CubeSmart - Quarter Report: 2011 March (Form 10-Q)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark one)

 

x      Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2011.

 

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

 

 

U-STORE-IT TRUST

(Exact Name of Registrant as Specified in its Charter)

 

 

 

(610) 293-5700

(Registrant’s Telephone Number, Including Area Code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  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). Yes o 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

 

 

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U-STORE-IT TRUST

TABLE OF CONTENTS

 

Part I. FINANCIAL INFORMATION
Item 1.   Financial Statements	4
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.   Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.   Controls and Procedures	23
Part II. OTHER INFORMATION
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 6.   Exhibits	25

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q, or “this Report”, together with other statements and information publicly disseminated by U-Store-It Trust (“we,” “us,” “our” or the “Company”), 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, or the Exchange Act. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions and other information that is not historical information.  In some cases, forward-looking statements can be identified by terminology such as “believes,” “expects,” “estimates,” “may,” “will,” “should,” “anticipates,” or “intends” or the negative of such terms or other comparable terminology, or by discussions of strategy.  Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated.  Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, future events and actual results, performance, transactions or achievements, financial and otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forward-looking statements.  As a result, you should not rely on or construe any forward-looking statements in this Report, or which management may make orally or in writing from time to time, as predictions of future events or as guarantees of future performance.  We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this Report or as of the dates otherwise indicated in the statements.  All of our forward-looking statements, including those in this Report, are qualified in their entirety by this statement.

 

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this Report.  Any forward-looking statements should be considered in light of the risks and uncertainties referred to in Item 1A. “Risk Factors” in the U-Store-It Trust Annual Report on Form 10-K for the year ended December 31, 2010 and in our other filings with the Securities and Exchange Commission (“SEC”).  These risks include, but are not limited to, the following:

 

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

 

·         the competitive environment in which we operate, including our ability to 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 status as a real estate investment trust (“REIT”) for federal income tax purposes;

 

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·         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 in our Annual Report on Form 10-K and, 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 our Annual Report on Form 10-K and 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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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

U-STORE-IT TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

 

		March 31,			December 31,
		2011			2010
ASSETS
Storage facilities		$	1,737,681		$	1,743,021
Less: Accumulated depreciation		(307,569		)	(314,530		)
Storage facilities, net		1,430,112			1,428,491
Cash and cash equivalents		4,089			5,891
Restricted cash		9,612			10,250
Loan procurement costs, net of amortization		14,034			15,611
Other assets, net		17,860			18,576
Total assets		$	1,475,707		$	1,478,819
LIABILITIES AND EQUITY
Revolving credit facility		$	40,500		$	43,000
Unsecured term loan		200,000			200,000
Mortgage loans and notes payable		382,541			372,457
Accounts payable, accrued expenses and other liabilities		32,104			36,172
Distributions payable		7,292			7,275
Deferred revenue		9,272			8,873
Security deposits		497			489
Total liabilities		672,206			668,266
Noncontrolling interests in the Operating Partnership		49,835			45,145
Commitments and contingencies
Equity
Common shares $.01 par value, 200,000,000 shares authorized, 98,831,423 and 98,596,796 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively		988			986
Additional paid in capital		1,027,594			1,026,952
Accumulated other comprehensive loss		(888		)	(1,121		)
Accumulated deficit		(314,693		)	(302,601		)
Total U-Store-It Trust shareholders’ equity		713,001			724,216
Noncontrolling interest in subsidiaries		40,665			41,192
Total equity		753,666			765,408
Total liabilities and equity		$	1,475,707		$	1,478,819

 

See accompanying notes to the unaudited consolidated financial statements.

 

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U-STORE-IT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

		Three Months Ended March 31,
		2011			2010
REVENUES
Rental income		$	51,873		$	47,715
Other property related income		4,759			3,805
Property management fee income		909			44
Total revenues		57,541			51,564
OPERATING EXPENSES
Property operating expenses		25,610			22,348
Depreciation and amortization		15,572			15,949
General and administrative		6,031			5,868
Total operating expenses		47,213			44,165
OPERATING INCOME		10,328			7,399
OTHER INCOME (EXPENSE)
Interest:
Interest expense on loans		(8,113		)	(10,051		)
Loan procurement amortization expense		(1,636		)	(1,539		)
Interest income		9			535
Acquisition related costs		(109		)	—
Other		(3		)	(41		)
Total other expense		(9,852		)	(11,096		)
INCOME (LOSS) FROM CONTINUING OPERATIONS		476			(3,697		)
INCOME FROM DISCONTINUED OPERATIONS		—			505
NET INCOME (LOSS)		476			(3,192		)
NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Noncontrolling interests in the Operating Partnership		5			178
Noncontrolling interest in subsidiaries		(598		)	(461		)
NET LOSS ATTRIBUTABLE TO THE COMPANY		$	(117	)	$	(3,475	)
Basic and diluted loss per share from continuing operations attributable to common shareholders		$	—		$	(0.04	)
Basic and diluted earnings per share from discontinued operations attributable to common shareholders		$	—		$	—
Basic and diluted loss per share attributable to common shareholders		$	—		$	(0.04	)
Weighted-average basic and diluted shares outstanding		98,769			92,834
AMOUNTS ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS:
Loss from continuing operations		$	(117	)	$	(3,955	)
Total discontinued operations		—			480
Net loss		$	(117	)	$	(3,475	)

 

See accompanying notes to the unaudited consolidated financial statements.

 

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U-STORE-IT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

For the Three-Month Periods Ended March 31, 2011 and 2010

(in thousands)

(unaudited)

 

																									Noncontrolling
		Common Shares					Additional Paid in			Accumulated Other Comprehensive			Accumulated			Total Shareholders’			Noncontrolling Interest in			Total			Interests in the Operating
		Number		Amount			Capital			(Loss) Income			Deficit			Equity			Subsidiaries			Equity			Partnership
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																—			12			12
Issuance of restricted shares		218		2												2						2
Exercise of stock options		16					60									60						60
Amortization of restricted shares							149									149						149
Share compensation expense							433									433						433
Net (loss) income													(117		)	(117		)	598			481			(5		)
Adjustment for noncontrolling interest in Operating partnership													(5,015		)	(5,015		)				(5,015		)	5,015
Other comprehensive income:
Unrealized gain on foreign currency translation										233						233			8			241			11
Distributions													(6,960		)	(6,960		)	(1,145		)	(8,105		)	(331		)
Balance at March 31, 2011		98,831		$	988		$	1,027,594		$	(888	)	$	(314,693	)	$	713,001		$	40,665		$	753,666		$	49,835

 

																									Noncontrolling
		Common Shares					Additional Paid in			Accumulated Other Comprehensive			Accumulated			Total Shareholders’			Noncontrolling Interest in			Total			Interests in the Operating
		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																—			19			19
Issuance of restricted shares		195		2												2						2
Exercise of stock options		52					180									180						180
Amortization of restricted shares							503									503						503
Share compensation expense							536									536						536
Net (loss) income													(3,475		)	(3,475		)	461			(3,014		)	(178		)
Other comprehensive income:
Unrealized loss on foreign currency translation										(182		)	—			(182		)	(5		)	(187		)	(10		)
Distributions		—		—			—			—			(2,342		)	(2,342		)	(1,132		)	(3,474		)	(120		)
Balance at March 31, 2010		92,902		$	929		$	976,145		$	(1,056	)	$	(285,487	)	$	690,531		$	43,364		$	733,895		$	45,086

 

See accompanying notes to the unaudited consolidated financial statements.

 

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U-STORE-IT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

		Three Months Ended March 31,
		2011			2010
Operating Activities
Net income (loss)		$	476		$	(3,192	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization		17,208			17,917
Equity compensation expense		582			1,039
Accretion of fair market value adjustment of debt		(19		)	(113		)
Changes in other operating accounts:
Other assets		(91		)	668
Restricted cash		765			—
Accounts payable and accrued expenses		(3,984		)	(5,996		)
Other liabilities		310			561
Net cash provided by operating activities		$	15,247		$	10,884
Investing Activities
Acquisitions, additions and improvements to storage facilities		$	(8,043	)	$	(2,612	)
Proceeds from repayment of notes receivable		—			17,580
(Increase) decrease in restricted cash		(127		)	2,860
Net cash (used in) provided by investing activities		$	(8,170	)	$	17,828
Financing Activities
Proceeds from:
Revolving credit facility		$	14,000		$	—
Mortgage loans and notes payable		3,537			—
Principal payments on:
Revolving credit facility		(16,500		)	—
Mortgage loans and notes payable		(1,588		)	(85,390		)
Exercise of stock options		60			180
Contributions from noncontrolling interests in subsidiaries		12			19
Distributions paid to shareholders		(6,940		)	(2,331		)
Distributions paid to noncontrolling interests in Operating Partnership		(332		)	(122		)
Distributions paid to noncontrolling interests in subsidiaries		(1,145		)	(1,132		)
Loan procurement costs		17			(1,180		)
Net cash used in financing activities		$	(8,879	)	$	(89,956	)
Decrease in cash and cash equivalents		(1,802		)	(61,244		)
Cash and cash equivalents at beginning of period		5,891			102,768
Cash and cash equivalents at end of period		$	4,089		$	41,524
Supplemental Cash Flow and Noncash Information
Cash paid for interest, net of interest capitalized		$	8,158		$	10,245
Supplemental disclosure of noncash activities:
Foreign currency translation adjustment		$	252		$	(197	)
Mortgage loan assumption at fair value		$	8,021		$	—

 

See accompanying notes to the unaudited consolidated financial statements.

 

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U-STORE-IT TRUST AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1.  ORGANIZATION AND NATURE OF OPERATIONS

 

U-Store-It Trust, a Maryland real estate investment trust (collectively with its subsidiaries, “we”, “us” or the “Company”), is a self-administered and self-managed real estate investment trust, or REIT, that specializes in acquiring, developing, managing and operating self-storage properties for business and personal use under month-to-month leases.  The Company’s self-storage facilities (collectively, the “Properties”) are located in 26 states throughout the United States, and in the District of Columbia and the UK and are managed under one reportable segment: we own, operate, develop, manage and acquire self-storage facilities.  The Company owns substantially all of its assets and conducts its operations through U-Store-It, L.P., a Delaware limited partnership (the “Operating Partnership”).  The Company is the sole general partner of the Operating Partnership and, as of March 31, 2011, owned a 95.4% interest in the Operating Partnership.  The Company manages its owned assets through YSI Management, LLC (the “Management Company”), a wholly owned subsidiary of the Operating Partnership, and manages assets owned by third parties through Storage Asset Management, LLC, also a wholly owned subsidiary of the Operating Partnership.   The Company owns four subsidiaries that have elected to be treated as taxable REIT subsidiaries.  In general, a taxable REIT subsidiary, which is treated as a corporation for U.S. federal income tax purposes, may perform non-customary services for tenants, hold assets that the Company, as a REIT, cannot hold directly and generally may engage in any real estate or non-real estate related business.

 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the SEC regarding interim financial reporting and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods presented in accordance with generally accepted accounting principles in the United States (“GAAP”).  Accordingly, readers of this Quarterly Report on Form 10-Q should refer to the Company’s audited financial statements prepared in accordance with GAAP, and the related notes thereto, for the year ended December 31, 2010, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 as certain footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report pursuant to the rules of the SEC.  The results of operations for each of the three months ended March 31, 2011 and 2010 are not necessarily indicative of the results of operations to be expected for any future period or the full year.

 

3.  STORAGE FACILITIES

 

The book value of the Company’s real estate assets is summarized as follows:

 

		March 31,			December 31,
		2011			2010
		(in thousands)
Land and improvements		$	376,662		$	374,569
Buildings and improvements		1,285,159			1,273,938
Equipment		74,405			93,571
Construction in progress		1,455			943
Total		1,737,681			1,743,021
Less accumulated depreciation		(307,569		)	(314,530		)
Storage facilities, net		$	1,430,112		$	1,428,491

 

As assets become fully depreciated, the carrying values are removed from their respective asset category and accumulated depreciation.  During the three months ended March 31, 2011 and 2010, $21.2 million and $33.4 million of assets became fully depreciated and were removed from storage facilities.

 

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The following table summarizes the Company’s acquisition and disposition activity during the period January 1, 2010 to March 31, 2011:

 

Facility/Portfolio		Location		Transaction Date		Number of Facilities		Purchase / Sales Price (in thousands)
2011 Acquisitions:
Burke Lake Asset		Fairfax Station, VA		January 2011		1		$	14,000
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

 

4.  ACQUISITIONS

 

On April 28, 2010, the Company acquired 85 management contracts from United Stor-All Management, LLC (“United Stor-All”).  The Company accounted for this acquisition as a business combination.  The 85 management contracts relate to facilities located in 16 states and the District of Columbia.  The Company recorded the fair value of the assets acquired which includes the intangible value related to the management contracts as other assets, net on the Company’s consolidated balance sheet.  The Company’s estimate of the fair value of the acquired assets and liabilities utilized Level 3 inputs and considered the probability of the expected period the contracts would remain in place, including estimated renewal periods, and the amount of the discounted estimated future contingent payments to be made.  The Company paid $4.1 million in cash for the contracts and recognized $1.8 million in contingent consideration.  The Company records changes in the fair value of the contingent consideration liability in earnings.  The average estimated life of the intangible value of the management contracts is 56 months from the April 2010 closing and the related amortization expense recognized during the three months ended March 31, 2011 was $0.3 million.

 

During 2010, the Company acquired 12 self-storage facilities for an aggregate purchase price of $85.1 million and allocated approximately $3.7 million to the intangible value of the in-place leases.  The amortization expense that was recognized during the three months ended March 31, 2011 was approximately $0.9 million.

 

During the quarter ended March 31, 2011, the Company acquired one self-storage facility for $14.0 million and allocated approximately $0.6 million to the intangible value of in-place leases.  This asset represents the value of in-place leases at the time of acquisition.  The Company recognized amortization expense related to this asset of $0.1 million during the three months ended March 31, 2011.  In connection with this acquisition, the Company assumed mortgage debt with an outstanding principal balance of $7.5 million and recorded a premium of $0.5 million to reflect the fair value of the debt at the time of assumption.

 

Refer to Note 3 for facility details of the 2010 and 2011 acquisitions.

 

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5.  UNSECURED CREDIT FACILITY AND UNSECURED TERM LOANS

 

On September 29, 2010, the Company amended its three-year, $450 million senior secured credit facility (the “Secured Credit Facility”), which consisted of a $200 million secured term loan and a $250 million secured revolving credit facility.  The Secured Credit Facility was collateralized by mortgages on “borrowing base properties” (as defined in the Secured Credit Facility agreement). The amended credit facility (the “Credit Facility”) consists of a $200 million unsecured term loan and a $250 million unsecured revolving credit facility. The Credit Facility has a three-year term expiring on December 7, 2013, is unsecured, and borrowings on the facility incur interest based on a borrowing spread based on the Company’s leverage levels plus LIBOR.  The Company incurred $2.5 million in connection with executing this amendment and capitalized such costs as a component of loan procurement costs, net of amortization on the Company’s consolidated balance sheet.

 

At March 31, 2011, $200 million of unsecured term loan borrowings and $40.5 million of unsecured revolving credit facility borrowings were outstanding under the Credit Facility and $209.5 million was available for borrowing under the Credit Facility.  Borrowings under the Credit Facility bear interest ranging from 3.25% to 3.75% over LIBOR depending on our leverage ratio.  The Company had an interest rate cap agreement as of March 31, 2011, that effectively limited the LIBOR component of the interest rate on $100 million of Credit Facility borrowings to 2.00% per annum through January 2012.  As of March 31, 2011, borrowings under the Credit Facility had a weighted average interest rate of 3.5%, and the Company was in compliance with all covenants.

 

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6.  MORTGAGE LOANS AND NOTES PAYABLE

 

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

 

		Carrying Value as of:
		March 31,			December 31,			Effective		Maturity
Mortgage Loan		2011			2010			Interest Rate		Date
		(in thousands)
YSI 12		$	1,465		$	1,477		5.97	%	Sep-11
YSI 13		1,259			1,270			5.97	%	Sep-11
YSI 6		75,803			76,137			5.13	%	Aug-12
YASKY		80,000			80,000			4.96	%	Sep-12
YSI 14		1,746			1,759			5.97	%	Jan-13
YSI 7		3,083			3,100			6.50	%	Jun-13
YSI 8		1,761			1,771			6.50	%	Jun-13
YSI 9		1,938			1,948			6.50	%	Jun-13
YSI 17		4,087			4,121			6.32	%	Jul-13
YSI 27		495			499			5.59	%	Nov-13
YSI 30		7,249			7,316			5.59	%	Nov-13
YSI 11		2,403			2,420			5.87	%	Dec-13
USIFB		7,395			3,726			5.11	%	Dec-13
YSI 5		3,170			3,193			5.25	%	Jan-14
YSI 28		1,543			1,555			5.59	%	Feb-14
YSI 34		14,783			14,823			8.00	%	Jun-14
YSI 37		2,201			2,210			7.25	%	Aug-14
YSI 40		2,503			2,520			7.25	%	Aug-14
YSI 44		1,088			1,095			7.00	%	Sep-14
YSI 41		3,853			3,879			6.60	%	Sep-14
YSI 38		3,945			3,973			6.35	%	Oct-14
YSI 45		5,420			5,443			6.75	%	Oct-14
YSI 46		3,415			3,430			6.75	%	Oct-14
YSI 43		2,898			2,919			6.50	%	Nov-14
YSI 48		25,161			25,270			7.25	%	Nov-14
YSI 50		2,307			2,322			6.75	%	Dec-14
YSI 10		4,070			4,091			5.87	%	Jan-15
YSI 15		1,866			1,877			6.41	%	Jan-15
YSI 20		61,992			62,459			5.97	%	Nov-15
YSI 51		7,493			—			6.36	%	Oct-16
YSI 31		13,600			13,660			6.75	%	Jun-19	(a)
YSI 35		4,499			4,499			6.90	%	Jul-19	(a)
YSI 32		6,032			6,058			6.75	%	Jul-19	(a)
YSI 33		11,318			11,370			6.42	%	Jul-19
YSI 42		3,162			3,184			6.88	%	Sep-19	(a)
YSI 39		3,915			3,931			6.50	%	Sep-19	(a)
YSI 47		3,155			3,176			6.63	%	Jan-20	(a)
Unamortized fair value adjustment		468			(24		)
Total mortgage loans and notes payable		$	382,541		$	372,457

 

(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.

 

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Table of Contents

 

The following table represents the future principal payment requirements on the outstanding mortgage loans and notes payable at March 31, 2011 (in thousands):

 

2011		$	7,395
2012		160,082
2013		33,741
2014		91,171
2015		60,215
2016 and thereafter		29,469
Total mortgage payments		382,073
Plus: Unamortized fair value adjustment		468
Total mortgage indebtedness		$	382,541

 

The Company currently intends to fund its remaining 2011 principal payment requirements from cash provided by operating activities.

 

7.  FAIR VALUE MEASUREMENTS

 

The fair values of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximates their respective book values at March 31, 2011 and December 31, 2010.  The Company had fixed interest rate loans with a carrying value of $382.5 million and $372.5 million at March 31, 2011 and December 31, 2010, respectively.  The estimated fair values of these fixed rate loans were $356.7 million and $351.8 million at March 31, 2011 and December 31, 2010, respectively.  The Company had variable interest rate loans with a carrying value of $240.5 million and $243.0 million at March 31, 2011 and December 31, 2010, respectively.  The estimated fair values of the variable interest rate loans approximate their carrying values due to their floating rate nature and market spreads.  These estimates are based on discounted cash flow analyses assuming market interest rates for comparable obligations at March 31, 2011 and December 31, 2010.

 

8.  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 is the managing partner of HART and the manager of the properties owned by HART in exchange for a market rate management fee.

 

The Company determined that HART 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 HART.  The 50% interest that is owned by Heitman is reflected as noncontrolling interest in subsidiaries within permanent equity, separate from the Company’s equity on the consolidated balance sheets.  At March 31, 2011, HART had total assets of $88.7 million, including $86.6 million of storage facilities, net and total liabilities of $2.1 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 March 31, 2011, the Venture had total assets of $11.9 million and total liabilities of $7.7 million, including two mortgage loans totaling $7.4 million secured by storage facilities with a net book value of $11.6 million.  At March 31, 2011, the Venture’s creditors had no recourse to the general credit of the Company.

 

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