

 

2005

 

Northglenn, CO

 

52,102

 

(A)

 

862

 

1,917

 

353

 

862

 

1,857

 

2,719

 

394

 

2005

 

Bloomfield, CT

 

48,700

 

 

 

78

 

880

 

2,263

 

360

 

2,571

 

2,931

 

935

 

1997

 

Branford, CT

 

50,679

 

 

 

217

 

2,433

 

1,214

 

504

 

2,863

 

3,367

 

1,501

 

1995

 

Bristol, CT

 

47,725

 

 

 

1,819

 

3,161

 

75

 

1,819

 

2,772

 

4,591

 

730

 

2005

 

East Windsor, CT

 

46,016

 

 

 

744

 

1,294

 

418

 

744

 

1,441

 

2,185

 

374

 

2005

 

Enfield, CT

 

52,875

 

 

 

424

 

2,424

 

384

 

473

 

2,216

 

2,689

 

787

 

2001

 

Gales Ferry, CT

 

54,230

 

 

 

240

 

2,697

 

1,413

 

489

 

3,437

 

3,926

 

1,373

 

1995

 

Manchester I, CT

 

47,025

 

 

 

540

 

3,096

 

341

 

563

 

2,664

 

3,227

 

1,000

 

2002

 

Manchester II, CT

 

52,725

 

 

 

996

 

1,730

 

210

 

996

 

1,633

 

2,629

 

420

 

2005

 

Milford, CT

 

44,885

 

 

 

87

 

1,050

 

1,085

 

274

 

1,665

 

1,939

 

755

 

1996

 

Monroe, CT

 

58,700

 

 

 

2,004

 

3,483

 

557

 

2,004

 

3,356

 

5,360

 

914

 

2005

 

Mystic, CT

 

50,725

 

 

 

136

 

1,645

 

1,799

 

410

 

2,720

 

3,130

 

1,268

 

1996

 

Newington I, CT

 

42,620

 

 

 

1,059

 

1,840

 

154

 

1,059

 

1,700

 

2,759

 

440

 

2005

 

Newington II, CT

 

36,140

 

 

 

911

 

1,584

 

226

 

911

 

1,536

 

2,447

 

391

 

2005

 

Norwalk, CT

 

31,239

 

 

 

646

 

3,187

 

1

 

646

 

3,188

 

3,834

 

42

 

2012

 

Old Saybrook I, CT

 

86,950

 

 

 

3,092

 

5,374

 

429

 

3,092

 

4,950

 

8,042

 

1,312

 

2005

 

Old Saybrook II, CT

 

26,425

 

 

 

1,135

 

1,973

 

213

 

1,135

 

1,858

 

2,993

 

501

 

2005

 

Shelton, CT

 

78,465

 

 

 

1,449

 

8,221

 

173

 

1,449

 

7,311

 

8,760

 

315

 

2011

 

Stamford, CT

 

28,957

 

 

 

1,941

 

3,374

 

73

 

1,941

 

2,911

 

4,852

 

766

 

2005

 

South Windsor, CT

 

72,125

 

 

 

90

 

1,127

 

1,095

 

272

 

1,811

 

2,083

 

780

 

1996

 

Wilton, CT

 

84,475

 

13,060

 

2,409

 

12,261

 

63

 

2,421

 

12,384

 

14,805

 

326

 

2012

 

Washington , DC

 

63,085

 

(D)

 

871

 

12,759

 

388

 

894

 

10,465

 

11,359

 

1,618

 

2008

 

Washington , DC

 

82,530

 

 

 

3,152

 

13,612

 

71

 

3,154

 

11,909

 

15,063

 

378

 

2011

 

Boca Raton, FL

 

37,958

 

 

 

529

 

3,054

 

1,488

 

813

 

3,635

 

4,448

 

1,124

 

2001

 

Boynton Beach I, FL

 

61,749

 

 

 

667

 

3,796

 

1,646

 

958

 

4,352

 

5,310

 

1,366

 

2001

 

Boynton Beach II, FL

 

61,703

 

 

 

1,030

 

2,968

 

257

 

1,030

 

2,790

 

3,820

 

663

 

2005

 

Bradenton I, FL

 

68,391

 

 

 

1,180

 

3,324

 

199

 

1,180

 

3,003

 

4,183

 

736

 

2004

 

Bradenton II, FL

 

87,960

 

 

 

1,931

 

5,561

 

731

 

1,931

 

5,197

 

7,128

 

1,284

 

2004

 

Cape Coral, FL

 

76,627

 

 

 

472

 

2,769

 

2,476

 

830

 

4,311

 

5,141

 

1,591

 

2000

 

Coconut Creek, FL

 

78,783

 

 

 

1,189

 

5,863

 

3

 

1,189

 

5,866

 

7,055

 

47

 

2012

 

Dania Beach, FL

 

168,217

 

 

 

3,584

 

10,324

 

1,049

 

3,584

 

9,876

 

13,460

 

2,412

 

2004

 

Dania, FL

 

58,270

 

 

 

205

 

2,068

 

1,373

 

481

 

2,745

 

3,226

 

1,269

 

1996

 

Davie, FL

 

80,985

 

 

 

1,268

 

7,183

 

759

 

1,373

 

5,678

 

7,051

 

2,297

 

2002

 

Deerfield Beach, FL

 

57,230

 

 

 

946

 

2,999

 

1,983

 

1,311

 

4,492

 

5,803

 

1,468

 

1998

 

Delray Beach, FL

 

67,813

 

 

 

798

 

4,539

 

646

 

883

 

4,184

 

5,067

 

1,379

 

2001

 

Fernandina Beach, FL

 

110,995

 

 

 

378

 

4,222

 

3,563

 

643

 

6,911

 

7,554

 

2,160

 

1996

 

Ft. Lauderdale, FL

 

70,063

 

 

 

937

 

3,646

 

2,396

 

1,384

 

5,407

 

6,791

 

1,800

 

1999

 

Ft. Myers, FL

 

67,510

 

 

 

303

 

3,329

 

688

 

328

 

3,398

 

3,726

 

1,268

 

1999

 

Jacksonville I, FL

 

80,296

 

 

 

1,862

 

5,362

 

45

 

1,862

 

4,725

 

6,587

 

1,010

 

2005

 

Jacksonville II, FL

 

65,270

 

 

 

950

 

7,004

 

40

 

950

 

5,488

 

6,438

 

924

 

2007

 

Jacksonville III, FL

 

65,580

 

 

 

860

 

7,409

 

963

 

1,670

 

5,971

 

7,641

 

1,000

 

2007

 

Jacksonville IV, FL

 

77,425

 

 

 

870

 

8,049

 

1,007

 

1,651

 

6,981

 

8,632

 

1,170

 

2007

 

Jacksonville V, FL

 

81,835

 

 

 

1,220

 

8,210

 

265

 

1,220

 

6,766

 

7,986

 

1,129

 

2007

 

Lake Worth, FL

 

161,808

 

 

 

183

 

6,597

 

6,929

 

183

 

11,573

 

11,756

 

4,218

 

1998

 

Lakeland, FL

 

49,111

 

 

 

81

 

896

 

998

 

256

 

1,319

 

1,575

 

749

 

1994

 

Kendall, FL

 

75,395

 

(D)

 

2,350

 

8,106

 

160

 

2,350

 

6,493

 

8,843

 

1,083

 

2007

 

Lutz I, FL

 

66,795

 

 

 

901

 

2,478

 

166

 

901

 

2,258

 

3,159

 

549

 

2004

 

Lutz II, FL

 

69,232

 

 

 

992

 

2,868

 

229

 

992

 

2,587

 

3,579

 

632

 

2004

 

Margate I, FL

 

54,165

 

 

 

161

 

1,763

 

1,814

 

399

 

2,933

 

3,332

 

1,279

 

1996

 

Margate II, FL

 

65,186

 

 

 

132

 

1,473

 

1,787

 

383

 

2,671

 

3,054

 

1,102

 

1996

 

Merrit Island, FL

 

50,417

 

 

 

716

 

2,983

 

533

 

796

 

2,780

 

3,576

 

782

 

2002

 

Miami I, FL

 

46,825

 

 

 

179

 

1,999

 

1,738

 

484

 

3,054

 

3,538

 

1,597

 

1996

 

Miami II, FL

 

67,010

 

 

 

253

 

2,544

 

1,423

 

561

 

3,151

 

3,712

 

1,513

 

1996

 

Miami III, FL

 

150,735

 

 

 

4,577

 

13,185

 

589

 

4,577

 

11,951

 

16,528

 

2,599

 

2005

 

Miami IV, FL

 

76,352

 

 

 

1,852

 

10,494

 

848

 

1,963

 

9,782

 

11,745

 

539

 

2011

 

Naples I, FL

 

48,150

 

 

 

90

 

1,010

 

2,443

 

270

 

3,079

 

3,349

 

1,243

 

1996

 

Naples II, FL

 

65,850

 

 

 

148

 

1,652

 

4,247

 

558

 

5,209

 

5,767

 

1,978

 

1997

 

Naples III, FL

 

80,266

 

 

 

139

 

1,561

 

4,039

 

598

 

4,294

 

4,892

 

1,918

 

1997

 

Naples IV, FL

 

40,600

 

 

 

262

 

2,980

 

544

 

407

 

3,277

 

3,684

 

1,334

 

1998

 

 

F-46



Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying Amount

 

 

 

 

 

 

 

 

 

 

 

Initial Cost

 

 

 

at December 31, 2012

 

 

 

 

 

Description

 

Square Footage

 

Encumbrances

 

Land

 

Building and
Improvements

 

Costs Subsequent to
Acquisition

 

Land

 

Building and
Improvements

 

Total

 

Accumulated
Depreciation (F)

 

Year Acquired
/ Developed

 

Ocoee, FL

 

76,250

 

 

 

1,286

 

3,705

 

85

 

1,286

 

3,273

 

4,559

 

752

 

2005

 

Orange City, FL

 

59,586

 

 

 

1,191

 

3,209

 

125

 

1,191

 

2,846

 

4,037

 

706

 

2004

 

Orlando II, FL

 

63,084

 

 

 

1,589

 

4,576

 

135

 

1,589

 

4,072

 

5,661

 

933

 

2005

 

Orlando III, FL

 

102,705

 

 

 

1,209

 

7,768

 

454

 

1,209

 

6,836

 

8,045

 

1,271

 

2006

 

Orlando IV, FL

 

76,565

 

 

 

633

 

3,587

 

92

 

633

 

3,175

 

3,808

 

208

 

2010

 

Orlando V, FL

 

75,359

 

 

 

950

 

4,685

 

1

 

950

 

4,685

 

5,635

 

12

 

2012

 

Oviedo, FL

 

49,251

 

 

 

440

 

2,824

 

500

 

440

 

2,657

 

3,097

 

503

 

2006

 

Pembroke Pines, FL

 

67,321

 

 

 

337

 

3,772

 

2,645

 

953

 

5,274

 

6,227

 

2,976

 

1997

 

Royal Palm Beach II, FL

 

81,405

 

 

 

1,640

 

8,607

 

156

 

1,640

 

7,102

 

8,742

 

1,192

 

2007

 

Sanford, FL

 

61,810

 

 

 

453

 

2,911

 

131

 

453

 

2,505

 

2,958

 

463

 

2006

 

Sarasota, FL

 

71,402

 

 

 

333

 

3,656

 

1,238

 

529

 

4,106

 

4,635

 

1,499

 

1999

 

St. Augustine, FL

 

59,725

 

 

 

135

 

1,515

 

3,309

 

383

 

4,264

 

4,647

 

1,687

 

1996

 

Stuart, FL

 

87,037

 

 

 

324

 

3,625

 

2,846

 

685

 

5,568

 

6,253

 

2,276

 

1997

 

SW Ranches, FL

 

64,955

 

 

 

1,390

 

7,598

 

126

 

1,390

 

5,861

 

7,251

 

981

 

2007

 

Tampa, FL

 

83,738

 

 

 

2,670

 

6,249

 

76

 

2,670

 

4,958

 

7,628

 

837

 

2007

 

West Palm Beach I, FL

 

68,051

 

 

 

719

 

3,420

 

1,508

 

835

 

3,953

 

4,788

 

1,292

 

2001

 

West Palm Beach II, FL

 

94,503

 

 

 

2,129

 

8,671

 

260

 

2,129

 

7,299

 

9,428

 

1,863

 

2004

 

West Palm Beach III, FL

 

85,460

 

 

 

804

 

3,962

 

1

 

804

 

3,962

 

4,766

 

10

 

2012

 

Alpharetta, GA

 

90,485

 

 

 

806

 

4,720

 

949

 

967

 

4,070

 

5,037

 

1,182

 

2001

 

Atlanta, GA

 

66,675

 

 

 

822

 

4,053

 

1

 

822

 

4,055

 

4,877

 

43

 

2012

 

Austell , GA

 

83,875

 

 

 

1,635

 

4,711

 

140

 

1,643

 

4,196

 

5,839

 

812

 

2006

 

Decatur, GA

 

145,280

 

 

 

616

 

6,776

 

188

 

616

 

6,808

 

7,424

 

2,841

 

1998

 

Duluth I, GA

 

70,985

 

 

 

373

 

2,044

 

157

 

373

 

1,877

 

2,250

 

88

 

2011

 

Duluth II, GA

 

47,242

 

 

 

681

 

3,355

 

53

 

681

 

3,408

 

4,089

 

99

 

2012

 

Lawrenceville, GA

 

73,765

 

 

 

546

 

2,903

 

300

 

546

 

2,787

 

3,333

 

129

 

2011

 

Leisure City, GA

 

56,177

 

 

 

409

 

2,018

 

3

 

409

 

2,020

 

2,429

 

21

 

2012

 

Norcross I, GA

 

85,420

 

 

 

514

 

2,930

 

735

 

632

 

2,935

 

3,567

 

1,089

 

2001

 

Norcross II, GA

 

47,270

 

 

 

938

 

4,625

 

33

 

938

 

4,659

 

5,597

 

123

 

2012

 

Norcross III, GA

 

57,555

 

 

 

576

 

2,839

 

1

 

576

 

2,841

 

3,417

 

30

 

2012

 

Norcross, GA

 

52,020

 

 

 

366

 

2,025

 

129

 

366

 

1,870

 

2,236

 

87

 

2011

 

Peachtree City I, GA

 

49,875

 

 

 

435

 

2,532

 

584

 

529

 

2,487

 

3,016

 

753

 

2001

 

Peachtree City II, GA

 

57,100

 

 

 

398

 

1,963

 

3

 

398

 

1,966

 

2,364

 

21

 

2012

 

Smyrna, GA

 

57,015

 

 

 

750

 

4,271

 

203

 

750

 

3,444

 

4,194

 

1,010

 

2001

 

Snellville, GA

 

80,000

 

 

 

1,660

 

4,781

 

250

 

1,660

 

4,371

 

6,031

 

765

 

2007

 

Suwanee I, GA

 

85,240

 

 

 

1,737

 

5,010

 

186

 

1,737

 

4,501

 

6,238

 

806

 

2007

 

Suwanee II, GA

 

79,590

 

 

 

800

 

6,942

 

26

 

622

 

5,764

 

6,386

 

965

 

2007

 

Addison, IL

 

31,325

 

 

 

428

 

3,531

 

281

 

428

 

3,312

 

3,740

 

800

 

2004

 

Aurora, IL

 

74,435

 

 

 

644

 

3,652

 

146

 

644

 

3,278

 

3,922

 

792

 

2004

 

Bartlett, IL

 

51,425

 

 

 

931

 

2,493

 

219

 

931

 

2,330

 

3,261

 

556

 

2004

 

Hanover, IL

 

41,190

 

 

 

1,126

 

2,197

 

202

 

1,126

 

2,059

 

3,185

 

497

 

2004

 

Bellwood, IL

 

86,650

 

 

 

1,012

 

5,768

 

769

 

1,012

 

5,239

 

6,251

 

1,616

 

2001

 

Des Plaines, IL

 

74,400

 

 

 

1,564

 

4,327

 

375

 

1,564

 

4,062

 

5,626

 

981

 

2004

 

Elk Grove Village, IL

 

64,129

 

 

 

1,446

 

3,535

 

251

 

1,446

 

3,258

 

4,704

 

816

 

2004

 

Glenview, IL

 

100,115

 

 

 

3,740

 

10,367

 

340

 

3,740

 

9,242

 

12,982

 

2,238

 

2004

 

Gurnee, IL

 

80,300

 

 

 

1,521

 

5,440

 

254

 

1,521

 

4,931

 

6,452

 

1,220

 

2004

 

Harvey, IL

 

60,090

 

 

 

869

 

3,635

 

167

 

869

 

3,263

 

4,132

 

794

 

2004

 

Joliet, IL

 

72,765

 

 

 

547

 

4,704

 

193

 

547

 

4,238

 

4,785

 

1,029

 

2004

 

Kildeer, IL

 

46,285

 

 

 

2,102

 

2,187

 

184

 

1,997

 

2,170

 

4,167

 

491

 

2004

 

Lombard, IL

 

57,764

 

 

 

1,305

 

3,938

 

637

 

1,305

 

3,975

 

5,280

 

992

 

2004

 

Mount Prospect, IL

 

65,000

 

 

 

1,701

 

3,114

 

281

 

1,701

 

2,943

 

4,644

 

704

 

2004

 

Mundelein, IL

 

44,700

 

 

 

1,498

 

2,782

 

167

 

1,498

 

2,537

 

4,035

 

614

 

2004

 

North Chicago, IL

 

53,350

 

 

 

1,073

 

3,006

 

310

 

1,073

 

2,831

 

3,904

 

693

 

2004

 

Plainfield I, IL

 

53,900

 

 

 

1,770

 

1,715

 

206

 

1,740

 

1,628

 

3,368

 

387

 

2004

 

Plainfield II, IL

 

51,900

 

 

 

694

 

2,000

 

132

 

694

 

1,799

 

2,493

 

406

 

2005

 

Schaumburg, IL

 

31,160

 

 

 

538

 

645

 

159

 

538

 

668

 

1,206

 

155

 

2004

 

Streamwood, IL

 

64,305

 

 

 

1,447

 

1,662

 

294

 

1,447

 

1,645

 

3,092

 

398

 

2004

 

Warrensville, IL

 

48,796

 

 

 

1,066

 

3,072

 

148

 

1,066

 

2,788

 

3,854

 

635

 

2005

 

Waukegan, IL

 

79,500

 

 

 

1,198

 

4,363

 

312

 

1,198

 

4,022

 

5,220

 

977

 

2004

 

West Chicago, IL

 

48,175

 

 

 

1,071

 

2,249

 

248

 

1,071

 

2,139

 

3,210

 

517

 

2004

 

Westmont, IL

 

53,450

 

 

 

1,155

 

3,873

 

147

 

1,155

 

3,480

 

4,635

 

837

 

2004

 

Wheeling I, IL

 

54,210

 

 

 

857

 

3,213

 

269

 

857

 

3,009

 

3,866

 

735

 

2004

 

Wheeling II, IL

 

67,825

 

 

 

793

 

3,816

 

366

 

793

 

3,631

 

4,424

 

884

 

2004

 

Woodridge, IL

 

50,262

 

 

943

 

3,397

 

168

 

943

 

3,089

 

4,032

 

749

 

2004

 

Indianapolis, IN

 

73,014

 

 

 

406

 

3,496

 

214

 

406

 

3,204

 

3,610

 

778

 

2004

 

Boston I, MA

 

33,286

 

 

 

538

 

3,048

 

75

 

538

 

2,700

 

3,238

 

184

 

2010

 

Boston II, MA

 

60,545

 

 

 

1,516

 

8,628

 

307

 

1,516

 

7,099

 

8,615

 

2,142

 

2002

 

Leominster, MA

 

53,823

 

 

 

90

 

1,519

 

2,402

 

338

 

3,486

 

3,824

 

1,498

 

1998

 

Medford, MA

 

58,765

 

 

 

1,330

 

7,165

 

90

 

1,330

 

5,777

 

7,107

 

971

 

2007

 

Baltimore, MD

 

93,350

 

 

 

1,050

 

5,997

 

1,244

 

1,173

 

5,818

 

6,991

 

1,885

 

2001

 

California, MD

 

77,865

 

 

 

1,486

 

4,280

 

154

 

1,486

 

3,842

 

5,328

 

929

 

2004

 

District Heights, MD

 

78,660

 

 

 

1,527

 

8,313

 

347

 

1,527

 

7,535

 

9,062

 

319

 

2011

 

 

F-47



Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying Amount

 

 

 

 

 

 

 

 

 

 

 

Initial Cost

 

 

 

at December 31, 2012

 

 

 

 

 

Description

 

Square Footage

 

Encumbrances

 

Land

 

Building and
Improvements

 

Costs Subsequent to
Acquisition

 

Land

 

Building and
Improvements

 

Total

 

Accumulated
Depreciation (F)

 

Year Acquired
/ Developed

 

Gaithersburg, MD

 

87,045

 

 

 

3,124

 

9,000

 

383

 

3,124

 

8,123

 

11,247

 

1,938

 

2005

 

Laurel, MD

 

162,792

 

 

 

1,409

 

8,035

 

3,571

 

1,928

 

9,502

 

11,430

 

2,923

 

2001

 

Temple Hills, MD

 

97,200

 

 

 

1,541

 

8,788

 

2,209

 

1,800

 

9,151

 

10,951

 

3,396

 

2001

 

Belmont, NC

 

81,600

 

 

 

385

 

2,196

 

691

 

451

 

2,207

 

2,658

 

694

 

2001

 

Bordentown, NJ

 

50,600

 

 

 

457

 

2,255

 

2

 

457

 

2,257

 

2,714

 

24

 

2012

 

Burlington I, NC

 

109,396

 

 

 

498

 

2,837

 

457

 

498

 

2,661

 

3,159

 

888

 

2001

 

Burlington II, NC

 

42,305

 

 

 

320

 

1,829

 

325

 

340

 

1,722

 

2,062

 

536

 

2001

 

Cary, NC

 

112,086

 

 

 

543

 

3,097

 

476

 

543

 

3,301

 

3,844

 

1,177

 

2001

 

Charlotte, NC

 

69,000

 

 

 

782

 

4,429

 

1,427

 

1,068

 

4,661

 

5,729

 

1,301

 

2002

 

Raleigh, NC

 

48,675

 

 

 

209

 

2,398

 

303

 

296

 

2,496

 

2,792

 

993

 

1998

 

Brick, NJ

 

51,725

 

 

 

234

 

2,762

 

1,396

 

485

 

3,369

 

3,854

 

1,621

 

1996

 

Cherry Hill I, NJ

 

52,600

 

 

 

222

 

1,260

 

73

 

222

 

1,151

 

1,373

 

77

 

2010

 

Cherry Hill II, NJ

 

65,050

 

 

 

471

 

2,323

 

1

 

471

 

2,324

 

2,795

 

6

 

2012

 

Clifton, NJ

 

105,550

 

 

 

4,346

 

12,520

 

168

 

4,340

 

11,009

 

15,349

 

2,480

 

2005

 

Cranford, NJ

 

91,250

 

 

 

290

 

3,493

 

2,258

 

779

 

4,587

 

5,366

 

2,105

 

1996

 

East Hanover, NJ

 

107,679

 

 

 

504

 

5,763

 

3,865

 

1,315

 

7,710

 

9,025

 

3,653

 

1996

 

Egg Harbor I, NJ

 

36,025

 

 

 

104

 

510

 

23

 

104

 

522

 

626

 

36

 

2010

 

Egg Harbor II, NJ

 

70,425

 

 

 

284

 

1,608

 

162

 

284

 

1,550

 

1,834

 

109

 

2010

 

Elizabeth, NJ

 

38,830

 

 

 

751

 

2,164

 

326

 

751

 

2,081

 

2,832

 

496

 

2005

 

Fairview, NJ

 

27,875

 

 

 

246

 

2,759

 

417

 

246

 

2,611

 

2,857

 

1,355

 

1997

 

Freehold, NJ

 

81,495

 

 

 

1,086

 

5,355

 

6

 

1,086

 

5,361

 

6,447

 

43

 

2012

 

Hamilton, NJ

 

70,550

 

 

 

1,885

 

5,430

 

217

 

1,893

 

4,915

 

6,808

 

938

 

2006

 

Hoboken, NJ

 

34,200

 

 

 

1,370

 

3,947

 

579

 

1,370

 

3,935

 

5,305

 

928

 

2005

 

Linden, NJ

 

100,425

 

 

 

517

 

6,008

 

2,050

 

1,043

 

6,587

 

7,630

 

3,399

 

1996

 

Lumberton, NJ

 

96,025

 

 

 

987

 

4,864

 

1

 

987

 

4,866

 

5,853

 

52

 

2012

 

Morris Township, NJ

 

71,776

 

 

 

500

 

5,602

 

2,623

 

1,072

 

6,691

 

7,763

 

4,367

 

1997

 

Parsippany, NJ

 

66,325

 

 

 

475

 

5,322

 

1,953

 

844

 

5,992

 

6,836

 

2,871

 

1997

 

Randolph, NJ

 

52,465

 

 

 

855

 

4,872

 

1,287

 

1,108

 

4,825

 

5,933

 

1,529

 

2002

 

Sewell, NJ

 

57,830

 

 

 

484

 

2,766

 

1,292

 

706

 

3,207

 

3,913

 

996

 

2001

 

Somerset, NJ

 

57,585

 

 

 

1,243

 

6,129

 

1

 

1,243

 

6,129

 

7,372

 

49

 

2012

 

Albuquerque I, NM

 

65,927

 

(A)

 

1,039

 

3,395

 

256

 

1,039

 

3,067

 

4,106

 

744

 

2005

 

Albuquerque II, NM

 

58,598

 

(A)

 

1,163

 

3,801

 

239

 

1,163

 

3,417

 

4,580

 

831

 

2005

 

Albuquerque III, NM

 

57,536

 

(A)

 

664

 

2,171

 

308

 

664

 

2,091

 

2,755

 

496

 

2005

 

Las Vegas I, NV

 

48,596

 

 

 

1,851

 

2,986

 

366

 

1,851

 

2,941

 

4,792

 

728

 

2006

 

Las Vegas II, NV

 

48,850

 

 

 

3,354

 

5,411

 

290

 

3,355

 

5,120

 

8,475

 

1,271

 

2006

 

Bronx I, NY

 

68,813

 

 

 

2,014

 

11,411

 

454

 

2,014

 

10,273

 

12,287

 

738

 

2010

 

Bronx II, NY

 

90,270

 

 

 

 

31,561

 

82

 

 

31,109

 

31,109

 

936

 

2011

 

Bronx III, NY

 

106,065

 

 

 

6,017

 

33,999

 

84

 

6,017

 

29,736

 

35,753

 

1,230

 

2011

 

Bronx IV, NY

 

75,580

 

 

 

 

22,830

 

82

 

 

20,258

 

20,258

 

694

 

2011

 

Bronx V, NY

 

54,683

 

 

 

 

17,564

 

112

 

 

15,565

 

15,565

 

568

 

2011

 

Bronx VI, NY

 

39,495

 

 

 

 

15,095

 

44

 

 

13,107

 

13,107

 

590

 

2011

 

Bronx VII, NY

 

78,575

 

9,102

 

 

22,512

 

46

 

 

22,668

 

22,668

 

598

 

2012

 

Bronx VIII, NY

 

30,550

 

3,195

 

1,245

 

6,137

 

18

 

1,251

 

6,185

 

7,436

 

163

 

2012

 

Bronx IX, NY

 

148,470

 

24,503

 

7,967

 

39,279

 

136

 

7,967

 

39,413

 

47,380

 

864

 

2012

 

Bronx X, NY

 

159,830

 

29,141

 

9,090

 

44,816

 

140

 

9,090

 

44,956

 

54,046

 

602

 

2012

 

Brooklyn I, NY

 

57,020

 

 

 

1,795

 

10,172

 

179

 

1,795

 

8,934

 

10,729

 

636

 

2010

 

Brooklyn II, NY

 

60,945

 

 

 

1,601

 

9,073

 

393

 

1,601

 

8,168

 

9,769

 

566

 

2010

 

Brooklyn III, NY

 

41,625

 

 

 

3,195

 

15,657

 

35

 

3,195

 

15,774

 

18,969

 

447

 

2011

 

Brooklyn IV, NY

 

37,467

 

 

 

2,500

 

12,252

 

87

 

2,500

 

12,401

 

14,901

 

387

 

2011

 

Brooklyn V, NY

 

46,945

 

 

 

2,207

 

10,814

 

35

 

2,207

 

10,904

 

13,111

 

453

 

2011

 

Brooklyn VI, NY

 

74,415

 

 

 

4,016

 

19,680

 

47

 

4,016

 

19,834

 

23,850

 

790

 

2011

 

Brooklyn VII, NY

 

72,710

 

 

 

5,816

 

28,498

 

75

 

5,816

 

28,737

 

34,553

 

990

 

2011

 

Jamaica I, NY

 

88,415

 

 

 

2,043

 

11,658

 

1,519

 

2,043

 

10,553

 

12,596

 

3,544

 

2001

 

Jamaica II, NY

 

91,325

 

 

 

5,496

 

26,930

 

56

 

5,496

 

27,129

 

32,625

 

964

 

2011

 

New Rochelle I, NY

 

48,434

 

 

 

1,673

 

4,827

 

265

 

1,673

 

4,443

 

6,116

 

992

 

2005

 

New Rochelle II, NY

 

63,295

 

8,974

 

3,167

 

2,713

 

167

 

3,762

 

18,713

 

22,475

 

445

 

2012

 

North Babylon, NY

 

78,188

 

 

 

225

 

2,514

 

4,042

 

568

 

5,852

 

6,420

 

2,220

 

1998

 

Riverhead, NY

 

38,340

 

 

 

1,068

 

1,149

 

167

 

1,068

 

1,083

 

2,151

 

285

 

2005

 

Southold, NY

 

59,745

 

 

 

2,079

 

2,238

 

210

 

2,079

 

2,044

 

4,123

 

557

 

2005

 

Tuckahoe, NY

 

51,688

 

 

 

1,516

 

13,236

 

121

 

1,516

 

7,586

 

9,102

 

540

 

2011

 

West Hempstead, NY

 

85,281

 

 

 

2,237

 

11,030

 

1

 

2,237

 

11,030

 

13,267

 

88

 

2012

 

White Plains, NY

 

87,705

 

 

 

3,295

 

18,049

 

815

 

3,295

 

16,373

 

19,668

 

863

 

2011

 

Woodhaven, NY

 

50,665

 

 

 

2,028

 

11,285

 

43

 

2,028

 

10,031

 

12,059

 

364

 

2011

 

Wyckoff, NY

 

61,960

 

 

 

1,961

 

11,113

 

106

 

1,961

 

9,737

 

11,698

 

619

 

2010

 

Yorktown, NY

 

78,615

 

 

 

2,710

 

13,338

 

44

 

2,710

 

13,395

 

16,105

 

389

 

2011

 

Cleveland I, OH

 

46,050

 

 

 

525

 

2,592

 

101

 

524

 

2,325

 

2,849

 

590

 

2005

 

Cleveland II, OH

 

58,425

 

 

 

290

 

1,427

 

162

 

289

 

1,338

 

1,627

 

334

 

2005

 

Columbus , OH

 

71,905

 

 

 

1,234

 

3,151

 

35

 

1,239

 

2,710

 

3,949

 

596

 

2006

 

Grove City, OH

 

89,290

 

 

 

1,756

 

4,485

 

125

 

1,761

 

3,992

 

5,753

 

846

 

2006

 

Hilliard, OH

 

89,690

 

 

 

1,361

 

3,476

 

148

 

1,366

 

3,137

 

4,503

 

668

 

2006

 

Lakewood, OH

 

39,287

 

 

 

405

 

854

 

505

 

405

 

1,245

 

1,650

 

806

 

1989

 

 

F-48



Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying Amount

 

 

 

 

 

 

 

 

 

 

 

Initial Cost

 

 

 

at December 31, 2012

 

 

 

 

 

Description

 

Square Footage

 

Encumbrances

 

Land

 

Building and
Improvements

 

Costs Subsequent to
Acquisition

 

Land

 

Building and
Improvements

 

Total

 

Accumulated
Depreciation (F)

 

Year Acquired
/ Developed

 

Marblehead, OH

 

52,300

 

 

 

374

 

1,843

 

214

 

373

 

1,783

 

2,156

 

455

 

2005

 

Middleburg Heights, OH

 

92,725

 

 

 

63

 

704

 

2,124

 

332

 

2,241

 

2,573

 

933

 

1980

 

North Olmsted I, OH

 

48,665

 

 

 

63

 

704

 

1,298

 

214

 

1,565

 

1,779

 

734

 

1979

 

North Olmsted II, OH

 

47,850

 

 

 

290

 

1,129

 

1,103

 

469

 

1,969

 

2,438

 

1,246

 

1988

 

North Randall, OH

 

80,229

 

 

 

515

 

2,323

 

2,928

 

898

 

4,103

 

5,001

 

1,577

 

1998

 

Reynoldsburg, OH

 

66,895

 

 

 

1,290

 

3,295

 

214

 

1,295

 

3,055

 

4,350

 

656

 

2006

 

Strongsville, OH

 

43,507

 

 

 

570

 

3,486

 

303

 

570

 

2,956

 

3,526

 

494

 

2007

 

Warrensville Heights, OH

 

90,281

 

 

 

525

 

766

 

2,863

 

935

 

2,977

 

3,912

 

1,131

 

1996

 

Westlake, OH

 

62,750

 

 

 

509

 

2,508

 

184

 

508

 

2,304

 

2,812

 

581

 

2005

 

Conshohocken, PA

 

81,435

 

 

 

1,726

 

8,508

 

7

 

1,726

 

8,515

 

10,241

 

68

 

2012

 

Exton, PA

 

57,650

 

 

 

541

 

2,668

 

1

 

541

 

2,669

 

3,210

 

7

 

2012

 

Langhorne, PA

 

65,150

 

 

 

1,019

 

5,023

 

1

 

1,019

 

5,024

 

6,043

 

40

 

2012

 

Levittown, PA

 

76,180

 

 

 

926

 

5,296

 

1,124

 

926

 

5,407

 

6,333

 

1,787

 

2001

 

Montgomeryville, PA

 

84,145

 

 

 

975

 

4,809

 

10

 

975

 

4,818

 

5,793

 

38

 

2012

 

Norristown, PA

 

52,031

 

 

 

777

 

3,709

 

441

 

777

 

4,254

 

5,031

 

108

 

2011

 

Philadelphia, PA

 

97,289

 

 

 

1,461

 

8,334

 

1,639

 

1,461

 

6,794

 

8,255

 

2,346

 

2001

 

Alcoa, TN

 

42,350

 

(C)

 

254

 

2,113

 

111

 

254

 

1,891

 

2,145

 

451

 

2005

 

Antioch, TN

 

76,160

 

 

 

588

 

4,906

 

240

 

588

 

4,379

 

4,967

 

984

 

2005

 

Cordova I, TN

 

54,125

 

 

 

296

 

2,482

 

235

 

297

 

2,307

 

2,604

 

546

 

2005

 

Cordova II, TN

 

67,700

 

 

 

429

 

3,580

 

284

 

429

 

3,323

 

3,752

 

717

 

2006

 

Knoxville I, TN

 

29,337

 

 

 

99

 

1,113

 

250

 

102

 

1,146

 

1,248

 

518

 

1997

 

Knoxville II, TN

 

37,900

 

 

 

117

 

1,308

 

321

 

129

 

1,418

 

1,547

 

596

 

1997

 

Knoxville III, TN

 

45,736

 

 

 

182

 

2,053

 

829

 

331

 

2,619

 

2,950

 

983

 

1998

 

Knoxville V, TN

 

42,790

 

 

 

134

 

1,493

 

450

 

235

 

1,762

 

1,997

 

839

 

1998

 

Knoxville VI, TN

 

63,440

 

(C)

 

439

 

3,653

 

100

 

440

 

3,213

 

3,653

 

769

 

2005

 

Knoxville VII, TN

 

55,594

 

(C)

 

312

 

2,594

 

155

 

312

 

2,340

 

2,652

 

561

 

2005

 

Knoxville VIII, TN

 

95,868

 

(C)

 

585

 

4,869

 

256

 

586

 

4,378

 

4,964

 

1,039

 

2005

 

Memphis I, TN

 

92,320

 

 

 

677

 

3,880

 

1,397

 

677

 

4,264

 

4,941

 

1,299

 

2001

 

Memphis II, TN

 

71,710

 

 

 

395

 

2,276

 

463

 

395

 

2,061

 

2,456

 

654

 

2001

 

Memphis III, TN

 

40,507

 

 

 

212

 

1,779

 

189

 

213

 

1,640

 

1,853

 

396

 

2005

 

Memphis IV, TN

 

38,678

 

 

 

160

 

1,342

 

222

 

160

 

1,279

 

1,439

 

309

 

2005

 

Memphis V, TN

 

60,120

 

 

 

209

 

1,753

 

591

 

210

 

1,970

 

2,180

 

472

 

2005

 

Memphis VI, TN

 

108,996

 

 

 

462

 

3,851

 

304

 

462

 

3,561

 

4,023

 

778

 

2006

 

Memphis VII, TN

 

96,163

 

 

 

215

 

1,792

 

506

 

215

 

1,682

 

1,897

 

446

 

2006

 

Memphis VIII, TN

 

96,060

 

 

 

355

 

2,959

 

308

 

355

 

2,768

 

3,123

 

597

 

2006

 

Nashville I, TN

 

103,910

 

 

 

405

 

3,379

 

423

 

405

 

3,230

 

3,635

 

742

 

2005

 

Nashville II, TN

 

83,484

 

 

 

593

 

4,950

 

172

 

593

 

4,413

 

5,006

 

1,014

 

2005

 

Nashville III, TN

 

101,575

 

 

 

416

 

3,469

 

141

 

416

 

3,263

 

3,679

 

721

 

2006

 

Nashville IV, TN

 

102,450

 

 

 

992

 

8,274

 

316

 

992

 

7,350

 

8,342

 

1,627

 

2006

 

Allen, TX

 

62,490

 

3,725

 

714

 

3,519

 

1

 

714

 

3,520

 

4,234

 

47

 

2012

 

Austin I, TX

 

59,520

 

 

 

2,239

 

2,038

 

132

 

2,410

 

1,839

 

4,249

 

420

 

2005

 

Austin II, TX

 

65,241

 

(D)

 

734

 

3,894

 

210

 

738

 

3,543

 

4,281

 

742

 

2006

 

Austin III, TX

 

70,560

 

 

 

1,030

 

5,468

 

137

 

1,035

 

4,905

 

5,940

 

977

 

2006

 

Baytown, TX

 

38,950

 

 

 

946

 

863

 

282

 

948

 

913

 

1,861

 

200

 

2005

 

Bryan, TX

 

60,450

 

 

 

1,394

 

1,268

 

125

 

1,396

 

1,172

 

2,568

 

276

 

2005

 

Carrollton, TX

 

77,420

 

 

 

661

 

3,261

 

1

 

661

 

3,262

 

3,923

 

 

2012

 

College Station, TX

 

26,559

 

(B)

 

812

 

740

 

109

 

813

 

700

 

1,513

 

154

 

2005

 

Cypress, TX

 

58,141

 

 

 

360

 

1,773

 

2

 

360

 

1,776

 

2,136

 

23

 

2012

 

Dallas, TX

 

59,324

 

 

 

2,475

 

2,253

 

318

 

2,475

 

2,124

 

4,599

 

464

 

2005

 

Denton, TX

 

60,836

 

1,862

 

553

 

2,936

 

184

 

569

 

2,644

 

3,213

 

511

 

2006

 

El Paso I, TX

 

59,952

 

(A)

 

1,983

 

1,805

 

219

 

1,984

 

1,695

 

3,679

 

391

 

2005

 

El Paso II, TX

 

48,704

 

(A)

 

1,319

 

1,201

 

158

 

1,320

 

1,141

 

2,461

 

266

 

2005

 

El Paso III, TX

 

71,252

 

(A)

 

2,408

 

2,192

 

152

 

2,409

 

2,012

 

4,421

 

472

 

2005

 

El Paso IV, TX

 

67,058

 

(A)

 

2,073

 

1,888

 

12

 

2,074

 

1,587

 

3,661

 

437

 

2005

 

El Paso V, TX

 

62,290

 

 

 

1,758

 

1,617

 

126

 

1,761

 

1,483

 

3,244

 

347

 

2005

 

El Paso VI, TX

 

36,620

 

 

 

660

 

607

 

143

 

662

 

616

 

1,278

 

141

 

2005

 

El Paso VII, TX

 

34,545

 

 

 

563

 

517

 

124

 

565

 

531

 

1,096

 

4

 

2005

 

Fort Worth I, TX

 

50,621

 

 

 

1,253

 

1,141

 

128

 

1,253

 

1,035

 

2,288

 

235

 

2005

 

Fort Worth II, TX

 

72,900

 

 

 

868

 

4,607

 

263

 

874

 

4,203

 

5,077

 

867

 

2006

 

Frisco I, TX

 

50,854

 

 

 

1,093

 

3,148

 

84

 

1,093

 

2,793

 

3,886

 

635

 

2005

 

Frisco II, TX

 

70,999

 

3,001

 

1,564

 

4,507

 

86

 

1,564

 

3,982

 

5,546

 

912

 

2005

 

Frisco III, TX

 

74,815

 

 

 

1,147

 

6,088

 

228

 

1,154

 

5,511

 

6,665

 

1,137

 

2006

 

Frisco IV, TX

 

74,835

 

 

 

719

 

4,072

 

104

 

719

 

3,618

 

4,337

 

254

 

2010

 

Garland I, TX

 

70,100

 

2,962

 

751

 

3,984

 

377

 

767

 

3,774

 

4,541

 

760

 

2006

 

Garland II, TX

 

68,425

 

 

 

862

 

4,578

 

195

 

862

 

4,176

 

5,038

 

778

 

2006

 

Greenville I, TX

 

59,385

 

 

 

1,848

 

1,682

 

90

 

1,848

 

1,484

 

3,332

 

333

 

2005

 

Greenville II, TX

 

44,900

 

 

 

1,337

 

1,217

 

84

 

1,337

 

1,080

 

2,417

 

243

 

2005

 

Houston I, TX

 

100,730

 

 

 

1,420

 

1,296

 

266

 

1,422

 

1,319

 

2,741

 

300

 

2005

 

Houston II, TX

 

71,300

 

 

 

1,510

 

1,377

 

51

 

1,512

 

1,159

 

2,671

 

305

 

2005

 

Houston III, TX

 

60,820

 

461

 

575

 

524

 

270

 

576

 

682

 

1,258

 

160

 

2005

 

Houston IV, TX

 

43,975

 

(B)

 

960

 

875

 

205

 

961

 

886

 

1,847

 

201

 

2005

 

 

F-49



Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying Amount

 

 

 

 

 

 

 

 

 

 

 

Initial Cost

 

 

 

at December 31, 2012

 

 

 

 

 

Description

 

Square Footage

 

Encumbrances

 

Land

 

Building and
Improvements

 

Costs Subsequent to
Acquisition

 

Land

 

Building and
Improvements

 

Total

 

Accumulated
Depreciation (F)

 

Year Acquired
/ Developed

 

Houston V, TX

 

126,180

 

3,846

 

1,153

 

6,122

 

474

 

1,156

 

5,735

 

6,891

 

1,085

 

2006

 

Houston VI, TX

 

54,680

 

 

 

575

 

524

 

5,690

 

983

 

4,893

 

5,876

 

246

 

2011

 

Houston VII, TX

 

54,882

 

 

 

1,294

 

6,377

 

1

 

1,294

 

6,379

 

7,673

 

84

 

2012

 

Houston VIII, TX

 

53,630

 

 

 

296

 

1,459

 

3

 

296

 

1,461

 

1,757

 

19

 

2012

 

Keller, TX

 

61,885

 

2,276

 

890

 

4,727

 

111

 

890

 

4,253

 

5,143

 

888

 

2006

 

La Porte, TX

 

44,850

 

 

 

842

 

761

 

391

 

843

 

867

 

1,710

 

197

 

2005

 

Lewisville, TX

 

58,140

 

1,692

 

476

 

2,525

 

284

 

492

 

2,395

 

2,887

 

466

 

2006

 

Mansfield I, TX

 

63,075

 

 

 

837

 

4,443

 

115

 

843

 

3,981

 

4,824

 

826

 

2006

 

Mansfield II, TX

 

58,400

 

 

 

662

 

3,261

 

5

 

662

 

3,266

 

3,928

 

61

 

2012

 

McKinney I, TX

 

47,020

 

 

 

1,632

 

1,486

 

122

 

1,634

 

1,370

 

3,004

 

306

 

2005

 

McKinney II, TX

 

70,050

 

3,928

 

855

 

5,076

 

139

 

857

 

4,591

 

5,448

 

951

 

2006

 

North Richland Hills, TX

 

57,200

 

 

 

2,252

 

2,049

 

113

 

2,252

 

1,798

 

4,050

 

405

 

2005

 

Pearland, TX

 

72,249

 

 

 

450

 

2,216

 

1

 

450

 

2,218

 

2,668

 

29

 

2012

 

Roanoke, TX

 

59,500

 

 

 

1,337

 

1,217

 

101

 

1,337

 

1,119

 

2,456

 

246

 

2005

 

San Antonio I, TX

 

73,305

 

 

 

2,895

 

2,635

 

248

 

2,895

 

2,352

 

5,247

 

515

 

2005

 

San Antonio II, TX

 

73,230

 

 

 

1,047

 

5,558

 

122

 

1,052

 

4,986

 

6,038

 

940

 

2006

 

San Antonio III, TX

 

71,775

 

 

 

996

 

5,286

 

213

 

996

 

4,778

 

5,774

 

865

 

2007

 

Sherman I, TX

 

54,975

 

 

 

1,904

 

1,733

 

99

 

1,906

 

1,541

 

3,447

 

343

 

2005

 

Sherman II, TX

 

48,425

 

 

1,337

 

1,217

 

131

 

1,337

 

1,114

 

2,451

 

245

 

2005

 

Spring, TX

 

72,751

 

 

 

580

 

3,081

 

102

 

580

 

2,735

 

3,315

 

574

 

2006

 

Murray I, UT

 

60,280

 

(A)

 

3,847

 

1,017

 

366

 

3,848

 

1,169

 

5,017

 

275

 

2005

 

Murray II, UT

 

71,221

 

(A)

 

2,147

 

567

 

349

 

2,148

 

757

 

2,905

 

225

 

2005

 

Salt Lake City I, UT

 

56,446

 

(A)

 

2,695

 

712

 

303

 

2,696

 

838

 

3,534

 

201

 

2005

 

Salt Lake City II, UT

 

51,676

 

(A)

 

2,074

 

548

 

347

 

1,931

 

730

 

2,661

 

162

 

2005

 

Alexandria, VA

 

114,650

 

9,603

 

2,812

 

13,865

 

12

 

2,812

 

13,877

 

16,689

 

184

 

2012

 

Burke Lake, VA

 

90,927

 

7,325

 

2,093

 

10,940

 

1,016

 

2,093

 

10,360

 

12,453

 

630

 

2011

 

Fairfax, VA

 

73,650

 

 

 

2,276

 

11,220

 

9

 

2,276

 

11,229

 

13,505

 

89

 

2012

 

Fredericksburg I, VA

 

69,475

 

(E)

 

1,680

 

4,840

 

256

 

1,680

 

4,423

 

6,103

 

918

 

2005

 

Fredericksburg II, VA

 

61,207

 

(E)

 

1,757

 

5,062

 

289

 

1,758

 

4,659

 

6,417

 

980

 

2005

 

Leesburg, VA

 

85,503

 

4,721

 

1,746

 

9,894

 

50

 

1,746

 

8,656

 

10,402

 

297

 

2011

 

McLearen, VA

 

69,240

 

 

 

1,482

 

8,400

 

109

 

1,482

 

7,354

 

8,836

 

467

 

2010

 

Mannasas, VA

 

73,045

 

 

 

860

 

4,872

 

51

 

860

 

4,260

 

5,120

 

293

 

2010

 

Vienna, VA

 

54,318

 

 

 

2,300

 

11,340

 

6

 

2,302

 

11,347

 

13,649

 

90

 

2012

 

Milwaukee, WI

 

58,500

 

 

 

375

 

4,333

 

205

 

374

 

3,918

 

4,292

 

956

 

2004

 

Corporate Office

 

 

 

 

 

 

 

 

 

1,651

 

 

1,651

 

1,651

 

737

 

 

 

USIFB

 

 

 

 

 

 

 

 

 

12,117

 

 

12,117

 

12,117

 

1,247

 

 

 

 

 

25,485,304

 

 

 

440,812

 

1,846,769

 

219,849

 

462,626

 

1,828,388

 

2,291,014

 

328,933

 

 

 

 


(A)  This facility is part of the YSI 20 Loan portfolio, with a balance of $58,524 as of December 31, 2012.

(B)  This facility is part of the YSI 28 Loan portfolio, with a balance of $1,460 as of December 31, 2012.

(C)  This facility is part of the YSI 30 Loan portfolio, with a balance of $6,765 as of December 31, 2012.

(D)  This facility is part of the YSI 33 Loan portfolio, with a balance of $10,930 as of December 31, 2012.

(E)  This facility is part of the YSI 35 Loan portfolio, with a balance of $4,373 as of December 31, 2012.

(F)  Depreciation on the buildings and improvements is recorded on a straight-line basis over their estimated useful lives, which range from five to 39 years.

 

The aggregate cost for Federal income tax purposes was approximately $2.3 billion and $2.0 billion at December 31, 2012 and 2011, respectively.

 

F-50



Table of Contents

 

Activity in real estate facilities during 2012, 2011, and 2010 was as follows (in thousands):

 

 

 

2012

 

2011

 

2010

 

Storage facilities*

 

 

 

 

 

 

 

Balance at beginning of year

 

$

2,107,469

 

$

1,743,021

 

$

1,774,542

 

Acquisitions & improvements

 

335,644

 

460,357

 

96,612

 

Fully depreciated assets

 

(25,415

)

(43,770

)

(79,211

)

Real estate venture

 

93,679

 

 

 

Dispositions and other

 

(71,265

)

(56,458

)

(49,865

)

Construction in progress

 

2,910

 

4,319

 

943

 

Balance at end of year

 

$

2,443,022

 

$

2,107,469

 

$

1,743,021

 

 

 

 

 

 

 

 

 

Accumulated depreciation*

 

 

 

 

 

 

 

Balance at beginning of year

 

$

318,749

 

$

314,530

 

$

344,009

 

Depreciation expense

 

79,955

 

58,560

 

64,387

 

Fully depreciated assets

 

(25,415

)

(43,770

)

(79,211

)

Dispositions and other

 

(19,974

)

(10,571

)

(14,655

)

Balance at end of year

 

$

353,315

 

$

318,749

 

$

314,530

 

 

 

 

 

 

 

 

 

Net Storage facility assets

 

$

2,089,707

 

$

1,788,720

 

$

1,428,491

 

 


* These amounts include equipment that is housed at the Company’s storage facilities.

 

F-51



Table of Contents

 

[LOGO]

 

 


Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Dean Jernigan, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of CubeSmart;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Trustees (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

/s/ Dean Jernigan

 

Dean Jernigan

 

Chief Executive Officer

 

 

Date: February 28, 2013

 

 



Exhibit 31.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

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.

 

 

/s/ Timothy M. Martin

 

Timothy M. Martin

 

Chief Financial Officer

 

 

Date: February 28, 2013

 

 



Exhibit 31.3

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Dean Jernigan, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of CubeSmart L.P.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Trustees (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

/s/ Dean Jernigan

 

Dean Jernigan

 

Chief Executive Officer

 

 

Date: February 28, 2013

 

 



Exhibit 31.4

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

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.

 

 

/s/ Timothy M. Martin

 

Timothy M. Martin

 

Chief Financial Officer

 

 

Date: February 28, 2013

 

 



Exhibit 32.1

 

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of

the

Sarbanes-Oxley Act of 2002

 

The undersigned, the Chief Executive Officer and Chief Financial Officer of CubeSmart (the “Company”), each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(a) The Annual Report on Form 10-K of the Company for the year ended December 31, 2012 (the “Report”) filed on the date hereof with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

/s/ Dean Jernigan

 

Dean Jernigan

 

Chief Executive Officer

 

 

Date: February 28, 2013

 

 

 

 

/s/ Timothy M. Martin

 

Timothy M. Martin

 

Chief Financial Officer

 

 

Date: February 28, 2013

 

 

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 32.2

 

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of

the

Sarbanes-Oxley Act of 2002

 

The undersigned, the Chief Executive Officer and Chief Financial Officer of CubeSmart L.P. (the “Company”), each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(a) The Annual Report on Form 10-K of the Company for the year ended December 31, 2012 (the “Report”) filed on the date hereof with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

/s/ Dean Jernigan

 

Dean Jernigan

 

Chief Executive Officer

 

 

Date: February 28, 2013

 

 

 

 

/s/ Timothy M. Martin

 

Timothy M. Martin

 

Chief Financial Officer

 

 

Date: February 28, 2013

 

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 



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BOARD OF TRUSTEES EXECUTIVE OFFICERS CORPORATE INFORMATION William M. Diefenderfer III Dean Jernigan Transfer Agent Investor Relations Chairman of the Board Chief Executive Officer American Stock Transfer & 460 East Swedesford Road Partner, Diefenderfer, Hoover, Trust Co., LLC Suite 3000 Boyle & Wood Christopher P. Marr Operations Center Wayne, PA 19087 President, Chief Operating Officer 6201 15th Avenue 610.293.5700 Dean Jernigan and Chief Investment Officer Brooklyn, NY 11219 Chief Executive Officer 877.237.6885 Form 10-K Timothy M. Martin The Annual Report on Form Piero Bussani Chief Financial Officer Stock Listing 10-K filed with the Securities General Counsel and CubeSmart trades on the and Exchange Commission Executive Vice-President, Jeffrey P. Foster New York Stock Exchange is available to shareholders WHM, LLC Senior Vice President, under the symbol CUBE without charge upon written Chief Legal Officer and Secretary request to: Marianne M. Keler Annual Meeting Investor Relations Partner, Keler-Kershow, PLLC The annual meeting of 460 East Swedesford Road shareholders will be held at: Suite 3000 David J. LaRue Four Seasons Hotel Wayne, PA 19087 President and One Logan Square 610.293.5700 Chief Executive Officer, Philadelphia, PA 19103 Forest City Enterprises, Inc. on May 29, 2013 at Internet 8:00 a.m. Eastern Daylight Time Financial statements and John F. Remondi other information are President and Corporate Headquarters available electronically on Chief Operating Officer, 460 East Swedesford Road CubeSmart’s web site at SLM Corporation Suite 3000 www.cubesmart.com Wayne, PA 19087 Jeffrey F. Rogatz Managing Director, Robert W. Baird & Co. John W. Fain Senior Vice President, Sales & Marketing (retired) UPS Freight Forward-looking Statements CubeSmart submitted to the New York Stock Exchange the certification of the Chief Executive Officer certifying that he is not aware of any violation of the New York Stock Exchange corporate governance listing standards in effect at the time of the submission of such certificate. In addition, we have filed, as exhibits 31.1, 31.2, 31.3 and 31.4 to the Annual Report on Form 10-K for the year ended December 31, 2012, the certifications of the Chief Executive Officer and Chief Financial Officer, respectively, required by Section 302 of the Sarbanes-Oxley Act of 2002 regarding the quality of CubeSmart and CubeSmart L.P.’s public disclosure. This Annual Report contains certain forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, future events and actual results, performance, transactions or achievements, financial and otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forwardlooking statements. Risk, uncertainties and other factors that might cause such differences, some of which could be material, include but are not limited to: national and local economic, business, real estate and other market conditions; the competitive environment in which the Company operates; the execution of the Company's business plan; financing risks, including the risk of over-leverage and the corresponding risk of default on our mortgage and other debt; increases in interest rates and operating costs; the Company's ability to maintain its status as a REIT for federal income tax purposes; acquisition and development risks; changes in real estate and zoning laws or regulations; risks related to natural disasters; potential environmental and other liabilities; and other factors affecting the real estate industry generally or the self-storage industry in particular; and other risks identified in this Annual Report and, from time to time, in other reports we file with the Securities and Exchange Commission or in other documents that we publicly disseminate. We undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise except as may be required by securities laws.

 


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460 East Swedesford Road Suite 3000 Wayne, PA 19087 www.cubesmart.com