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CubeSmart - Annual Report: 2017 (Form 10-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-K

 

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

 

For the fiscal year ended December 31, 2017

 

OR

 

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

 

For the transition period from            to

 

Commission file number 001-32324 (CubeSmart)

Commission file number 000-54462 (CubeSmart, L.P.)

 

CUBESMART

CUBESMART, L.P.

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland (CubeSmart)

 

20-1024732 (CubeSmart)

Delaware (CubeSmart, L.P.)

 

34-1837021 (CubeSmart, L.P.)

(State or Other Jurisdiction of

 

(IRS Employer

Incorporation or Organization)

 

Identification No.)

 

 

 

5 Old Lancaster Road

 

19355

Malvern, Pennsylvania

 

(Zip Code)

(Address of Principal Executive Offices)

 

 

 

 

Registrant’s telephone number, including area code (610) 535-5000

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

 

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 ☒ No ☐

CubeSmart, L.P.

Yes ☒ No ☐

 

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

 

CubeSmart

Yes ☐ No ☒

CubeSmart, L.P.

Yes ☐ No ☒

 

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

 

CubeSmart

Yes ☒ No ☐

CubeSmart, L.P.

Yes ☒ No ☐

 

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

 

CubeSmart

Yes ☒ No ☐

CubeSmart, L.P.

Yes ☒ No ☐

 

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

 

CubeSmart

Yes ☒ No ☐

CubeSmart, L.P.

Yes ☒ No ☐

 

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

 

 

 

 

 

 

CubeSmart:

 

 

 

 

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

 

 

CubeSmart, L.P.:

 

 

 

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☐

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

 

 

CubeSmart

CubeSmart, L.P.

 

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

 

 

 

CubeSmart

Yes ☐ No ☒

CubeSmart, L.P.

Yes ☐ No ☒

 

As of June 30, 2017, the last business day of CubeSmart’s most recently completed second fiscal quarter, the aggregate market value of common shares held by non-affiliates of CubeSmart was $4,331,947,035. As of February 14, 2018, the number of common shares of CubeSmart outstanding was 182,277,838.

 

As of June 30, 2017, the last business day of CubeSmart, L.P.’s most recently completed second fiscal quarter, the aggregate market value of the 2,471,554 units of limited partnership (the “OP Units”) held by non-affiliates of CubeSmart, L.P. was $59,416,158 based upon the last reported sale price of $24.04 per share on the New York Stock Exchange on June 30, 2017 of the common shares of CubeSmart, the sole general partner of CubeSmart, L.P. (For this computation, the market value of all OP Units beneficially owned by CubeSmart has been excluded.)

 

Documents incorporated by reference:  Portions of the Proxy Statement for the 2018 Annual Meeting of Shareholders of CubeSmart to be filed subsequently with the SEC are incorporated by reference into Part III of this report.

 

 

 


 

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EXPLANATORY NOTE

 

This report combines the annual reports on Form 10-K for the year ended December 31, 2017 of CubeSmart (the “Parent Company” or “CubeSmart”) and CubeSmart, L.P. (the “Operating Partnership”). The Parent Company is a Maryland real estate investment trust, or REIT, that owns its assets and conducts its operations through the Operating Partnership, a Delaware limited partnership, and subsidiaries of the Operating Partnership. The Parent Company, the Operating Partnership and their consolidated subsidiaries are collectively referred to in this report as the “Company”. In addition, terms such as “we”, “us”, or “our” used in this report may refer to the Company, the Parent Company, and/or the Operating Partnership.

 

The Parent Company is the sole general partner of the Operating Partnership and, as of December 31, 2017, owned a 99.0% interest in the Operating Partnership. The remaining 1.0% interest consists of common units of limited partnership interest issued by the Operating Partnership to third parties in exchange for contributions of properties to the Operating Partnership. As the sole general partner of the Operating Partnership, the Parent Company has full and complete authority over the Operating Partnership’s day-to-day operations and management.

 

Management operates the Parent Company and the Operating Partnership as one enterprise. The management teams of the Parent Company and the Operating Partnership are identical, and their constituents are officers of both the Parent Company and of the Operating Partnership.

 

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

 

The substantive difference between the Parent Company’s and the Operating Partnership’s filings is the fact that the Parent Company is a REIT with public equity, while the Operating Partnership is a partnership with no publicly traded equity. In the financial statements, this difference is primarily reflected in the equity (or capital for Operating Partnership) section of the consolidated balance sheets and in the consolidated statements of equity (or capital). Apart from the different equity treatment, the consolidated financial statements of the Parent Company and the Operating Partnership are nearly identical.

 

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

 

·

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

·

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

·

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

 

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

 

As general partner with control of the Operating Partnership, the Parent Company consolidates the Operating Partnership for financial reporting purposes, and the Parent Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of the Parent Company and the Operating Partnership are the same on their respective financial

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statements. The separate discussions of the Parent Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company’s operations on a consolidated basis and how management operates the Company.

 

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

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TABLE OF CONTENTS

 

PART I 

 

 

 

5

 

 

 

 

 

Item 1. 

 

Business

 

6

 

 

 

 

 

Item 1A. 

 

Risk Factors

 

12

 

 

 

 

 

Item 1B. 

 

Unresolved Staff Comments

 

24

 

 

 

 

 

Item 2. 

 

Properties

 

25

 

 

 

 

 

Item 3. 

 

Legal Proceedings

 

37

 

 

 

 

 

Item 4. 

 

Mining Safety Disclosures

 

37

 

 

 

 

 

PART II 

 

 

 

37

 

 

 

 

 

Item 5. 

 

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

 

37

 

 

 

 

 

Item 6. 

 

Selected Financial Data

 

39

 

 

 

 

 

Item 7. 

 

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

 

44

 

 

 

 

 

Item 7A. 

 

Quantitative and Qualitative Disclosures About Market Risk

 

61

 

 

 

 

 

Item 8. 

 

Financial Statements and Supplementary Data

 

61

 

 

 

 

 

Item 9. 

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

61

 

 

 

 

 

Item 9A. 

 

Controls and Procedures

 

61

 

 

 

 

 

Item 9B. 

 

Other Information

 

62

 

 

 

 

 

PART III 

 

 

 

63

 

 

 

 

 

Item 10. 

 

Trustees, Executive Officers, and Corporate Governance

 

63

 

 

 

 

 

Item 11. 

 

Executive Compensation

 

63

 

 

 

 

 

Item 12. 

 

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

 

63

 

 

 

 

 

Item 13. 

 

Certain Relationships and Related Transactions, and Trustee Independence

 

63

 

 

 

 

 

Item 14. 

 

Principal Accountant Fees and Services

 

64

 

 

 

 

 

PART IV 

 

 

 

64

 

 

 

 

 

Item 15. 

 

Exhibits and Financial Statement Schedules

 

64

 

 

 

 

 

Item 16. 

 

Form 10-K Summary

 

70

 

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PART I

 

Forward-Looking Statements

 

This Annual Report on Form 10-K, or this Report, together with other statements and information publicly disseminated by the Parent Company and the Operating Partnership, contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Forward-looking statements include statements concerning the Company’s plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions and other information that is not historical information.  In some cases, forward-looking statements can be identified by terminology such as “believes”, “expects”, “estimates”, “may”, “will”, “should”, “anticipates”, or “intends” or the negative of such terms or other comparable terminology, or by discussions of strategy.  Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated.  Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, future events and actual results, performance, transactions or achievements, financial and otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forward-looking statements.  As a result, you should not rely on or construe any forward-looking statements in this Report, or which management may make orally or in writing from time to time, as predictions of future events or as guarantees of future performance.  We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this Report or as of the dates otherwise indicated in the statements.  All of our forward-looking statements, including those in this Report, are qualified in their entirety by this statement.

 

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

 

·

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

 

·

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

 

·

the execution of our business plan;

 

·

the availability of external sources of capital;

 

·

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

 

·

increases in interest rates and operating costs;

 

·

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

 

·

our ability to maintain our Parent Company’s qualification as a REIT for federal income tax purposes;

 

·

acquisition and development risks;

 

·

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

 

·

the failure of our joint venture partners to fulfill their obligations to us or their pursuit of actions that are inconsistent with our objectives;

 

·

reductions in asset valuations and related impairment charges;

 

·

security breaches or a failure of our networks, systems or technology, which could adversely impact our business, customer and employee relationships;

 

·

changes in real estate and zoning laws or regulations;

 

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·

risks related to natural disasters;

 

·

potential environmental and other liabilities;

 

·

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

 

·

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

 

Given these uncertainties and the other risks identified elsewhere in this Report, we caution readers not to place undue reliance on forward-looking statements.  We undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise except as may be required by securities laws.  Because of the factors referred to above, the future events discussed in or incorporated by reference in this Report may not occur and actual results, performance or achievement could differ materially from that anticipated or implied in the forward-looking statements.

 

ITEM 1.  BUSINESS

 

Overview

 

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

 

As of December 31, 2017, we owned 484 self-storage properties located in 23 states and in the District of Columbia containing an aggregate of approximately 33.8 million rentable square feet.  As of December 31, 2017, approximately 89.2% of the rentable square footage at our owned stores was leased to approximately 279,000 customers, and no single customer represented a significant concentration of our revenues.  As of December 31, 2017, we owned stores in the District of Columbia and the following 23 states:  Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Tennessee, Texas, Utah, and Virginia.  In addition, as of December 31, 2017, we managed 452 stores for third parties (including 117 stores containing an aggregate of approximately 6.9 million rentable square feet as part of four separate unconsolidated real estate ventures) bringing the total number of stores we owned and/or managed to 936.  As of December 31, 2017, we managed stores for third parties in the District of Columbia and the following 31 states: Alabama, Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Kansas, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, Washington, West Virginia, and Wisconsin.

 

Our self-storage properties are designed to offer affordable and easily-accessible storage space for our residential and commercial customers.  Our customers rent storage cubes for their exclusive use, typically on a month-to-month basis. Additionally, some of our stores offer outside storage areas for vehicles and boats.  Our stores are designed to accommodate both residential and commercial customers, with features such as wide aisles and load-bearing capabilities for large truck access.  All of our stores have a storage associate available to assist our customers during business hours, and 286, or approximately 59.1%, of our owned stores have a manager who resides in an apartment at the store.  Our customers can access their storage cubes during business hours, and some of our stores provide customers with 24-hour access through computer-controlled access systems.  Our goal is to provide customers with the highest standard of physical attributes and service in the industry. To that end, 410, or approximately 84.7%, of our owned stores include climate-controlled cubes.

 

The Parent Company was formed in July 2004 as a Maryland REIT.  The Parent Company owns its assets and conducts its business through the Operating Partnership, and its subsidiaries.  The Parent Company controls the Operating Partnership as its sole general partner and, as of December 31, 2017, owned an approximately 99.0% interest in the Operating Partnership.  The Operating Partnership was formed in July 2004 as a Delaware limited partnership and has been engaged in virtually all aspects of the self-storage business, including the development, acquisition, management, ownership, and operation of self-storage properties.

 

Acquisition and Disposition Activity

 

As of December 31, 2017 and 2016, we owned 484 and 475 stores, respectively, that contained an aggregate of 33.8 million and 32.9 million rentable square feet with occupancy levels of 89.2% and 89.7%, respectively. A complete listing of, and additional information about, our stores is included in Item 2 of this Report.  The following is a summary of our 2017, 2016 and 2015 acquisition and disposition activity:

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Number of

    

Purchase / Sale Price

Asset/Portfolio

 

Market

 

Transaction Date

 

Stores

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

2017 Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Illinois Asset

 

Chicago

 

April 2017

 

1

 

$

11,200

Maryland Asset

 

Baltimore / DC

 

May 2017

 

1

 

 

18,200

California Asset

 

Sacramento

 

May 2017

 

1

 

 

3,650

Texas Asset

 

Texas Markets - Major

 

October 2017

 

1

 

 

4,050

Florida Asset

 

Florida Markets - Other

 

October 2017

 

1

 

 

14,500

Illinois Asset

 

Chicago

 

November 2017

 

1

 

 

11,300

Florida Asset

 

Florida Markets - Other

 

December 2017

 

1

 

 

17,750

 

 

 

 

 

 

7

 

$

80,650

 

 

 

 

 

 

 

 

 

 

2016 Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Metro DC Asset

 

Baltimore / DC

 

January 2016

 

1

 

$

21,000

Texas Assets

 

Texas Markets - Major

 

January 2016

 

2

 

 

24,800

New York Asset

 

New York / Northern NJ

 

January 2016

 

1

 

 

48,500

Texas Asset

 

Texas Markets - Major

 

January 2016

 

1

 

 

11,600

Connecticut Asset

 

Connecticut

 

February 2016

 

1

 

 

19,000

Texas Asset

 

Texas Markets - Major

 

March 2016

 

1

 

 

11,600

Florida Assets

 

Florida Markets - Other

 

March 2016

 

3

 

 

47,925

Colorado Asset

 

Denver

 

April 2016

 

1

 

 

11,350

Texas Asset

 

Texas Markets - Major

 

April 2016

 

1

 

 

11,600

Texas Asset

 

Texas Markets - Major

 

May 2016

 

1

 

 

10,100

Texas Asset

 

Texas Markets - Major

 

May 2016

 

1

 

 

10,800

Illinois Asset

 

Chicago

 

May 2016

 

1

 

 

12,350

Illinois Asset

 

Chicago

 

May 2016

 

1

 

 

16,000

Massachusetts Asset

 

Massachusetts

 

June 2016

 

1

 

 

14,300

Nevada Assets

 

Las Vegas

 

July 2016

 

2

 

 

23,200

Arizona Asset

 

Phoenix

 

August 2016

 

1

 

 

14,525

Minnesota Asset

 

Minneapolis

 

August 2016

 

1

 

 

15,150

Colorado Asset

 

Denver

 

August 2016

 

1

 

 

15,600

Texas Asset

 

Texas Markets - Major

 

September 2016

 

1

 

 

6,100

Texas Asset

 

Texas Markets - Major

 

September 2016

 

1

 

 

5,300

Nevada Asset

 

Las Vegas

 

October 2016

 

1

 

 

13,250

North Carolina Asset

 

Charlotte

 

November 2016

 

1

 

 

10,600

Arizona Asset

 

Phoenix

 

November 2016

 

1

 

 

14,000

Nevada Asset

 

Las Vegas

 

December 2016

 

1

 

 

14,900

 

 

 

 

 

 

28

 

$

403,550

 

 

 

 

 

 

 

 

 

 

2015 Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Texas Asset

 

Texas Markets - Major

 

February 2015

 

1

 

$

7,295

HSRE Assets

 

Chicago

 

March 2015

 

4

 

 

27,500

Arizona Asset

 

Arizona / Las Vegas

 

March 2015

 

1

 

 

7,900

Tennessee Asset

 

Tennessee

 

March 2015

 

1

 

 

6,575

Texas Asset

 

Texas Markets - Major

 

April 2015

 

1

 

 

15,795

Florida Asset

 

Florida Markets - Other

 

May 2015

 

1

 

 

7,300

Arizona Asset

 

Arizona / Las Vegas

 

June 2015

 

1

 

 

10,100

Florida Asset

 

Florida Markets - Other

 

June 2015

 

1

 

 

10,500

Texas Asset

 

Texas Markets - Major

 

July 2015

 

1

 

 

14,200

Maryland Asset

 

Baltimore / DC

 

July 2015

 

1

 

 

17,000

Maryland Asset

 

Baltimore / DC

 

July 2015

 

1

 

 

19,200

New York/New Jersey Assets

 

New York / Northern NJ

 

August 2015

 

2

 

 

24,823

New Jersey Asset

 

New York / Northern NJ

 

December 2015

 

1

 

 

14,350

PSI Assets

 

Various (see note 4)

 

December 2015

 

12

 

 

109,824

 

 

 

 

 

 

29

 

$

292,362

 

 

 

 

 

 

 

 

 

 

2015 Dispositions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Texas Assets

 

Texas Markets - Major

 

October 2015

 

7

 

$

28,000

Florida Asset

 

Florida Markets - Other

 

October 2015

 

1

 

 

9,800

 

 

 

 

 

 

8

 

$

37,800

 

 

 

 

 

 

 

 

 

 

The comparability of our results of operations is affected by the timing of acquisition and disposition activities during the periods reported.  As of December 31, 2017, 2016, and 2015, we owned 484, 475, and 445 self-storage properties and related assets, respectively.  The following table summarizes the change in number of owned stores from January 1, 2015 through December 31, 2017:

 

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2017

    

2016

    

2015

 

 

 

 

 

 

 

 

 

Balance - January 1

 

475

 

445

 

421

 

Stores acquired

 

 —

 

10

 

 7

 

Stores developed

 

 1

 

 1

 

 —

 

Balance - March 31

 

476

 

456

 

428

 

Stores acquired

 

 3

 

 7

 

 4

 

Stores developed

 

 —

 

 1

 

 1

 

Stores combined (1)

 

(1)

 

 —

 

 —

 

Balance - June 30

 

478

 

464

 

433

 

Stores acquired

 

 —

 

 7

 

 5

 

Stores developed

 

 2

 

 —

 

 —

 

Balance - September 30

 

480

 

471

 

438

 

Stores acquired

 

 4

 

 4

 

13

 

Stores developed

 

 1

 

 —

 

 2

 

Stores combined (2)

 

(1)

 

 —

 

 —

 

Stores sold

 

 —

 

 —

 

(8)

 

Balance - December 31

 

484

 

475

 

445

 

 

 

 

 

 

 

 

 

(1)

On May 16, 2017, the Company acquired a store located in Sacramento, CA for approximately $3.7 million, which is located directly adjacent to an existing wholly-owned store. Given their proximity to each other, the stores have been combined in our store count, as well as for operational and reporting purposes.

 

(2)

On October 2, 2017, the Company acquired a store located in Keller, TX for approximately $4.1 million, which is located directly adjacent to an existing wholly-owned store. Given their proximity to each other, the stores have been combined in our store count, as well as for operational and reporting purposes.

 

Financing and Investing Activities

 

The following summarizes certain financing and investing activities during the year ended December 31, 2017:

 

·

Store Acquisitions.  During 2017, we acquired seven self-storage properties located throughout the United States, including three stores upon completion of construction and the issuance of a certificate of occupancy, for an aggregate purchase price of approximately $80.7 million. In connection with these acquisitions, we allocated a portion of the purchase price paid for each store to the intangible value of in-place leases which aggregated $3.2 million. As of December 31, 2017, we had one store under contract for a total acquisition price of $12.2 million, which was acquired on January 31, 2018. As of December 31, 2017, we also had one store under contract for a total acquisition price of $20.8 million to be acquired after the completion of construction and the issuance of the certificate of occupancy.  This acquisition is subject to due diligence and other customary closing conditions, and no assurance can be provided that the acquisition will be completed on the terms described, or at all.

 

·

Development Activity.  During 2017, we completed construction and opened for operation two wholly-owned development properties and two joint venture development properties for a total cost of $168.0 million. The wholly-owned development properties opened during 2017 are located in Florida and Washington, D.C. The joint venture development properties opened during 2017 are both located in New York. As of December 31, 2017, we had six joint venture development properties under construction. We anticipate investing a total of $230.5 million related to these six projects, and construction for all projects is expected to be completed by the third quarter of 2019.

 

·

At-The-Market Equity Program.  During 2017, under our at-the-market equity program, we sold a total of 1.0 million common shares at an average sales price of $29.13 per share, resulting in net proceeds under the program of $29.6 million, after deducting offering costs. As of December 31, 2017, 4.7 million common shares remained available for sale under the program. The proceeds from the sales conducted during the year ended December 31, 2017 were used to fund acquisitions of self-storage properties and for general corporate purposes.

 

·

Debt Offering.  On April 4, 2017, we completed the issuance and sale of $50.0 million in aggregate principal amount of 4.375% unsecured senior notes due December 15, 2023, which are part of the same series as the $250.0 million in aggregate principal amount of 4.375% senior notes due December 15, 2023 issued on December 17, 2013.  On April 4, 2017, we also

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completed the issuance and sale of $50.0 million in aggregate principal amount of 4.000% unsecured senior notes due November 15, 2025, which are part of the same series as the $250.0 million in aggregate principal amount of 4.000% senior notes due November 15, 2025 issued on October 26, 2015.  Net proceeds from the offerings were used to repay outstanding indebtedness under our $100.0 million unsecured term loan that was scheduled to mature in June 2018.

 

·

Mortgage Loans.  During 2017, we repaid one mortgage loan for $6.2 million and, in conjunction with the acquisition of a store located in Maryland, assumed one mortgage loan with an outstanding principal balance of $5.8 million as of December 31, 2017.

 

Business Strategy

 

Our business strategy consists of several elements:

 

·

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

 

·

Acquire stores within targeted markets — During 2018, we intend to pursue selective acquisitions in markets that we believe have high barriers to entry, strong demographic fundamentals, and demand for storage in excess of storage capacity.  We believe the self-storage industry will continue to afford us opportunities for growth through acquisitions due to the highly fragmented composition of the industry.  In the past, we have formed joint ventures with unaffiliated third parties, and in the future we may form additional joint ventures to facilitate the funding of future developments or acquisitions.

 

·

Dispose of stores — During 2018, we intend to continue to evaluate opportunities to dispose of assets that have unattractive risk adjusted returns.  We intend to use proceeds from these transactions to fund acquisitions within targeted markets.

 

·

Grow our third-party management business — We intend to pursue additional third-party management opportunities.  We intend to leverage our current platform to take advantage of consolidation in the industry.  We plan to utilize our relationships with third-party owners to help source future acquisitions.

 

Investment and Market Selection Process

 

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

 

·

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

 

·

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

 

·

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

 

Segment

 

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

 

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Concentration

 

Our self-storage properties are located in major metropolitan areas as well as suburban areas and have numerous customers per store.  No single customer represented a significant concentration of our 2017 revenues.  Our stores in Florida, New York, Texas, and California provided approximately 17%, 16%, 10% and 8%, respectively, of our total revenues for each of the years ended December 31, 2017 and 2016. Our stores in Florida, New York, Texas, and California provided total revenues of approximately 18%, 16%, 10%, and 8%, respectively, for the year ended December 31, 2015.

 

Seasonality

 

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

 

Financing Strategy

 

We maintain a capital structure that we believe is reasonable and prudent and that will enable us to have ample cash flow to cover debt service and make distributions to our shareholders.  As of December 31, 2017, our debt to total capitalization ratio (determined by dividing the carrying value of our total indebtedness by the sum of (a) the market value of the Parent Company’s outstanding common shares and units of the Operating Partnership held by third parties and (b) the carrying value of our total indebtedness) was approximately 23.5% compared to approximately 24.7% as of December 31, 2016.  Our ratio of debt to the undepreciated cost of our total assets as of December 31, 2017 was approximately 38.0% compared to approximately 38.5% as of December 31, 2016.  We expect to finance additional investments in self-storage properties through the most attractive sources of capital available at the time of the transaction, in a manner consistent with maintaining a strong financial position and future financial flexibility, subject to limitations on incurrence of indebtedness in our unsecured credit facilities and the indenture that governs our unsecured notes.  These capital sources may include existing cash, borrowings under the revolving portion of our credit facility, additional secured or unsecured financings, sales of common or preferred shares of the Parent Company in public offerings or private placements, additional issuances of debt securities, issuances of common or preferred units in our Operating Partnership in exchange for contributed properties, and formations of joint ventures.  We also may sell stores that have unattractive risk adjusted returns and use the sales proceeds to fund other acquisitions.

 

Competition

 

Self-storage properties compete based on a number of factors, including location, rental rates, security, suitability of the store’s design to prospective customers’ needs, and the manner in which the store is operated and marketed.  In particular, the number of competing self-storage properties in a market could have a material effect on our occupancy levels, rental rates, and on the overall operating performance of our stores.  We believe that the primary competition for potential customers of any of our self-storage properties comes from other self-storage providers within a three-mile radius of that store.  We believe our stores are well-positioned within their respective markets, and we emphasize customer service, convenience, security, professionalism, and cleanliness.

 

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

 

Government Regulation

 

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

 

Under the Americans with Disabilities Act of 1990 and applicable state accessibility act laws (collectively, the “ADA”), all places of public accommodation are required to meet federal requirements related to physical access and use by disabled persons.  A number of other federal, state, and local laws may also impose access and other similar requirements at our stores.  A failure to comply with the ADA or similar state or local requirements could result in the governmental imposition of fines or the award of damages to private litigants affected by the noncompliance.  Although we believe that our stores comply in all material respects with these requirements (or would be eligible for applicable exemptions from material requirements because of adaptive assistance provided), a determination that one or more

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of our stores, or websites, is not in compliance with the ADA or similar state or local requirements would result in the incurrence of additional costs associated with bringing them into compliance.

 

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

 

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

 

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

 

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

 

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

 

Insurance

 

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

 

Offices

 

Our principal executive offices are located at 5 Old Lancaster Road, Malvern, PA 19355.  Our telephone number is (610) 535-5000.

 

Employees

 

As of December 31, 2017, we employed 2,508 employees, of whom 328 were corporate executive and administrative personnel and 2,180 were property-level personnel.  We believe that our relations with our employees are good.  Our employees are not unionized.

 

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Available Information

 

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

 

Also available on our website, free of charge, are copies of our Code of Business Conduct and Ethics, our Corporate Governance Guidelines, and the charters for each of the committees of our Board — the Audit Committee, the Corporate Governance and Nominating Committee, and the Compensation Committee.  Copies of each of these documents are also available in print free of charge, upon request by any shareholder.  You can obtain copies of these documents by contacting Investor Relations by mail at 5 Old Lancaster Road, Malvern, PA 19355.

 

ITEM 1A.  RISK FACTORS

 

Overview

 

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

 

Risks Related to our Business and Operations

 

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

 

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

 

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

 

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

 

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

 

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

 

We are susceptible to adverse developments in the markets in which we operate, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics, and other factors.  Our stores in Florida, New York, Texas, and California accounted for approximately 17%, 16%, 10% and 8%, respectively, of our total 2017 revenues.  As a result of this geographic concentration of our stores, we are particularly susceptible to adverse market conditions in these areas.  Any adverse economic or real estate developments in these markets, or in any of the other markets in which we operate, or any decrease in demand for self-storage space

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resulting from the local business climate, could adversely affect our rental revenues, which could impair our ability to satisfy our debt service obligations and pay distributions to our shareholders.

 

We face risks associated with property acquisitions.

 

We intend to continue to acquire individual and portfolios of self-storage properties. The purchase agreements that we enter into in connection with acquisitions typically contain closing conditions that need to be satisfied before the acquisitions can be consummated. The satisfaction of many of these conditions is outside of our control, and we therefore cannot assure that any of our pending or future acquisitions will be consummated. These conditions include, among other things, satisfactory examination of the title to the properties, the ability to obtain title insurance and customary closing conditions.  Moreover, in the event we are unable to complete pending or future acquisitions, we may have incurred significant legal, accounting, and other transaction costs in connection with such acquisitions without realizing the expected benefits.

 

Those acquisitions that we do consummate would increase our size and may potentially alter our capital structure.  Although we believe that future acquisitions that we complete will enhance our financial performance, the success of acquisitions is subject to the risks that:

 

·

acquisitions may fail to perform as expected;

 

·

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

 

·

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

 

·

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

 

·

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

 

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

 

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

 

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

 

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

 

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

 

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Our development activities may be more costly or difficult to complete than we anticipate.

 

We intend to continue to develop self-storage properties where market conditions warrant such investment.  Once made, these investments may not produce results in accordance with our expectations.  Risks associated with development and construction activities include:

 

·

the unavailability of favorable financing sources in the debt and equity markets;

 

·

construction cost overruns, including on account of rising interest rates, diminished availability of materials and labor, and increases in the costs of materials and labor;

 

·

construction delays and failure to achieve target occupancy levels and rental rates, resulting in a lower than projected return on our investment; and

 

·

complications (including building moratoriums and anti-growth legislation) in obtaining necessary zoning, occupancy, and other governmental permits.

 

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

 

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

 

We may incur impairment charges.

 

We evaluate on a quarterly basis our real estate portfolios for indicators of impairment. Impairment charges reflect management’s judgment of the probability and severity of the decline in the value of real estate assets we own. These charges and provisions may be required in the future as a result of factors beyond our control, including, among other things, changes in the economic environment and market conditions affecting the value of real property assets or natural or man-made disasters. If we are required to take impairment charges, our results of operations will be adversely impacted.

 

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

 

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

 

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

 

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

 

·

the operational and financial performance of our stores;

 

·

capital expenditures with respect to existing and newly acquired stores;

 

·

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

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·

maintenance of our REIT status;

 

·

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

 

·

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

 

·

other risk factors described in this Report.

 

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

 

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

 

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

 

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

 

We have in the past co-invested with, and we may continue to co-invest with, third parties through joint ventures.  In any such joint venture, we may not be in a position to exercise sole decision-making authority regarding the stores owned through joint ventures. Investments in joint ventures may, under certain circumstances, involve risks not present when a third party is not involved, including the possibility that joint venture partners might become bankrupt or fail to fund their share of required capital contributions.  Joint venture partners may have business interests or goals that are inconsistent with our business interests or goals and may be in a position to take actions contrary to our policies or objectives.  Such investments also have the potential risk of impasse on strategic decisions, such as a sale, in cases where neither we nor the joint venture partner would have full control over the joint venture. In other circumstances, joint venture partners may have the ability without our agreement to make certain major decisions, including decisions about sales, capital expenditures, and/or financing.  Any disputes that may arise between us and our joint venture partners could result in litigation or arbitration that could increase our expenses and distract our officers and/or Trustees from focusing their time and effort on our business.  In addition, we might in certain circumstances be liable for the actions of our joint venture partners, and the activities of a joint venture could adversely affect our ability to qualify as a REIT, even though we do not control the joint venture.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Legislative actions and changes may cause our general and administrative costs  and compliance costs to increase.

 

In order to comply with laws adopted by Federal, state or local government or regulatory bodies, we may be required to increase our expenditures and hire additional personnel and additional outside legal, accounting and advisory services, all of which may cause our general and administrative and compliance costs to increase.  Significant workforce-related legislative changes could increase our expenses and adversely affect our operations.  Examples of possible workforce-related legislative changes include changes to an employer's obligation to recognize collective bargaining units, the process by which collective bargaining agreements are negotiated or imposed, minimum wage requirements, and health care and medical and family leave mandates.  In addition, changes in the regulatory environment affecting health care reimbursements, and increased compliance costs related to enforcement of federal and state wage and hour statutes and common law related to overtime, among others, could cause our expenses to increase without an ability to pass through any increased expenses through higher prices. 

 

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

 

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

 

Our insurance coverage may not comply with certain loan requirements.

 

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

 

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Potential liability for environmental contamination could result in substantial costs.

 

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

 

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

 

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

 

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

 

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

 

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

 

Personal privacy has become a significant issue in the jurisdictions in which we operate.  Many jurisdictions in which we operate have imposed restrictions and requirements on the use of personal information by those collecting such information.  The regulatory framework for privacy issues is rapidly evolving and future enactment of more restrictive laws, rules, or regulations and/or future enforcement actions or investigations could have a materially adverse impact on us through increased costs or restrictions on our business.  Failure to comply with such laws and regulations could result in consent orders or regulatory penalties and significant legal liability, including fines, which could damage our reputation and have an adverse effect on our results of operations or financial condition.

 

We face system security risks as we depend upon automated processes and the Internet and we could damage our reputation, incur substantial additional costs and become subject to litigation if our systems are penetrated.

 

We are increasingly dependent upon automated information technology processes and Internet commerce, and many of our new customers come from the telephone or over the Internet.  Moreover, the nature of our business involves the receipt and retention of personal information about our customers.  We also rely extensively on third-party vendors to retain data, process transactions and provide other systems and services.  These systems, and our systems, are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, malware, and other destructive or disruptive security breaches and catastrophic events, such as a natural disaster or a terrorist event or cyber-attack.  In addition, experienced computer programmers and hackers may be able to penetrate our security systems and misappropriate our confidential information, create system disruptions, or cause shutdowns. Such data security breaches as well as system disruptions and shutdowns could result in additional costs to repair or replace such networks or

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information systems and possible legal liability, including government enforcement actions and private litigation.  In addition, our customers could lose confidence in our ability to protect their personal information, which could cause them to discontinue leasing at our self-storage properties. 

 

If we are unable to attract and retain team members or contract with third parties having the specialized skills or technologies needed to support our systems, implement improvements to our customer-facing technology in a timely manner, allow accurate visibility to product availability when customers are ready to rent, quickly and efficiently fulfill our customers rental and payment methods they demand, or provide a convienent and consistent experience for our customers regardless of the ultimate sales channel, our ability to compete and our results of operations could be adversely affected.

 

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

 

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

 

Risks Related to the Real Estate Industry

 

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

 

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

 

·

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

 

·

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

 

·

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

 

·

inability to collect rent from customers;

 

·

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

 

·

changes in interest rates and availability of financing;

 

·

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

 

·

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

 

·

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

 

·

the relative illiquidity of real estate investments.

 

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

 

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

 

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

 

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

 

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

 

Risks Related to our Qualification and Operation as a REIT

 

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

 

We operate our business to qualify to be taxed as a REIT for federal income tax purposes.  We have not requested and do not plan to request a ruling from the IRS that we qualify as a REIT, and the statements in this Report are not binding on the IRS or any court.  As a REIT, we generally will not be subject to federal income tax on the income that we distribute currently to our shareholders.  Many of the REIT requirements, however, are highly technical and complex.  The determination that we are a REIT requires an analysis of various factual matters and circumstances that may not be totally within our control.  For example, to qualify as a REIT, at least 95% of our gross income must come from specific passive sources, such as rent, that are itemized in the REIT tax laws.  In addition, to qualify as a REIT, we cannot own specified amounts of debt and equity securities of some issuers.  We also are required to distribute to our shareholders with respect to each year at least 90% of our REIT taxable income, excluding net capital gains.  The fact that we hold substantially all of our assets through the Operating Partnership and its subsidiaries and joint ventures further complicates the application of the REIT requirements for us.  Even a technical or inadvertent mistake could jeopardize our REIT status, and, given the highly complex nature of the rules governing REITs and the ongoing importance of factual determinations, we cannot provide any assurance that we will continue to qualify as a REIT.  Changes to rules governing REITs were made by legislation commonly known as the Tax Cuts and Jobs Act (the “TCJA”) and the Protecting Americans From Tax Hikes Act of 2015, signed into law on December 22, 2017 and December 18, 2015, respectively, and Congress and the IRS might make further changes to the tax laws and regulations, and the courts might issue new rulings that make it more difficult, or impossible, for us to remain qualified as a REIT.  If we fail to qualify as a REIT for federal income tax purposes and are able to avail ourselves of one or more of the statutory savings provisions in order to maintain our REIT status, we would nevertheless be required to pay penalty taxes of $50,000 or more for each such failure.

 

If we fail to qualify as a REIT for federal income tax purposes, and are unable to avail ourselves of certain savings provisions set forth in the Internal Revenue Code, we would be subject to federal income tax at regular corporate rates on all of our income.  As a taxable corporation, we would not be allowed to take a deduction for distributions to shareholders in computing our taxable income or pass through long-term capital gains to individual shareholders at favorable rates.  For tax years beginning before January 1, 2018, we also could be subject to the federal alternative minimum tax and possibly increased state and local taxes.  We would not be able to elect to be taxed as a REIT for four years following the year we first failed to qualify unless the IRS were to grant us relief under certain statutory provisions.  If we failed to qualify as a REIT, we would have to pay significant income taxes, which would reduce our net earnings available for investment or distribution to our shareholders.  This likely would have a significant adverse effect on our earnings and likely would adversely affect the value of our securities. In addition, we would no longer be required to pay any distributions to shareholders.

 

Furthermore, as a result of our acquisition of all the issued and outstanding shares of common stock of a privately held self-storage REIT (“PSI”), we now own a subsidiary REIT. PSI is independently subject to, and must comply with, the same REIT requirements that we must satisfy in order to qualify as a REIT, together with all other rules applicable to REITs. If PSI fails to qualify as a REIT and certain statutory relief provisions do not apply, as a result of a protective election made jointly by PSI and CubeSmart, PSI will be taxed as a taxable REIT subsidiary. See the section entitled “Taxation of CubeSmart−Requirements for Qualification−Taxable REIT Subsidiaries” in Exhibit 99.1 for more information regarding taxable REIT subsidiaries.

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

 

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

 

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

 

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

 

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

 

Even if we qualify as a REIT for federal income tax purposes, we will be required to pay certain federal, state and local taxes on our income and property.  For example, we will be subject to income tax to the extent we distribute less than 100% of our REIT taxable income, including capital gains.  Additionally, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which dividends paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100% penalty tax.  In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business.  The determination as to whether a particular sale is a prohibited transaction depends on the facts and circumstances related to that sale.  We cannot guarantee that sales of our properties would not be prohibited transactions unless we comply with certain statutory safe-harbor provisions.

 

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

 

We face possible federal, state, and local tax audits.

 

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

 

Legislative or regulatory tax changes related to REITs could materially and adversely affect our business.

 

At any time, the federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be changed, possibly with retroactive effect. We cannot predict if or when any new federal income tax law, regulation or administrative interpretation, or any amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective or whether any such law, regulation or interpretation may take effect retroactively. We and our shareholders could be adversely affected by any such change in, or any new, federal income tax law, regulation or administrative interpretation.

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The TCJA makes significant changes to the U.S. federal income tax rules for taxation of individuals and corporations, generally effective for taxable years beginning after December 31, 2017. In addition to reducing corporate and non-corporate tax rates, the TCJA made changes to the number of provisions of the Code that may affect the taxation of REITs and their security holders. While the changes in the TCJA generally appear to be favorable with respect to REITs, certain changes to the U.S. federal income tax laws enacted by the TCJA could have a material and adverse effect on us. For example, certain changes in law pursuant to the Tax Cuts and Jobs Act could reduce the relative competitive advantage of operating as a REIT as compared with operating as a C corporation, including by:

 

·

reducing the rate of tax applicable to individuals and C corporations, which could reduce the relative attractiveness of the generally single level of taxation on REIT distributions;

·

permitting immediate expensing of capital expenditures, which could likewise reduce the relative attractiveness of the REIT taxation regime; and

·

limiting the deductibility of interest expense, which could increase the distribution requirement of REITs.

 

Most of the changes applicable to individuals are temporary and apply only to taxable years beginning after December 31, 2017 and before January 1, 2026. The TCJA makes numerous large and small changes to the tax rules that do not affect REITs directly but may affect our shareholders and may indirectly affect us.

 

Moreover, Congressional leaders have recognized that the process of adopting extensive tax legislation in a short amount of time without hearings and substantial time for review is likely to have led to drafting errors, issues needing clarification and unintended consequences that will have to be reviewed in subsequent tax legislation. At this point, it is not clear when Congress will address these issues or when the Internal Revenue Service will be able to issue administrative guidance on the changes made in the TCJA.

 

Shareholders are urged to consult with their tax advisors with respect to the status of the TCJA and any other regulatory or administrative developments and proposals and their potential effect on investment in our capital stock.

 

Risks Related to our Debt Financings

 

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

 

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

 

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

 

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

 

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

 

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

 

From time to time, domestic financial markets experience volatility and uncertainty.  At times in recent years liquidity has tightened in the domestic financial markets, including the investment grade debt and equity capital markets from which we historically sought financing.  Consequently, there is greater uncertainty regarding our ability to access the credit markets in order to attract financing on reasonable terms; there can be no assurance that we will be able to continue to issue common or preferred equity securities at a reasonable price.  Our ability to finance new acquisitions and refinance future debt maturities could be adversely impacted by our inability to secure permanent financing on reasonable terms, if at all.

 

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

 

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

 

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

 

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

 

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

 

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

 

Risks Related to our Organization and Structure

 

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

 

Our executive team, including our named executive officers, has extensive self-storage, real estate, and public company experience. Effective January 1, 2017, our Chief Executive Officer, Chief Financial Officer, and Chief Legal Officer are parties to the Company’s executive severance plan, however, we cannot provide assurance that any of them will remain in our employment.  The loss of services of one or more members of our senior management team could adversely affect our operations and our future growth.

 

We are dependent upon our on-site personnel to maximize customer satisfaction; any difficulties we encounter in hiring, training, and retaining skilled field personnel may adversely affect our rental revenues.

 

As of December 31, 2017, we had 2,180 property-level personnel involved in the management and operation of our stores.  The customer service, marketing skills, and knowledge of local market demand and competitive dynamics of our store managers are contributing factors to our ability to maximize our rental income and to achieve the highest sustainable rent levels at each of our stores.  We compete with various other companies in attracting and retaining qualified and skilled personnel. Competitive pressures may require that we enhance our pay and benefits package to compete effectively for such personnel.  If there is an increase in these costs or if we fail to attract and retain qualified and skilled personnel, our business and operating results could be adversely affected.

 

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

 

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

 

·

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

 

·

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

 

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

 

Our Trustees also have the discretion, granted in our bylaws and Maryland law, without shareholder approval to, among other things (1) create a staggered Board, (2) amend our bylaws or repeal individual bylaws in a manner that provides the Board with greater authority, and (3) issue additional equity securities.  Any such action could inhibit or impede a third party from making a proposal to acquire us at a price that could be beneficial to our shareholders.

 

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

 

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

 

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

 

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

 

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

 

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

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respect to the payment of distributions, in which case we could not pay any distributions on our common shares until full distributions have been paid with respect to such preferred shares.

 

Risks Related to our Securities

 

Additional issuances of equity securities may be dilutive to shareholders.

 

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

 

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

 

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

 

·

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

 

·

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

 

·

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

 

·

level of institutional investor interest in our securities;

 

·

relatively low trading volumes in securities of REITs;

 

·

our results of operations and financial condition;

 

·

investor confidence in the stock market generally; and

 

·

additions and departures of key personnel.

 

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

 

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

 

The market price of our common shares has been subject to significant fluctuation and may continue to fluctuate or decline.  Between January 1, 2015 and December 31, 2017, the closing price of our common shares has ranged from a high of $33.30 (on March 31, 2016) to a low of $22.31 (on March 6, 2015).  In the past several years, REIT securities have experienced high levels of volatility and significant increases in value from their historic lows.

 

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

 

ITEM 1B.  UNRESOLVED STAFF COMMENTS

 

None.

24


 

Table of Contents

ITEM 2.  PROPERTIES

 

Overview

 

As of December 31, 2017, we owned 484 self-storage properties that contain approximately 33.8 million rentable square feet and are located in 23 states and the District of Columbia.  The following table sets forth summary information regarding our stores by state as of December 31, 2017.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

    

Total

    

% of Total

    

    

 

 

 

Number of

 

 

 

Rentable

 

Rentable

 

Period-end

 

State

 

Stores

 

Cubes

 

Square Feet

 

Square Feet

 

Occupancy

 

 

 

 

 

 

 

 

 

 

 

 

 

Florida

 

80

 

58,125

 

5,956,304

 

17.7

%  

90.7

%  

Texas

 

63

 

36,634

 

4,376,387

 

13.1

%  

87.7

%  

New York

 

45

 

58,183

 

3,289,051

 

9.7

%  

80.9

%  

California

 

40

 

26,468

 

2,881,220

 

8.5

%  

92.4

%  

Illinois

 

41

 

24,940

 

2,663,648

 

7.9

%  

86.2

%  

Arizona

 

33

 

19,135

 

2,078,331

 

6.2

%  

90.9

%  

New Jersey

 

25

 

16,837

 

1,700,780

 

5.0

%  

93.4

%  

Maryland

 

16

 

13,001

 

1,320,572

 

3.9

%  

91.2

%  

Georgia

 

18

 

11,043

 

1,317,487

 

3.9

%  

91.4

%  

Ohio

 

20

 

11,114

 

1,289,553

 

3.8

%  

91.7

%  

Connecticut

 

22

 

10,668

 

1,179,145

 

3.5

%  

91.7

%  

Virginia

 

10

 

7,874

 

788,260

 

2.3

%  

88.8

%  

Colorado

 

11

 

6,017

 

697,269

 

2.1

%  

90.5

%  

Massachusetts

 

11

 

7,239

 

667,868

 

2.0

%  

90.2

%  

North Carolina

 

 9

 

5,614

 

654,145

 

1.9

%  

90.2

%  

Tennessee

 

 7

 

4,442

 

617,980

 

1.8

%  

90.0

%  

Pennsylvania

 

 9

 

6,029

 

609,136

 

1.8

%  

91.3

%  

Nevada

 

 7

 

4,136

 

548,822

 

1.6

%  

91.0

%  

Washington D.C.

 

 4

 

3,920

 

295,693

 

0.9

%  

72.3

%  

Utah

 

 4

 

2,269

 

240,023

 

0.7

%  

91.0

%  

Rhode Island

 

 4

 

1,976

 

237,195

 

0.7

%  

93.2

%  

New Mexico

 

 3

 

1,661

 

182,261

 

0.5

%  

93.2

%  

Minnesota

 

 1

 

1,019

 

101,028

 

0.3

%  

93.2

%  

Indiana

 

 1

 

577

 

67,604

 

0.2

%  

94.1

%  

Total/Weighted Average

 

484

 

338,921

 

33,759,762

 

100.0

%  

89.2

%  

 

25


 

Table of Contents

Our Stores

 

The following table sets forth additional information with respect to each of our owned stores as of December 31, 2017.  Our ownership of each store consists of a fee interest in the store held by our Operating Partnership, or one of its subsidiaries, except for eight of our stores, which are subject to ground leases.  In addition, small parcels of land at two of our other stores are subject to ground leases.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Year

    

 

    

 

    

 

    

 

    

 

    

 

 

 

 

Acquired /

 

 

 

Rentable

 

 

 

 

 

Manager

 

% Climate

 

 

 

Developed

 

 

 

Square

 

Occupancy

 

 

 

Apartment

 

Controlled

 

Store Location

 

 (1) 

 

Year Built

 

Feet

 

 (2) 

 

Cubes

 

 (3) 

 

 (4) 

 

Chandler I, AZ

 

2005

 

1985

 

47,680

 

81.6

%  

456

 

Y

 

12.7

%  

Chandler II, AZ

 

2013

 

2008

 

82,915

 

82.5

%  

1,175

 

N

 

73.9

%  

Gilbert I, AZ

 

2013

 

2010

 

57,200

 

84.0

%  

443

 

Y

 

84.0

%  

Gilbert II, AZ

 

2016

 

2005/14

 

114,080

 

81.1

%  

835

 

Y

 

43.8

%  

Glendale, AZ

 

1998

 

1987

 

56,807

 

90.1

%  

534

 

Y

 

0.0

%  

Green Valley, AZ

 

2005

 

1985

 

25,050

 

97.9

%  

266

 

N

 

9.0

%  

Mesa I, AZ

 

2006

 

1985

 

52,575

 

91.7

%  

512

 

N

 

0.0

%  

Mesa II, AZ

 

2006

 

1981

 

45,511

 

94.8

%  

412

 

Y

 

16.7

%  

Mesa III, AZ

 

2006

 

1986

 

59,629

 

94.2

%  

527

 

Y

 

15.7

%  

Peoria, AZ

 

2015

 

2005

 

110,835

 

94.6

%  

926

 

N

 

35.4

%  

Phoenix I, AZ

 

2006

 

1987

 

101,275

 

82.2

%  

782

 

Y

 

24.8

%  

Phoenix II, AZ

 

2006/11

 

1974

 

83,160

 

93.0

%  

814

 

Y

 

6.6

%  

Phoenix III, AZ

 

2014

 

2009

 

121,730

 

91.9

%  

817

 

N

 

74.3

%  

Phoenix IV, AZ

 

2016

 

2008

 

69,610

 

92.5

%  

696

 

Y

 

100.0

%  

Queen Creek, AZ

 

2015

 

2013

 

94,462

 

87.8

%  

628

 

Y

 

61.3

%  

Scottsdale, AZ

 

1998

 

1995

 

80,725

 

93.9

%  

658

 

Y

 

20.5

%  

Surprise, AZ

 

2015

 

2006

 

72,325

 

96.1

%  

604

 

N

 

100.0

%  

Tempe I, AZ

 

2005

 

1975

 

53,890

 

91.8

%  

409

 

Y

 

18.8

%  

Tempe II, AZ

 

2013

 

2007

 

68,409

 

90.9

%  

735

 

Y

 

86.7

%  

Tucson I, AZ

 

1998

 

1974

 

59,800

 

94.9

%  

500

 

Y

 

0.0

%  

Tucson II, AZ

 

1998

 

1988

 

43,950

 

92.6

%  

537

 

Y

 

100.0

%  

Tucson III, AZ

 

2005

 

1979

 

49,820

 

93.1

%  

499

 

N

 

0.0

%  

Tucson IV, AZ

 

2005

 

1982

 

48,040

 

92.5

%  

505

 

Y

 

13.5

%  

Tucson V, AZ

 

2005

 

1982

 

45,134

 

95.4

%  

423

 

Y

 

11.3

%  

Tucson VI, AZ

 

2005

 

1982

 

40,790

 

92.3

%  

418

 

Y

 

13.6

%  

Tucson VII, AZ

 

2005

 

1982

 

52,663

 

93.8

%  

609

 

Y

 

6.9

%  

Tucson VIII, AZ

 

2005

 

1979

 

46,650

 

92.4

%  

463

 

Y

 

0.0

%  

Tucson IX, AZ

 

2005

 

1984

 

67,496

 

93.7

%  

609

 

Y

 

5.9

%  

Tucson X, AZ

 

2005

 

1981

 

46,350

 

91.0

%  

425

 

N

 

0.0

%  

Tucson XI, AZ

 

2005

 

1974

 

42,700

 

95.3

%  

413

 

Y

 

0.0

%  

Tucson XII, AZ

 

2005

 

1974

 

42,275

 

90.4

%  

446

 

Y

 

3.8

%  

Tucson XIII, AZ

 

2005

 

1974

 

45,800

 

94.5

%  

501

 

Y

 

0.0

%  

Tucson XIV, AZ

 

2005

 

1976

 

48,995

 

94.5

%  

558

 

Y

 

17.9

%  

Benicia, CA

 

2005

 

1988/93/05

 

74,770

 

93.3

%  

722

 

Y

 

0.0

%  

Citrus Heights, CA

 

2005

 

1987

 

75,620

 

91.6

%  

684

 

Y

 

0.0

%  

Corona, CA

 

2014

 

2014

 

94,975

 

94.6

%  

971

 

N

 

6.9

%  

Diamond Bar, CA

 

2005

 

1988

 

103,558

 

92.2

%  

916

 

Y

 

0.0

%  

Escondido, CA

 

2007

 

2002

 

143,645

 

96.4

%  

1,269

 

Y

 

12.0

%  

Fallbrook, CA

 

1997

 

1985/88

 

45,926

 

90.4

%  

451

 

Y

 

0.0

%  

Fremont, CA

 

2014

 

1987

 

51,324

 

90.2

%  

526

 

Y

 

0.0

%  

Lancaster, CA

 

2001

 

1987

 

60,475

 

96.6

%  

371

 

Y

 

0.0

%  

Long Beach, CA

 

2006

 

1974

 

124,571

 

93.7

%  

1,378

 

Y

 

0.0

%  

Murrieta, CA

 

2005

 

1996

 

49,775

 

91.5

%  

453

 

Y

 

5.1

%  

North Highlands, CA

 

2005

 

1980

 

57,094

 

88.8

%  

476

 

Y

 

0.0

%  

Ontario, CA

 

2014

 

1986

 

93,590

 

93.4

%  

849

 

Y

 

0.0

%  

 

26


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Year

    

 

    

 

    

 

    

 

    

 

    

 

 

 

 

Acquired /

 

 

 

Rentable

 

 

 

 

 

Manager

 

% Climate

 

 

 

Developed

 

 

 

Square

 

Occupancy

 

 

 

Apartment

 

Controlled

 

Store Location

 

 (1) 

 

Year Built

 

Feet

 

 (2) 

 

Cubes

 

 (3) 

 

 (4) 

 

Orangevale, CA

 

2005

 

1980

 

50,542

 

91.6

%  

533

 

Y

 

0.0

%  

Pleasanton, CA

 

2005

 

2003

 

83,600

 

92.2

%  

765

 

Y

 

0.0

%  

Rancho Cordova, CA

 

2005

 

1979

 

53,978

 

90.0

%  

480

 

Y

 

0.0

%  

Rialto I, CA

 

2006

 

1987

 

57,391

 

95.9

%  

466

 

Y

 

0.0

%  

Rialto II, CA

 

1997

 

1980

 

99,783

 

93.1

%  

720

 

Y

 

0.0

%  

Riverside I, CA

 

2006

 

1977

 

67,220

 

94.2

%  

670

 

Y

 

0.0

%  

Riverside II, CA

 

2006

 

1985

 

85,176

 

91.5

%  

812

 

Y

 

5.5

%  

Roseville, CA

 

2005

 

1979

 

59,944

 

87.8

%  

561

 

Y

 

0.0

%  

Sacramento I, CA

 

2005

 

1979

 

50,664

 

91.0

%  

555

 

Y

 

0.0

%  

Sacramento II, CA

 

2005/17

 

1986

 

111,736

 

88.0

%  

1,087

 

Y

 

0.0

%  

San Bernardino I, CA

 

1997

 

1987

 

31,070

 

90.2

%  

236

 

N

 

0.0

%  

San Bernardino II, CA

 

1997

 

1991

 

41,546

 

94.0

%  

374

 

Y

 

0.0

%  

San Bernardino III, CA

 

1997

 

1985/92

 

35,416

 

92.9

%  

375

 

N

 

0.0

%  

San Bernardino IV, CA

 

2005

 

2002/04

 

83,227

 

94.3

%  

743

 

Y

 

12.5

%  

San Bernardino V, CA

 

2006

 

1974

 

56,745

 

88.5

%  

492

 

Y

 

6.7

%  

San Bernardino VII, CA

 

2006

 

1978

 

78,809

 

94.0

%  

641

 

Y

 

2.3

%  

San Bernardino VIII, CA

 

2006

 

1977

 

103,567

 

92.5

%  

875

 

Y

 

0.0

%  

San Marcos, CA

 

2005

 

1979

 

37,425

 

86.7

%  

244

 

Y

 

0.0

%  

Santa Ana, CA

 

2006

 

1984

 

63,916

 

92.3

%  

742

 

Y

 

4.3

%  

South Sacramento, CA

 

2005

 

1979

 

52,390

 

92.5

%  

415

 

Y

 

0.0

%  

Spring Valley, CA

 

2006

 

1980

 

55,035

 

88.3

%  

713

 

Y

 

0.0

%  

Temecula I, CA

 

1998

 

1985/03

 

81,340

 

88.3

%  

704

 

Y

 

45.9

%  

Temecula II, CA

 

2007

 

2003

 

84,520

 

94.1

%  

690

 

Y

 

55.2

%  

Vista I, CA

 

2001

 

1988

 

74,238

 

96.1

%  

622

 

Y

 

0.0

%  

Vista II, CA

 

2005

 

2001/02/03

 

147,753

 

93.6

%  

1,304

 

Y

 

3.7

%  

Walnut, CA

 

2005

 

1987

 

50,708

 

94.2

%  

538

 

Y

 

16.0

%  

West Sacramento, CA

 

2005

 

1984

 

39,765

 

93.1

%  

479

 

Y

 

0.0

%  

Westminster, CA

 

2005

 

1983/98

 

68,393

 

91.9

%  

566

 

Y

 

0.0

%  

Aurora, CO

 

2005

 

1981

 

75,717

 

91.7

%  

619

 

Y

 

0.0

%  

Centennial, CO

 

2016

 

2009

 

62,400

 

91.5

%  

530

 

Y

 

95.5

%  

Colorado Springs I, CO

 

2005

 

1986

 

47,975

 

87.4

%  

468

 

Y

 

0.0

%  

Colorado Springs II, CO

 

2006

 

2001

 

62,400

 

88.7

%  

433

 

Y

 

0.0

%  

Denver I, CO

 

2006

 

1997

 

59,200

 

94.8

%  

449

 

Y

 

0.0

%  

Denver II, CO

 

2012

 

2007

 

74,390

 

88.9

%  

679

 

N

 

95.1

%  

Denver III, CO

 

2016

 

2015

 

76,025

 

86.2

%  

722

 

N

 

95.0

%  

Federal Heights, CO

 

2005

 

1980

 

54,770

 

92.0

%  

551

 

Y

 

0.0

%  

Golden, CO

 

2005

 

1985

 

87,800

 

92.9

%  

640

 

Y

 

1.6

%  

Littleton, CO

 

2005

 

1987

 

53,490

 

88.7

%  

442

 

Y

 

64.5

%  

Northglenn, CO

 

2005

 

1980

 

43,102

 

92.5

%  

484

 

Y

 

0.0

%  

Bloomfield, CT

 

1997

 

1987/93/94

 

48,700

 

92.1

%  

445

 

Y

 

8.8

%  

Branford, CT

 

1995

 

1986

 

50,629

 

84.4

%  

430

 

Y

 

3.5

%  

Bristol, CT

 

2005

 

1989/99

 

47,725

 

92.1

%  

471

 

N

 

31.8

%  

East Windsor, CT

 

2005

 

1986/89

 

45,966

 

93.1

%  

305

 

N

 

0.0

%  

Enfield, CT

 

2001

 

1989

 

52,875

 

93.8

%  

374

 

Y

 

0.0

%  

Gales Ferry, CT

 

1995

 

1987/89

 

54,905

 

89.7

%  

607

 

N

 

9.4

%  

Manchester I, CT

 

2002

 

1999/00/01

 

46,925

 

92.9

%  

467

 

N

 

44.5

%  

Manchester II, CT

 

2005

 

1984

 

52,725

 

92.4

%  

405

 

N

 

0.0

%  

Manchester III, CT

 

2014

 

2009

 

60,113

 

91.8

%  

583

 

N

 

87.3

%  

Milford, CT

 

1996

 

1975

 

44,885

 

86.1

%  

375

 

Y

 

6.9

%  

Monroe, CT

 

2005

 

1996/03

 

58,500

 

96.3

%  

397

 

N

 

0.0

%  

 

27


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Year

    

 

    

 

    

 

    

 

    

 

    

 

 

 

 

Acquired /

 

 

 

Rentable

 

 

 

 

 

Manager

 

% Climate

 

 

 

Developed

 

 

 

Square

 

Occupancy

 

 

 

Apartment

 

Controlled

 

Store Location

 

 (1) 

 

Year Built

 

Feet

 

 (2) 

 

Cubes

 

 (3) 

 

 (4) 

 

Mystic, CT

 

1996

 

1975/86

 

50,825

 

91.8

%  

561

 

Y

 

4.6

%  

Newington I, CT

 

2005

 

1978/97

 

42,620

 

95.2

%  

248

 

N

 

0.0

%  

Newington II, CT

 

2005

 

1979/81

 

36,140

 

92.4

%  

194

 

N

 

0.0

%  

Norwalk I, CT

 

2012

 

2009

 

30,160

 

90.3

%  

348

 

N

 

100.0

%  

Norwalk II, CT

 

2016

 

1990

 

78,175

 

86.6

%  

936

 

Y

 

78.0

%  

Old Saybrook I, CT

 

2005

 

1982/88/00

 

87,000

 

91.6

%  

719

 

N

 

10.8

%  

Old Saybrook II, CT

 

2005

 

1988/02

 

26,425

 

90.7

%  

253

 

N

 

72.7

%  

Shelton, CT

 

2011

 

2007

 

78,405

 

92.6

%  

855

 

Y

 

94.2

%  

South Windsor, CT

 

1996

 

1976

 

72,025

 

91.2

%  

561

 

Y

 

1.2

%  

Stamford, CT

 

2005

 

1997

 

28,907

 

93.5

%  

363

 

N

 

38.8

%  

Wilton, CT

 

2012

 

1966

 

84,515

 

96.2

%  

771

 

Y

 

66.8

%  

Washington I, DC

 

2008

 

2002

 

62,685

 

87.6

%  

751

 

Y

 

97.6

%  

Washington II, DC

 

2011

 

1929/98

 

82,697

 

91.2

%  

1,044

 

N

 

99.6

%  

Washington III, DC

 

2016

 

1961/13

 

78,340

 

89.5

%  

1,050

 

Y

 

97.3

%  

Washington IV, DC *

 

2017

 

1925

 

71,971

 

18.5

%  

1,075

 

N

 

99.3

%  

Boca Raton, FL

 

2001

 

1998

 

37,968

 

92.4

%  

611

 

N

 

70.7

%  

Boynton Beach I, FL

 

2001

 

1999

 

61,725

 

93.1

%  

760

 

Y

 

62.1

%  

Boynton Beach II, FL

 

2005

 

2001

 

61,514

 

92.6

%  

580

 

Y

 

89.0

%  

Boynton Beach III, FL

 

2014

 

2001

 

67,393

 

94.5

%  

721

 

N

 

100.0

%  

Boynton Beach IV, FL

 

2015

 

2002

 

76,098

 

92.6

%  

641

 

N

 

84.2

%  

Bradenton I, FL

 

2004

 

1979

 

68,398

 

92.0

%  

594

 

N

 

6.6

%  

Bradenton II, FL

 

2004

 

1996

 

88,063

 

94.7

%  

852

 

Y

 

46.7

%  

Cape Coral I, FL

 

2000

 

2000

 

76,857

 

91.9

%  

902

 

Y

 

91.0

%  

Cape Coral II, FL

 

2014

 

2007

 

67,955

 

93.7

%  

615

 

Y

 

71.5

%  

Coconut Creek I, FL

 

2012

 

2001

 

78,846

 

92.0

%  

757

 

Y

 

53.1

%  

Coconut Creek II, FL

 

2014

 

1999

 

90,147

 

93.2

%  

811

 

N

 

79.8

%  

Dania Beach, FL

 

2004

 

1984

 

180,588

 

92.4

%  

1,778

 

N

 

27.4

%  

Dania, FL

 

1996

 

1988

 

58,165

 

93.3

%  

496

 

Y

 

53.8

%  

Davie, FL

 

2001

 

2001

 

80,985

 

95.2

%  

837

 

Y

 

74.0

%  

Deerfield Beach, FL

 

1998

 

1998

 

57,230

 

88.8

%  

520

 

Y

 

55.2

%  

Delray Beach I, FL

 

2001

 

1999

 

67,833

 

95.4

%  

816

 

Y

 

45.6

%  

Delray Beach II, FL

 

2013

 

1987

 

75,710

 

93.8

%  

1,180

 

N

 

95.5

%  

Delray Beach III, FL

 

2014

 

2006

 

94,377

 

91.8

%  

904

 

N

 

99.8

%  

Delray Beach IV, FL *

 

2017

 

2017

 

97,945

 

1.9

%  

1,155

 

N

 

100.0

%  

Ft. Lauderdale I, FL

 

1999

 

1999

 

70,093

 

92.8

%  

695

 

Y

 

55.0

%  

Ft. Lauderdale II, FL

 

2013

 

2007

 

49,577

 

93.3

%  

862

 

N

 

100.0

%  

Ft. Myers I, FL

 

1999

 

1998

 

67,534

 

95.4

%  

593

 

Y

 

84.3

%  

Ft. Myers II, FL

 

2014

 

2001

 

83,375

 

96.5

%  

838

 

Y

 

63.2

%  

Ft. Myers III, FL

 

2014

 

2002

 

81,554

 

90.3

%  

870

 

Y

 

89.4

%  

Jacksonville I, FL

 

2005

 

2005

 

79,705

 

95.7

%  

720

 

N

 

100.0

%  

Jacksonville II, FL

 

2007

 

2004

 

64,970

 

92.5

%  

672

 

N

 

100.0

%  

Jacksonville III, FL

 

2007

 

2003

 

65,840

 

93.0

%  

686

 

N

 

100.0

%  

Jacksonville IV, FL

 

2007

 

2006

 

77,525

 

92.6

%  

720

 

N

 

100.0

%  

Jacksonville V, FL

 

2007

 

2004

 

82,523

 

89.0

%  

720

 

N

 

80.3

%  

Jacksonville VI, FL

 

2014

 

2006

 

67,375

 

92.9

%  

539

 

Y

 

71.4

%  

Kendall, FL

 

2007

 

2003

 

75,495

 

95.2

%  

702

 

N

 

79.6

%  

Lake Worth I, FL †

 

1998

 

1998/02

 

160,622

 

90.0

%  

1,280

 

Y

 

72.4

%  

Lake Worth II, FL

 

2014

 

2004/08

 

86,924

 

96.4

%  

757

 

Y

 

85.9

%  

Lake Worth III, FL

 

2015

 

2006

 

92,510

 

91.6

%  

787

 

Y

 

42.4

%  

Lakeland, FL

 

1994

 

1988

 

49,095

 

93.6

%  

493

 

Y

 

83.0

%  

 

28


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Year

    

 

    

 

    

 

    

 

    

 

    

 

 

 

 

Acquired /

 

 

 

Rentable

 

 

 

 

 

Manager

 

% Climate

 

 

 

Developed

 

 

 

Square

 

Occupancy

 

 

 

Apartment

 

Controlled

 

Store Location

 

 (1) 

 

Year Built

 

Feet

 

 (2) 

 

Cubes

 

 (3) 

 

 (4) 

 

Leisure City, FL

 

2012

 

2005

 

56,225

 

93.9

%  

619

 

N

 

70.3

%  

Lutz I, FL

 

2004

 

2000

 

66,795

 

92.3

%  

616

 

Y

 

44.6

%  

Lutz II, FL

 

2004

 

1999

 

69,232

 

88.9

%  

537

 

Y

 

29.4

%  

Margate I, FL †

 

1996

 

1979/81

 

53,660

 

94.8

%  

370

 

Y

 

27.8

%  

Margate II, FL †

 

1996

 

1985

 

65,380

 

94.2

%  

460

 

Y

 

55.9

%  

Merritt Island, FL

 

2002

 

2000

 

50,261

 

88.5

%  

465

 

Y

 

66.7

%  

Miami I, FL

 

1996

 

1995

 

46,500

 

93.2

%  

557

 

Y

 

69.1

%  

Miami II, FL

 

1996

 

1989

 

66,960

 

88.7

%  

569

 

Y

 

19.0

%  

Miami III, FL

 

2005

 

1988/03

 

151,620

 

92.8

%  

1,513

 

N

 

91.3

%  

Miami IV, FL

 

2011

 

2007

 

76,695

 

93.7

%  

929

 

N

 

99.9

%  

Miramar, FL

 

2013

 

2009

 

80,130

 

91.8

%  

746

 

N

 

97.1

%  

Naples I, FL

 

1996

 

1996

 

48,100

 

89.8

%  

318

 

Y

 

49.1

%  

Naples II, FL

 

1997

 

1985

 

65,850

 

87.6

%  

649

 

Y

 

56.2

%  

Naples III, FL

 

1997

 

1981/83

 

80,021

 

93.5

%  

805

 

Y

 

48.8

%  

Naples IV, FL

 

1998

 

1990

 

40,625

 

90.7

%  

443

 

Y

 

63.7

%  

New Smyrna Beach, FL

 

2014

 

2001

 

81,454

 

94.6

%  

607

 

N

 

59.6

%  

North Palm Beach, FL *

 

2017

 

2017

 

46,275

 

51.7

%  

504

 

N

 

100.0

%  

Oakland Park, FL

 

2017

 

2012

 

63,231

 

91.3

%  

554

 

N

 

97.8

%  

Ocoee, FL

 

2005

 

1997

 

76,150

 

94.9

%  

635

 

Y

 

22.7

%  

Orange City, FL

 

2004

 

2001

 

59,580

 

91.2

%  

655

 

N

 

53.0

%  

Orlando II, FL

 

2005

 

2002/04

 

63,184

 

89.3

%  

586

 

N

 

81.9

%  

Orlando III, FL

 

2006

 

1988/90/96

 

101,510

 

91.3

%  

825

 

Y

 

22.1

%  

Orlando IV, FL

 

2010

 

2009

 

76,601

 

93.3

%  

647

 

N

 

68.6

%  

Orlando V, FL

 

2012

 

2008

 

75,327

 

91.9

%  

651

 

N

 

91.4

%  

Orlando VI, FL

 

2014

 

2006

 

67,275

 

91.3

%  

581

 

Y

 

35.3

%  

Oviedo, FL

 

2006

 

1988/91

 

49,276

 

86.1

%  

446

 

Y

 

3.6

%  

Palm Coast I, FL

 

2014

 

2001

 

47,400

 

90.2

%  

426

 

Y

 

52.6

%  

Palm Coast II, FL

 

2014

 

1998/04

 

122,490

 

94.9

%  

1,192

 

N

 

43.0

%  

Palm Harbor, FL

 

2016

 

2001

 

82,685

 

92.6

%  

744

 

N

 

73.0

%  

Pembroke Pines, FL

 

1997

 

1997

 

67,321

 

91.3

%  

693

 

Y

 

78.2

%  

Royal Palm Beach II, FL

 

2007

 

2004

 

81,238

 

91.3

%  

757

 

N

 

90.2

%  

Sanford I, FL

 

2006

 

1988/06

 

61,810

 

90.7

%  

443

 

Y

 

35.7

%  

Sanford II, FL

 

2014

 

2000

 

69,755

 

94.2

%  

667

 

N

 

62.4

%  

Sarasota, FL

 

1999

 

1998

 

71,142

 

92.4

%  

544

 

Y

 

60.7

%  

St. Augustine, FL

 

1996

 

1985

 

59,725

 

92.8

%  

725

 

Y

 

26.2

%  

St. Petersburg, FL

 

2016

 

1987

 

66,025

 

92.6

%  

845

 

N

 

35.0

%  

Stuart, FL

 

1997

 

1995

 

86,756

 

91.9

%  

987

 

Y

 

60.0

%  

SW Ranches, FL

 

2007

 

2004

 

64,975

 

91.0

%  

650

 

N

 

88.9

%  

Tampa I, FL

 

2007

 

2001/02

 

83,938

 

94.3

%  

792

 

N

 

34.3

%  

Tampa II, FL

 

2016

 

1999

 

74,790

 

92.4

%  

703

 

N

 

100.0

%  

West Palm Beach I, FL

 

2001

 

1997

 

66,906

 

93.2

%  

974

 

Y

 

52.6

%  

West Palm Beach II, FL

 

2004

 

1996

 

94,353

 

94.2

%  

836

 

Y

 

76.7

%  

West Palm Beach III, FL

 

2012

 

2008

 

77,410

 

91.1

%  

909

 

Y

 

90.3

%  

West Palm Beach IV, FL

 

2014

 

2004

 

102,742

 

90.5

%  

945

 

N

 

85.5

%  

Winter Park, FL

 

2014

 

2005

 

54,416

 

92.0

%  

542

 

N

 

58.5

%  

Alpharetta, GA

 

2001

 

1996

 

90,501

 

91.7

%  

673

 

Y

 

79.5

%  

Atlanta, GA

 

2012

 

2008

 

66,625

 

94.0

%  

631

 

N

 

100.0

%  

Austell, GA

 

2006

 

2000

 

83,655

 

92.7

%  

674

 

Y

 

64.2

%  

Decatur, GA

 

1998

 

1986

 

145,320

 

88.8

%  

1,334

 

Y

 

2.7

%  

Duluth, GA

 

2011

 

2009

 

70,885

 

90.0

%  

590

 

N

 

100.0

%  

 

29


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Year

    

 

    

 

    

 

    

 

    

 

    

 

 

 

 

Acquired /

 

 

 

Rentable

 

 

 

 

 

Manager

 

% Climate

 

 

 

Developed

 

 

 

Square

 

Occupancy

 

 

 

Apartment

 

Controlled

 

Store Location

 

 (1) 

 

Year Built

 

Feet

 

 (2) 

 

Cubes

 

 (3) 

 

 (4) 

 

Lawrenceville, GA

 

2011

 

1999

 

73,740

 

93.2

%  

605

 

Y

 

27.6

%  

Lithia Springs, GA

 

2015

 

2007

 

66,750

 

91.2

%  

591

 

N

 

59.2

%  

Norcross I, GA

 

2001

 

1997

 

85,420

 

89.7

%  

601

 

Y

 

66.1

%  

Norcross II, GA

 

2011

 

1996

 

52,595

 

90.4

%  

400

 

Y

 

62.5

%  

Norcross III, GA

 

2012

 

2007

 

46,955

 

89.7

%  

500

 

N

 

100.0

%  

Norcross IV, GA

 

2012

 

2005

 

57,505

 

90.2

%  

543

 

Y

 

89.1

%  

Peachtree City I, GA

 

2001

 

1997

 

49,875

 

90.1

%  

455

 

N

 

76.7

%  

Peachtree City II, GA

 

2012

 

2005

 

59,950

 

91.2

%  

429

 

N

 

43.4

%  

Smyrna, GA

 

2001

 

2000

 

57,015

 

92.0

%  

503

 

Y

 

99.4

%  

Snellville, GA

 

2007

 

1996/97

 

79,950

 

91.5

%  

770

 

Y

 

21.7

%  

Suwanee I, GA

 

2007

 

2000/03

 

85,125

 

95.3

%  

653

 

Y

 

29.1

%  

Suwanee II, GA

 

2007

 

2005

 

80,340

 

91.8

%  

592

 

N

 

66.2

%  

Villa Rica, GA

 

2015

 

2009

 

65,281

 

92.3

%  

499

 

N

 

61.5

%  

Addison, IL

 

2004

 

1979

 

31,575

 

90.3

%  

367

 

Y

 

0.0

%  

Aurora, IL

 

2004

 

1996

 

73,985

 

91.3

%  

558

 

Y

 

8.6

%  

Bartlett, IL

 

2004

 

1987

 

51,395

 

87.2

%  

415

 

Y

 

31.8

%  

Bellwood, IL

 

2001

 

1999

 

86,350

 

88.7

%  

738

 

Y

 

51.1

%  

Blue Island, IL

 

2015

 

2008

 

55,125

 

91.2

%  

557

 

N

 

100.0

%  

Bolingbrook, IL

 

2014

 

2004

 

82,425

 

90.8

%  

728

 

N

 

77.3

%  

Chicago I, IL

 

2014

 

1935

 

95,845

 

92.9

%  

1,087

 

N

 

94.7

%  

Chicago II, IL

 

2014

 

1953

 

78,585

 

90.3

%  

757

 

N

 

85.6

%  

Chicago III, IL

 

2014

 

1959

 

84,990

 

95.5

%  

1,078

 

N

 

99.8

%  

Chicago IV, IL

 

2015

 

2009

 

60,495

 

91.5

%  

613

 

N

 

100.0

%  

Chicago V, IL

 

2015

 

2008

 

51,775

 

90.5

%  

603

 

N

 

100.0

%  

Chicago VI, IL

 

2016

 

1954/61/13

 

71,785

 

75.0

%  

714

 

N

 

100.0

%  

Chicago VII, IL *

 

2017

 

2017

 

91,292

 

26.8

%  

1,094

 

N

 

100.0

%  

Countryside, IL

 

2014

 

2002

 

97,356

 

92.6

%  

903

 

N

 

98.8

%  

Des Plaines, IL

 

2004

 

1978

 

69,450

 

95.3

%  

577

 

N

 

0.0

%  

Downers Grove, IL

 

2016

 

2015

 

71,625

 

90.6

%  

666

 

N

 

100.0

%  

Elk Grove Village, IL

 

2004

 

1987

 

64,054

 

92.6

%  

623

 

Y

 

7.5

%  

Evanston, IL

 

2013

 

2009

 

57,715

 

89.4

%  

593

 

N

 

100.0

%  

Glenview, IL

 

2004

 

1998

 

100,085

 

93.4

%  

738

 

Y

 

100.0

%  

Gurnee, IL

 

2004

 

1987

 

80,300

 

91.0

%  

708

 

Y

 

37.4

%  

Hanover, IL

 

2004

 

1987

 

41,190

 

88.7

%  

417

 

Y

 

2.2

%  

Harvey, IL

 

2004

 

1987

 

60,090

 

91.7

%  

575

 

Y

 

2.8

%  

Joliet, IL

 

2004

 

1993

 

72,865

 

94.2

%  

532

 

Y

 

94.0

%  

Kildeer, IL

 

2004

 

1988

 

74,463

 

63.9

%  

779

 

Y

 

58.0

%  

Lombard, IL

 

2004

 

1981

 

58,241

 

89.0

%  

536

 

Y

 

26.1

%  

Maywood, IL

 

2015

 

2009

 

60,225

 

92.1

%  

655

 

N

 

100.0

%  

Mount Prospect, IL

 

2004

 

1979

 

64,950

 

92.2

%  

578

 

Y

 

10.4

%  

Mundelein, IL

 

2004

 

1990

 

44,700

 

89.6

%  

484

 

Y

 

12.2

%  

North Chicago, IL

 

2004

 

1985

 

53,400

 

87.8

%  

420

 

N

 

0.0

%  

Plainfield I, IL

 

2004

 

1998

 

53,900

 

90.3

%  

403

 

N

 

8.7

%  

Plainfield II, IL

 

2005

 

2000

 

51,900

 

90.5

%  

356

 

N

 

32.6

%  

Riverwoods, IL *

 

2017

 

2017

 

73,915

 

30.0

%  

807

 

N

 

100.0

%  

Schaumburg, IL

 

2004

 

1988

 

31,160

 

94.4

%  

317

 

N

 

5.4

%  

Streamwood, IL

 

2004

 

1982

 

64,305

 

94.3

%  

551

 

N

 

7.6

%  

Warrenville, IL

 

2005

 

1977/89

 

48,796

 

88.0

%  

380

 

N

 

0.0

%  

Waukegan, IL

 

2004

 

1977

 

79,500

 

91.0

%  

661

 

Y

 

8.2

%  

West Chicago, IL

 

2004

 

1979

 

48,175

 

90.8

%  

437

 

Y

 

0.0

%  

 

30


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Year

    

 

    

 

    

 

    

 

    

 

    

 

 

 

 

Acquired /

 

 

 

Rentable

 

 

 

 

 

Manager

 

% Climate

 

 

 

Developed

 

 

 

Square

 

Occupancy

 

 

 

Apartment

 

Controlled

 

Store Location

 

 (1) 

 

Year Built

 

Feet

 

 (2) 

 

Cubes

 

 (3) 

 

 (4) 

 

Westmont, IL

 

2004

 

1979

 

53,400

 

94.6

%  

383

 

Y

 

0.0

%  

Wheeling I, IL

 

2004

 

1974

 

54,210

 

90.7

%  

485

 

N

 

0.0

%  

Wheeling II, IL

 

2004

 

1979

 

67,825

 

89.1

%  

604

 

Y

 

9.9

%  

Woodridge, IL

 

2004

 

1987

 

50,232

 

88.4

%  

463

 

Y

 

17.1

%  

Schererville, IN

 

2014

 

2005

 

67,604

 

94.1

%  

577

 

Y

 

40.6

%  

Boston I, MA

 

2010

 

1950

 

33,286

 

86.9

%  

584

 

N

 

100.0

%  

Boston II, MA

 

2002

 

2001

 

60,470

 

91.1

%  

628

 

N

 

99.0

%  

Boston III, MA

 

2014

 

1960

 

108,205

 

95.0

%  

1,103

 

N

 

25.2

%  

Brockton, MA

 

2015

 

1900/70/80

 

59,296

 

82.0

%  

701

 

N

 

0.0

%  

Haverhill, MA

 

2015

 

1900

 

60,589

 

91.1

%  

606

 

N

 

93.2

%  

Lawrence, MA

 

2015

 

1966

 

34,672

 

91.0

%  

411

 

N

 

100.0

%  

Leominster, MA

 

1998

 

1987/88/00

 

54,073

 

92.5

%  

511

 

Y

 

50.5

%  

Medford, MA

 

2007

 

2001

 

58,685

 

90.2

%  

658

 

Y

 

97.4

%  

Stoneham, MA

 

2013

 

2009/11

 

61,300

 

95.4

%  

589

 

N

 

100.0

%  

Tewksbury, MA

 

2014

 

2007

 

62,402

 

92.2

%  

751

 

N

 

100.0

%  

Walpole, MA

 

2016

 

1998

 

74,890

 

82.2

%  

697

 

Y

 

31.4

%  

Annapolis, MD

 

2017

 

1976

 

92,332

 

86.7

%  

952

 

Y

 

59.9

%  

Baltimore, MD

 

2001

 

1999/00

 

93,750

 

92.7

%  

800

 

Y

 

49.0

%  

Beltsville, MD

 

2013

 

2006

 

63,687

 

91.3

%  

648

 

Y

 

9.7

%  

California, MD

 

2004

 

1998

 

77,840

 

88.4

%  

721

 

Y

 

41.3

%  

Capitol Heights, MD

 

2015

 

2013

 

79,600

 

94.2

%  

950

 

Y

 

98.9

%  

Clinton, MD

 

2013

 

2008/10

 

84,225

 

88.6

%  

914

 

Y

 

51.8

%  

District Heights, MD

 

2011

 

2007

 

78,240

 

92.5

%  

960

 

Y

 

96.4

%  

Elkridge, MD

 

2013

 

1999

 

63,475

 

89.1

%  

601

 

Y

 

91.5

%  

Gaithersburg I, MD

 

2005

 

1998

 

87,045

 

90.5

%  

789

 

Y

 

45.2

%  

Gaithersburg II, MD

 

2015

 

2008

 

74,150

 

92.3

%  

831

 

Y

 

99.2

%  

Hyattsville, MD

 

2013

 

2006

 

52,830

 

91.7

%  

602

 

Y

 

9.3

%  

Laurel, MD †

 

2001

 

1978/99/00

 

162,896

 

92.4

%  

1,017

 

N

 

64.5

%  

Temple Hills I, MD

 

2001

 

2000

 

97,270

 

90.3

%  

820

 

Y

 

71.1

%  

Temple Hills II, MD

 

2014

 

2010

 

84,225

 

91.6

%  

1,070

 

Y

 

99.3

%  

Timonium, MD

 

2014

 

1965/98

 

66,717

 

89.4

%  

662

 

Y

 

95.5

%  

Upper Marlboro, MD

 

2013

 

2006

 

62,290

 

90.7

%  

664

 

Y

 

21.7

%  

Bloomington, MN

 

2016

 

1978

 

101,028

 

93.2

%  

1,019

 

N

 

74.1

%  

Belmont, NC

 

2001

 

1996/97/98

 

81,850

 

91.1

%  

595

 

N

 

21.8

%  

Burlington I, NC

 

2001

 

1990/91/93/94/98

 

109,300

 

94.2

%  

952

 

N

 

7.8

%  

Burlington II, NC

 

2001

 

1991

 

42,165

 

89.6

%  

396

 

Y

 

16.4

%  

Cary, NC

 

2001

 

1993/94/97

 

112,402

 

89.4

%  

840

 

N

 

11.3

%  

Charlotte I, NC

 

2002

 

1999

 

69,000

 

89.8

%  

745

 

Y

 

44.4

%  

Charlotte II, NC

 

2016

 

2008

 

53,736

 

89.7

%  

491

 

N

 

96.3

%  

Cornelius, NC

 

2015

 

2000

 

59,270

 

88.9

%  

526

 

N

 

43.2

%  

Pineville, NC

 

2015

 

1997/01

 

77,747

 

89.8

%  

642

 

N

 

13.2

%  

Raleigh, NC

 

1998

 

1994/95

 

48,675

 

85.8

%  

427

 

Y

 

11.7

%  

Bordentown, NJ

 

2012

 

2006

 

50,550

 

92.5

%  

382

 

N

 

27.2

%  

Brick, NJ

 

1996

 

1981

 

51,720

 

96.0

%  

433

 

N

 

0.0

%  

Cherry Hill I, NJ

 

2010

 

2004

 

51,500

 

93.4

%  

369

 

Y

 

0.0

%  

Cherry Hill II, NJ

 

2012

 

2004

 

65,500

 

93.8

%  

613

 

N

 

94.8

%  

Clifton, NJ

 

2005

 

2001

 

105,550

 

94.4

%  

1,004

 

Y

 

93.2

%  

Cranford, NJ

 

1996

 

1987

 

91,280

 

88.2

%  

849

 

Y

 

7.9

%  

East Hanover, NJ

 

1996

 

1983

 

107,679

 

93.7

%  

970

 

N

 

3.4

%  

Egg Harbor I, NJ

 

2010

 

2005

 

36,025

 

95.9

%  

290

 

N

 

14.8

%  

 

31


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Year

    

 

    

 

    

 

    

 

    

 

    

 

 

 

 

Acquired /

 

 

 

Rentable

 

 

 

 

 

Manager

 

% Climate

 

 

 

Developed

 

 

 

Square

 

Occupancy

 

 

 

Apartment

 

Controlled

 

Store Location

 

 (1) 

 

Year Built

 

Feet

 

 (2) 

 

Cubes

 

 (3) 

 

 (4) 

 

Egg Harbor II, NJ

 

2010

 

2002

 

70,400

 

92.4

%  

695

 

N

 

19.9

%  

Elizabeth, NJ

 

2005

 

1925/97

 

38,830

 

92.2

%  

674

 

N

 

0.0

%  

Fairview, NJ

 

1997

 

1989

 

27,876

 

95.6

%  

448

 

N

 

98.9

%  

Freehold, NJ

 

2012

 

2002

 

81,420

 

95.8

%  

744

 

Y

 

66.1

%  

Hamilton, NJ

 

2006

 

1990

 

70,550

 

93.2

%  

618

 

Y

 

0.0

%  

Hoboken, NJ

 

2005

 

1945/97

 

34,130

 

92.4

%  

741

 

N

 

99.6

%  

Linden, NJ

 

1996

 

1983

 

100,425

 

92.9

%  

1,118

 

N

 

5.3

%  

Lumberton, NJ

 

2012

 

2004

 

96,025

 

93.6

%  

771

 

Y

 

32.6

%  

Morris Township, NJ

 

1997

 

1972

 

72,226

 

92.5

%  

560

 

Y

 

5.7

%  

Parsippany, NJ

 

1997

 

1981

 

84,655

 

89.2

%  

773

 

N

 

49.4

%  

Rahway, NJ

 

2013

 

2006

 

83,121

 

93.7

%  

983

 

Y

 

92.3

%  

Randolph, NJ

 

2002

 

1998/99

 

52,565

 

95.3

%  

550

 

Y

 

91.6

%  

Ridgefield, NJ

 

2015

 

1921/44

 

67,803

 

94.3

%  

684

 

Y

 

100.0

%  

Roseland, NJ

 

2015

 

1951/04

 

53,569

 

92.6

%  

658

 

N

 

98.8

%  

Sewell, NJ

 

2001

 

1984/98

 

57,826

 

92.5

%  

465

 

N

 

9.2

%  

Somerset, NJ

 

2012

 

2000

 

57,485

 

96.3

%  

507

 

N

 

83.8

%  

Whippany, NJ

 

2013

 

2007

 

92,070

 

95.6

%  

938

 

Y

 

86.0

%  

Albuquerque I, NM

 

2005

 

1985

 

65,927

 

93.0

%  

604

 

Y

 

13.9

%  

Albuquerque II, NM

 

2005

 

1985

 

58,798

 

93.8

%  

532

 

Y

 

15.0

%  

Albuquerque III, NM

 

2005

 

1986

 

57,536

 

92.7

%  

525

 

Y

 

11.0

%  

Henderson, NV

 

2014

 

2005

 

75,150

 

94.7

%  

528

 

Y

 

75.9

%  

Las Vegas I, NV †

 

2006

 

1986

 

48,732

 

95.4

%  

373

 

Y

 

13.6

%  

Las Vegas II, NV

 

2006

 

1997

 

48,850

 

94.2

%  

533

 

Y

 

66.4

%  

Las Vegas III, NV

 

2016

 

2005

 

84,600

 

90.5

%  

578

 

Y

 

78.9

%  

Las Vegas IV, NV

 

2016

 

2004

 

91,557

 

85.3

%  

578

 

Y

 

66.8

%  

Las Vegas V, NV

 

2016

 

1996

 

107,226

 

89.5

%  

909

 

Y

 

84.8

%  

Las Vegas VI, NV

 

2016

 

2003

 

92,707

 

91.4

%  

637

 

N

 

73.6

%  

Baldwin, NY

 

2015

 

1974

 

61,380

 

93.2

%  

613

 

N

 

99.8

%  

Bronx I, NY

 

2010

 

1931/04

 

67,864

 

89.2

%  

1,322

 

N

 

97.6

%  

Bronx II, NY (5)

 

2011

 

2006

 

99,046

 

73.0

%  

1,881

 

N

 

99.7

%  

Bronx III, NY

 

2011

 

2007

 

105,900

 

87.4

%  

2,033

 

N

 

99.2

%  

Bronx IV, NY (5)

 

2011

 

2007

 

74,580

 

93.8

%  

1,310

 

N

 

99.3

%  

Bronx V, NY (5)

 

2011

 

2007

 

54,704

 

92.1

%  

1,101

 

N

 

99.6

%  

Bronx VI, NY (5)

 

2011

 

2011

 

45,970

 

92.4

%  

1,130

 

N

 

94.5

%  

Bronx VII, NY (5)

 

2012

 

2005

 

78,625

 

92.0

%  

1,524

 

N

 

100.0

%  

Bronx VIII, NY

 

2012

 

1928

 

30,550

 

89.4

%  

544

 

N

 

100.0

%  

Bronx IX, NY

 

2012

 

1973

 

147,870

 

90.3

%  

3,008

 

Y

 

99.6

%  

Bronx X, NY

 

2012

 

2001

 

159,805

 

92.2

%  

2,666

 

Y

 

74.7

%  

Bronx XI, NY (5)  *

 

2014

 

2014

 

46,425

 

91.8

%  

1,085

 

N

 

98.9

%  

Bronx XII, NY (5)  *

 

2016

 

2016

 

89,785

 

45.6

%  

1,847

 

N

 

100.0

%  

Brooklyn I, NY

 

2010

 

1917/04

 

57,566

 

88.8

%  

1,050

 

N

 

100.0

%  

Brooklyn II, NY

 

2010

 

1962/03

 

60,920

 

92.8

%  

1,146

 

N

 

18.8

%  

Brooklyn III, NY

 

2011

 

2006

 

41,510

 

93.0

%  

850

 

N

 

100.0

%  

Brooklyn IV, NY

 

2011

 

2006

 

37,545

 

91.9

%  

792

 

N

 

100.0

%  

Brooklyn V, NY

 

2011

 

2007

 

47,020

 

89.9

%  

884

 

N

 

100.0

%  

Brooklyn VI, NY

 

2011

 

2007

 

74,920

 

86.3

%  

1,416

 

N

 

97.7

%  

Brooklyn VII, NY

 

2011

 

2006

 

72,750

 

96.2

%  

1,395

 

N

 

100.0

%  

Brooklyn VIII, NY

 

2014

 

2010

 

61,555

 

93.5

%  

1,203

 

N

 

92.1

%  

Brooklyn IX, NY

 

2014

 

2013

 

46,980

 

92.9

%  

1,258

 

N

 

100.0

%  

Brooklyn X, NY *

 

2015

 

2015

 

55,875

 

63.8

%  

1,203

 

N

 

100.0

%  

 

32


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Year

    

 

    

 

    

 

    

 

    

 

    

 

 

 

 

Acquired /

 

 

 

Rentable

 

 

 

 

 

Manager

 

% Climate

 

 

 

Developed

 

 

 

Square

 

Occupancy

 

 

 

Apartment

 

Controlled

 

Store Location

 

 (1) 

 

Year Built

 

Feet

 

 (2) 

 

Cubes

 

 (3) 

 

 (4) 

 

Brooklyn XI, NY *

 

2016

 

2016

 

110,075

 

48.2

%  

2,295

 

N

 

100.0

%  

Brooklyn XII, NY *

 

2017

 

2017

 

131,588

 

0.3

%  

2,612

 

N

 

100.0

%  

Holbrook, NY

 

2015

 

2007

 

60,397

 

94.3

%  

620

 

N

 

82.1

%  

Jamaica I, NY

 

2001

 

2000

 

88,385

 

91.7

%  

918

 

Y

 

21.5

%  

Jamaica II, NY

 

2011

 

2010

 

92,805

 

94.4

%  

1,500

 

N

 

100.0

%  

Long Island City, NY *

 

2014

 

2014

 

88,825

 

84.7

%  

1,950

 

N

 

100.0

%  

New Rochelle I, NY

 

2005

 

1998

 

43,596

 

90.3

%  

545

 

N

 

47.2

%  

New Rochelle II, NY

 

2012

 

1917

 

63,300

 

90.8

%  

1,024

 

Y

 

94.2

%  

New York, NY *

 

2017

 

1917

 

94,912

 

14.2

%  

3,585

 

N

 

100.0

%  

North Babylon, NY

 

1998

 

1988/99

 

78,350

 

93.4

%  

651

 

N

 

11.7

%  

Patchogue, NY

 

2014

 

1982

 

47,759

 

91.4

%  

468

 

N

 

0.0

%  

Queens I, NY *

 

2015

 

2015

 

74,188

 

64.4

%  

1,438

 

N

 

99.6

%  

Queens II, NY *

 

2016

 

2016

 

90,728

 

75.7

%  

1,449

 

N

 

98.1

%  

Riverhead, NY

 

2005

 

1985/86/99

 

38,490

 

93.6

%  

331

 

N

 

0.0

%  

Southold, NY

 

2005

 

1989

 

59,945

 

90.5

%  

614

 

N

 

4.7

%  

Staten Island, NY

 

2013

 

1900/2011

 

96,573

 

94.5

%  

914

 

N

 

100.0

%  

Tuckahoe, NY

 

2011

 

2007

 

50,978

 

90.7

%  

758

 

N

 

100.0

%  

West Hempstead, NY

 

2012

 

2002

 

83,395

 

97.9

%  

899

 

Y

 

35.4

%  

White Plains, NY

 

2011

 

1938

 

85,864

 

88.5

%  

1,507

 

N

 

78.0

%  

Woodhaven, NY

 

2011

 

2008

 

50,665

 

88.4

%  

1,029

 

N

 

100.0

%  

Wyckoff, NY

 

2010

 

1910/07

 

60,210

 

90.1

%  

1,037

 

N

 

96.3

%  

Yorktown, NY

 

2011

 

2006

 

78,879

 

94.9

%  

778

 

Y

 

79.0

%  

Cleveland I, OH

 

2005

 

1997/99

 

46,000

 

91.6

%  

343

 

Y

 

7.3

%  

Cleveland II, OH

 

2005

 

2000

 

58,325

 

90.4

%  

574

 

Y

 

0.0

%  

Columbus I, OH

 

2006

 

1999

 

71,905

 

90.7

%  

603

 

Y

 

26.2

%  

Columbus II, OH

 

2014

 

1999

 

36,409

 

92.0

%  

354

 

N

 

49.2

%  

Columbus III, OH

 

2014

 

1998/05

 

51,200

 

90.9

%  

406

 

N

 

0.0

%  

Columbus IV, OH

 

2014

 

2006

 

60,950

 

89.6

%  

481

 

N

 

21.6

%  

Columbus V, OH

 

2014

 

2006

 

73,325

 

93.9

%  

593

 

N

 

16.4

%  

Columbus VI, OH

 

2014

 

2002

 

63,525

 

92.6

%  

546

 

N

 

0.0

%  

Grove City, OH

 

2006

 

1997

 

89,290

 

95.3

%  

790

 

Y

 

14.9

%  

Hilliard, OH

 

2006

 

1995

 

89,290

 

88.3

%  

781

 

Y

 

24.8

%  

Lakewood, OH

 

1989

 

1989

 

39,332

 

91.4

%  

466

 

Y

 

37.1

%  

Lewis Center, OH

 

2014

 

1985/05

 

76,024

 

90.5

%  

566

 

N

 

32.0

%  

Middleburg Heights, OH

 

1980

 

1980

 

93,200

 

90.3

%  

707

 

Y

 

5.0

%  

North Olmsted I, OH

 

1979

 

1979

 

48,672

 

90.6

%  

444

 

Y

 

10.6

%  

North Olmsted II, OH

 

1988

 

1988

 

47,850

 

94.3

%  

401

 

Y

 

23.9

%  

North Randall, OH

 

1998

 

1998/02

 

80,297

 

93.9

%  

809

 

N

 

91.7

%  

Reynoldsburg, OH

 

2006

 

1979

 

67,245

 

90.7

%  

668

 

Y

 

0.0

%  

Strongsville, OH

 

2007

 

1978

 

43,683

 

88.7

%  

406

 

N

 

100.0

%  

Warrensville Heights, OH

 

1980

 

1980/82/98

 

90,281

 

93.1

%  

719

 

Y

 

0.0

%  

Westlake, OH

 

2005

 

2001

 

62,750

 

94.4

%  

457

 

Y

 

8.5

%  

Conshohocken, PA

 

2012

 

2003

 

81,285

 

89.7

%  

731

 

Y

 

39.3

%  

Exton, PA

 

2012

 

2006

 

57,750

 

95.5

%  

542

 

N

 

96.5

%  

Langhorne, PA

 

2012

 

2001

 

64,938

 

94.9

%  

672

 

Y

 

58.6

%  

Levittown, PA

 

2001

 

2000

 

76,130

 

91.5

%  

652

 

Y

 

35.0

%  

Malvern, PA *

 

2014

 

2014

 

18,848

 

85.2

%  

229

 

N

 

99.6

%  

Montgomeryville, PA

 

2012

 

2003

 

84,145

 

89.9

%  

783

 

Y

 

50.8

%  

Norristown, PA

 

2011

 

2005

 

61,746

 

90.6

%  

609

 

N

 

100.0

%  

Philadelphia I, PA

 

2001

 

1999

 

96,016

 

90.0

%  

950

 

N

 

44.8

%  

 

33


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Year

    

 

    

 

    

 

    

 

    

 

    

 

 

 

 

Acquired /

 

 

 

Rentable

 

 

 

 

 

Manager

 

% Climate

 

 

 

Developed

 

 

 

Square

 

Occupancy

 

 

 

Apartment

 

Controlled

 

Store Location

 

 (1) 

 

Year Built

 

Feet

 

 (2) 

 

Cubes

 

 (3) 

 

 (4) 

 

Philadelphia II, PA

 

2014

 

2005

 

68,279

 

91.7

%  

861

 

N

 

58.5

%  

Exeter, RI

 

2014

 

1968/90

 

41,275

 

95.6

%  

413

 

Y

 

22.0

%  

Johnston, RI

 

2014

 

2000

 

77,275

 

96.1

%  

579

 

N

 

0.0

%  

Wakefield, RI

 

2014

 

1956

 

45,745

 

89.0

%  

389

 

N

 

39.3

%  

Woonsocket, RI

 

2014

 

2004

 

72,900

 

91.4

%  

595

 

N

 

11.4

%  

Antioch, TN

 

2005

 

1985/98

 

75,985

 

91.0

%  

635

 

Y

 

9.4

%  

Nashville I, TN

 

2005

 

1984

 

107,850

 

87.4

%  

736

 

Y

 

0.0

%  

Nashville II, TN

 

2005

 

1986/00

 

83,174

 

93.0

%  

635

 

Y

 

13.1

%  

Nashville III, TN

 

2006

 

1985

 

101,525

 

92.4

%  

620

 

Y

 

8.1

%  

Nashville IV, TN

 

2006

 

1986/00

 

102,450

 

91.9

%  

735

 

Y

 

10.1

%  

Nashville V, TN

 

2015

 

1993

 

74,560

 

91.0

%  

534

 

N

 

22.8

%  

Nashville VI, TN

 

2015

 

1956/01

 

72,436

 

82.4

%  

547

 

Y

 

37.8

%  

Allen, TX

 

2012

 

2003

 

62,170

 

89.5

%  

496

 

Y

 

57.9

%  

Austin I, TX

 

2005

 

2001

 

59,645

 

91.9

%  

537

 

Y

 

63.5

%  

Austin II, TX

 

2006

 

2000/03

 

64,415

 

92.2

%  

596

 

Y

 

45.8

%  

Austin III, TX

 

2006

 

2004

 

70,585

 

92.2

%  

574

 

Y

 

93.0

%  

Austin IV, TX

 

2014

 

2004

 

65,308

 

89.4

%  

626

 

N

 

18.8

%  

Austin V, TX

 

2014

 

1999

 

67,850

 

88.1

%  

616

 

Y

 

35.2

%  

Austin VI, TX

 

2014

 

2004

 

62,850

 

90.3

%  

747

 

Y

 

54.9

%  

Austin VII, TX

 

2015

 

2003/08

 

71,023

 

82.9

%  

637

 

Y

 

38.9

%  

Austin VIII, TX

 

2016

 

2015

 

61,075

 

72.5

%  

568

 

Y

 

99.1

%  

Bryan, TX

 

2005

 

1994

 

60,400

 

64.7

%  

495

 

Y

 

0.0

%  

Carrollton, TX

 

2012

 

2002

 

77,380

 

85.9

%  

542

 

Y

 

40.8

%  

Cedar Park, TX

 

2016

 

2014

 

88,700

 

69.1

%  

518

 

N

 

26.8

%  

College Station, TX

 

2005

 

1993

 

26,550

 

78.0

%  

346

 

N

 

0.0

%  

Cypress, TX

 

2012

 

1998

 

58,161

 

89.4

%  

448

 

Y

 

46.0

%  

Dallas I, TX

 

2005

 

2000

 

58,582

 

91.5

%  

532

 

Y

 

38.0

%  

Dallas II, TX

 

2013

 

1996

 

76,673

 

92.3

%  

600

 

Y

 

27.7

%  

Dallas III, TX

 

2014

 

1964/76

 

83,427

 

91.4

%  

892

 

Y

 

91.4

%  

Dallas IV, TX *

 

2015

 

2015

 

114,550

 

72.0

%  

1,214

 

N

 

93.5

%  

Dallas V, TX (5)

 

2015

 

2013

 

54,499

 

91.0

%  

596

 

N

 

93.1

%  

Denton, TX

 

2006

 

1996

 

60,846

 

94.1

%  

462

 

Y

 

3.2

%  

Fort Worth I, TX

 

2005

 

2000

 

50,416

 

91.9

%  

405

 

Y

 

38.8

%  

Fort Worth II, TX

 

2006

 

2003

 

72,900

 

95.1

%  

650

 

Y

 

68.5

%  

Fort Worth III, TX

 

2015

 

2000

 

80,445

 

92.5

%  

675

 

N

 

76.9

%  

Fort Worth IV, TX *

 

2016

 

2016

 

77,329

 

49.8

%  

923

 

N

 

94.7

%  

Frisco I, TX

 

2005

 

1996

 

50,854

 

91.8

%  

427

 

Y

 

26.0

%  

Frisco II, TX

 

2005

 

1998/02

 

71,599

 

91.7

%  

523

 

Y

 

28.7

%  

Frisco III, TX

 

2006

 

2004

 

74,665

 

91.9

%  

630

 

Y

 

92.9

%  

Frisco IV, TX †

 

2010

 

2007

 

75,175

 

96.2

%  

512

 

Y

 

21.4

%  

Frisco V, TX

 

2014

 

2002

 

74,415

 

89.9

%  

556

 

Y

 

59.9

%  

Frisco VI, TX

 

2014

 

2004

 

69,176

 

89.7

%  

541

 

Y

 

54.7

%  

Garland I, TX

 

2006

 

1991

 

70,100

 

90.1

%  

683

 

Y

 

4.2

%  

Garland II, TX

 

2006

 

2004

 

68,425

 

94.5

%  

470

 

Y

 

54.0

%  

Grapevine, TX *

 

2016

 

2016

 

78,019

 

56.3

%  

803

 

N

 

100.0

%  

Houston III, TX

 

2005

 

1984

 

61,590

 

89.2

%  

467

 

Y

 

9.0

%  

Houston IV, TX

 

2005

 

1987

 

43,750

 

94.2

%  

380

 

Y

 

10.3

%  

Houston V, TX †

 

2006

 

1980/97

 

124,279

 

87.3

%  

1,054

 

Y

 

62.6

%  

Houston VI, TX

 

2011

 

2002

 

54,690

 

93.1

%  

592

 

Y

 

99.3

%  

Houston VII, TX

 

2012

 

2004

 

46,991

 

91.6

%  

521

 

N

 

100.0

%  

 

34


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Year

    

 

    

 

    

 

    

 

    

 

    

 

 

 

 

Acquired /

 

 

 

Rentable

 

 

 

 

 

Manager

 

% Climate

 

 

 

Developed

 

 

 

Square

 

Occupancy

 

 

 

Apartment

 

Controlled

 

Store Location

 

 (1) 

 

Year Built

 

Feet

 

 (2) 

 

Cubes

 

 (3) 

 

 (4) 

 

Houston VIII, TX

 

2012

 

1989

 

54,209

 

95.4

%  

497

 

N

 

76.3

%  

Houston IX, TX

 

2012

 

1992

 

51,208

 

90.4

%  

434

 

Y

 

48.2

%  

Humble, TX

 

2015

 

2009/13

 

70,702

 

90.6

%  

559

 

Y

 

42.6

%  

Katy, TX

 

2013

 

2009

 

71,308

 

93.2

%  

573

 

Y

 

88.8

%  

Keller, TX

 

2006/17

 

2000/17

 

88,060

 

71.5

%  

795

 

Y

 

52.7

%  

Lewisville I, TX

 

2006

 

1996

 

67,340

 

85.8

%  

429

 

Y

 

21.7

%  

Lewisville II, TX

 

2013

 

2003

 

127,659

 

92.5

%  

1,183

 

Y

 

30.9

%  

Lewisville III, TX

 

2016

 

2002/04

 

93,855

 

92.7

%  

639

 

Y

 

39.6

%  

Little Elm I, TX

 

2016

 

2003

 

60,065

 

90.7

%  

504

 

Y

 

47.6

%  

Little Elm II, TX

 

2016

 

2007/14

 

96,896

 

88.1

%  

639

 

Y

 

38.2

%  

Mansfield I, TX

 

2006

 

2003

 

63,025

 

94.9

%  

481

 

Y

 

43.2

%  

Mansfield II, TX

 

2012

 

2002

 

57,375

 

88.7

%  

483

 

Y

 

68.3

%  

Mansfield III, TX

 

2016

 

2002/14

 

70,920

 

82.2

%  

518

 

Y

 

37.5

%  

McKinney I, TX

 

2005

 

1996

 

47,020

 

94.4

%  

356

 

Y

 

12.1

%  

McKinney II, TX

 

2006

 

1996

 

70,050

 

92.4

%  

538

 

Y

 

47.6

%  

McKinney III, TX

 

2014

 

2014

 

53,750

 

89.9

%  

393

 

Y

 

37.7

%  

North Richland Hills, TX

 

2005

 

2002

 

57,200

 

88.9

%  

433

 

Y

 

60.7

%  

Pearland, TX

 

2012

 

1985

 

72,050

 

95.3

%  

473

 

Y

 

45.9

%  

Richmond, TX

 

2013

 

1998

 

102,330

 

93.1

%  

540

 

Y

 

30.0

%  

Roanoke, TX

 

2005

 

1996/01

 

59,300

 

89.6

%  

449

 

Y

 

30.7

%  

San Antonio I, TX

 

2005

 

2005

 

73,329

 

93.1

%  

574

 

Y

 

89.7

%  

San Antonio II, TX

 

2006

 

2005

 

73,155

 

89.8

%  

668

 

N

 

91.8

%  

San Antonio III, TX

 

2007

 

2006

 

71,825

 

89.2

%  

574

 

N

 

93.2

%  

San Antonio IV, TX

 

2016

 

1998

 

61,500

 

87.6

%  

514

 

Y

 

39.1

%  

Spring, TX

 

2006

 

1980/86

 

72,751

 

96.1

%  

534

 

Y

 

26.8

%  

Murray I, UT

 

2005

 

1976

 

60,280

 

91.6

%  

635

 

Y

 

0.0

%  

Murray II, UT †

 

2005

 

1978

 

71,621

 

93.1

%  

379

 

Y

 

5.3

%  

Salt Lake City I, UT

 

2005

 

1976

 

56,446

 

93.5

%  

757

 

Y

 

0.0

%  

Salt Lake City II, UT

 

2005

 

1978

 

51,676

 

90.5

%  

498

 

Y

 

0.0

%  

Alexandria, VA

 

2012

 

2000

 

114,100

 

96.2

%  

1,153

 

Y

 

97.3

%  

Arlington, VA *

 

2015

 

2015

 

96,143

 

78.1

%  

1,141

 

N

 

97.0

%  

Burke Lake, VA

 

2011

 

2003

 

91,467

 

85.3

%  

908

 

Y

 

81.9

%  

Fairfax, VA

 

2012

 

1999

 

73,265

 

88.4

%  

677

 

N

 

88.6

%  

Fredericksburg I, VA

 

2005

 

2001/04

 

69,475

 

89.5

%  

611

 

N

 

22.1

%  

Fredericksburg II, VA

 

2005

 

1998/01

 

61,057

 

92.3

%  

564

 

N

 

87.4

%  

Leesburg, VA

 

2011

 

2001/04

 

85,503

 

85.8

%  

890

 

Y

 

84.0

%  

Manassas, VA

 

2010

 

1998

 

72,745

 

93.8

%  

638

 

Y

 

64.9

%  

McLearen, VA

 

2010

 

2002

 

69,385

 

89.0

%  

733

 

Y

 

91.0

%  

Vienna, VA

 

2012

 

2000

 

55,111

 

92.1

%  

559

 

Y

 

97.5

%  

Total/Weighted Average (484 stores)

 

 

 

 

 

33,759,762

 

89.2

%  

338,921

 

 

 

 

 

 

*Denotes stores developed by us or acquired at development completion.

 

Denotes stores that contain commercial rentable square footage.  All of this commercial space, which was developed in conjunction with the self-storage cubes, is located within or adjacent to our self-storage properties and is managed by our store managers.  As of December 31, 2017, properties in our owned portfolio included an aggregate of approximately 232,000 rentable square feet of commercial space.

 

(1)

Represents the year acquired for those stores we acquired from a third party or the year of completion for those stores we developed.

 

(2)

Represents occupied square feet as of December 31, 2017 divided by total rentable square feet.

 

(3)

Indicates whether a store has an on-site apartment where a manager resides.

 

(4)

Represents the number of climate-controlled cubes divided by total number of cubes.

 

(5)

We do not own the land at these properties.  We lease the land pursuant to ground leases that expire between 2052 and 2064, subject to renewal options.

35


 

Table of Contents

We have grown by adding stores to our portfolio through acquisitions and development. The tables set forth below show the average occupancy, annual rent per occupied square foot, and total revenues for our stores owned as of December 31, 2017, and for each of the previous three years, grouped by the year during which we first owned or operated the store.

 

Stores by Year Acquired - Average Occupancy 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rentable Square

 

Average Occupancy

 

Year Acquired (1)

    

# of Stores

    

Feet

    

2017

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

2014 and earlier

 

413

 

28,307,299

 

92.9

%  

92.6

%  

91.7

2015

 

32

 

2,258,773

 

88.8

%  

82.8

%  

77.2

2016

 

30

 

2,430,230

 

79.9

%  

67.8

%  

 —

 

2017

 

 9

 

763,460

 

39.1

%  

 —

 

 —

 

All Stores Owned as of December 31, 2017

 

484

 

33,759,762

 

91.2

%  

90.7

%  

91.3

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rent per Square Foot

 

Year Acquired (1)

    

# of Stores

    

2017

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014 and earlier

 

413

 

$

16.92

 

$

16.29

 

$

15.36

 

2015

 

32

 

 

16.36

 

 

14.94

 

 

14.84

 

2016

 

30

 

 

15.36

 

 

15.24

 

 

 

2017

 

 9

 

 

19.11

 

 

 

 

 

All Stores Owned as of December 31, 2017

 

484

 

$

16.80

 

$

16.14

 

$

15.34

 

 

Stores by Year Acquired - Total Revenues (dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenues

 

Year Acquired (1)

    

# of Stores

    

2017

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014 and earlier

 

413

 

$

471,476

 

$

451,160

 

$

420,581

 

2015

 

32

 

 

34,870

 

 

29,660

 

 

9,636

 

2016

 

30

 

 

31,391

 

 

16,005

 

 

 

2017

 

 9

 

 

2,102

 

 

 

 

 

All Stores Owned as of December 31, 2017

 

484

 

$

539,839

 

$

496,825

 

$

430,217

 


(1)

Represents the year acquired for those stores we acquired from a third party or the year placed in service for those stores we developed.

 

(2)

Determined by dividing the aggregate rental revenue for each twelve-month period by the average of the month-end occupied square feet for the period.   Rental revenue includes the impact of promotional discounts, which reduce rental income over the promotional period, of $18.2 million, $17.4 million, and $16.2 million for the periods ended December 31, 2017, 2016 and 2015, respectively.

 

Unconsolidated Real Estate Ventures

 

As of December 31, 2017, we held ownership interests ranging from 10% to 50% in four unconsolidated real estate ventures for an aggregate investment balance of $91.2 million. We formed interests in these real estate ventures with unaffiliated third parties to acquire, own, and operate self-storage properties in select markets. As of December 31, 2017, these four unconsolidated real estate ventures owned 117 self-storage properties that contain an aggregate of approximately 6.9 million net rentable square feet. The self-storage properties owned by the real estate ventures are managed by us and are located in Texas (35), South Carolina (22), Michigan (17), Massachussetts (13), Tennessee (10), Georgia (5), North Carolina (5), Connecticut (3), Florida (3), Rhode Island (2), and Vermont (2). Each of these ventures has other assets and liabilities that we do not consolidate in our financial statements.

 

We account for our investments in these real estate ventures using the equity method.  See note 5 to the consolidated financial statements for further disclosure regarding the assets, liabilities, and operating results of our unconsolidated real estate ventures.

 

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Capital Expenditures

 

We have a capital improvement program that includes office upgrades, adding climate control to selected cubes, construction of parking areas, and other store upgrades.  For 2018, we anticipate spending approximately $5.0 million to $8.0 million associated with these capital expenditures. For 2018, we also anticipate spending approximately $12.0 million to $16.0 million on recurring capital expenditures and approximately $60.0 million to $75.0 million on the development of new self-storage properties. 

 

ITEM 3.  LEGAL PROCEEDINGS

 

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

 

On July 13, 2015, a putative class action was filed against the Company in the Federal District Court of New Jersey seeking to obtain declaratory, injunctive and monetary relief for a class of New Jersey consumers based upon alleged violations by the Company of the New Jersey Truth in Customer Contract, Warranty and Notice Act and the New Jersey Consumer Fraud Act.  On December 15, 2017, the court granted preliminary approval of a settlement for the class action.  The settlement and associated expenses, which were previously reserved for, did not have a material impact on our consolidated financial position or results of operations.

 

ITEM 4.  MINING SAFETY DISCLOSURES

 

Not applicable.

 

 

PART II

 

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

 

Repurchase of Parent Company Common and Preferred Shares

 

The following table provides information about repurchases of the Parent Company’s common and preferred shares during the three months ended December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Total

Number of

Shares

Purchased (1)

    

Average
Price Paid
Per Share

     

Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or Programs

    

Maximum

Number of

Shares that

May Yet Be

Purchased

Under the

Plans or

Programs

 

 

 

 

 

 

 

 

 

 

 

 

October 1 - October 31

 

83

 

$

25.97

 

N/A

 

3,000,000

 

November 1 - November 30

 

80

 

$

28.99

 

N/A

 

3,000,000

 

December 1 - December 31

 

253

 

$

28.94

 

N/A

 

3,000,000

 

Total

 

416

 

$

28.36

 

N/A

 

3,000,000

 

 

(1)

Represents common shares withheld by the Parent Company upon the vesting of restricted shares to cover employee tax obligations.

 

On September 27, 2007, the Parent Company announced that the Board of Trustees approved a share repurchase program for up to 3.0 million of the Parent Company’s outstanding common shares. Unless terminated earlier by resolution of the Board of Trustees, the program will expire when the number of authorized shares has been repurchased. The Parent Company has made no repurchases under this program to date.

 

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Table of Contents

Market Information for and Holders of Record of Common Shares

 

As of December 31, 2017, there were approximately 112 registered record holders of the Parent Company’s common shares and 13 holders (other than the Parent Company) of the Operating Partnership’s common units.  These figures do not include common shares held by brokers and other institutions on behalf of shareholders.  There is no established trading market for units of the Operating Partnership.  The following table shows the high and low closing prices per common share, as reported by the New York Stock Exchange, and the cash dividends declared with respect to such shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

Cash Dividends

 

 

 

 

 

 

 

 

 

Declared per

 

 

 

High

 

Low

 

Share

 

2016

 

 

 

 

 

 

 

 

 

 

First quarter

 

$

33.30

 

$

27.70

 

$

0.21

 

Second quarter

 

$

33.28

 

$

29.18

 

$

0.21

 

Third quarter

 

$

32.07

 

$

26.43

 

$

0.21

 

Fourth quarter

 

$

26.96

 

$

23.88

 

$

0.27

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

 

First quarter

 

$

27.38

 

$

25.12

 

$

0.27

 

Second quarter

 

$

27.96

 

$

23.81

 

$

0.27

 

Third quarter

 

$

26.84

 

$

22.94

 

$

0.27

 

Fourth quarter

 

$

29.65

 

$

25.63

 

$

0.30

 

 

For each quarter in 2016 and 2017, the Operating Partnership paid a cash distribution per unit in an amount equal to the dividend paid on a common share for each such quarter.

 

Since our initial quarter as a publicly-traded REIT, we have made regular quarterly distributions to our shareholders.  Distributions to shareholders are usually taxable as ordinary income, although a portion of the distribution may be designated as capital gain or may constitute a tax-free return of capital.  Annually, we provide each of the Parent Company’s common shareholders a statement detailing the tax characterization of dividends paid during the preceding year as ordinary income, capital gain, or return of capital.  The characterization of the Parent Company’s dividends for 2017 consisted of an 86.602% ordinary income distribution, a 0.495% capital gain distribution, and a 12.903% return of capital distribution from earnings and profits.

 

We intend to continue to declare quarterly distributions.  However, we cannot provide any assurance as to the amount or timing of future distributions.  Under our Credit Facility, we are restricted from paying distributions on the Parent Company’s common shares in excess of the greater of (i) 95% of our funds from operations, and (ii) such amount as may be necessary to maintain our REIT status.

 

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

 

Recent Sales of Unregistered Equity Securities and Use of Proceeds

 

Recent Sales of Unregistered Equity Securities

 

On December 7, 2017, the Operating Partnership entered into an agreement to acquire a self-storage property located in Texas for $12.2 million, and agreed to fund a portion of the acquisition price in the form of common units, designated Class B Units.  On January 31, 2018, the Operating Partnership closed on the acquisition and funded approximately $4.8 million of the acquisition price through the issuance of 168,011 common units.  Following a 13-month lock-up period, the holder may tender the common units for redemption by the Operating Partnership for a cash amount per common unit equal to the market value of an equivalent number of common shares of the Company.  The Company has the right, but not the obligation, to assume and satisfy the redemption obligation of the Operating Partnership by issuing one common share in exchange for each common unit tendered for redemption.  The common units were sold to a single accredited investor unaffiliated with the Company in a private placement transaction exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) of such Act.

 

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Share Performance Graph

 

The SEC requires us to present a chart comparing the cumulative total shareholder return, assuming reinvestment of dividends, on our common shares with the cumulative total shareholder return of (i) a broad equity index and (ii) a published industry or peer group index. The following chart compares the yearly cumulative total shareholder return for our common shares with the cumulative shareholder return of companies on (i) the S&P 500 Index, (ii) the Russell 2000 Index and (iii) the NAREIT All Equity REIT Index as provided by NAREIT for the period beginning December 31, 2012 and ending December 31, 2017.

 

Picture 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period Ending

 

Index

    

12/31/2012

    

12/31/2013

    

12/31/2014

    

12/31/2015

    

12/31/2016

    

12/31/2017

 

CubeSmart

 

100.00 

 

112.51

 

160.37

 

228.41

 

205.93

 

229.74

 

S&P 500 Index

 

100.00 

 

132.39

 

150.51

 

152.59

 

170.84

 

208.14

 

Russell 2000 Index

 

100.00 

 

138.82

 

145.62

 

139.19

 

168.85

 

193.58

 

NAREIT All Equity REIT Index

 

100.00 

 

102.86

 

131.68

 

135.40

 

147.09

 

159.85

 

 

ITEM 6.  SELECTED FINANCIAL DATA

 

CUBESMART

 

The following table sets forth selected financial and operating data on a historical consolidated basis for the Parent Company.  The selected historical financial data as of and for each of the years in the five-year period ended December 31, 2017 are derived from the Parent Company’s consolidated financial statements, which financial statements have been audited by KPMG LLP, an independent registered public accounting firm.  The consolidated financial statements as of December 31, 2017 and 2016, and for each of the years in the three-year period ended December 31, 2017, and the report thereon, are included herein.  The selected data should be read in conjunction with the consolidated financial statements for the year ended December 31, 2017, the related notes, and the independent registered public accounting firm’s report. The other data presented below is not derived from the audited financial statements included herein.

 

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Table of Contents

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31,

 

 

    

2017

    

2016

    

2015

    

2014

    

2013

 

 

 

(in thousands, except per share data)

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

489,043

 

$

449,601

 

$

392,476

 

$

330,898

 

$

281,250

 

Other property related income

 

 

55,001

 

 

50,255

 

 

45,189

 

 

40,065

 

 

32,365

 

Property management fee income

 

 

14,899

 

 

10,183

 

 

6,856

 

 

6,000

 

 

4,780

 

Total revenues

 

 

558,943

 

 

510,039

 

 

444,521

 

 

376,963

 

 

318,395

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

181,508

 

 

165,847

 

 

153,172

 

 

132,701

 

 

118,222

 

Depreciation and amortization

 

 

145,681

 

 

161,865

 

 

151,789

 

 

126,813

 

 

112,313

 

General and administrative

 

 

34,745

 

 

32,823

 

 

28,371

 

 

28,422

 

 

29,563

 

Acquisition related costs

 

 

1,294

 

 

6,552

 

 

3,301

 

 

7,484

 

 

3,849

 

Total operating expenses

 

 

363,228

 

 

367,087

 

 

336,633

 

 

295,420

 

 

263,947

 

OPERATING INCOME

 

 

195,715

 

 

142,952

 

 

107,888

 

 

81,543

 

 

54,448

 

OTHER (EXPENSE) INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense on loans

 

 

(56,952)

 

 

(50,399)

 

 

(43,736)

 

 

(46,802)

 

 

(40,424)

 

Loan procurement amortization expense

 

 

(2,638)

 

 

(2,577)

 

 

(2,324)

 

 

(2,190)

 

 

(2,058)

 

Loan procurement amortization expense - early repayment of debt

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(414)

 

Equity in losses of real estate ventures

 

 

(1,386)

 

 

(2,662)

 

 

(411)

 

 

(6,255)

 

 

(1,151)

 

Gains from sale of real estate, net

 

 

 —

 

 

 —

 

 

17,567

 

 

475

 

 

 —

 

Other

 

 

872

 

 

1,062

 

 

(228)

 

 

(405)

 

 

 8

 

Total other expense

 

 

(60,104)

 

 

(54,576)

 

 

(29,132)

 

 

(55,177)

 

 

(44,039)

 

INCOME FROM CONTINUING OPERATIONS

 

 

135,611

 

 

88,376

 

 

78,756

 

 

26,366

 

 

10,409

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations

 

 

 —

 

 

 —

 

 

 —

 

 

336

 

 

4,145

 

Gain from disposition of discontinued operations

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

27,440

 

Total discontinued operations

 

 

 —

 

 

 —

 

 

 —

 

 

336

 

 

31,585

 

NET INCOME

 

 

135,611

 

 

88,376

 

 

78,756

 

 

26,702

 

 

41,994

 

NET (INCOME) LOSS ATTRIBUTABLE TO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NONCONTROLLING INTERESTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests in the Operating Partnership

 

 

(1,593)

 

 

(941)

 

 

(960)

 

 

(307)

 

 

(588)

 

Noncontrolling interest in subsidiaries

 

 

270

 

 

470

 

 

(84)

 

 

(16)

 

 

42

 

NET INCOME ATTRIBUTABLE TO THE COMPANY

 

 

134,288

 

 

87,905

 

 

77,712

 

 

26,379

 

 

41,448

 

Distribution to preferred shareholders

 

 

 —

 

 

(5,045)

 

 

(6,008)

 

 

(6,008)

 

 

(6,008)

 

Preferred share redemption charge

 

 

 —

 

 

(2,937)

 

 

 —

 

 

 —

 

 

 —

 

NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS

 

$

134,288

 

$

79,923

 

$

71,704

 

$

20,371

 

$

35,440

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share from continuing operations attributable to common shareholders

 

$

0.74

 

$

0.45

 

$

0.43

 

$

0.13

 

$

0.03

 

Basic earnings per share from discontinued operations attributable to common shareholders

 

$

 —

 

$

 —

 

$

 —

 

$

0.01

 

$

0.23

 

Basic earnings per share attributable to common shareholders

 

$

0.74

 

$

0.45

 

$

0.43

 

$

0.14

 

$

0.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share from continuing operations attributable to common shareholders

 

$

0.74

 

$

0.45

 

$

0.42

 

$

0.13

 

$

0.03

 

Diluted earnings per share from discontinued operations attributable to common shareholders

 

$

 —

 

$

 —

 

$

 —

 

$

0.01

 

$

0.23

 

Diluted earnings per share attributable to common shareholders

 

$

0.74

 

$

0.45

 

$

0.42

 

$

0.14

 

$

0.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average basic shares outstanding (1)

 

 

180,525

 

 

178,246

 

 

168,640

 

 

149,107

 

 

135,191

 

Weighted-average diluted shares outstanding (1)

 

 

181,448

 

 

179,533

 

 

170,191

 

 

150,863

 

 

137,742

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMOUNTS ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

134,288

 

$

79,923

 

$

71,704

 

$

20,040

 

$

4,392

 

Total discontinued operations

 

 

 —

 

 

 —

 

 

 —

 

 

331

 

 

31,048

 

Net income

 

$

134,288

 

$

79,923

 

$

71,704

 

$

20,371

 

$

35,440

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31,

 

 

    

2017

    

2016

    

2015

    

2014

    

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Storage properties, net

 

$

3,408,790

 

$

3,326,816

 

$

2,872,983

 

$

2,625,129

 

$

2,155,170

 

Total assets

 

 

3,545,336

 

 

3,475,028

 

 

3,104,164

 

 

2,776,906

 

 

2,347,819

 

Unsecured senior notes, net

 

 

1,142,460

 

 

1,039,076

 

 

741,904

 

 

493,957

 

 

493,283

 

Revolving credit facility

 

 

81,700

 

 

43,300

 

 

 —

 

 

78,000

 

 

38,600

 

Unsecured term loans, net

 

 

299,396

 

 

398,749

 

 

398,183

 

 

397,617

 

 

397,261

 

Mortgage loans and notes payable, net

 

 

111,434

 

 

114,618

 

 

111,455

 

 

194,844

 

 

198,869

 

Total liabilities

 

 

1,855,646

 

 

1,759,384

 

 

1,393,183

 

 

1,277,465

 

 

1,218,337

 

Noncontrolling interests in the Operating Partnership

 

 

54,320

 

 

54,407

 

 

66,128

 

 

49,823

 

 

36,275

 

Total CubeSmart shareholders' equity

 

 

1,629,134

 

 

1,655,382

 

 

1,643,327

 

 

1,448,026

 

 

1,092,276

 

Noncontrolling interests in subsidiaries

 

 

6,236

 

 

5,855

 

 

1,526

 

 

1,592

 

 

931

 

Total liabilities and equity

 

 

3,545,336

 

 

3,475,028

 

 

3,104,164

 

 

2,776,906

 

 

2,347,819

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of stores

 

 

484

 

 

475

 

 

445

 

 

421

 

 

366

 

Total rentable square feet (in thousands)

 

 

33,760

 

 

32,858

 

 

30,361

 

 

28,622

 

 

24,662

 

Occupancy percentage

 

 

89.2

%  

 

89.7

%  

 

90.2

%  

 

89.1

%  

 

88.3

%  

Cash dividends declared per common share (2)

 

$

1.11

 

$

0.90

 

$

0.69

 

$

0.55

 

$

0.46

 


(1)

OP units have been excluded from the earnings per share calculations as the related income or loss is presented in noncontrolling interests in the Operating Partnership.

 

(2)

We announced full quarterly dividends $0.11 and $0.484 per common and preferred shares, respectively, on February 21, 2013, May 29, 2013, and August 7, 2013; dividends of $0.13 and $0.484 per common and preferred shares, respectively, on December 19, 2013, February 25, 2014, May 28, 2014, and August 5, 2014; dividends of $0.16 and $0.484 per common and preferred shares, respectively, on December 16, 2014, February 24, 2015, May 27, 2015, and August 4, 2015; dividends of $0.21 and $0.484 per common and preferred shares, respectively, on December 10, 2015, February 16, 2016, June 1, 2016, and August 2, 2016; dividends of $0.174 per preferred share on September 2, 2016; dividends of $0.27 per common share on December 15, 2016, February 14, 2017, May 31, 2017, and July 25, 2017; and dividends of $0.30 per common share on December 14, 2017.

 

CUBESMART, L.P.

 

The following table sets forth selected financial and operating data on a historical consolidated basis for the Operating Partnership.  The selected historical financial data as of and for each of the years in the the five-year period ended December 31, 2017 are derived from the Operating Partnership’s consolidated financial statements, which financial statements have been audited by KPMG LLP, an independent registered public accounting firm.  The consolidated financial statements as of December 31, 2017 and 2016, and for each of the years in the three-year period ended December 31, 2017, and the report thereon, are included herein.  The selected data should be read in conjunction with the consolidated financial statements for the year ended December 31, 2017, the related notes, and the independent registered public accounting firm’s report. The other data presented below is not derived from the audited financial statements included herein.

 

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Table of Contents

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31,

 

 

    

2017

    

2016

    

2015

    

2014

    

2013

 

 

 

(in thousands, except per unit data)

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

489,043

 

$

449,601

 

$

392,476

 

$

330,898

 

$

281,250

 

Other property related income

 

 

55,001

 

 

50,255

 

 

45,189

 

 

40,065

 

 

32,365

 

Property management fee income

 

 

14,899

 

 

10,183

 

 

6,856

 

 

6,000

 

 

4,780

 

Total revenues

 

 

558,943

 

 

510,039

 

 

444,521

 

 

376,963

 

 

318,395

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

181,508

 

 

165,847

 

 

153,172

 

 

132,701

 

 

118,222

 

Depreciation and amortization

 

 

145,681

 

 

161,865

 

 

151,789

 

 

126,813

 

 

112,313

 

General and administrative

 

 

34,745

 

 

32,823

 

 

28,371

 

 

28,422

 

 

29,563

 

Acquisition related costs

 

 

1,294

 

 

6,552

 

 

3,301

 

 

7,484

 

 

3,849

 

Total operating expenses

 

 

363,228

 

 

367,087

 

 

336,633

 

 

295,420

 

 

263,947

 

OPERATING INCOME

 

 

195,715

 

 

142,952

 

 

107,888

 

 

81,543

 

 

54,448

 

OTHER (EXPENSE) INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense on loans

 

 

(56,952)

 

 

(50,399)

 

 

(43,736)

 

 

(46,802)

 

 

(40,424)

 

Loan procurement amortization expense

 

 

(2,638)

 

 

(2,577)

 

 

(2,324)

 

 

(2,190)

 

 

(2,058)

 

Loan procurement amortization expense - early repayment of debt

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(414)

 

Equity in losses of real estate ventures

 

 

(1,386)

 

 

(2,662)

 

 

(411)

 

 

(6,255)

 

 

(1,151)

 

Gains from sale of real estate, net

 

 

 —

 

 

 —

 

 

17,567

 

 

475

 

 

 —

 

Other

 

 

872

 

 

1,062

 

 

(228)

 

 

(405)

 

 

 8

 

Total other expense

 

 

(60,104)

 

 

(54,576)

 

 

(29,132)

 

 

(55,177)

 

 

(44,039)

 

INCOME FROM CONTINUING OPERATIONS

 

 

135,611

 

 

88,376

 

 

78,756

 

 

26,366

 

 

10,409

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations

 

 

 —

 

 

 —

 

 

 —

 

 

336

 

 

4,145

 

Gain from disposition of discontinued operations

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

27,440

 

Total discontinued operations

 

 

 —

 

 

 —

 

 

 —

 

 

336

 

 

31,585

 

NET INCOME

 

 

135,611

 

 

88,376

 

 

78,756

 

 

26,702

 

 

41,994

 

NET LOSS (INCOME) ATTRIBUTABLE TO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NONCONTROLLING INTERESTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interest in subsidiaries

 

 

270

 

 

470

 

 

(84)

 

 

(16)

 

 

42

 

NET INCOME ATTRIBUTABLE TO CUBESMART L.P.

 

 

135,881

 

 

88,846

 

 

78,672

 

 

26,686

 

 

42,036

 

Operating Partnership interests of third parties

 

 

(1,593)

 

 

(941)

 

 

(960)

 

 

(307)

 

 

(588)

 

NET INCOME ATTRIBUTABLE TO OPERATING PARTNER

 

 

134,288

 

 

87,905

 

 

77,712

 

 

26,379

 

 

41,448

 

Distribution to preferred unitholders

 

 

 —

 

 

(5,045)

 

 

(6,008)

 

 

(6,008)

 

 

(6,008)

 

Preferred unit redemption charge

 

 

 —

 

 

(2,937)

 

 

 —

 

 

 —

 

 

 —

 

NET INCOME ATTRIBUTABLE TO COMMON UNITHOLDERS

 

$

134,288

 

$

79,923

 

$

71,704

 

$

20,371

 

$

35,440

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per unit from continuing operations attributable to common unitholders

 

$

0.74

 

$

0.45

 

$

0.43

 

$

0.13

 

$

0.03

 

Basic earnings per unit from discontinued operations attributable to common unitholders

 

$

 —

 

$

 —

 

$

 —

 

$

0.01

 

$

0.23

 

Basic earnings per unit attributable to common unitholders

 

$

0.74

 

$

0.45

 

$

0.43

 

$

0.14

 

$

0.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per unit from continuing operations attributable to common unitholders

 

$

0.74

 

$

0.45

 

$

0.42

 

$

0.13

 

$

0.03

 

Diluted earnings per unit from discontinued operations attributable to common unitholders

 

$

 —

 

$

 —

 

$

 —

 

$

0.01

 

$

0.23

 

Diluted earnings per unit attributable to common unitholders

 

$

0.74

 

$

0.45

 

$

0.42

 

$

0.14

 

$

0.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average basic units outstanding (1)

 

 

180,525

 

 

178,246

 

 

168,640

 

 

149,107

 

 

135,191

 

Weighted-average diluted units outstanding (1)

 

 

181,448

 

 

179,533

 

 

170,191

 

 

150,863

 

 

137,742

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMOUNTS ATTRIBUTABLE TO COMMON UNITHOLDERS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

134,288

 

$

79,923

 

$

71,704

 

$

20,040

 

$

4,392

 

Total discontinued operations

 

 

 —

 

 

 —

 

 

 —

 

 

331

 

 

31,048

 

Net income

 

$

134,288

 

$

79,923

 

$

71,704

 

$

20,371

 

$

35,440

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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At December 31,

 

 

    

2017

    

2016

    

2015

    

2014

    

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Storage properties, net

 

$

3,408,790

 

$

3,326,816

 

$

2,872,983

 

$

2,625,129

 

$

2,155,170

 

Total assets

 

 

3,545,336

 

 

3,475,028

 

 

3,104,164

 

 

2,776,906

 

 

2,347,819

 

Unsecured senior notes, net

 

 

1,142,460

 

 

1,039,076

 

 

741,904

 

 

493,957

 

 

493,283

 

Revolving credit facility

 

 

81,700

 

 

43,300

 

 

 —

 

 

78,000

 

 

38,600

 

Unsecured term loans, net

 

 

299,396

 

 

398,749

 

 

398,183

 

 

397,617

 

 

397,261

 

Mortgage loans and notes payable, net

 

 

111,434

 

 

114,618

 

 

111,455

 

 

194,844

 

 

198,869

 

Total liabilities

 

 

1,855,646

 

 

1,759,384

 

 

1,393,183

 

 

1,277,465

 

 

1,218,337

 

Operating Partnership interests of third parties

 

 

54,320

 

 

54,407

 

 

66,128

 

 

49,823

 

 

36,275

 

Total CubeSmart L.P. Capital

 

 

1,629,134

 

 

1,655,382

 

 

1,643,327

 

 

1,448,026

 

 

1,092,276

 

Noncontrolling interests in subsidiaries

 

 

6,236

 

 

5,855

 

 

1,526

 

 

1,592

 

 

931

 

Total liabilities and capital

 

 

3,545,336

 

 

3,475,028

 

 

3,104,164

 

 

2,776,906

 

 

2,347,819

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of stores

 

 

484

 

 

475

 

 

445

 

 

421

 

 

366

 

Total rentable square feet (in thousands)

 

 

33,760

 

 

32,858

 

 

30,361

 

 

28,622

 

 

24,662

 

Occupancy percentage

 

 

89.2

%  

 

89.7

%  

 

90.2

%  

 

89.1

%  

 

88.3

Cash dividends declared per common unit (2)

 

$

1.11

 

$

0.90

 

$

0.69

 

$

0.55

 

$

0.46

 


(1)

OP units have been excluded from the earnings per unit calculations as the related income or loss is presented in Operating Partnership interest of third parties.

 

(2)

We announced full quarterly dividends of $0.11 and $0.484 per common and preferred units, respectively, on February 21, 2013, May 29, 2013, and August 7, 2013; dividends of $0.13 and $0.484 per common and preferred units, respectively, on December 19, 2013, February 25, 2014, May 28, 2014, and August 5, 2014; dividends of $0.16 and $0.484 per common and preferred units, respectively, on December 16, 2014, February 24, 2015, May 27, 2015, and August 4, 2015; dividends of $0.21 and $0.484 per common and preferred units, respectively, on December 10, 2015, February 16, 2016, June 1, 2016, and August 2, 2016; dividends of $0.174 per preferred unit on September 2, 2016; dividends of $0.27 per common unit on December 15, 2016, February 14, 2017, May 31, 2017, and July 25, 2017; and dividends of $0.30 per common unit on December 14, 2017.

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

 

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

 

Overview

 

We are an integrated self-storage real estate company, and as such we have in-house capabilities in the operation, design, development, leasing, management, and acquisition of self-storage properties.  The Parent Company’s operations are conducted solely through the Operating Partnership and its subsidiaries.  The Parent Company has elected to be taxed as a REIT for U.S. federal income tax purposes.  As of December 31, 2017 and December 31, 2016, we owned 484 and 475 self-storage properties, respectively, totaling approximately 33.8 million and 32.9 million rentable square feet, respectively.  As of December 31, 2017, we owned stores in the District of Columbia and the following 23 states:  Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Tennessee, Texas, Utah, and Virginia.  In addition, as of December 31, 2017, we managed 452 stores for third parties (including 117 stores containing an aggregate of approximately 6.9 million rentable square feet as part of four separate unconsolidated real estate ventures), bringing the total number of stores we owned and/or managed to 936.  As of December 31, 2017, we managed stores for third parties in the District of Columbia and the following 31 states:  Alabama, Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Kansas, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, Washington, West Virginia, and Wisconsin.

 

We derive revenues principally from rents received from customers who rent cubes at our self-storage properties under month-to-month leases.  Therefore, our operating results depend materially on our ability to retain our existing customers and lease our available self-storage cubes to new customers while maintaining and, where possible, increasing our pricing levels.  In addition, our operating results depend on the ability of our customers to make required rental payments to us.  Our approach to the management and operation of our stores combines centralized marketing, revenue management, and other operational support with local operations teams that provide market-level oversight and control.  We believe this approach allows us to respond quickly and effectively to changes in local market conditions, and to maximize revenues by managing rental rates and occupancy levels.

 

We typically experience seasonal fluctuations in the occupancy levels of our stores, which are generally slightly higher during the summer months due to increased moving activity.

 

Our results of operations may be sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending and moving trends, as well as to increased bad debts due to recessionary pressures.  Adverse economic conditions affecting disposable consumer income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs, and other matters could reduce consumer spending or cause consumers to shift their spending to other products and services.  A general reduction in the level of discretionary spending or shifts in consumer discretionary spending could adversely affect our growth and profitability.

 

We continue our focus on maximizing internal growth opportunities and selectively pursuing targeted acquisitions and developments of self-storage properties.

 

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

 

Our self-storage properties are located in major metropolitan and suburban areas and have numerous customers per store.  No single customer represents a significant concentration of our revenues.  Our stores in Florida, New York, Texas, and California provided approximately 17%, 16%, 10%, and 8%, respectively, of total revenues for the year ended December 31, 2017.

 

Summary of Critical Accounting Policies and Estimates

 

Set forth below is a summary of the accounting policies and estimates that management believes are critical to the preparation of the consolidated financial statements included in this Report.  Certain of the accounting policies used in the preparation of these consolidated financial statements are particularly important for an understanding of the financial position and results of operations presented in the historical consolidated financial statements included in this Report.  A summary of significant accounting policies is also provided in the

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notes to our consolidated financial statements (see note 2 to the consolidated financial statements).  These policies require the application of judgment and assumptions by management and, as a result, are subject to a degree of uncertainty.  Due to this uncertainty, actual results could differ materially from estimates calculated and utilized by management.

 

Basis of Presentation

 

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

 

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

 

Self-Storage Properties

 

The Company records self-storage properties at cost less accumulated depreciation.  Depreciation on the buildings and equipment is recorded on a straight-line basis over their estimated useful lives, which range from five to 39 years. Expenditures for significant renovations or improvements that extend the useful life of assets are capitalized.  Repairs and maintenance costs are expensed as incurred.

 

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

 

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

 

Long-lived assets classified as “held for use” are reviewed for impairment when events and circumstances such as declines in occupancy and operating results indicate that there may be an impairment.  The carrying value of these long-lived assets is compared to the undiscounted future net operating cash flows, plus a terminal value, attributable to the assets to determine if the store’s basis is recoverable.  If a store’s basis is not considered recoverable, an impairment loss is recorded to the extent the net carrying value of the asset exceeds the fair value.  The impairment loss recognized equals the excess of net carrying value over the related fair value of the asset.  There were no impairment losses recognized in accordance with these procedures during the years ended December 31, 2017, 2016, and 2015.

 

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

 

Typically these criteria are all met when the relevant asset is under contract, significant non-refundable deposits have been made by the potential buyer, the assets are immediately available for transfer and there are no contingencies related to the sale that may prevent the

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transaction from closing.  However, each potential transaction is evaluated based on its separate facts and circumstances.  Stores classified as held for sale are reported at the lesser of carrying value or fair value less estimated costs to sell.

 

Revenue Recognition

 

Management has determined that all our leases with customers are operating leases.  Rental income is recognized in accordance with the terms of the lease agreements or contracts, which generally are month to month.  Property management fee income is recognized monthly as services are performed and in accordance with the terms of the related management agreements.

 

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

 

Noncontrolling Interests

 

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

 

Investments in Unconsolidated Real Estate Ventures

 

The Company accounts for its investments in unconsolidated real estate ventures under the equity method of accounting.  Under the equity method, investments in unconsolidated joint ventures are recorded initially at cost, as investments in real estate entities, and subsequently adjusted for equity in earnings (losses), cash contributions, less distributions and impairments. On a periodic basis, management also assesses whether there are any indicators that the carrying value of the Company’s investments in unconsolidated real estate entities may be other than temporarily impaired. An investment is impaired only if the fair value of the investment, as estimated by management, is less than the carrying value of the investment and the decline is other than temporary. To the extent impairment that is other than temporary has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the fair value of the investment, as estimated by management. Fair value is determined through various valuation techniques, including but not limited to, discounted cash flow models, quoted market values, and third party appraisals. There were no impairment losses related to the Company’s investments in unconsolidated real estate ventures recognized during the years ended December 31, 2017, 2016 and 2015.

 

Income Taxes

 

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

 

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

 

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

 

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Recent Accounting Pronouncements

 

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The transition guidance provides companies with the option of early adopting the new standard using a modified retrospective transition method in any interim period after issuance of the update, or alternatively requires adoption for fiscal years beginning after December 15, 2018. This adoption method will require us to recognize the cumulative effect of initially applying the new guidance as an adjustment to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that we adopt the update. We are in the process of evaluating the impact of this new guidance.


   In February 2017, as part of the new revenue standard, the FASB issued ASU No. 2017-05 – Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance, which focuses on recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers. Specifically, the new guidance defines “in substance nonfinancial asset”, unifies guidance related to partial sales of nonfinancial assets, eliminates rules specifically addressing sales of real estate, removes exceptions to the financial asset derecognition model, and clarifies the accounting for contributions of nonfinancial assets to joint ventures. The new guidance became effective on January 1, 2018 when the entity adopted the new revenue standard. Upon adoption, the majority of our sale transactions are now treated as dispositions of nonfinancial assets rather than dispositions of a business given the FASB’s recently revised definition of a business (see ASU No. 2017-01 below). Additionally, in partial sale transactions where we sell a controlling interest in real estate but retain a noncontrolling interest, we will now fully recognize a gain or loss on the fair value measurement of the retained interest as the new guidance eliminates the partial profit recognition model.

 

In January 2017, the FASB issued ASU 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business, which changes the definition of a business to include an input and a substantive process that together significantly contribute to the ability to create outputs. A framework is provided to evaluate when an input and a substantive process are present.  The new guidance also narrows the definition of outputs, which are defined as the results of inputs and substantive processes that provide goods or services to customers, other revenue, or investment income. The standard became effective on January 1, 2018. Upon adoption of the new guidance, the majority of future property acquisitions will now be considered asset acquisitions, resulting in the capitalization of acquisition related costs incurred in connection with these transactions and the allocation of purchase price and acquisition related costs to the assets acquired based on their relative fair values.

 

In November 2016, the FASB issued ASU No. 2016-18 - Statement of Cash Flows (Topic 230): Restricted Cash, which requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The new guidance also requires entities to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. The standard became effective on January 1, 2018. The standard requires the use of the retrospective transition method. The adoption of this guidance will not have a material impact on our consolidated financial statements as the update primarily relates to financial statement presentation and disclosures.

 

In August 2016, the FASB issued ASU No. 2016-15 – Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The eight items that the ASU provides classification guidance on include (1) debt prepayment and extinguishment costs, (2) settlement of zero-coupon debt instruments, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (6) distributions received from equity method investments, (7) beneficial interests in securitization transactions, and (8) separately identifiable cash flows and application of the predominance principle. The standard became effective on January 1, 2018. The standard requires the use of the retrospective transition method. The adoption of this guidance will not have a material impact on our consolidated financial statements as the update primarily relates to financial statement presentation and disclosures.

 

In March 2016, the FASB issued ASU No. 2016-09 - Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which is intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The new guidance requires entities to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. We have elected to account for forfeitures when they occur. In addition, the guidance allows employers to withhold shares to satisfy minimum statutory tax withholding requirements up to the employees’ maximum individual tax rate without causing the award to be classified as a liability. The guidance also stipulates that cash paid by an employer to a taxing authority when directly withholding shares for tax-withholding purposes should be classified as a financing activity on the statement of cash flows. The new standard became effective on January 1, 2017. The adoption of this guidance did not have a material impact on our consolidated financial position or results of operations.

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In February 2016, the FASB issued ASU No. 2016-02 - Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either financing or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.  Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The standard is effective on January 1, 2019, however early adoption is permitted.  We are currently assessing the impact of the adoption of the new standard on our consolidated financial statements and related disclosures but at this time, expect the primary impact to be related to our ten ground leases in which we serve as the ground lessee (see note 14). 

 

In May 2014, the FASB issued ASU No. 2014-09 - Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new guidance outlines a five-step process for customer contract revenue recognition that focuses on transfer of control as opposed to transfer of risk and rewards. The new guidance also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows from contracts with customers. In May 2016, the FASB issued ASU 2016-12 - Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which amends ASU 2014-09 and is intended to address implementation issues that were raised by stakeholders. ASU 2016-12 provides practical expedients on collectability, noncash consideration, presentation of sales tax and contract modifications and completed contracts in transition. Both standards became effective on January 1, 2018. We have finalized the impact of the adoption of ASU No. 2014-09 and ASU No. 2016-12 on our consolidated financial statements and the related disclosures using the modified retrospective transition method. The standards will not have a material impact on our consolidated statements of financial position or results of operations primarily because most of our revenue is derived from lease contracts, which are excluded from the scope of the new guidance. Our insurance fee revenue, property management fee revenue, and merchandise sale revenue are included in the scope of the new guidance, however, we identified similar performance obligations under this standard as compared with deliverables and separate units of account identified under our previous revenue recognition methodology. Accordingly, revenue recognized under the new guidance will not differ materially from revenue recognized under previous guidance and there will be no material prior year impact.

 

Results of Operations

 

The following discussion of our results of operations should be read in conjunction with the consolidated financial statements and the accompanying notes thereto.  Historical results set forth in the consolidated statements of operations reflect only the existing stores and should not be taken as indicative of future operations.  We consider our same-store portfolio to consist of only those stores owned and operated on a stabilized basis at the beginning and at the end of the applicable years presented. We consider a store to be stabilized once it has achieved an occupancy rate that we believe, based on our assessment of market-specific data, is representative of similar self-storage assets in the applicable market for a full year measured as of the most recent January 1 and has not been significantly damaged by natural disaster or undergone significant renovation.  We believe that same-store results are useful to investors in evaluating our performance because they provide information relating to changes in store-level operating performance without taking into account the effects of acquisitions, developments or dispositions.  As of December 31, 2017, we owned 432 same-store properties and 52 non-same-store properties.  All of the non-same-store properties were 2016 and 2017 acquisitions, dispositions, developed stores, or stores with a significant portion taken out of service.  For analytical presentation, all percentages are calculated using the numbers presented in the financial statements contained in this Report.

 

The comparability of our results of operations is affected by the timing of acquisition and disposition activities during the periods reported.  As of December 31, 2017, 2016, and 2015, we owned 484, 475, and 445 self-storage properties and related assets, respectively. 

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The following table summarizes the change in number of owned stores from January 1, 2015 through December 31, 2017:

 

 

 

 

 

 

 

 

 

 

    

2017

    

2016

    

2015

 

 

 

 

 

 

 

 

 

Balance - January 1

 

475

 

445

 

421

 

Stores acquired

 

 —

 

10

 

 7

 

Stores developed

 

 1

 

 1

 

 —

 

Balance - March 31

 

476

 

456

 

428

 

Stores acquired

 

 3

 

 7

 

 4

 

Stores developed

 

 —

 

 1

 

 1

 

Stores combined (1)

 

(1)

 

 —

 

 —

 

Balance - June 30

 

478

 

464

 

433

 

Stores acquired

 

 —

 

 7

 

 5

 

Stores developed

 

 2

 

 —

 

 —

 

Balance - September 30

 

480

 

471

 

438

 

Stores acquired

 

 4

 

 4

 

13

 

Stores developed

 

 1

 

 —

 

 2

 

Stores combined (2)

 

(1)

 

 —

 

 —

 

Stores sold

 

 —

 

 —

 

(8)

 

Balance - December 31

 

484

 

475

 

445

 

 

 

 

 

 

 

 

 

(1)

On May 16, 2017, we acquired a store located in Sacramento, CA for approximately $3.7 million, which is located directly adjacent to an existing wholly-owned store. Given their proximity to each other, the stores have been combined in our store count, as well as for operational and reporting purposes.

 

(2)

On October 2, 2017, we acquired a store located in Keller, TX for approximately $4.1 million, which is located directly adjacent to an existing wholly-owned store. Given their proximity to each other, the stores have been combined in our store count, as well as for operational and reporting purposes.

 

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Comparison of the Year Ended December 31, 2017 to the Year Ended December 31, 2016 (dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non Same-Store

 

Other/

 

 

 

 

 

 

 

 

 

 

 

 

 

Same-Store Property Portfolio

 

Properties

 

Eliminations

 

Total Portfolio

 

 

   

 

    

    

 

    

Increase/

    

%  

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

Increase/

    

%  

 

 

2017

 

2016

 

(Decrease)

 

Change

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

(Decrease)

 

Change

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

$

444,290

 

$

424,977

 

$

19,313

 

4.5

%  

$

44,753

 

$

24,624

 

$

 —

 

$

 —

 

$

489,043

 

$

449,601

 

$

39,442

 

8.8

Other property related income

 

46,131

 

 

44,689

 

 

1,442

 

3.2

%  

 

4,643

 

 

2,574

 

 

4,227

 

 

2,992

 

 

55,001

 

 

50,255

 

 

4,746

 

9.4

Property management fee income

 

 —

 

 

 —

 

 

 —

 

0.0

%  

 

 —

 

 

 —

 

 

14,899

 

 

10,183

 

 

14,899

 

 

10,183

 

 

4,716

 

46.3

Total revenues

 

490,421

 

 

469,666

 

 

20,755

 

4.4

%  

 

49,396

 

 

27,198

 

 

19,126

 

 

13,175

 

 

558,943

 

 

510,039

 

 

48,904

 

9.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

139,092

 

 

135,366

 

 

3,726

 

2.8

%  

 

18,858

 

 

11,936

 

 

23,558

 

 

18,545

 

 

181,508

 

 

165,847

 

 

15,661

 

9.4

NET OPERATING INCOME (LOSS):

 

351,329

 

 

334,300

 

 

17,029

 

5.1

%  

 

30,538

 

 

15,262

 

 

(4,432)

 

 

(5,370)

 

 

377,435

 

 

344,192

 

 

33,243

 

9.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Store count

 

432

 

 

432

 

 

 

 

 

 

 

52

 

 

43

 

 

 

 

 

 

 

 

484

 

 

475

 

 

 

 

 

 

Total square footage

 

29,561

 

 

29,561

 

 

 

 

 

 

 

4,199

 

 

3,297

 

 

 

 

 

 

 

 

33,760

 

 

32,858

 

 

 

 

 

 

Period End Occupancy (1)

 

91.7

%  

 

91.8

%  

 

 

 

 

 

 

71.7

%  

 

71.4

%  

 

 

 

 

 

 

 

89.2

%  

 

89.7

%  

 

 

 

 

 

Period Average Occupancy (2)

 

93.1

%  

 

92.9

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized annual rent per occupied sq. ft. (3)

$

16.15

 

$

15.48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

145,681

 

 

161,865

 

 

(16,184)

 

(10.0)

General and administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34,745

 

 

32,823

 

 

1,922

 

5.9

Acquisition related costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,294

 

 

6,552

 

 

(5,258)

 

(80.3)

Subtotal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

181,720

 

 

201,240

 

 

(19,520)

 

(9.7)

OPERATING INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

195,715

 

 

142,952

 

 

52,763

 

36.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER (EXPENSE) INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense on loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(56,952)

 

 

(50,399)

 

 

(6,553)

 

(13.0)

Loan procurement amortization expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,638)

 

 

(2,577)

 

 

(61)

 

(2.4)

Equity in losses of real estate ventures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,386)

 

 

(2,662)

 

 

1,276

 

47.9

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

872

 

 

1,062

 

 

(190)

 

(17.9)

Total other expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(60,104)

 

 

(54,576)

 

 

(5,528)

 

(10.1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

135,611

 

 

88,376

 

 

47,235

 

53.4

NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,593)

 

 

(941)

 

 

(652)

 

(69.3)

Noncontrolling interests in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

270

 

 

470

 

 

(200)

 

(42.6)

NET INCOME ATTRIBUTABLE TO THE COMPANY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

134,288

 

$

87,905

 

$

46,383

 

52.8

Distribution to preferred shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 —

 

 

(5,045)

 

 

5,045

 

100.0

Preferred share redemption charge

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 —

 

 

(2,937)

 

 

2,937

 

100.0

NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

134,288

 

$

79,923

 

$

54,365

 

68.0


(1)

Represents occupancy as of December 31 of the respective year.

(2)

Represents the weighted average occupancy for the period.

(3)

Realized annual rent per occupied square foot is computed by dividing rental income by the weighted average occupied square feet for the period.

 

Revenues

 

Rental income increased from $449.6 million during 2016 to $489.0 million during 2017, an increase of $39.4 million, or 8.8%.  The increase in same-store revenue was due primarily to an increase in average occupancy of 20 basis points and higher rental rates.  Realized annual rent per square foot on our same-store portoflio increased 4.3% as a result of higher rates for new and existing customers during 2017 as compared to 2016.  The remaining increase is primarily attributable to $20.1 million of additional income from the stores acquired in 2016 and 2017 included in our non-same store portfolio.

 

Other property related income consists of late fees, administrative charges, customer insurance fees, sales of storage supplies, and other ancillary revenues.  Other property related income increased from $50.3 million in 2016 to $55.0 million in 2017, an increase of $4.7 million, or 9.4%.  The $1.4 million increase in same-store property related income is mainly attributable to increased insurance participation and higher average occupancy.  The remainder of the increase is attributable to other property income derived from the stores acquired or opened in 2016 and 2017 included in our non-same store portfolio.

 

Property management fee income increased from $10.2 million during 2016 to $14.9 million during 2017, an increase of $4.7 million, or 46.3%.  This increase is attributable to an increase in management fees related to the third-party management business resulting from more stores under management and higher revenue at managed stores (452 stores as of December 31, 2017 compared to 316 stores as of December 31, 2016).

 

Operating Expenses

 

Property operating expenses increased from $165.8 million in 2016 to $181.5 million in 2017, an increase of $15.7 million, or 9.4%, which is primarily attributable to $7.0 million of increased expenses associated with newly acquired stores, a $3.7 million increase in

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property operating expenses on the same-store portfolio, primarily due to higher property tax expenses, and $0.9 million related to hurricane damage, net of expected insurance proceeds.

 

Depreciation and amortization decreased from $161.9 million in 2016 to $145.7 million in 2017, a decrease of $16.2 million, or 10.0%.  This decrease is primarily attributable to five-year assets acquired as part of the Company’s property acquisitions in 2011 and 2012 that became fully depreciated during 2016 and 2017.

 

General and administrative expenses increased from $32.8 million in 2016 to $34.7 million in 2017, an increase of $1.9 million, or 5.9%. The change is primarily attributable to increased professional fees and payroll expenses resulting from additional employee headcount to support our growth.

 

Acquisition related costs decreased from $6.6 million during 2016 to $1.3 million during 2017, a decrease of $5.3 million, or 80.3%. Acquisition-related costs are non-recurring and fluctuate based on periodic investment activity.

 

Other (expense) income

 

Interest expense on loans increased from $50.4 million during the year ended December 31, 2016 to $57.0 million during the year ended December 31, 2017, an increase of $6.6 million, or 13.0%.  The increase is primarily attributable to a higher amount of outstanding debt during 2017 as compared to 2016, partially offset by lower interest rates during 2017. The average debt balance increased $199.4 million to $1.6 billion during 2017 as compared to $1.4 billion during 2016 as the result of borrowings to fund a portion of the Company’s acquisition acitivity.  The weighted average effective interest rate on our outstanding debt decreased from 3.82% during 2016 to 3.79% during 2017. 

 

Equity in losses of real estate ventures fluctuated from a loss of $2.7 million during the year ended December 31, 2016 to a loss of $1.4 million during the year ended December 31, 2017, a change of $1.3 million, or 47.9%.  The change is mainly driven by our share of the losses attributable to HVP III, a real estate venture in which we own a 10% interest.  The loss incurred in 2016 was primarily the result of amortization expense associated with the in-place lease intangible that was recorded in connection with HVP III’s acquisition of 68 properties during 2015 and 2016. These assets became fully amortized during 2016 and 2017.

 

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Comparison of the Year Ended December 31, 2016 to the Year Ended December 31, 2015 (dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non Same-Store

 

Other/

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same-Store Property Portfolio

 

Properties

 

Eliminations

 

Total Portfolio

 

 

 

    

 

    

    

 

    

Increase/

    

%  

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

Increase/

    

%  

 

 

 

2016

 

2015

 

(Decrease)

 

Change

 

2016

 

2015

 

2016

 

2015

 

2016

 

2015

 

(Decrease)

 

Change

 

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

$

402,239

 

$

375,149

 

$

27,090

 

7.2

%  

$

47,362

 

$

17,327

 

$

 —

 

$

 —

 

$

449,601

 

$

392,476

 

$

57,125

 

14.6

%  

 

Other property related income

 

42,172

 

 

40,194

 

 

1,978

 

4.9

%  

 

5,091

 

 

2,039

 

 

2,992

 

 

2,956

 

 

50,255

 

 

45,189

 

 

5,066

 

11.2

%  

 

Property management fee income

 

 —

 

 

 —

 

 

 —

 

0.0

%  

 

 —

 

 

 —

 

 

10,183

 

 

6,856

 

 

10,183

 

 

6,856

 

 

3,327

 

48.5

%  

 

Total revenues

 

444,411

 

 

415,343

 

 

29,068

 

7.0

%  

 

52,453

 

 

19,366

 

 

13,175

 

 

9,812

 

 

510,039

 

 

444,521

 

 

65,518

 

14.7

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

126,824

 

 

127,209

 

 

(385)

 

(0.3)

%  

 

20,478

 

 

8,210

 

 

18,545

 

 

17,753

 

 

165,847

 

 

153,172

 

 

12,675

 

8.3

%  

 

NET OPERATING INCOME (LOSS):

 

317,587

 

 

288,134

 

 

29,453

 

10.2

%  

 

31,975

 

 

11,156

 

 

(5,370)

 

 

(7,941)

 

 

344,192

 

 

291,349

 

 

52,843

 

18.1

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Store count

 

407

 

 

407

 

 

 

 

 

 

 

68

 

 

38

 

 

 

 

 

 

 

 

475

 

 

445

 

 

 

 

 

 

 

Total square footage

 

27,828

 

 

27,828

 

 

 

 

 

 

 

5,030

 

 

2,533

 

 

 

 

 

 

 

 

32,858

 

 

30,361

 

 

 

 

 

 

 

Period End Occupancy (1)

 

91.8

%  

 

91.6

%  

 

 

 

 

 

 

78.3

%  

 

75.4

%  

 

 

 

 

 

 

 

89.7

%  

 

90.2

%  

 

 

 

 

 

 

Period Average Occupancy (2)

 

92.9

%  

 

92.1

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized annual rent per occupied sq. ft. (3)

$

15.56

 

$

14.63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

161,865

 

 

151,789

 

 

10,076

 

6.6

%  

 

General and administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32,823

 

 

28,371

 

 

4,452

 

15.7

%  

 

Acquisition related costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,552

 

 

3,301

 

 

3,251

 

98.5

%  

 

Subtotal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

201,240

 

 

183,461

 

 

17,779

 

9.7

%  

 

OPERATING INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

142,952

 

 

107,888

 

 

35,064

 

32.5

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER (EXPENSE) INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense on loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50,399)

 

 

(43,736)

 

 

(6,663)

 

(15.2)

%  

 

Loan procurement amortization expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,577)

 

 

(2,324)

 

 

(253)

 

(10.9)

%  

 

Equity in losses of real estate ventures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,662)

 

 

(411)

 

 

(2,251)

 

(547.7)

%  

 

Gains from sale of real estate, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 —

 

 

17,567

 

 

(17,567)

 

(100.0)

%  

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,062

 

 

(228)

 

 

1,290

 

565.8

%  

 

Total other expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(54,576)

 

 

(29,132)

 

 

(25,444)

 

(87.3)

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

88,376

 

 

78,756

 

 

9,620

 

12.2

%  

 

NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(941)

 

 

(960)

 

 

19

 

2.0

%  

 

Noncontrolling interests in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

470

 

 

(84)

 

 

554

 

659.5

%  

 

NET INCOME ATTRIBUTABLE TO THE COMPANY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

87,905

 

$

77,712

 

$

10,193

 

13.1

%  

 

Distribution to preferred shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,045)

 

 

(6,008)

 

 

963

 

16.0

%  

 

Preferred share redemption charge

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,937)

 

 

 —

 

 

(2,937)

 

(100.0)

%  

 

NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

79,923

 

$

71,704

 

$

8,219

 

11.5

%  

 


(1)

Represents occupancy as of December 31 of each respective year.

(2)

Represents the weighted average occupancy for the period.

(3)

Realized annual rent per occupied square foot is computed by dividing rental income by the weighted average occupied square feet for the period.

 

Revenues

 

Rental income increased from $392.5 million during 2015 to $449.6 million during 2016, an increase of $57.1 million, or 14.6%.  The increase in same-store revenue was due primarily to an increase in average occupancy of 80 basis points and higher rental rates.  Realized annual rent per square foot on our same-store portoflio increased 6.4% as a result of higher rates for new and existing customers during 2016 as compared to 2015.  The remaining increase is primarily attributable to $30.0 million of additional income from the stores acquired in 2015 and 2016 included in our non-same store portfolio.

 

Other property related income consists of late fees, administrative charges, customer insurance fees, sales of storage supplies and other ancillary revenues.  Other property related income increased from $45.2 million in 2015 to $50.3 million in 2016, an increase of $5.1 million, or 11.2%.  This increase is primarily attributable to increased fee revenue and insurance fees of $3.5 million on the stores acquired in 2015 and 2016 and a $2.0 million increase in same-store property related income mainly attributable to increased insurance participation and higher average occupancy, offset by a decrease of $0.4 million of income relating to the disposals of nine stores in 2015.

 

Property management fee income increased to $10.2 million in 2016 from $6.9 million during 2015, an increase of $3.3 million, or 48.5%.  This increase is attributable to an increase in management fees related to the third-party management business resulting from more stores under management and higher revenue at managed stores (316 stores as of December 31, 2016 compared to 227 stores as of December 31, 2015).

 

Operating Expenses

 

Property operating expenses increased from $153.2 million in 2015 to $165.8 million in 2016, an increase of $12.7 million, or 8.3%, which is primarily attributable to $12.3 million of increased expenses associated with newly acquired stores

 

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Depreciation and amortization increased from $151.8 million in 2015 to $161.9 million in 2016, an increase of $10.1 million, or 6.6%.  This increase is primarily attributable to depreciation and amortization expense related to the 2015 and 2016 acquisitions.

 

General and administrative expenses increased from $28.4 million in 2015 to $32.8 million in 2016, an increase of $4.5 million, or 15.7%. The change is primarily attributable to $4.1 million of increased payroll expenses resulting from additional employee headcount to support our growth.

 

Acquisition related costs increased from $3.3 million during 2015 to $6.6 million during 2016, an increase of $3.3 million, or 98.5%. Acquisition-related costs are non-recurring and fluctuate based on periodic investment activity.

 

Other (expense) income

 

Interest expense on loans increased from $43.7 million during the year ended December 31, 2015 to $50.4 million during the year ended December 31, 2016, an increase of $6.7 million, or 15.2%.  The increase is primarily attributable to a higher amount of outstanding debt during 2016 as compared to 2015. The average debt balance increased $234.6 million to $1.4 billion during 2016 as compared to $1.2 billion during 2015 as the result of borrowings to fund a portion of the Company’s acquisition activity.

 

Equity in losses of real estate ventures increased from $0.4 million during the year ended December 31, 2015 to $2.7 million during the year ended December 31, 2016, an increase of $2.3 million, or 547.7%.  The increase is mainly driven by our share of the losses attributable to HVP III, a real estate venture in which we own a 10% interest.  The loss incurred in 2016 was primarily the result of amortization expense associated with the in-place lease intangible that was recorded in connection with HVP III’s acquisition of 68 properties. The amortization expense did not exist in 2015 as the acquisitions took place during the fourth quarter of 2015 and throughout 2016.

 

Gains from sale of real estate, net were $17.6 million for the year ended December 31, 2015 with no comparable amounts for the year ended December 31, 2016. These gains are determined on a transactional basis and, accordingly, are not comparable across reporting periods.

 

Other income (expense) increased $1.3 million from 2015 to 2016 primarily due to acquisition fees earned in conjunction with HVP III’s acquisition of 68 self-storage properties.

 

Non-GAAP Financial Measures

 

NOI

 

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

 

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

 

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

 

·

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

 

·

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

 

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·

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

 

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

 

FFO

 

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

 

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

 

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

 

FFO, as adjusted

 

FFO, as adjusted represents FFO as defined above, excluding the effects of acquisition related costs, gains or losses from early extinguishment of debt, and non-recurring items, which we believe are not indicative of the Company’s operating results.  We present FFO, as adjusted because we believe it is a helpful measure in understanding our results of operations insofar as we believe that the items noted above that are included in FFO, but excluded from FFO, as adjusted are not indicative of our ongoing operating results.  We also believe that the analyst community considers our FFO, as adjusted (or similar measures using different terminology) when evaluating us.  Because other REITs or real estate companies may not compute FFO, as adjusted in the same manner as we do, and may use different terminology, our computation of FFO, as adjusted may not be comparable to FFO, as adjusted reported by other REITs or real estate companies.

 

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The following table presents a reconciliation of net income to FFO and FFO, as adjusted, for the years ended December 31, 2017 and 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

For the Year Ended December 31,

 

 

   

 

2017

   

2016

 

 

 

 

 

 

 

 

 

 

Net income attributable to the Company’s common shareholders

 

 

$

134,288

 

$

79,923

 

 

 

 

 

 

 

 

 

 

Add:

 

 

 

 

 

 

 

 

Real estate depreciation and amortization:

 

 

 

 

 

 

 

 

Real property

 

 

 

142,961

 

 

159,495

 

Company’s share of unconsolidated real estate ventures

 

 

 

10,243

 

 

11,016

 

Noncontrolling interests in the Operating Partnership

 

 

 

1,593

 

 

941

 

FFO attributable to common shareholders and OP unitholders

 

 

$

289,085

 

$

251,375

 

 

 

 

 

 

 

 

 

 

Add:

 

 

 

 

 

 

 

 

Loan procurement amortization expense - early repayment of debt

 

 

 

190

 

 

 —

 

Acquisition related costs (1)

 

 

 

1,319

 

 

6,932

 

Preferred share redemption charge

 

 

 

 —

 

 

2,937

 

Property damage related to hurricanes, net of expected insurance proceeds (2)

 

 

 

874

 

 

 —

 

FFO, as adjusted, attributable to common shareholders and OP unitholders

 

 

$

291,468

 

$

261,244

 

 

 

 

 

 

 

 

 

 

Weighted-average diluted shares outstanding

 

 

 

181,448

 

 

179,533

 

Weighted-average diluted units outstanding

 

 

 

2,150

 

 

2,158

 

Weighted-average diluted shares and units outstanding

 

 

 

183,598

 

 

181,691

 


(1)

Acquisition related costs for the year ended December 31, 2016 includes $0.4 million of acquisition related costs that are included in the Company’s share of equity in losses of real estate ventures.

 

(2)

Property damage related to hurricanes, net of expected insurance proceeds for the year ended December 31, 2017 includes $0.1 million of storm damage related costs that are included in the Company’s share of equity in losses of real estate ventures.

 

Cash Flows

 

Comparison of the Year Ended December 31, 2017 to the Year Ended December 31, 2016

 

A comparison of cash flow related to operating, investing and financing activities for the years ended December 31, 2017 and 2016 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 

 

 

 

 

Net cash provided by (used in):

    

2017

    

2016

    

Change

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

293,438

 

$

265,164

 

$

28,274

 

Investing activities

 

$

(147,824)

 

$

(544,471)

 

$

396,647

 

Financing activities

 

$

(143,319)

 

$

219,411

 

$

(362,730)

 

 

Cash provided by operating activities for the years ended December 31, 2017 and 2016 was $293.4 million and $265.2 million, respectively, reflecting an increase of $28.3 million.  Our increased cash flow from operating activities is primarily attributable to our 2016 and 2017 acquisitions and increased net operating income levels on the same-store portfolio in the 2017 period as compared to the 2016 period.

 

Cash used in investing activities was $147.8 million in 2017 and $544.5 million in 2016, a decrease of $396.6 million driven by a decrease in cash used for acquisitions of self-storage properties.  Cash used during 2017 related to the acquisition of seven stores for an aggregate purchase price of $80.7 million, inclusive of $6.2 million of assumed debt and $12.3 million of OP units issued, while cash used in investing activities during 2016 related to the acquisition of 28 stores for an aggregate purchase price of $403.6 million, inclusive of $6.5 million of assumed debt. The change is also driven by a decrease in cash used for development costs resulting from the acquisition of a development property by a consolidated joint venture for $67.2 million, inclusive of $35.0 million of assumed debt, during 2016.

 

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Cash used in financing activities was $143.3 million in 2017 compared to cash provided by financing activities of $219.4 million in 2016, a change of $362.7 million.  The change is primarily a result of $298.5 million of net proceeds from our issuance of unsecured senior notes in August 2016 compared to $103.2 of net proceeds from our issuance of unsecured senior notes in April 2017. There was also a $106.5 million decrease in proceeds received from the issuance of common shares from 2016 to 2017 and a $100.0 million term loan repayment during April 2017 with no comparable repayment in the prior year.  We also paid $77.6 million to redeem our 7.75% Series A Preferred shares in November 2016 with no similar transaction in 2017. Additionally, cash distributions paid to common shareholders, preferred shareholders, and noncontrolling interests in the Operating Partnership increased $39.6 million from 2016 to 2017, resulting primarily from the increase in the common dividend per share and number of shares outstanding.

 

Comparison of the Year Ended December 31, 2016 to the Year Ended December 31, 2015

 

A comparison of cash flow related to operating, investing and financing activities for the years ended December 31, 2016 and 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 

 

 

 

 

Net cash provided by (used in):

    

2016

    

2015

    

Change

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

265,164

 

$

217,272

 

$

47,892

 

Investing activities

 

$

(544,471)

 

$

(374,608)

 

$

(169,863)

 

Financing activities

 

$

219,411

 

$

217,304

 

$

2,107

 

 

Cash provided by operating activities for the years ended December 31, 2016 and 2015 was $265.2 million and $217.3 million, respectively, an increase of $47.9 million.  Our increased cash flow from operating activities is primarily attributable to our 2015 and 2016 acquisitions and increased net operating income levels on the same-store portfolio in the 2016 period as compared to the 2015 period.

 

Cash used in investing activities was $544.5 million in 2016 and $374.6 million in 2015, an increase of $169.9 million driven by an increase in cash used for acquisitions of self-storage properties.  Cash used during 2016 relates to the acquisition of 28 stores for an aggregate purchase price of $403.6 million, inclusive of $6.5 million of assumed debt, while cash used in investing activities during 2015 relates to the acquisition of 29 stores for an aggregate purchase price of $292.4 million, inclusive of $2.7 million of assumed debt. The change is also driven by a $62.4 million increase in cash used for development costs, resulting primarily from the acquisition of a development property by a consolidated joint venture in the second quarter of 2016 for $67.2 million, inclusive of $35.0 million of assumed debt.  

 

Cash provided by financing activities was $219.4 million in 2016 and $217.3 million in 2015, an increase of $2.1 million.  From 2015 to 2016, proceeds from the issuance of unsecured senior notes increased $49.2 million and net proceeds in revolving credit facility borrowings increased $121.3 million. A $47.6 million decrease in principal payments on mortgage loans, resulting primarily from the repayment of five secured loans during 2016 for $34.9 million compared to four repayments during 2015 for $82.6 million also contributed to the increase in net cash inflows provided by financing activities from 2015 to 2016. These increases were offset by a $43.1 million increase in cash distributions paid to common shareholders, preferred shareholders and noncontrolling interests in the Operating Partnership during 2016 compared to 2015, resulting primarily from the increase in the common dividend per share and number of shares outstanding. The increases were also offset by $77.6 million paid to redeem our 7.75% Series A Preferred shares in November 2016 with no similar transaction in 2015 and a $97.9 million decrease in proceeds from the issuance of common shares in 2016 as compared to 2015.  

 

Liquidity and Capital Resources

 

Liquidity Overview

 

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

 

In order to qualify as a REIT for federal income tax purposes, the Parent Company is required to distribute at least 90% of REIT taxable income, excluding capital gains, to its shareholders on an annual basis or pay federal income tax.  The nature of our business, coupled with

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the requirement that we distribute a substantial portion of our income on an annual basis, will cause us to have substantial liquidity needs over both the short term and the long term.

 

Our short-term liquidity needs consist primarily of funds necessary to pay operating expenses associated with our stores, refinancing of certain mortgage indebtedness, interest expense and scheduled principal payments on debt, expected distributions to limited partners and shareholders, capital expenditures, and the development of new stores.  These funding requirements will vary from year to year, in some cases significantly.  In the 2018 fiscal year, we expect recurring capital expenditures to be approximately $12.0 million to $16.0 million, planned capital improvements and store upgrades to be approximately $5.0 million to $8.0 million and costs associated with the development of new stores to be approximately $60.0 million to $75.0 million.  Our currently scheduled principal payments on debt, including borrowings outstanding on the Credit Facility and Term Loan Facility, are approximately $2.7 million in 2018.

 

Our most restrictive financial covenants limit the amount of additional leverage we can add; however, we believe cash flows from operations, access to equity financing, including through our “at-the-market” equity program, and available borrowings under our Credit Facility provide adequate sources of liquidity to enable us to execute our current business plan and remain in compliance with our covenants.

 

Our liquidity needs beyond 2018 consist primarily of contractual obligations which include repayments of indebtedness at maturity, as well as potential discretionary expenditures such as (i) non-recurring capital expenditures; (ii) redevelopment of operating stores; (iii) acquisitions of additional stores; and (iv) development of new stores. We will have to satisfy the portion of our needs not covered by cash flow from operations through additional borrowings, including borrowings under our Credit Facility, sales of common or preferred shares of the Parent Company and common or preferred units of the Operating Partnership and/or cash generated through store dispositions and joint venture transactions.

 

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

 

As of December 31, 2017, we had approximately $5.3 million in available cash and cash equivalents.  In addition, we had approximately $417.6 million of availability for borrowings under our Credit Facility.

 

Unsecured Senior Notes

 

Our unsecured senior notes are summarized as follows (collectively referred to as the “Senior Notes”):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

December 31, 

    

December 31, 

    

Effective

 

Issuance

 

Maturity

 

Unsecured Senior Notes

    

2017

    

2016

    

Interest Rate

 

Date

 

Date

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

$250M 4.800% Guaranteed Notes due 2022

 

$

250,000

 

$

250,000

 

4.82

 

Jun-12

 

Jul-22

 

$300M 4.375% Guaranteed Notes due 2023 (1)

 

 

300,000

 

 

250,000

 

4.33

 

Various (1)

 

Dec-23

 

$300M 4.000% Guaranteed Notes due 2025 (2)

 

 

300,000

 

 

250,000

 

3.99

 

Various (2)

 

Nov-25

 

$300M 3.125% Guaranteed Notes due 2026

 

 

300,000

 

 

300,000

 

3.18

 

Aug-16

 

Sep-26

 

Principal balance outstanding

 

 

1,150,000

 

 

1,050,000

 

 

 

 

 

 

 

 

Less: Discount on issuance of unsecured senior notes, net

 

 

(617)

 

 

(3,971)

 

 

 

 

 

 

 

 

Less: Loan procurement costs, net

 

 

(6,923)

 

 

(6,953)

 

 

 

 

 

 

 

 

Total unsecured senior notes, net

 

$

1,142,460

 

$

1,039,076

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

On April 4, 2017, the Operating Partnership issued $50.0 million of its 4.375% senior notes due 2023, which are part of the same series as the $250.0 million principal amount of the Operating Partnership’s 4.375% senior notes due December 15, 2023 issued on December 17, 2013.  The $50.0 million and $250.0 million traunches were priced at 105.040% and 98.995%, respectively, of the principal amount to yield 3.495% and 4.501%, respectively, to maturity.  The combined weighted-average effective interest rate of the 2023 notes is 4.330%.

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(2)

On April 4, 2017, the Operating Partnership issued $50.0 million of its 4.000% senior notes due 2025, which are part of the same series as the $250.0 million principal amount of the Operating Partnership’s 4.000% senior notes due November 15, 2025 issued on October 26, 2015.  The $50.0 million and $250.0 million traunches were priced at 101.343% and 99.735%, respectively, of the principal amount to yield 3.811% and 4.032%, respectively, to maturity.  The combined weighted-average effective interest rate of the 2025 notes is 3.994%.

 

The indenture under which the Senior Notes were issued restricts the ability of the Operating Partnership and its subsidiaries to incur debt unless the Operating Partnership and its consolidated subsidiaries comply with a leverage ratio not to exceed 60% and an interest coverage ratio of more than 1.5:1 after giving effect to the incurrence of the debt.  The indenture also restricts the ability of the Operating Partnership and its subsidiaries to incur secured debt unless the Operating Partnership and its consolidated subsidiaries comply with a secured debt leverage ratio not to exceed 40% after giving effect to the incurrence of the debt.  The indenture also contains other financial and customary covenants, including a covenant not to own unencumbered assets with a value less than 150% of the unsecured indebtedness of the Operating Partnership and its consolidated subsidiaries. As of and for the year ended December 31, 2017, the Operating Partnership was in compliance with all of the financial covenants under the Senior Notes.

 

Revolving Credit Facility and Unsecured Term Loans

 

On December 9, 2011, we entered into a credit agreement (the “Credit Facility”), which was subsequently amended on April 5, 2012, June 18, 2013, and April 22, 2015 to provide for, amongst other things, a $500.0 million unsecured revolving facility (the “Revolver”) with a maturity date of April 22, 2020.  Pricing on the Revolver is dependent on our unsecured debt credit ratings. At our current Baa2/BBB level, amounts drawn under the Revolver are priced at 1.25% over LIBOR, inclusive of a facility fee of 0.15%.  As of December 31, 2017, $417.6 million was available for borrowing under the Revolver.  The available balance under the Revolver is reduced by an outstanding letter of credit of $0.7 million.  As of December 31, 2017, we also had a $200.0 million unsecured term loan outstanding under the Credit Facility, which is included in the table below.

   

On June 20, 2011, we entered into an unsecured term loan agreement (the “Term Loan Facility”), which was subsequently amended on June 18, 2013 and August 5, 2014, consisting of a $100.0 million unsecured term loan with a five-year maturity and a $100.0 million unsecured term loan with a seven-year maturity.

 

Our unsecured term loans under the Credit Facility and Term Loan Facility are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying Value as of:

 

Effective Interest

 

 

 

 

    

December 31, 

    

December 31, 

    

Rate as of

 

Maturity

 

Unsecured Term Loans

    

2017

    

2016

    

December 31, 2017 (1)

 

Date

 

 

 

(in thousands)

 

 

 

 

 

 

Credit Facility

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured term loan

 

$

200,000

 

$

200,000

 

2.86

%  

 

Jan-19

 

Term Loan Facility

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured term loan (2)

 

 

 —

 

 

100,000

 

 —

%  

 

Jun-18

 

Unsecured term loan (3)

 

 

100,000

 

 

100,000

 

3.62

%  

 

Jan-20

 

Principal balance outstanding

 

 

300,000

 

 

400,000

 

 

 

 

 

 

Less: Loan procurement costs, net

 

 

(604)

 

 

(1,251)

 

 

 

 

 

 

Total unsecured term loans, net

 

$

299,396

 

$

398,749

 

 

 

 

 

 

 

(1)

Pricing on the Term Loan Facility and the unsecured term loan under the Credit Facility is dependent on our unsecured debt credit ratings. At our current Baa2/BBB level, amounts drawn under the term loan scheduled to mature in January 2019 are priced at 1.30% over LIBOR, while amounts drawn under the term loan scheduled to mature in January 2020 are priced at 1.15% over LIBOR, excluding the impact of interest rate swaps.  As of December 31, 2017, borrowings under the Credit Facility, inclusive of the Revolver, and Term Loan Facility, as amended and after giving effect to the interest rate swaps, had an effective weighted average interest rate of 3.05%.

 

(2)

On April 6, 2017, we used the net proceeds from the issuance of $50.0 million of our 4.375% Senior Notes due 2023 and $50.0 million of our 4.000% Senior Notes due 2025 to repay all of the outstanding indebtedness under our unsecured term loan that was scheduled to mature in June 2018.  Unamortized loan procurement costs of $0.2 million were written off in conjunction with the repayment.

 

(3)

As of December 31, 2017, we had interest rate swaps in place on these borrowings that fix 30-day LIBOR.

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The Term Loan Facility and the unsecured term loan under the Credit Facility were fully drawn as of December 31, 2017 and no further borrowings may be made under the term loans.  Our ability to borrow under the Revolver is subject to ongoing compliance with certain financial covenants which include:

 

·

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

 

·

Minimum fixed charge coverage ratio of 1.50:1.00; and

 

·

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

 

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

 

As of December 31, 2017, we were in compliance with all of our financial covenants and we anticipate being in compliance with all of our financial covenants through the terms of the Credit Facility and Term Loan Facility.

 

Issuance of Common Shares

 

We maintain an at-the-market equity program that enables us to offer and sell up to 40.0 million common shares through sales agents pursuant to equity distribution agreements (the “Equity Distribution Agreements”).  Our sales activity under the program for the years ended December 31, 2017, 2016, and 2015 is summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31, 

 

 

2017

 

2016

 

2015

 

 

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

Number of shares sold

 

 

1,036

 

 

4,408

 

 

8,977

Average sales price per share

 

$

29.13

 

$

31.25

 

$

26.35

Net proceeds after deducting offering costs

 

$

29,642

 

$

136,120

 

$

234,240

 

We used proceeds from sales of common shares under the program during the years ended December 31, 2017, 2016, and 2015 to fund acquisitions of storage properties and for general corporate purposes.  As of December 31, 2017, 2016, and 2015, 4.7 million common shares, 5.8 million common shares, and 10.2 million common shares, respectively, remained available for issuance under the Equity Distribution Agreements.

 

Redemption of Preferred Shares

 

On November 2, 2016, we completed the redemption of all of our 3,100,000 outstanding shares of 7.75% Series A Cumulative Redeemable Preferred Shares at a cash redemption price of $25.00 per share plus accumulated and unpaid dividends. The redemption price of $77.5 million was paid by the Company from available cash balances. In connection with the redemption, we recognized a charge of $2.9 million related to excess redemption costs over the original net proceeds.

 

Recent Developments

 

Subsequent to December 31, 2017, we acquired one self-storage property in Texas for a purchase price of $12.2 million. We funded the purchase price with $7.4 million of cash and $4.8 million through the issuance of 168,011 common units. Following a 13-month lock-up period, the holder may tender the common units for redemption by the Operating Partnership for a cash amount per common unit equal to the market value of an equivalent number of common shares of the Company.  We have the right, but not the obligation, to assume and satisfy the redemption obligation of the Operating Partnership by issuing one common share in exchange for each common unit tendered for redemption. 

 

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Other Material Changes in Financial Position

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

    

2017

    

2016

    

Change

 

 

 

 

 

 

(in thousands)

 

 

 

 

Selected Assets

 

 

 

 

 

 

 

 

 

 

Storage properties, net

 

$

3,408,790

 

$

3,326,816

 

$

81,974

 

 

 

 

 

 

 

 

 

 

 

 

Selected Liabilities

 

 

 

 

 

 

 

 

 

 

Unsecured senior notes, net

 

$

1,142,460

 

$

1,039,076

 

$

103,384

 

Revolving credit facility

 

$

81,700

 

$

43,300

 

$

38,400

 

Unsecured term loans, net

 

$

299,396

 

$

398,749

 

$

(99,353)

 

Accounts payable, accrued expenses and other liabilities

 

$

143,344

 

$

93,764

 

$

49,580

 

 

Storage properties, net of accumulated depreciation, increased $82.0 million primarily as a result of the acquisition of seven self-storage properties, fixed asset additions, and development costs incurred during the year.

 

The increase in Unsecured senior notes, net of $103.4 million was the result of the issuance of $50.0 million of our 4.375% senior notes due 2023, which are part of the same series as the $250.0 million principal amount of our 4.375% senior notes due December 15, 2023 issued on December 17, 2013, and the issuance of $50.0 million of our 4.000% senior notes due 2025, which are part of the same series as the $250.0 million principal amount of our 4.000% senior notes due November 15, 2025 issued on October 26, 2015.

 

Revolving credit facility increased $38.4 million primarily as a result of the acquisition of seven self-storage properties, fixed asset additions, and development costs incurred during the year.

 

The decrease in Unsecured term loans, net of $99.4 million was the result of the repayment of the outstanding indebtedness under our unsecured term loan that was scheduled to mature in June of 2018.

 

Accounts payable, accrued expenses and other liabilities increased $49.6 million primarily as a result of accrued development costs. Five of our development joint venture agreements provide the option for the noncontrolling members to put their ownership interest in the ventures to us within the one-year period after construction of each store is substantially complete. Additionally, we have a one-year option to call the ownership interest of the noncontrolling members beginning on the second anniversary of each store’s construction being substantially complete. We are accreting the respective liabilities, which totaled $63.0 million and $27.8 million as of December 31, 2017 and 2016, respectively, during the development periods.

 

Contractual Obligations

 

The following table summarizes our known contractual obligations as of December 31, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments Due by Period

 

 

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

2023 and

 

 

 

Total

 

2018

 

2019

 

2020

 

2021

 

2022

 

thereafter

 

Mortgage loans and notes payable (1)

 

$

108,796

 

$

2,650

 

$

11,652

 

$

12,791

 

$

45,057

 

$

923

 

$

35,723

 

Revolving credit facility and unsecured term loans

 

 

381,700

 

 

 —

 

 

200,000

 

 

181,700

 

 

 —

 

 

 —

 

 

 —

 

Unsecured senior notes

 

 

1,150,000

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

250,000

 

 

900,000

 

Interest payments

 

 

349,168

 

 

63,793

 

 

58,157

 

 

52,275

 

 

49,437

 

 

42,719

 

 

82,787

 

Ground leases

 

 

133,039

 

 

2,500

 

 

2,670

 

 

2,743

 

 

2,812

 

 

2,971

 

 

119,343

 

Software and service contracts

 

 

600

 

 

497

 

 

73

 

 

30

 

 

 —

 

 

 —

 

 

 —

 

Development commitments

 

 

82,728

 

 

70,199

 

 

12,529

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

$

2,206,031

 

$

139,639

 

$

285,081

 

$

249,539

 

$

97,306

 

$

296,613

 

$

1,137,853

 


(1)

Amounts do not include unamortized discounts/premiums.

 

We expect to satisfy contractual obligations owed in 2018 through a combination of cash generated from operations and from draws on the revolving portion of our Credit Facility.

 

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Off-Balance Sheet Arrangements

 

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

 

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Our future income, cash flows, and fair values relevant to financial instruments depend upon prevailing market interest rates.

 

Market Risk

 

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

 

Effect of Changes in Interest Rates on our Outstanding Debt

 

Our interest rate risk objectives are to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we manage our exposure to fluctuations in market interest rates for a portion of our borrowings through the use of derivative financial instruments such as interest rate swaps or caps to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of our variable rate debt.  The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates.  The range of changes chosen reflects our view of changes which are reasonably possible over a one-year period.  Market values are the present value of projected future cash flows based on the market interest rates chosen.

 

As of December 31, 2017 our consolidated debt consisted of $1.4 billion of outstanding mortgages, unsecured senior notes, and unsecured term loans that are subject to fixed rates, including variable rate debt that is effectively fixed through our use of interest rate swaps.  Additionally, as of December 31, 2017, there were $81.7 million and $200.0 million of outstanding credit facility and unsecured term loan borrowings, respectively, subject to floating rates.  Changes in market interest rates have different impacts on the fixed and variable rate portions of our debt portfolio.  A change in market interest rates on the fixed portion of the debt portfolio impacts the net financial instrument position, but has no impact on interest incurred or cash flows.  A change in market interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows, but does not impact the net financial instrument position.

 

If market interest rates increase by 100 basis points, the fair value of our outstanding fixed-rate mortgage debt, unsecured senior notes, and unsecured term loans would decrease by approximately $74.4 million.  If market interest rates decrease by 100 basis points, the fair value of our outstanding fixed-rate mortgage debt, unsecured senior notes, and unsecured term loans would increase by approximately $84.2 million.

 

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

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

 

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

 

None.

 

ITEM 9A.  CONTROLS AND PROCEDURES

 

Controls and Procedures (Parent Company)

 

Evaluation of Disclosure Controls and Procedures

 

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

 

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

 

Changes in Internal Control Over Financial Reporting

 

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

 

Management’s Report on Internal Control Over Financial Reporting

 

Management’s report on internal control over financial reporting of the Parent Company is set forth on page F-2 of this Report, and is incorporated herein by reference. The effectiveness of the Parent Company’s internal control over financial reporting as of December 31, 2017 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its report which is included herein.

 

Controls and Procedures (Operating Partnership)

 

Evaluation of Disclosure Controls and Procedures

 

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

 

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

 

Changes in Internal Control Over Financial Reporting

 

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

 

Management’s Report on Internal Control Over Financial Reporting

 

Management’s report on internal control over financial reporting of the Operating Partnership is set forth on page F-3 of this Report, and is incorporated herein by reference. The effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2017 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its report which is included herein.

 

ITEM 9B.  OTHER INFORMATION

 

Not applicable.

 

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PART III

 

ITEM 10.  TRUSTEES, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

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

 

The remaining information required by this item regarding trustees, executive officers and corporate governance is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement for the Annual Shareholders Meeting to be held in 2018 (the “Proxy Statement”) under the captions “Proposal 1: Election of Trustees,” “Executive Officers,” “Meetings and Committees of the Board of Trustees,” and “Shareholder Proposals and Nominations for the 2018 Annual Meeting.”  The information required by this item regarding compliance with Section 16(a) of the Exchange Act is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.”

 

ITEM 11.  EXECUTIVE COMPENSATION

 

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

 

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

 

The following table sets forth certain information regarding our equity compensation plans as of December 31, 2017.

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Number of securities remaining

 

 

 

Number of securities to

 

Weighted-average

 

available for future issuance under

 

 

 

be issued upon exercise

 

exercise price of

 

equity compensation plans

 

 

 

of outstanding options,

 

outstanding options,

 

(excluding securities

 

Plan Category

 

warrants and rights

    

warrants and rights

    

reflected in column(a))

 

 

 

(a)

 

(b)

 

(c)

 

Equity compensation plans approved by shareholders

 

1,833,173

 (1)

$

16.55

 (2)

4,936,124

 

Equity compensation plans not approved by shareholders

 

 

 

 

 

 

 

Total

 

1,833,173

 

$

16.55

 

4,936,124

 

 


(1)

Excludes 470,048 shares subject to outstanding restricted share unit awards.

 

(2)

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

 

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

 

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

 

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

 

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ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The information required by this item is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement under the captions “Audit Committee Matters - Fees Paid to Our Independent Registered Public Accounting Firm” and “- Audit Committee Pre-Approval Policies and Procedures.”

 

PART IV

 

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a) Documents filed as part of this report:

 

1. Financial Statements.

 

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

 

2. Financial Statement Schedules.

 

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

 

3. Exhibits.

 

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

 

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

 

 

 

 

 

 

 

3.1* 

 

Articles of Amendment to the Declaration of Trust of CubeSmart, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed on May 28, 2015.

 

 

 

3.2* 

 

Articles of Restatement of the Declaration of Trust of CubeSmart, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed on May 28, 2015.

 

 

 

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, 2011.

 

 

 

3.4* 

 

Articles of Amendment to the Declaration of Trust of CubeSmart, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on November 3, 2016.

 

 

 

3.5* 

 

Third Amended and Restated Bylaws of CubeSmart, effective September 14, 2011, incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on September 16, 2011.

 

 

 

3.6* 

 

Certificate of Limited Partnership of U-Store-It, L.P., incorporated by reference to Exhibit 3.1 to CubeSmart, L.P.’s Registration Statement on Form 10, filed on July 15, 2011.

 

 

 

3.7* 

 

Amendment No. 1 to Certificate of Limited Partnership of CubeSmart, L.P., dated September 14, 2011, incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K, filed on September 16, 2011.

 

 

 

3.8* 

 

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.

 

 

 

3.9* 

 

Amendment No. 1 to Second Amended and Restated Agreement of Limited Partnership of CubeSmart, L.P. dated as of September 14, 2011, incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K, filed on September 16, 2011.

 

 

 

3.10* 

 

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.

 

 

 

3.11* 

 

Class C Unit Supplement No. 1 to Second Amended and Restated Agreement of Limites Partnership of CubeSmart, L.P. dates as of April 12, 2017, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on April 18, 2017.

 

 

 

3.12* 

 

Articles of Amendment to the Declaration of Trust of CubeSmart, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on June 2, 2017.

 

 

 

3.13* 

 

First Amendment to Third Amended and Restated Bylaws of CubeSmart, effective June 1, 2017, incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on June 2, 2017.

 

 

 

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.

 

 

 

4.7* 

 

Second Supplemental Indenture, dated as of December 17, 2013, among the Company, the Operating Partnership and U.S. Bank National Association, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on December 17, 2013.

 

 

 

4.8* 

 

Form of $250 million aggregate principal amount of 4.375% senior notes due December 15, 2023, incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on December 17, 2013.

 

 

 

4.9* 

 

Form of CubeSmart Notation of Guarantee, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on December 17, 2013.

 

 

 

4.10* 

 

Third Supplemental Indenture, dated as of October 26, 2015, among CubeSmart, CubeSmart, L.P. and U.S. Bank National Association, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on October 26, 2015.

 

 

 

4.11* 

 

Form of $250 million aggregate principal amount of 4.000% senior note due November 15, 2025, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on October 26, 2015.

 

 

 

4.12* 

 

Fourth Supplemental Indenture, dated as of August 15, 2016, among CubeSmart, CubeSmart, L.P. and U.S. Bank National Association, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on August 15, 2016.

 

 

 

4.13* 

 

Form of $300 million aggregate principal amount of 3.125% senior notes due September 1, 2026, incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on August 15, 2016.

 

 

 

4.14* 

 

Form of CubeSmart Guarantee, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on August 15, 2016.

 

 

 

4.15* 

 

Form of $50 million aggregate principal amount of 4.375% senior notes due December 15, 2023, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on April 5, 2017.

 

 

 

4.16* 

 

Form of $50 million aggregate principal amount of 4.000% senior notes due November 15, 2025, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on April 5, 2017.

 

 

 

4.17* 

 

Fifth Supplemental Indenture, dated as of April 4, 2017, among CubeSmart, CubeSmart, L.P. and U.S. Bank National Association, incorporated herein by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K, filed on April 5, 2017.

 

 

 

10.1*† 

 

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

 

 

 

10.2*† 

 

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.

 

 

 

10.3*† 

 

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.

 

 

 

10.4*† 

 

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.

 

 

 

10.5*† 

 

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.

 

 

 

10.6*† 

 

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.

 

 

 

10.7*† 

 

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.

 

 

 

10.8*† 

 

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.

 

 

 

10.9*† 

 

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

 

 

 

10.10*† 

 

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.

 

 

 

10.11*† 

 

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.

 

 

 

10.12* 

 

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.

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10.13* 

 

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.

 

 

 

10.14*† 

 

Form of Restricted Share Agreement under the CubeSmart 2007 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K, filed on February 28, 2013.

 

 

 

10.15*† 

 

Form of Non-Qualified Share Option Agreement under the CubeSmart 2007 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K, filed on February 28, 2013.

 

 

 

10.16*† 

 

Form of 2012 Performance-Vested Restricted Share Unit Award Agreement under the CubeSmart 2007 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on January 31, 2012.

 

 

 

10.17* 

 

First Amendment to Credit Agreement, dated as of April 5, 2012, by and among CubeSmart, L.P., CubeSmart, Wells Fargo Bank, National Association and each of the lenders party to the credit agreement dated December 9, 2011, incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed on May 7, 2012.

 

 

 

10.18*† 

 

Form of Restricted Share Unit Award Agreement (2-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.47 to the Company’s Annual Report on Form 10-K, filed on February 28, 2013.

 

 

 

10.19*† 

 

Form of Performance-Vested Restricted Share Unit Award Agreement under the CubeSmart 2007 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.48 to the Company’s Annual Report on Form 10-K, filed on February 28, 2013.

 

 

 

10.20* 

 

Waiver of Ownership Limitation, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, filed on May 6, 2013.

 

 

 

10.21* 

 

Form of Equity Distribution Agreement, dated May 7, 2013, by and among CubeSmart, CubeSmart, L.P. and each of Wells Fargo Securities, LLC, BMO Capital Markets Corp., Jefferies LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and RBC Capital Markets, LLC, incorporated by reference to Exhibit 1.1. to the Company’s Current Report on Form 8-K, filed on May 7, 2013.

 

 

 

10.22* 

 

Second Amendment to Credit Agreement dated as of June 18, 2013 by and among CubeSmart, L.P., CubeSmart, Wells Fargo Bank, National Association, as Administrative Agent and each of the lenders, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed on June 19, 2013.

 

 

 

10.23* 

 

Second Amendment to Term Loan Agreement dated as of June 18, 2013 by and among CubeSmart, L.P., CubeSmart, Wells Fargo Bank, National Association, as Administrative Agent and each of the lenders, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed on June 19, 2013.

 

 

 

10.24*† 

 

Advisory Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, filed on November 8, 2013.

 

 

 

10.25*† 

 

Executive Employment Agreement, entered into as of January 24, 2014 and effective as of January 1, 2014, by and between CubeSmart and Christopher P. Marr, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed on January 28, 2014.

 

 

 

10.26*† 

 

Form of Non-Qualified Share Option Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.58 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.

 

 

 

10.27*† 

 

Form of Non-Qualified Share Option Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.59 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.

 

 

 

10.28*† 

 

Form of Performance Share Award Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.60 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.

 

 

 

10.29*† 

 

Form of Performance Share Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.61 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.

 

 

 

10.30*† 

 

Form of Restricted Share Award Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.63 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.

 

 

 

10.31*† 

 

Form of Restricted Share Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.64 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.

 

 

 

10.32*† 

 

Form of Restricted Share Award Agreement (5-Year Vesting) under the CubeSmart 2004 Equity Incentive Plan, incorporated by reference to Exhibit 10.65 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.

 

 

 

10.33* 

 

Form of Amendment No. 1 to Equity Distribution Agreement, dated May 5, 2014, by and among CubeSmart, CubeSmart, L.P. and each of the Sales Agents (as defined therein), incorporated by reference to Exhibit 1.1. to the Company’s Current Report on Form 8-K, filed on May 5, 2014.

 

 

 

10.34* 

 

Form of Amendment No. 2 to Equity Distribution Agreement, dated October 2, 2014, by and among CubeSmart, CubeSmart, L.P. and each of the Sales Agents (as defined therein), incorporated by reference to Exhibit 1.1. to the Company’s Current Report on Form 8-K, filed on October 2, 2014.

 

 

 

10.35* 

 

Third Amendment to Credit Agreement, dated as of April 22, 2015, by and among CubeSmart, L.P., CubeSmart, Wells Fargo Bank, National Association, as Administrative Agent and each of the lenders party thereto, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed on April 27, 2015.

 

 

 

10.36* 

 

Fourth Amendment to Term Loan Agreement, dated as of April 22, 2015, by and among CubeSmart, L.P., CubeSmart, Wells Fargo Bank, National Association, as Administrative Agent and each of the lenders party thereto, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed on April 27, 2015.

 

 

 

10.37* 

 

Equity Distribution Agreement, dated December 30, 2015, by and among CubeSmart, CubeSmart, L.P. and Barclays Capital Inc., incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed on December 30, 2015.

 

 

 

10.38* 

 

Form of Amendment No. 3 to Equity Distribution Agreement, dated December 30, 2015, by and among CubeSmart, CubeSmart, L.P. and each of the Initial Sales Agents (as defined therein), incorporated by reference to Exhibit 1.2 to the Company’s Current Report on Form 8-K, filed on December 30, 2015.

 

 

 

10.39*† 

 

Amended and Restated CubeSmart 2007 Equity Incentive Plan, effective June 1, 2016, incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement, filed on April 14, 2016.

 

 

 

10.40*† 

 

First Amendment to Executive Employment Agreement, dated as of September 30, 2016, by and between CubeSmart and Chistopher P. Marr, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed on September 30, 2016.

 

 

 

10.41*† 

 

CubeSmart Executive Severance Plan, effective January 1, 2017, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed on November 4, 2016.

 

 

 

10.42*† 

 

Form of Non-Qualified Share Option Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.

 

 

 

10.43*† 

 

Form of Non-Qualified Share Option Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.

 

 

 

10.44*† 

 

Form of Restricted Share Award Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.44 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.

 

 

 

10.45*† 

 

Form of Restricted Share Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.

 

 

 

10.46*† 

 

Form of Restricted Share Award Agreement (5-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.

 

 

 

10.47*† 

 

Form of Restricted Share Unit Award Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.47 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.

 

 

 

10.48*† 

 

Form of Restricted Share Unit Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.48 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.

 

 

 

10.49*† 

 

Form of Performance-Vested Restricted Share Award Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.49 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.

 

 

 

10.50*† 

 

Form of Performance-Vested Restricted Share Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.50 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.

 

 

 

10.51*† 

 

Form of Performance-Vested Restricted Share Unit Award Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.51 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.

 

 

 

10.52*† 

 

Form of Performance-Vested Restricted Share Unit Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.52 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.

 

 

 

10.53* 

 

Form of Amendment No. 4 to Equity Distribution Agreement, dated March 17, 2017, by and among CubeSmart, CubeSmart, L.P. and each of the Managers (as defined therein), incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed March 17, 2017.

 

 

 

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.

 

 

 

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, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statement of Equity, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements, detailed tagged and filed herewith.

 


 

 

 

*

 

Incorporated herein by reference as above indicated.

 

 

 

 

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

 

 

 

ITEM 16.  FORM 10-K SUMMARY

 

None.

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SIGNATURES

 

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

 

 

 

 

 

CUBESMART

 

 

 

 

By:

/s/  Timothy M. Martin

 

 

Timothy M. Martin

 

 

Chief Financial Officer

 

Date: February 16, 2018

 

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

 

 

 

 

 

 

Signature

 

Title

 

Date

 

 

 

 

 

/s/ William M. Diefenderfer III

 

Chairman of the Board of Trustees

 

February 16, 2018

William M. Diefenderfer III

 

 

 

 

 

 

 

 

 

/s/ Christopher P. Marr

 

Chief Executive Officer and Trustee

 

February 16, 2018

Christopher P. Marr

 

(Principal Executive Officer)

 

 

 

 

 

 

 

/s/ Timothy M. Martin

 

Chief Financial Officer

 

February 16, 2018

Timothy M. Martin

 

(Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

/s/ Piero Bussani

 

Trustee

 

February 16, 2018

Piero Bussani

 

 

 

 

 

 

 

 

 

/s/ Dorothy Dowling

 

Trustee

 

February 16, 2018

Dorothy Dowling

 

 

 

 

 

 

 

 

 

/s/ John W. Fain

 

Trustee

 

February 16, 2018

John W. Fain

 

 

 

 

 

 

 

 

 

/s/ Marianne M. Keler

 

Trustee

 

February 16, 2018

Marianne M. Keler

 

 

 

 

 

 

 

 

 

/s/ John F. Remondi

 

Trustee

 

February 16, 2018

John F. Remondi

 

 

 

 

 

 

 

 

 

/s/ Jeffrey F. Rogatz

 

Trustee

 

February 16, 2018

Jeffrey F. Rogatz

 

 

 

 

 

 

 

 

 

/s/ Deborah Ratner Salzberg

 

Trustee

 

February 16, 2018

Deborah Ratner Salzberg

 

 

 

 

 

 

 

 

66


 

 

 

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

 

 

 

Management’s Report on CubeSmart, L.P. Internal Control Over Financial Reporting 

 

F-3

 

 

 

Reports of Independent Registered Public Accounting Firm 

 

F-4

 

 

 

CubeSmart and Subsidiaries Consolidated Balance Sheets as of December 31, 2017 and 2016 

 

F-8

 

 

 

CubeSmart and Subsidiaries Consolidated Statements of Operations for the years ended December 31, 2017, 2016, and 2015 

 

F-9

 

 

 

CubeSmart and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016, and 2015 

 

F-10

 

 

 

CubeSmart and Subsidiaries Consolidated Statements of Equity for the years ended December 31, 2017, 2016, and 2015 

 

F-11

 

 

 

CubeSmart and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015 

 

F-12

 

 

 

CubeSmart, L.P. and Subsidiaries Consolidated Balance Sheets as of December 31, 2017 and 2016 

 

F-13

 

 

 

CubeSmart, L.P. and Subsidiaries Consolidated Statements of Operations for the years ended December 31, 2017, 2016, and 2015 

 

F-14

 

 

 

CubeSmart, L.P. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016, and 2015 

 

F-15

 

 

 

CubeSmart, L.P. and Subsidiaries Consolidated Statements of Capital for the years ended December 31, 2017, 2016, and 2015 

 

F-16

 

 

 

CubeSmart, L.P. and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015 

 

F-17

 

 

 

Notes to Consolidated Financial Statements 

 

F-18

 

F-1


 

 

MANAGEMENT’S REPORT ON CUBESMART INTERNAL CONTROL OVER FINANCIAL REPORTING

 

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

 

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

 

·

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

 

·

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

 

·

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

 

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

 

Under the supervision, and with the participation, of the REIT’s management, including the principal executive officer and principal financial officer, management conducted a review, evaluation, and assessment of the effectiveness of our internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  In performing its assessment of the effectiveness of internal control over financial reporting, management has concluded that, as of December 31, 2017, the REIT’s internal control over financial reporting was effective based on the COSO framework.

 

The effectiveness of our internal control over financial reporting as of December 31, 2017, has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report that appears herein.

 

 

 

 

February 16, 2018

F-2


 

 

MANAGEMENT’S REPORT ON CUBESMART, L.P. INTERNAL CONTROL OVER FINANCIAL REPORTING

 

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

 

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

 

·

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

 

·

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

 

·

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

 

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

 

Under the supervision, and with the participation, of the Partnership’s management, including the principal executive officer and principal financial officer, management conducted a review, evaluation, and assessment of the effectiveness of our internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In performing its assessment of the effectiveness of internal control over financial reporting, management has concluded that, as of December 31, 2017, the Partnership’s internal control over financial reporting was effective based on the COSO framework.

 

The effectiveness of our internal control over financial reporting as of December 31, 2017, has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report that appears herein.

 

 

 

 

 

February 16, 2018

F-3


 

 

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and Board of Trustees of

CubeSmart:

 

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of CubeSmart and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three‑year period ended December 31, 2017, and the related notes and financial statement schedule III (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 16, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

 

We have served as the Company’s auditor since 2009.

Philadelphia, Pennsylvania

February 16, 2018

F-4


 

 

Report of Independent Registered Public Accounting Firm

 

To the Partners of

CubeSmart, L.P.:

 

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of CubeSmart, L.P. and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), capital, and cash flows for each of the years in the three‑year period ended December 31, 2017, and the related notes and financial statement schedule III (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 16, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

 

We have served as the Company’s auditor since 2009.

Philadelphia, Pennsylvania

February 16, 2018

F-5


 

 

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and Board of Trustees of

CubeSmart:

 

Opinion on Internal Control Over Financial Reporting

We have audited CubeSmart and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report dated February 16, 2018 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on CubeSmart Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

Definition and Limitations of Internal Control Over Financial Reporting

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

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

/s/ KPMG LLP

 

Philadelphia, Pennsylvania

February 16, 2018

F-6


 

 

Report of Independent Registered Public Accounting Firm

 

To the Partners of

CubeSmart, L.P.:

 

Opinion on Internal Control Over Financial Reporting

We have audited CubeSmart, L.P. and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), capital, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report dated February 16, 2018 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on CubeSmart, L.P. Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

Definition and Limitations of Internal Control Over Financial Reporting

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

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

/s/ KPMG LLP

 

Philadelphia, Pennsylvania

February 16, 2018

F-7


 

 

CUBESMART AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

December 31, 

 

December 31, 

 

 

    

2017

    

2016

 

ASSETS

 

 

 

 

 

 

 

Storage properties

 

$

4,161,715

 

$

3,998,180

 

Less: Accumulated depreciation

 

 

(752,925)

 

 

(671,364)

 

Storage properties, net (including VIE assets of $291,496 and $208,048, respectively)

 

 

3,408,790

 

 

3,326,816

 

Cash and cash equivalents

 

 

5,268

 

 

2,973

 

Restricted cash

 

 

3,890

 

 

7,893

 

Loan procurement costs, net of amortization

 

 

1,592

 

 

2,150

 

Investment in real estate ventures, at equity

 

 

91,206

 

 

98,682

 

Other assets, net

 

 

34,590

 

 

36,514

 

Total assets

 

$

3,545,336

 

$

3,475,028

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Unsecured senior notes, net

 

$

1,142,460

 

$

1,039,076

 

Revolving credit facility

 

 

81,700

 

 

43,300

 

Unsecured term loans, net

 

 

299,396

 

 

398,749

 

Mortgage loans and notes payable, net

 

 

111,434

 

 

114,618

 

Accounts payable, accrued expenses and other liabilities

 

 

143,344

 

 

93,764

 

Distributions payable

 

 

55,297

 

 

49,239

 

Deferred revenue

 

 

21,529

 

 

20,226

 

Security deposits

 

 

486

 

 

412

 

Total liabilities

 

 

1,855,646

 

 

1,759,384

 

 

 

 

 

 

 

 

 

Noncontrolling interests in the Operating Partnership

 

 

54,320

 

 

54,407

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

Common shares $.01 par value, 400,000,000 shares authorized, 182,215,735 and 180,083,111 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively

 

 

1,822

 

 

1,801

 

Additional paid-in capital

 

 

2,356,620

 

 

2,314,014

 

Accumulated other comprehensive income (loss)

 

 

 3

 

 

(1,850)

 

Accumulated deficit

 

 

(729,311)

 

 

(658,583)

 

Total CubeSmart shareholders’ equity

 

 

1,629,134

 

 

1,655,382

 

Noncontrolling interests in subsidiaries

 

 

6,236

 

 

5,855

 

Total equity

 

 

1,635,370

 

 

1,661,237

 

Total liabilities and equity

 

$

3,545,336

 

$

3,475,028

 

 

See accompanying notes to the consolidated financial statements.

F-8


 

 

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31, 

 

 

2017

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

 

 

Rental income

 

$

489,043

 

$

449,601

 

$

392,476

Other property related income

 

 

55,001

 

 

50,255

 

 

45,189

Property management fee income

 

 

14,899

 

 

10,183

 

 

6,856

Total revenues

 

 

558,943

 

 

510,039

 

 

444,521

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

181,508

 

 

165,847

 

 

153,172

Depreciation and amortization

 

 

145,681

 

 

161,865

 

 

151,789

General and administrative

 

 

34,745

 

 

32,823

 

 

28,371

Acquisition related costs

 

 

1,294

 

 

6,552

 

 

3,301

Total operating expenses

 

 

363,228

 

 

367,087

 

 

336,633

OPERATING INCOME

 

 

195,715

 

 

142,952

 

 

107,888

OTHER (EXPENSE) INCOME

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

Interest expense on loans

 

 

(56,952)

 

 

(50,399)

 

 

(43,736)

Loan procurement amortization expense

 

 

(2,638)

 

 

(2,577)

 

 

(2,324)

Equity in losses of real estate ventures

 

 

(1,386)

 

 

(2,662)

 

 

(411)

Gains from sale of real estate, net

 

 

 —

 

 

 —

 

 

17,567

Other

 

 

872

 

 

1,062

 

 

(228)

Total other expense

 

 

(60,104)

 

 

(54,576)

 

 

(29,132)

NET INCOME

 

 

135,611

 

 

88,376

 

 

78,756

NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 

 

 

 

 

 

 

Noncontrolling interests in the Operating Partnership

 

 

(1,593)

 

 

(941)

 

 

(960)

Noncontrolling interest in subsidiaries

 

 

270

 

 

470

 

 

(84)

NET INCOME ATTRIBUTABLE TO THE COMPANY

 

 

134,288

 

 

87,905

 

 

77,712

Distribution to preferred shareholders

 

 

 —

 

 

(5,045)

 

 

(6,008)

Preferred share redemption charge

 

 

 —

 

 

(2,937)

 

 

 —

NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS

 

$

134,288

 

$

79,923

 

$

71,704

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to common shareholders

 

$

0.74

 

$

0.45

 

$

0.43

Diluted earnings per share attributable to common shareholders

 

$

0.74

 

$

0.45

 

$

0.42

 

 

 

 

 

 

 

 

 

 

Weighted-average basic shares outstanding

 

 

180,525

 

 

178,246

 

 

168,640

Weighted-average diluted shares outstanding

 

 

181,448

 

 

179,533

 

 

170,191

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements.

F-9


 

 

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31, 

 

 

 

2017

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

135,611

 

$

88,376

 

$

78,756

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on interest rate swaps

 

 

195

 

 

(1,247)

 

 

(3,409)

 

Reclassification of realized losses on interest rate swaps

 

 

1,680

 

 

4,412

 

 

6,263

 

Unrealized loss on foreign currency translation

 

 

 —

 

 

 —

 

 

(249)

 

Reclassification of realized loss on foreign currency translation

 

 

 —

 

 

 —

 

 

1,199

 

OTHER COMPREHENSIVE INCOME

 

 

1,875

 

 

3,165

 

 

3,804

 

COMPREHENSIVE INCOME

 

 

137,486

 

 

91,541

 

 

82,560

 

Comprehensive income attributable to noncontrolling interests in the Operating Partnership

 

 

(1,615)

 

 

(978)

 

 

(992)

 

Comprehensive loss (income) attributable to noncontrolling interest in subsidiaries

 

 

270

 

 

470

 

 

(75)

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY

 

$

136,141

 

$

91,033

 

$

81,493

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements.

F-10


 

 

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interests

 

 

 

Common

 

Preferred

 

Additional

 

Accumulated Other

 

 

 

 

Total

 

Noncontrolling

 

 

 

 

in the

 

 

 

Shares

 

Shares

 

Paid-in

 

Comprehensive

 

Accumulated

 

Shareholders’

 

Interests in

 

Total

 

Operating

 

 

 

Number

    

Amount

 

Number

   

Amount

 

Capital

 

(Loss) Income

 

Deficit

 

Equity

 

Subsidiaries

 

Equity

 

Partnership

 

 Balance at December 31, 2014

 

163,957

 

$

1,639

 

3,100

 

$

31

 

$

1,974,308

 

$

(8,759)

 

$

(519,193)

 

$

1,448,026

 

$

1,592

 

$

1,449,618

 

$

49,823

 

Contributions from noncontrolling interest in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

178

 

 

178

 

 

 

 

Distributions to noncontrolling interests in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(319)

 

 

(319)

 

 

 

 

Issuance of common shares, net

 

8,978

 

 

91

 

 

 

 

 

 

 

233,970

 

 

 

 

 

 

 

 

234,061

 

 

 

 

 

234,061

 

 

 

 

Issuance of restricted shares

 

161

 

 

 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 1

 

 

 

 

 

 1

 

 

 

 

Issuance of OP Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

500

 

Conversion from units to shares

 

118

 

 

 2

 

 

 

 

 

 

 

3,273

 

 

 

 

 

 

 

 

3,275

 

 

 

 

 

3,275

 

 

(3,275)

 

Exercise of stock options

 

1,454

 

 

14

 

 

 

 

 

 

 

17,475

 

 

 

 

 

 

 

 

17,489

 

 

 

 

 

17,489

 

 

 

 

Amortization of restricted shares

 

 

 

 

 

 

 

 

 

 

 

 

1,166

 

 

 

 

 

 

 

 

1,166

 

 

 

 

 

1,166

 

 

 

 

Share compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

989

 

 

 

 

 

 

 

 

989

 

 

 

 

 

989

 

 

 

 

Adjustment for noncontrolling interests in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,619)

 

 

(19,619)

 

 

 

 

 

(19,619)

 

 

19,619

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

77,712

 

 

77,712

 

 

84

 

 

77,796

 

 

960

 

Other comprehensive income (loss), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,781

 

 

 

 

 

3,781

 

 

(9)

 

 

3,772

 

 

32

 

Preferred share distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,008)

 

 

(6,008)

 

 

 

 

 

(6,008)

 

 

 

 

Common share distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(117,546)

 

 

(117,546)

 

 

 

 

 

(117,546)

 

 

(1,531)

 

 Balance at December 31, 2015

 

174,668

 

$

1,747

 

3,100

 

$

31

 

$

2,231,181

 

$

(4,978)

 

$

(584,654)

 

$

1,643,327

 

$

1,526

 

$

1,644,853

 

$

66,128

 

Contributions from noncontrolling interest in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,799

 

 

4,799

 

 

 

 

Issuance of common shares, net

 

4,408

 

 

44

 

 

 

 

 

 

 

136,077

 

 

 

 

 

 

 

 

136,121

 

 

 

 

 

136,121

 

 

 

 

Issuance of restricted shares

 

123

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 1

 

 

 

 

 

 1

 

 

 

 

Issuance of OP Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,500

 

Conversion from units to shares

 

188

 

 

 2

 

 

 

 

 

 

 

4,874

 

 

 

 

 

 

 

 

4,876

 

 

 

 

 

4,876

 

 

(4,876)

 

Exercise of stock options

 

696

 

 

7

 

 

 

 

 

 

 

13,276

 

 

 

 

 

 

 

 

13,283

 

 

 

 

 

13,283

 

 

 

 

Amortization of restricted shares

 

 

 

 

 

 

 

 

 

 

 

 

1,952

 

 

 

 

 

 

 

 

1,952

 

 

 

 

 

1,952

 

 

 

 

Share compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

1,260

 

 

 

 

 

 

 

 

1,260

 

 

 

 

 

1,260

 

 

 

 

Adjustment for noncontrolling interests in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,388

 

 

7,388

 

 

 

 

 

7,388

 

 

(7,388)

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

87,905

 

 

87,905

 

 

(470)

 

 

87,435

 

 

941

 

Other comprehensive income, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,128

 

 

 

 

 

3,128

 

 

 

 

 

3,128

 

 

37

 

Preferred share distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,045)

 

 

(5,045)

 

 

 

 

 

(5,045)

 

 

 

 

Preferred share redemption

 

 

 

 

 

 

(3,100)

 

 

(31)

 

 

(74,606)

 

 

 

 

 

(2,937)

 

 

(77,574)

 

 

 

 

 

(77,574)

 

 

 

 

Common share distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(161,240)

 

 

(161,240)

 

 

 

 

 

(161,240)

 

 

(1,935)

 

 Balance at December 31, 2016

 

180,083

 

$

1,801

 

 —

 

$

 —

 

$

2,314,014

 

$

(1,850)

 

$

(658,583)

 

$

1,655,382

 

$

5,855

 

$

1,661,237

 

$

54,407

 

Contributions from noncontrolling interest in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,058

 

 

1,058

 

 

 

 

Acquisition of noncontrolling interest in subsidiary

 

 

 

 

 

 

 

 

 

 

 

 

(8,626)

 

 

 

 

 

 

 

 

(8,626)

 

 

(407)

 

 

(9,033)

 

 

 

 

Issuance of common shares, net

 

1,036

 

 

10

 

 

 

 

 

 

 

29,632

 

 

 

 

 

 

 

 

29,642

 

 

 

 

 

29,642

 

 

 

 

Issuance of restricted shares

 

106

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 1

 

 

 

 

 

1

 

 

 

 

Issuance of OP Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,324

 

Conversion from units to shares

 

594

 

 

6

 

 

 

 

 

 

 

15,700

 

 

 

 

 

 

 

 

15,706

 

 

 

 

 

15,706

 

 

(15,706)

 

Exercise of stock options

 

397

 

 

4

 

 

 

 

 

 

 

2,360

 

 

 

 

 

 

 

 

2,364

 

 

 

 

 

2,364

 

 

 

 

Amortization of restricted shares

 

 

 

 

 

 

 

 

 

 

 

 

2,009

 

 

 

 

 

 

 

 

2,009

 

 

 

 

 

2,009

 

 

 

 

Share compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

1,531

 

 

 

 

 

 

 

 

1,531

 

 

 

 

 

1,531

 

 

 

 

Adjustment for noncontrolling interests in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,965)

 

 

(3,965)

 

 

 

 

 

(3,965)

 

 

3,965

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

134,288

 

 

134,288

 

 

(270)

 

 

134,018

 

 

1,593

 

Other comprehensive income, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,853

 

 

 

 

 

1,853

 

 

 

 

 

1,853

 

 

22

 

Common share distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(201,051)

 

 

(201,051)

 

 

 

 

 

(201,051)

 

 

(2,285)

 

 Balance at December 31, 2017

 

182,216

 

$

1,822

 

 —

 

$

 —

 

$

2,356,620

 

$

3

 

$

(729,311)

 

$

1,629,134

 

$

6,236

 

$

1,635,370

 

$

54,320

 

 

See accompanying notes to the consolidated financial statements.

F-11


 

 

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31, 

 

 

 

2017

    

2016

    

2015

 

Operating Activities

 

 

 

 

 

 

 

 

 

 

Net income

 

$

135,611

 

$

88,376

 

$

78,756

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

148,319

 

 

164,442

 

 

154,113

 

Equity in losses of real estate ventures

 

 

1,386

 

 

2,662

 

 

411

 

Gains from sale of real estate, net

 

 

 —

 

 

 —

 

 

(17,567)

 

Equity compensation expense

 

 

5,586

 

 

4,850

 

 

3,722

 

Accretion of fair market value adjustment of debt

 

 

(559)

 

 

(1,138)

 

 

(1,429)

 

Changes in other operating accounts:

 

 

 

 

 

 

 

 

 

 

Restricted cash

 

 

(60)

 

 

591

 

 

743

 

Other assets

 

 

(8,845)

 

 

(3,930)

 

 

(2,519)

 

Accounts payable and accrued expenses

 

 

10,846

 

 

7,862

 

 

(438)

 

Other liabilities

 

 

1,154

 

 

1,449

 

 

1,480

 

Net cash provided by operating activities

 

$

293,438

 

$

265,164

 

$

217,272

 

Investing Activities

 

 

 

 

 

 

 

 

 

 

Acquisitions of storage properties

 

 

(69,629)

 

 

(366,666)

 

 

(275,726)

 

Additions and improvements to storage properties

 

 

(28,962)

 

 

(30,971)

 

 

(24,695)

 

Development costs

 

 

(64,659)

 

 

(143,713)

 

 

(81,315)

 

Investment in real estate ventures, at equity

 

 

(301)

 

 

(12,176)

 

 

(8,433)

 

Cash distributed from real estate ventures

 

 

15,784

 

 

8,113

 

 

6,451

 

Proceeds from sale of real estate, net

 

 

 —

 

 

 —

 

 

9,041

 

Fundings of notes receivable

 

 

 —

 

 

 —

 

 

(4,100)

 

Proceeds from notes receivable

 

 

 —

 

 

 —

 

 

4,100

 

Change in restricted cash

 

 

(57)

 

 

942

 

 

69

 

Net cash used in investing activities

 

$

(147,824)

 

$

(544,471)

 

$

(374,608)

 

Financing Activities

 

 

 

 

 

 

 

 

 

 

Proceeds from:

 

 

 

 

 

 

 

 

 

 

Unsecured senior notes

 

 

103,192

 

 

298,512

 

 

249,338

 

Revolving credit facility

 

 

628,400

 

 

958,200

 

 

731,320

 

Principal payments on:

 

 

 

 

 

 

 

 

 

 

Revolving credit facility

 

 

(590,000)

 

 

(914,900)

 

 

(809,320)

 

Unsecured term loans

 

 

(100,000)

 

 

 —

 

 

 

Mortgage loans and notes payable

 

 

(8,666)

 

 

(37,260)

 

 

(84,905)

 

Loan procurement costs

 

 

(953)

 

 

(2,467)

 

 

(4,433)

 

Acquisition of noncontrolling interest in subsidiary

 

 

(9,033)

 

 

 —

 

 

 —

 

Proceeds from issuance of common shares, net

 

 

29,643

 

 

136,122

 

 

234,062

 

Cash paid upon vesting of restricted shares

 

 

(2,046)

 

 

(1,638)

 

 

(1,567)

 

Redemption of preferred shares

 

 

 —

 

 

(77,574)

 

 

 —

 

Exercise of stock options

 

 

2,364

 

 

13,283

 

 

17,489

 

Contributions from noncontrolling interests in subsidiaries

 

 

1,058

 

 

4,799

 

 

178

 

Distributions paid to noncontrolling interests in subsidiaries

 

 

 —

 

 

 —

 

 

(319)

 

Distributions paid to common shareholders

 

 

(195,006)

 

 

(149,280)

 

 

(107,093)

 

Distributions paid to preferred shareholders

 

 

 —

 

 

(6,545)

 

 

(6,008)

 

Distributions paid to noncontrolling interests in Operating Partnership

 

 

(2,272)

 

 

(1,841)

 

 

(1,438)

 

Net cash (used in) provided by financing activities

 

$

(143,319)

 

$

219,411

 

$

217,304

 

Change in cash and cash equivalents

 

 

2,295

 

 

(59,896)

 

 

59,968

 

Cash and cash equivalents at beginning of year

 

 

2,973

 

 

62,869

 

 

2,901

 

Cash and cash equivalents at end of year

 

$

5,268

 

$

2,973

 

$

62,869

 

Supplemental Cash Flow and Noncash Information

 

 

 

 

 

 

 

 

 

 

Cash paid for interest, net of interest capitalized

 

$

63,407

 

$

53,085

 

$

46,216

 

Supplemental disclosure of noncash activities:

 

 

 

 

 

 

 

 

 

 

Restricted cash - acquisition of storage properties

 

$

 —

 

$

(22,019)

 

$

(14,353)

 

Restricted cash - disposition of real estate

 

$

 —

 

$

 —

 

$

36,372

 

Accretion of liability

 

$

35,122

 

$

31,426

 

$

16,929

 

Derivative valuation adjustment

 

$

1,875

 

$

3,165

 

$

2,854

 

Foreign currency translation adjustment

 

$

 —

 

$

 —

 

$

(249)

 

Discount on issuance of unsecured senior notes

 

$

 —

 

$

1,488

 

$

662

 

Mortgage loan assumptions

 

$

6,201

 

$

41,513

 

$

2,695

 

Preferred share redemption

 

$

 —

 

$

2,863

 

$

 

Issuance of OP units

 

$

12,324

 

$

 —

 

$

 —

 

Liability for acquisition of storage property

 

$

1,470

 

$

 —

 

$

 —

 

Contribution of storage property to real estate venture

 

$

9,400

 

$

 

$

 

 

See accompanying notes to the consolidated financial statements.

F-12


 

 

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

December 31, 

 

December 31,

 

 

    

2017

    

2016

 

ASSETS

 

 

 

 

 

 

 

Storage properties

 

$

4,161,715

 

$

3,998,180

 

Less: Accumulated depreciation

 

 

(752,925)

 

 

(671,364)

 

Storage properties, net (including VIE assets of $291,496 and $208,048, respectively)

 

 

3,408,790

 

 

3,326,816

 

Cash and cash equivalents

 

 

5,268

 

 

2,973

 

Restricted cash

 

 

3,890

 

 

7,893

 

Loan procurement costs, net of amortization

 

 

1,592

 

 

2,150

 

Investment in real estate ventures, at equity

 

 

91,206

 

 

98,682

 

Other assets, net

 

 

34,590

 

 

36,514

 

Total assets

 

$

3,545,336

 

$

3,475,028

 

 

 

 

 

 

 

 

 

LIABILITIES AND CAPITAL

 

 

 

 

 

 

 

Unsecured senior notes, net

 

$

1,142,460

 

$

1,039,076

 

Revolving credit facility

 

 

81,700

 

 

43,300

 

Unsecured term loans, net

 

 

299,396

 

 

398,749

 

Mortgage loans and notes payable, net

 

 

111,434

 

 

114,618

 

Accounts payable, accrued expenses and other liabilities

 

 

143,344

 

 

93,764

 

Distributions payable

 

 

55,297

 

 

49,239

 

Deferred revenue

 

 

21,529

 

 

20,226

 

Security deposits

 

 

486

 

 

412

 

Total liabilities

 

 

1,855,646

 

 

1,759,384

 

 

 

 

 

 

 

 

 

Limited Partnership interests of third parties

 

 

54,320

 

 

54,407

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

 

 

 

 

 

Operating Partner

 

 

1,629,131

 

 

1,657,232

 

Accumulated other comprehensive income (loss)

 

 

 3

 

 

(1,850)

 

Total CubeSmart, L.P. capital

 

 

1,629,134

 

 

1,655,382

 

Noncontrolling interests in subsidiaries

 

 

6,236

 

 

5,855

 

Total capital

 

 

1,635,370

 

 

1,661,237

 

Total liabilities and capital

 

$

3,545,336

 

$

3,475,028

 

 

See accompanying notes to the consolidated financial statements.

F-13


 

 

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per common unit data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31, 

 

 

 

2017

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

489,043

 

$

449,601

 

$

392,476

 

Other property related income

 

 

55,001

 

 

50,255

 

 

45,189

 

Property management fee income

 

 

14,899

 

 

10,183

 

 

6,856

 

Total revenues

 

 

558,943

 

 

510,039

 

 

444,521

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

181,508

 

 

165,847

 

 

153,172

 

Depreciation and amortization

 

 

145,681

 

 

161,865

 

 

151,789

 

General and administrative

 

 

34,745

 

 

32,823

 

 

28,371

 

Acquisition related costs

 

 

1,294

 

 

6,552

 

 

3,301

 

Total operating expenses

 

 

363,228

 

 

367,087

 

 

336,633

 

OPERATING INCOME

 

 

195,715

 

 

142,952

 

 

107,888

 

OTHER (EXPENSE) INCOME

 

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

 

Interest expense on loans

 

 

(56,952)

 

 

(50,399)

 

 

(43,736)

 

Loan procurement amortization expense

 

 

(2,638)

 

 

(2,577)

 

 

(2,324)

 

Equity in losses of real estate ventures

 

 

(1,386)

 

 

(2,662)

 

 

(411)

 

Gains from sale of real estate, net

 

 

 —

 

 

 —

 

 

17,567

 

Other

 

 

872

 

 

1,062

 

 

(228)

 

Total other expense

 

 

(60,104)

 

 

(54,576)

 

 

(29,132)

 

NET INCOME

 

 

135,611

 

 

88,376

 

 

78,756

 

NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 

 

 

 

 

 

 

 

Noncontrolling interest in subsidiaries

 

 

270

 

 

470

 

 

(84)

 

NET INCOME ATTRIBUTABLE TO CUBESMART L.P.

 

 

135,881

 

 

88,846

 

 

78,672

 

Operating Partnership interests of third parties

 

 

(1,593)

 

 

(941)

 

 

(960)

 

NET INCOME ATTRIBUTABLE TO OPERATING PARTNER

 

 

134,288

 

 

87,905

 

 

77,712

 

Distribution to preferred unitholders

 

 

 —

 

 

(5,045)

 

 

(6,008)

 

Preferred unit redemption charge

 

 

 —

 

 

(2,937)

 

 

 —

 

NET INCOME ATTRIBUTABLE TO COMMON UNITHOLDERS

 

$

134,288

 

$

79,923

 

$

71,704

 

 

 

 

    

 

 

    

    

 

    

 

Basic earnings per unit attributable to common unitholders

 

$

0.74

 

$

0.45

 

$

0.43

 

Diluted earnings per unit attributable to common unitholders

 

$

0.74

 

$

0.45

 

$

0.42

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average basic units outstanding

 

 

180,525

 

 

178,246

 

 

168,640

 

Weighted-average diluted units outstanding

 

 

181,448

 

 

179,533

 

 

170,191

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements.

F-14


 

 

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31, 

 

 

 

2017

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

135,611

 

$

88,376

 

$

78,756

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on interest rate swaps

 

 

195

 

 

(1,247)

 

 

(3,409)

 

Reclassification of realized losses on interest rate swaps

 

 

1,680

 

 

4,412

 

 

6,263

 

Unrealized loss on foreign currency translation

 

 

 —

 

 

 —

 

 

(249)

 

Reclassification of realized loss on foreign currency translation

 

 

 —

 

 

 —

 

 

1,199

 

OTHER COMPREHENSIVE INCOME

 

 

1,875

 

 

3,165

 

 

3,804

 

COMPREHENSIVE INCOME

 

 

137,486

 

 

91,541

 

 

82,560

 

Comprehensive income attributable to Operating Partnership interests of third parties

 

 

(1,615)

 

 

(978)

 

 

(992)

 

Comprehensive loss (income) attributable to noncontrolling interest in subsidiaries

 

 

270

 

 

470

 

 

(75)

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO OPERATING PARTNER

 

$

136,141

 

$

91,033

 

$

81,493

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements.

 

F-15


 

 

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CAPITAL

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Common OP

 

 

Number of Preferred OP

 

 

 

 

Accumulated Other

 

Total

 

Noncontrolling

 

 

 

 

Operating Partnership

 

 

 

Units

 

 

Units

 

 

Operating

 

Comprehensive

 

CubeSmart L.P.

 

Interest in

 

Total

 

Interests

 

 

  

Outstanding

 

 

Outstanding

 

 

Partner

  

(Loss) Income

 

Capital

 

Subsidiaries

 

Capital

 

of Third Parties

 

 Balance at December 31, 2014

 

163,957

 

 

3,100

 

$

1,456,785

 

$

(8,759)

 

$

1,448,026

 

$

1,592

 

$

1,449,618

 

$

49,823

 

Contributions from noncontrolling interest in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

178

 

 

178

 

 

 

 

Distributions to noncontrolling interests in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(319)

 

 

(319)

 

 

 

 

Issuance of common OP units, net

 

8,978

 

 

 

 

 

234,061

 

 

 

 

 

234,061

 

 

 

 

 

234,061

 

 

 

 

Issuance of restricted OP units

 

161

 

 

 

 

 

 1

 

 

 

 

 

 1

 

 

 

 

 

 1

 

 

 

 

Issuance of OP Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

500

 

Conversion from OP units to shares

 

118

 

 

 

 

 

3,275

 

 

 

 

 

3,275

 

 

 

 

 

3,275

 

 

(3,275)

 

Exercise of OP unit options

 

1,454

 

 

 

 

 

17,489

 

 

 

 

 

17,489

 

 

 

 

 

17,489

 

 

 

 

Amortization of restricted OP units

 

 

 

 

 

 

 

1,166

 

 

 

 

 

1,166

 

 

 

 

 

1,166

 

 

 

 

OP unit compensation expense

 

 

 

 

 

 

 

989

 

 

 

 

 

989

 

 

 

 

 

989

 

 

 

 

Adjustment for Operating Partnership interests of third parties

 

 

 

 

 

 

 

(19,619)

 

 

 

 

 

(19,619)

 

 

 

 

 

(19,619)

 

 

19,619

 

Net income

 

 

 

 

 

 

 

77,712

 

 

 

 

 

77,712

 

 

84

 

 

77,796

 

 

960

 

Other comprehensive income (loss), net:

 

 

 

 

 

 

 

 

 

 

3,781

 

 

3,781

 

 

(9)

 

 

3,772

 

 

32

 

Preferred OP unit distributions

 

 

 

 

 

 

 

(6,008)

 

 

 

 

 

(6,008)

 

 

 

 

 

(6,008)

 

 

 

 

Common OP unit distributions

 

 

 

 

 

 

 

(117,546)

 

 

 

 

 

(117,546)

 

 

 

 

 

(117,546)

 

 

(1,531)

 

 Balance at December 31, 2015

 

174,668

 

 

3,100

 

$

1,648,305

 

$

(4,978)

 

$

1,643,327

 

$

1,526

 

$

1,644,853

 

$

66,128

 

Contributions from noncontrolling interest in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,799

 

 

4,799

 

 

 

 

Issuance of common OP units, net

 

4,408

 

 

 

 

 

136,121

 

 

 

 

 

136,121

 

 

 

 

 

136,121

 

 

 

 

Issuance of restricted OP units

 

123

 

 

 

 

 

1

 

 

 

 

 

1

 

 

 

 

 

 1

 

 

 

 

Issuance of OP Shares

 

188

 

 

 

 

 

4,876

 

 

 

 

 

4,876

 

 

 

 

 

4,876

 

 

1,500

 

Conversion from OP units to shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,876)

 

Exercise of OP unit options

 

696

 

 

 

 

 

13,283

 

 

 

 

 

13,283

 

 

 

 

 

13,283

 

 

 

 

Amortization of restricted OP units

 

 

 

 

 

 

 

1,952

 

 

 

 

 

1,952

 

 

 

 

 

1,952

 

 

 

 

OP unit compensation expense

 

 

 

 

 

 

 

1,260

 

 

 

 

 

1,260

 

 

 

 

 

1,260

 

 

 

 

Adjustment for Operating Partnership interests of third parties

 

 

 

 

 

 

 

7,388

 

 

 

 

 

7,388

 

 

 

 

 

7,388

 

 

(7,388)

 

Net income (loss)

 

 

 

 

 

 

 

87,905

 

 

 

 

 

87,905

 

 

(470)

 

 

87,435

 

 

941

 

Other comprehensive income, net:

 

 

 

 

 

 

 

 

 

 

3,128

 

 

3,128

 

 

 

 

 

3,128

 

 

37

 

Preferred OP unit distributions

 

 

 

 

 

 

 

(5,045)

 

 

 

 

 

(5,045)

 

 

 

 

 

(5,045)

 

 

 

 

Preferred OP unit redemption

 

 

 

 

(3,100)

 

 

(77,574)

 

 

 

 

 

(77,574)

 

 

 

 

 

(77,574)

 

 

 

 

Common OP unit distributions

 

 

 

 

 

 

 

(161,240)

 

 

 

 

 

(161,240)

 

 

 

 

 

(161,240)

 

 

(1,935)

 

 Balance at December 31, 2016

 

180,083

 

 

 —

 

$

1,657,232

 

$

(1,850)

 

$

1,655,382

 

$

5,855

 

$

1,661,237

 

$

54,407

 

Contributions from noncontrolling interest in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,058

 

 

1,058

 

 

 

 

Acquisition of noncontrolling interest in subsidiary

 

 

 

 

 

 

 

(8,626)

 

 

 

 

 

(8,626)

 

 

(407)

 

 

(9,033)

 

 

 

 

Issuance of common OP units, net

 

1,036

 

 

 

 

 

29,642

 

 

 

 

 

29,642

 

 

 

 

 

29,642

 

 

 

 

Issuance of restricted OP units

 

106

 

 

 

 

 

1

 

 

 

 

 

1

 

 

 

 

 

1

 

 

 

 

Issuance of OP Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,324

 

Conversion from OP units to shares

 

594

 

 

 

 

 

15,706

 

 

 

 

 

15,706

 

 

 

 

 

15,706

 

 

(15,706)

 

Exercise of OP unit options

 

397

 

 

 

 

 

2,364

 

 

 

 

 

2,364

 

 

 

 

 

2,364

 

 

 

 

Amortization of restricted OP units

 

 

 

 

 

 

 

2,009

 

 

 

 

 

2,009

 

 

 

 

 

2,009

 

 

 

 

OP unit compensation expense

 

 

 

 

 

 

 

1,531

 

 

 

 

 

1,531

 

 

 

 

 

1,531

 

 

 

 

Adjustment for Operating Partnership interests of third parties

 

 

 

 

 

 

 

(3,965)

 

 

 

 

 

(3,965)

 

 

 

 

 

(3,965)

 

 

3,965

 

Net income (loss)

 

 

 

 

 

 

 

134,288

 

 

 

 

 

134,288

 

 

(270)

 

 

134,018

 

 

1,593

 

Other comprehensive income, net:

 

 

 

 

 

 

 

 

 

 

1,853

 

 

1,853

 

 

 

 

 

1,853

 

 

22

 

Common OP unit distributions

 

 

 

 

 

 

 

(201,051)

 

 

 

 

 

(201,051)

 

 

 

 

 

(201,051)

 

 

(2,285)

 

 Balance at December 31, 2017

 

182,216

 

 

 —

 

$

1,629,131

 

$

3

 

$

1,629,134

 

$

6,236

 

$

1,635,370

 

$

54,320

 

 

 

 

See accompanying notes to the consolidated financial statements.

F-16


 

 

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31, 

 

 

 

2017

    

2016

    

2015

 

Operating Activities

 

 

 

 

 

 

 

 

 

 

Net income

 

$

135,611

 

$

88,376

 

$

78,756

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

148,319

 

 

164,442

 

 

154,113

 

Equity in losses of real estate ventures

 

 

1,386

 

 

2,662

 

 

411

 

Gains from sale of real estate, net

 

 

 —

 

 

 —

 

 

(17,567)

 

Equity compensation expense

 

 

5,586

 

 

4,850

 

 

3,722

 

Accretion of fair market value adjustment of debt

 

 

(559)

 

 

(1,138)

 

 

(1,429)

 

Changes in other operating accounts:

 

 

 

 

 

 

 

 

 

 

Restricted cash

 

 

(60)

 

 

591

 

 

743

 

Other assets

 

 

(8,845)

 

 

(3,930)

 

 

(2,519)

 

Accounts payable and accrued expenses

 

 

10,846

 

 

7,862

 

 

(438)

 

Other liabilities

 

 

1,154

 

 

1,449

 

 

1,480

 

Net cash provided by operating activities

 

$

293,438

 

$

265,164

 

$

217,272

 

Investing Activities

 

 

 

 

 

 

 

 

 

 

Acquisitions of storage properties

 

 

(69,629)

 

 

(366,666)

 

 

(275,726)

 

Additions and improvements to storage properties

 

 

(28,962)

 

 

(30,971)

 

 

(24,695)

 

Development costs

 

 

(64,659)

 

 

(143,713)

 

 

(81,315)

 

Investment in real estate ventures, at equity

 

 

(301)

 

 

(12,176)

 

 

(8,433)

 

Cash distributed from real estate ventures

 

 

15,784

 

 

8,113

 

 

6,451

 

Proceeds from sale of real estate, net

 

 

 —

 

 

 —

 

 

9,041

 

Fundings of notes receivable

 

 

 —

 

 

 —

 

 

(4,100)

 

Proceeds from notes receivable

 

 

 —

 

 

 —

 

 

4,100

 

Change in restricted cash

 

 

(57)

 

 

942

 

 

69

 

Net cash used in investing activities

 

$

(147,824)

 

$

(544,471)

 

$

(374,608)

 

Financing Activities

 

 

 

 

 

 

 

 

 

 

Proceeds from:

 

 

 

 

 

 

 

 

 

 

Unsecured senior notes

 

 

103,192

 

 

298,512

 

 

249,338

 

Revolving credit facility

 

 

628,400

 

 

958,200

 

 

731,320

 

Principal payments on:

 

 

 

 

 

 

 

 

 

 

Revolving credit facility

 

 

(590,000)

 

 

(914,900)

 

 

(809,320)

 

Unsecured term loans

 

 

(100,000)

 

 

 —

 

 

 

Mortgage loans and notes payable

 

 

(8,666)

 

 

(37,260)

 

 

(84,905)

 

Loan procurement costs

 

 

(953)

 

 

(2,467)

 

 

(4,433)

 

Acquisition of noncontrolling interest in subsidiary

 

 

(9,033)

 

 

 —

 

 

 —

 

Proceeds from issuance of common OP units

 

 

29,643

 

 

136,122

 

 

234,062

 

Cash paid upon vesting of restricted OP units

 

 

(2,046)

 

 

(1,638)

 

 

(1,567)

 

Redemption of preferred units

 

 

 —

 

 

(77,574)

 

 

 —

 

Exercise of OP unit options

 

 

2,364

 

 

13,283

 

 

17,489

 

Contributions from noncontrolling interests in subsidiaries

 

 

1,058

 

 

4,799

 

 

178

 

Distributions paid to noncontrolling interests in subsidiaries

 

 

 —

 

 

 —

 

 

(319)

 

Distributions paid to common OP unitholders

 

 

(197,278)

 

 

(151,121)

 

 

(108,531)

 

Distributions paid to preferred OP unitholders

 

 

 —

 

 

(6,545)

 

 

(6,008)

 

Net cash (used in) provided by financing activities

 

$

(143,319)

 

$

219,411

 

$

217,304

 

Change in cash and cash equivalents

 

 

2,295

 

 

(59,896)

 

 

59,968

 

Cash and cash equivalents at beginning of year

 

 

2,973

 

 

62,869

 

 

2,901

 

Cash and cash equivalents at end of year

 

$

5,268

 

$

2,973

 

$

62,869

 

Supplemental Cash Flow and Noncash Information

 

 

 

 

 

 

 

 

 

 

Cash paid for interest, net of interest capitalized

 

$

63,407

 

$

53,085

 

$

46,216

 

Supplemental disclosure of noncash activities:

 

 

 

 

 

 

 

 

 

 

Restricted cash - acquisition of storage properties

 

$

 —

 

$

(22,019)

 

$

(14,353)

 

Restricted cash - disposition of real estate

 

$

 —

 

$

 —

 

$

36,372

 

Accretion of liability

 

$

35,122

 

$

31,426

 

$

16,929

 

Derivative valuation adjustment

 

$

1,875

 

$

3,165

 

$

2,854

 

Foreign currency translation adjustment

 

$

 —

 

$

 —

 

$

(249)

 

Discount on issuance of unsecured senior notes

 

$

 —

 

$

1,488

 

$

662

 

Mortgage loan assumptions

 

$

6,201

 

$

41,513

 

$

2,695

 

Preferred unit redemption

 

$

 —

 

$

2,863

 

$

 

Issuance of OP units

 

$

12,324

 

$

 —

 

$

 —

 

Liability for acquisition of storage property

 

$

1,470

 

$

 —

 

$

 —

 

Contribution of storage property to real estate venture

 

$

9,400

 

$

 

$

 

 

See accompanying notes to the consolidated financial statements.

F-17


 

 

CUBESMART AND CUBESMART L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.  ORGANIZATION AND NATURE OF OPERATIONS

 

CubeSmart (the “Parent Company”) operates as a self-managed and self-administered real estate investment trust (“REIT”) with its operations conducted solely through CubeSmart, L.P. and its subsidiaries.  CubeSmart, L.P., a Delaware limited partnership (the “Operating Partnership”), operates through an umbrella partnership structure, with the Parent Company, a Maryland REIT, as its sole general partner.  In the notes to the consolidated financial statements, we use the terms the “Company”, “we”, or “our” to refer to the Parent Company and the Operating Partnership together, unless the context indicates otherwise.  As of December 31, 2017, the Company owned self-storage properties located in 23 states throughout the United States and in the District of Columbia which are presented under one reportable segment: the Company owns, operates, develops, manages, and acquires self-storage properties.

 

As of December 31, 2017, the Parent Company owned approximately 99.0% of the partnership interests (“OP Units”) of the Operating Partnership.  The remaining OP Units, consisting exclusively of limited partner interests, are held by persons who contributed their interests in properties to us in exchange for OP Units.  Under the partnership agreement, these persons have the right to tender their OP Units for redemption to the Operating Partnership at any time (except, as disclosed in note 4, in the case of the Class C OP Units issued on April 12, 2017, such right became exercisable on October 12, 2017 and, in the case of the 440,160 OP Units issued on May 9, 2017, such right may be exercised at any time on or after May 9, 2018) for cash equal to the fair value of an equivalent number of common shares of the Parent Company or, in the case of Class C OP Units, the stated value of such Class C OP Units.  In lieu of delivering cash, however, the Parent Company, as the Operating Partnership’s general partner, may, at its option, choose to acquire any OP Units so tendered by issuing common shares in exchange for the tendered OP Units.  If the Parent Company so chooses, its common shares will be exchanged for OP Units on a one-for-one basis, or in the case of Class C OP Units, for common shares with a fair value equal to the stated value of such Class C OP Units.  This one-for-one exchange ratio is subject to adjustment to prevent dilution.  With each such exchange or redemption, the Parent Company’s percentage ownership in the Operating Partnership will increase.  In addition, whenever the Parent Company issues common or other classes of its shares, it contributes the net proceeds it receives from the issuance to the Operating Partnership and the Operating Partnership issues to the Parent Company an equal number of OP Units or other partnership interests having preferences and rights that mirror the preferences and rights of the shares issued.  This structure is commonly referred to as an umbrella partnership REIT or “UPREIT”.

 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

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

 

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

 

The Company adopted Accounting Standard Update (“ASU”) No. 2015-02, Consolidation – Amendments to the Consolidation Analysis, as of January 1, 2016. The Company evaluated the application of this guidance and concluded that there were no changes to any previous conclusions with respect to consolidation accounting for any of its interests in less than wholly owned joint ventures. However, the Operating Partnership now meets the criteria as a VIE. The Parent Company’s sole significant asset is its investment in the Operating Partnership. As a result, substantially all of the Parent Company’s assets and liabilities represent those assets and liabilities of the Operating Partnership. All of the Parent Company’s debt is an obligation of the Operating Partnership.

 

Noncontrolling Interests

 

The Financial Accounting Standards Board (“FASB”) issued authoritative guidance regarding noncontrolling interests in consolidated financial statements which was effective on January 1, 2009.  The guidance states that noncontrolling interests are the portion of equity

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

 

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

 

The consolidated results of the Company include results attributable to units of the Operating Partnership that are not owned by the Company.  These interests were issued in the form of OP units and were a component of the consideration the Company paid to acquire certain self-storage properties.  Limited partners who acquired OP units have the right to require the Operating Partnership to redeem part or all of their OP units for, at the Company’s option, an equivalent number of common shares of the Company or cash based upon the fair value of an equivalent number of common shares of the Company.  However, the operating agreement contains certain circumstances that could result in a net cash settlement outside the control of the Company, as the Company does not have the ability to settle in unregistered shares.  Accordingly, consistent with the guidance discussed above, the Company will continue to record these noncontrolling interests outside of permanent equity in the consolidated balance sheets.  Net income or loss related to these noncontrolling interests is excluded from net income or loss in the consolidated statements of operations.  The Company has adjusted the carrying value of its noncontrolling interests subject to redemption value to the extent applicable.  Based on the Company’s evaluation of the redemption value of the redeemable noncontrolling interests, the Operating Partnership reflected these interests at their redemption value as of December 31, 2017, as the estimated redemption value exceeded their carrying value. The Operating Partnership recorded an increase to OP Units owned by third parties and a corresponding decrease to capital of $4.0 million as of December 31, 2017.  Disclosure of such redemption provisions is provided in note 12.

 

Estimates

 

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

 

Self-Storage Properties

 

Self-storage properties are carried at historical cost less accumulated depreciation and impairment losses.  The cost of self-storage properties reflects their purchase price or development cost.  Costs incurred for the renovation of a store are capitalized to the Company’s investment in that store.  Acquisition costs and ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives.  The costs to develop self-storage properties are capitalized to construction in progress while the project is under development.

 

Purchase Price Allocation

 

When stores are acquired, the purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values.  When a portfolio of stores is acquired, the purchase price is allocated to the individual stores based upon the fair value determined using an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates, which take into

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account the relative size, age and location of the individual store along with current and projected occupancy and rental rate levels or appraised values, if available.  Allocations to land, building and improvements, and equipment are recorded based upon their respective fair values as estimated by management.

 

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

 

Depreciation and Amortization

 

The costs of self-storage properties and improvements are depreciated using the straight-line method based on useful lives ranging from five to 39 years.

 

Impairment of Long-Lived Assets

 

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

 

Long-Lived Assets Held for Sale

 

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

 

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

 

Cash and Cash Equivalents

 

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

 

Restricted Cash

 

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

 

Loan Procurement Costs

 

Loan procurement costs related to borrowings were $21.4 million and $24.7 million as of December 31, 2017 and 2016, respectively, and are reported net of accumulated amortization of $11.1 million and $9.7 million as of December 31, 2017 and 2016, respectively. In accordance with ASU No. 2015-03, Loan procurement costs, net are presented as a direct deduction from the carrying amount of the related debt liability. If there is not an associated debt liability recorded on the consolidated balance sheets, the costs are recorded as an asset net of accumulated amortization. Loan procurement costs associated with the Company’s revolving credit facility remain in Loan

F-20


 

 

procurement costs, net of amortization on the Company’s consolidated balance sheets. The costs are amortized over the estimated life of the related debt using the effective interest method and are reported as Loan procurement amortization expense on the Company’s consolidated statements of operations.

 

Other Assets

 

Other assets are comprised of the following as of December 31, 2017 and 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

December 31, 

 

 

    

2017

    

2016

 

 

 

 

 

 

 

 

 

Intangible assets, net of accumulated amortization of $1,532 and $8,109

 

$

1,716

 

$

8,280

 

Accounts receivable

 

 

5,498

 

 

4,434

 

Deposits on future acquisitions

 

 

1,000

 

 

5,106

 

Prepaid real estate taxes

 

 

3,960

 

 

3,640

 

Prepaid insurance

 

 

2,105

 

 

1,053

 

Amounts due from affiliates (see note 13)

 

 

7,480

 

 

3,349

 

Assets held in trust related to deferred compensation arrangements

 

 

9,393

 

 

6,748

 

Other

 

 

3,438

 

 

3,904

 

Total other assets, net

 

$

34,590

 

$

36,514

 

 

Environmental Costs

 

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

 

Revenue Recognition

 

Management has determined that all of our leases are operating leases.  Rental income is recognized in accordance with the terms of the leases, which generally are month to month.  Property management fee income is recognized monthly as services are performed and in accordance with the terms of the related management agreements.

 

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

 

Advertising and Marketing Costs

 

The Company incurs advertising and marketing costs primarily attributable to internet marketing campaigns and other media advertisements.  The Company incurred $9.7 million, $9.4 million, and $8.6 million in advertising and marketing expenses for the years ended December 31, 2017, 2016 and 2015, respectively, which are included in Property operating expenses on the Company’s consolidated statements of operations.

 

Equity Offering Costs

 

Underwriting discounts and commissions, financial advisory fees and offering costs are reflected as a reduction to additional paid-in capital.  For the years ended December 31, 2017, 2016 and 2015, the Company recognized $0.6 million, $1.6 million, and $2.5 million, respectively, of equity offering costs related to the issuance of common shares.

 

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Other Property Related Income

 

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

 

Capitalized Interest

 

The Company capitalizes interest incurred that is directly associated with construction activities until the asset is placed into service.  Interest is capitalized to the related assets using a weighted-average rate of the Company’s outstanding debt. For the years ended December 31, 2017, 2016 and 2015, the Company capitalized $5.6 million, $4.6 million, and $2.6 million, respectively, of interest incurred that is directly associated with construction activities.

 

Derivative Financial Instruments

 

The Company carries all derivatives on the balance sheet at fair value.  The Company determines the fair value of derivatives by observable prices that are based on inputs not quoted on active markets, but corroborated by market data.  The accounting for changes in the fair value of a derivative instrument depends on whether the derivative has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it.  The Company’s use of derivative instruments has been limited to cash flow hedges of certain interest rate risks.  The Company had interest rate swap agreements for notional principal amounts aggregating $100.0 million and $300.0 million as of December 31, 2017 and 2016, respectively, the fair value of which are included in Accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets.

 

Income Taxes

 

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

 

Earnings and profits, which determine the taxability of distributions to shareholders, differ from net income reported for financial reporting purposes due to differences in cost basis, the estimated useful lives used to compute depreciation, and the allocation of net income and loss for financial versus tax reporting purposes.  The net tax basis in the Company’s assets was $3.4 billion and $3.2 billion as of December 31, 2017 and 2016, respectively.

 

Distributions to shareholders are usually taxable as ordinary income, although a portion of the distribution may be designated as capital gain or may constitute a tax-free return of capital.  Annually, the Company provides each of its shareholders a statement detailing the tax characterization of dividends paid during the preceding year as ordinary income, capital gain, or return of capital.  The characterization of the Company’s dividends for 2017 consisted of an 86.602% ordinary income distribution, a 0.495% capital gain distribution, and a 12.903% return of capital distribution from earnings and profits.

 

The Company is subject to a 4% federal excise tax if sufficient taxable income is not distributed within prescribed time limits.  The excise tax equals 4% of the annual amount, if any, by which the sum of (a) 85% of the Company’s ordinary income, (b) 95% of the Company’s net capital gains, and (c) 100% of prior taxable income exceeds cash distributions and certain taxes paid by the Company.  No excise tax was incurred in 2017, 2016, or 2015.

 

Taxable REIT subsidiaries are subject to federal and state income taxes.  Our taxable REIT subsidiaries had a net deferred tax asset related to expenses which are deductible for tax purposes in future periods of $1.4 million and $1.3 million as of December 31, 2017 and 2016, respectively.

 

Legislation commonly known as the Tax Cuts and Jobs Act (“TCJA”) was signed into law on December 22, 2017.  The TCJA makes significant changes to the U.S. federal income tax rules for taxation of individuals and corporations (including REITs), generally effective for taxable years beginning after December 31, 2017.

 

Earnings per Share and Unit

 

Basic earnings per share and unit are calculated based on the weighted average number of common shares and restricted shares outstanding during the period.  Diluted earnings per share and unit is calculated by further adjusting for the dilutive impact of share

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options, unvested restricted shares and contingently issuable shares outstanding during the period using the treasury stock method.  Potentially dilutive securities calculated under the treasury stock method were 923,000; 1,287,000, and 1,551,000 in 2017, 2016, and 2015, respectively. 

 

Share-Based Payments

 

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

 

Foreign Currency

 

The financial statements of foreign subsidiaries are translated to U.S. Dollars using the period-end exchange rate for assets and liabilities and an average exchange rate for each period for revenues, expenses, and capital expenditures.  The local currency is the functional currency for the Company’s foreign subsidiaries.  Translation adjustments for foreign subsidiaries are recorded as a component of accumulated other comprehensive loss in shareholders’ equity.  The Company recognizes transaction gains and losses arising from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency in earnings as incurred.  The Pound, which represents the functional currency used by USIFB, LLP (“USIFB”), our joint venture in England, was translated at October 2, 2015, the date that the venture’s remaining asset was sold. The exchange rate was approximately 1.521600 U.S Dollars per Pound on October 2, 2015. The Pound was translated at an average exchange rate of 1.529755 for the period from January 1, 2015 to October 2, 2015. In connection with the sale of the remaining asset, the Company recorded a realized loss on foreign currency exchange of $1.2 million, which is included in Gains from sale of real estate, net on the Company’s consolidated statements of operations.

 

Investments in Unconsolidated Real Estate Ventures

 

The Company accounts for its investments in unconsolidated real estate ventures under the equity method of accounting.  Under the equity method, investments in unconsolidated joint ventures are recorded initially at cost, as investments in real estate ventures, and subsequently adjusted for equity in earnings (losses), cash contributions, less distributions. On a periodic basis, management also assesses whether there are any indicators that the value of the Company’s investments in unconsolidated real estate ventures may be other than temporarily impaired. An investment is impaired only if the fair value of the investment is less than the carrying value of the investment and the decline is other than temporary. To the extent impairment that is other than temporary has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the fair value of the investment, as estimated by management.

 

Reclassifications

 

During the first quarter of 2017, the Company adopted ASU No. 2016-09 – Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which requires retrospective application for the cash flow presentation of cash withheld upon restricted stock vesting and paid by the Company to a taxing authority to satisfy the employee’s related tax obligation.  See “Recent Accounting Pronouncements” below.  As a result of adopting the new guidance, $1.6 million of vested restricted shares that were withheld to satisfy employee tax obligations and paid to the taxing authorities, were reclassified from operating activities to financing activities within the Company’s consolidated statements of cash flows for each of the years ended December 31, 2016 and 2015.

 

Recent Accounting Pronouncements

 

   In August 2017, the FASB issued ASU No. 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The transition guidance provides companies with the option of early adopting the new standard using a modified retrospective transition method in any interim period after issuance of the update, or alternatively requires adoption for fiscal years beginning after December 15, 2018. This adoption method will require the Company to recognize the cumulative effect of initially applying the new guidance as an adjustment to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that the Company adopts the update. The Company is in the process of evaluating the impact of this new guidance.


   In February 2017, as part of the new revenue standard, the FASB issued ASU No. 2017-05 – Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance, which focuses on recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers. Specifically, the new guidance

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defines “in substance nonfinancial asset”, unifies guidance related to partial sales of nonfinancial assets, eliminates rules specifically addressing sales of real estate, removes exceptions to the financial asset derecognition model, and clarifies the accounting for contributions of nonfinancial assets to joint ventures. The new guidance became effective on January 1, 2018 when the entity adopted the new revenue standard. Upon adoption, the majority of its sale transactions are now treated as dispositions of nonfinancial assets rather than dispositions of a business given the FASB’s recently revised definition of a business (see ASU No. 2017-01 below). Additionally, in partial sale transactions where the Company sells a controlling interest in real estate but retains a noncontrolling interest, the Company will now fully recognize a gain or loss on the fair value measurement of the retained interest as the new guidance eliminates the partial profit recognition model.

 

In January 2017, the FASB issued ASU 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business, which changes the definition of a business to include an input and a substantive process that together significantly contribute to the ability to create outputs. A framework is provided to evaluate when an input and a substantive process are present.  The new guidance also narrows the definition of outputs, which are defined as the results of inputs and substantive processes that provide goods or services to customers, other revenue, or investment income. The standard became effective on January 1, 2018. Upon adoption of the new guidance, the majority of future property acquisitions will now be considered asset acquisitions, resulting in the capitalization of acquisition related costs incurred in connection with these transactions and the allocation of purchase price and acquisition related costs to the assets acquired based on their relative fair values.

 

In November 2016, the FASB issued ASU No. 2016-18 - Statement of Cash Flows (Topic 230): Restricted Cash, which requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The new guidance also requires entities to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. The standard became effective on January 1, 2018. The standard requires the use of the retrospective transition method. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements as the update primarily relates to financial statement presentation and disclosures.

 

In August 2016, the FASB issued ASU No. 2016-15 – Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The eight items that the ASU provides classification guidance on include (1) debt prepayment and extinguishment costs, (2) settlement of zero-coupon debt instruments, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (6) distributions received from equity method investments, (7) beneficial interests in securitization transactions, and (8) separately identifiable cash flows and application of the predominance principle. The standard became effective on January 1, 2018. The standard requires the use of the retrospective transition method. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements as the update primarily relates to financial statement presentation and disclosures.

 

In March 2016, the FASB issued ASU No. 2016-09 - Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which is intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The new guidance requires entities to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The Company has elected to account for forfeitures when they occur. In addition, the guidance allows employers to withhold shares to satisfy minimum statutory tax withholding requirements up to the employees’ maximum individual tax rate without causing the award to be classified as a liability. The guidance also stipulates that cash paid by an employer to a taxing authority when directly withholding shares for tax-withholding purposes should be classified as a financing activity on the statement of cash flows. The new standard became effective for the Company on January 1, 2017. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position or results of operations.

 

In February 2016, the FASB issued ASU No. 2016-02 - Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either financing or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.  Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The standard is effective on January 1, 2019, however early adoption is permitted.  The Company is currently assessing the impact of the adoption of the new standard on the Company’s consolidated financial statements and related disclosures but at this time, it expects the primary impact to be related to its ten ground leases in which it serves as the ground lessee (see note 14). 

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In May 2014, the FASB issued ASU No. 2014-09 - Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new guidance outlines a five-step process for customer contract revenue recognition that focuses on transfer of control as opposed to transfer of risk and rewards. The new guidance also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows from contracts with customers. In May 2016, the FASB issued ASU 2016-12 - Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which amends ASU 2014-09 and is intended to address implementation issues that were raised by stakeholders. ASU 2016-12 provides practical expedients on collectability, noncash consideration, presentation of sales tax and contract modifications and completed contracts in transition. Both standards became effective on January 1, 2018. The Company finalized the impact of the adoption of ASU No. 2014-09 and ASU No. 2016-12 on the Company’s consolidated financial statements and related disclosures and adopted the standards using the modified retrospective transition method. The standards will not have a material impact on the Company’s consolidated statements of financial position or results of operations primarily because most of its revenue is derived from lease contracts, which are excluded from the scope of the new guidance. The Company’s insurance fee revenue, property management fee revenue, and merchandise sale revenue are included in the scope of the new guidance, however, the Company identified similar performance obligations under this standard as compared with deliverables and separate units of account identified under its previous revenue recognition methodology. Accordingly, revenue recognized under the new guidance will not differ materially from revenue recognized under previous guidance and there will be no material prior year impact.

 

Concentration of Credit Risk

 

The Company’s stores are located in major metropolitan and rural areas and have numerous customers per store.  No single customer represents a significant concentration of our revenues. The stores in Florida, New York, Texas, and California provided total revenues of approximately 17%, 16%, 10%, and 8%, respectively, for each of the years ended December 31, 2017 and 2016. The stores in Florida, New York, Texas, and California provided total revenues of approximately 18%, 16%, 10%, and 8%, respectively, for the year ended December 31, 2015.

 

3.  STORAGE PROPERTIES

 

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

 

 

 

 

 

 

 

 

 

 

 

December 31, 

 

December 31, 

 

 

    

2017

    

2016

 

 

 

(in thousands)

 

Land

 

$

711,140

 

$

649,744

 

Buildings and improvements

 

 

3,086,252

 

 

2,928,275

 

Equipment

 

 

182,958

 

 

217,867

 

Construction in progress

 

 

181,365

 

 

202,294

 

Storage properties

 

 

4,161,715

 

 

3,998,180

 

Less: Accumulated depreciation

 

 

(752,925)

 

 

(671,364)

 

Storage properties, net

 

$

3,408,790

 

$

3,326,816

 

 

F-25


 

 

The following table summarizes the Company’s acquisition and disposition activity for the years ended December 31, 2017, 2016, and 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

Number of

    

Purchase / Sale Price

 

Asset/Portfolio

 

Market

 

Transaction Date

 

Stores

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

2017 Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Illinois Asset

 

Chicago

 

April 2017

 

1

 

$

11,200

 

Maryland Asset

 

Baltimore / DC

 

May 2017

 

1

 

 

18,200

 

California Asset

 

Sacramento

 

May 2017

 

1

 

 

3,650

 

Texas Asset

 

Texas Markets - Major

 

October 2017

 

1

 

 

4,050

 

Florida Asset

 

Florida Markets - Other

 

October 2017

 

1

 

 

14,500

 

Illinois Asset

 

Chicago

 

November 2017

 

1

 

 

11,300

 

Florida Asset

 

Florida Markets - Other

 

December 2017

 

1

 

 

17,750

 

 

 

 

 

 

 

7

 

$

80,650

 

 

 

 

 

 

 

 

 

 

 

 

2016 Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Metro DC Asset

 

Baltimore / DC

 

January 2016

 

1

 

$

21,000

 

Texas Assets

 

Texas Markets - Major

 

January 2016

 

2

 

 

24,800

 

New York Asset

 

New York / Northern NJ

 

January 2016

 

1

 

 

48,500

 

Texas Asset

 

Texas Markets - Major

 

January 2016

 

1

 

 

11,600

 

Connecticut Asset

 

Connecticut

 

February 2016

 

1

 

 

19,000

 

Texas Asset

 

Texas Markets - Major

 

March 2016

 

1

 

 

11,600

 

Florida Assets

 

Florida Markets - Other

 

March 2016

 

3

 

 

47,925

 

Colorado Asset

 

Denver

 

April 2016

 

1

 

 

11,350

 

Texas Asset

 

Texas Markets - Major

 

April 2016

 

1

 

 

11,600

 

Texas Asset

 

Texas Markets - Major

 

May 2016

 

1

 

 

10,100

 

Texas Asset

 

Texas Markets - Major

 

May 2016

 

1

 

 

10,800

 

Illinois Asset

 

Chicago

 

May 2016

 

1

 

 

12,350

 

Illinois Asset

 

Chicago

 

May 2016

 

1

 

 

16,000

 

Massachusetts Asset

 

Massachusetts

 

June 2016

 

1

 

 

14,300

 

Nevada Assets

 

Las Vegas

 

July 2016

 

2

 

 

23,200

 

Arizona Asset

 

Phoenix

 

August 2016

 

1

 

 

14,525

 

Minnesota Asset

 

Minneapolis

 

August 2016

 

1

 

 

15,150

 

Colorado Asset

 

Denver

 

August 2016

 

1

 

 

15,600

 

Texas Asset

 

Texas Markets - Major

 

September 2016

 

1

 

 

6,100

 

Texas Asset

 

Texas Markets - Major

 

September 2016

 

1

 

 

5,300

 

Nevada Asset

 

Las Vegas

 

October 2016

 

1

 

 

13,250

 

North Carolina Asset

 

Charlotte

 

November 2016

 

1

 

 

10,600

 

Arizona Asset

 

Phoenix

 

November 2016

 

1

 

 

14,000

 

Nevada Asset

 

Las Vegas

 

December 2016

 

1

 

 

14,900

 

 

 

 

 

 

 

28

 

$

403,550

 

 

 

 

 

 

 

 

 

 

 

 

2015 Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Texas Asset

 

Texas Markets - Major

 

February 2015

 

1

 

$

7,295

 

HSRE Assets

 

Chicago

 

March 2015

 

4

 

 

27,500

 

Arizona Asset

 

Arizona / Las Vegas

 

March 2015

 

1

 

 

7,900

 

Tennessee Asset

 

Tennessee

 

March 2015

 

1

 

 

6,575

 

Texas Asset

 

Texas Markets - Major

 

April 2015

 

1

 

 

15,795

 

Florida Asset

 

Florida Markets - Other

 

May 2015

 

1

 

 

7,300

 

Arizona Asset

 

Arizona / Las Vegas

 

June 2015

 

1

 

 

10,100

 

Florida Asset

 

Florida Markets - Other

 

June 2015

 

1

 

 

10,500

 

Texas Asset

 

Texas Markets - Major

 

July 2015

 

1

 

 

14,200

 

Maryland Asset

 

Baltimore / DC

 

July 2015

 

1

 

 

17,000

 

Maryland Asset

 

Baltimore / DC

 

July 2015

 

1

 

 

19,200

 

New York/New Jersey Assets

 

New York / Northern NJ

 

August 2015

 

2

 

 

24,823

 

New Jersey Asset

 

New York / Northern NJ

 

December 2015

 

1

 

 

14,350

 

PSI Assets

 

Various (see note 4)

 

December 2015

 

12

 

 

109,824

 

 

 

 

 

 

 

29

 

$

292,362

 

 

 

 

 

 

 

 

 

 

 

 

2015 Dispositions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Texas Assets

 

Texas Markets - Major

 

October 2015

 

7

 

$

28,000

 

Florida Asset

 

Florida Markets - Other

 

October 2015

 

1

 

 

9,800

 

 

 

 

 

 

 

8

 

$

37,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-26


 

 

4.  INVESTMENT ACTIVITY

 

2017 Acquisitions

 

During the year ended December 31, 2017, the Company acquired six stores located throughout the United States, including two stores upon completion of construction and the issuance of a certificate of occupancy, for an aggregate purchase price of approximately $69.5 million. In connection with these acquisitions, the Company allocated a portion of the purchase price to the tangible and intangible assets acquired based on fair value. Intangible assets consist of in-place leases, which aggregated $3.2 million at the time of the acquisitions and prior to any amortization of such amounts. The estimated life of these in-place leases was 12 months, and the amortization expense that was recognized during 2017 was approximately $1.5 million. In connection with one of the acquired stores, the Company assumed mortgage debt that was recorded at a fair value of $6.2 million, which fair value includes an outstanding principal balance totaling $5.9 million and a net premium of $0.3 million to reflect the estimated fair value of the debt at the time of assumption. As part of the acquisition of that same store, the Company issued OP Units that were valued at approximately $12.3 million as consideration for the remainder of the purchase price (see note 12).

 

During the year ended December 31, 2017, the Company also acquired a store in Illinois upon completion of construction and the issuance of a certificate of occupancy for $11.2 million. The purchase price was satisfied with $9.7 million of cash and 58,400 newly created Class C OP Units. Each Class C OP Unit has a stated value of $25 and bears an annual distribution rate of 3% of the stated value. The holder has the option to tender the Class C OP Units to the Operating Partnership at any time, and on or after April 12, 2018, the Operating Partnership will have the option to redeem the Class C OP Units, in each case at a redemption price of $25 per Class C OP Unit. The Company has the right to settle the redemption in cash or, at the Company’s option, common shares of CubeSmart, or a combination of cash and common shares, with the common shares valued at their closing price on the redemption date. Because the Class C OP Units represent an unconditional obligation that the Company may settle by issuing a variable number of its common shares with a monetary value that is known at inception, they have been classified as a liability in Accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets.

   

The following table summarizes the Company’s revenue and earnings associated with the 2017 acquisitions from the respective acquisition dates, that are included in the consolidated statements of operations for the year ended December 31, 2017:

 

 

 

 

 

 

 

 

    

 

Year Ended December 31, 2017

 

 

 

 

(in thousands)

 

Total revenue

 

 

$

1,572

 

Net loss

 

 

 

(1,330)

 

 

As of December 31, 2017, the Company was under contract and had made deposits of $1.0 million associated with two stores, including one store to be acquired after the completion of construction and the issuance of the certificate of occupancy, for an aggregate acquisition price of $33.0 million. The deposits are reflected in Other assets, net on the Company’s consolidated balance sheets. The purchase of the store under construction is expected to occur during the second quarter of 2018 after the completion of construction and the issuance of a certificate of occupancy. This acquisition is subject to due diligence and other customary closing conditions and no assurance can be provided that it will be completed on the terms described, or at all. On January 31, 2018, the Company acquired the remaining store that was under contract as of December 31, 2017 (see note 19).

 

Development

 

As of December 31, 2017, the Company had invested in joint ventures to develop six self-storage properties located in Massachusetts (1) New Jersey (1), and New York (4). Construction for all projects is expected to be completed by the third quarter of 2019. As of December 31, 2017, development costs incurred to date for these projects totaled $121.0 million. Total construction costs for these projects are expected to be $232.6 million. These costs are capitalized to construction in progress while the projects are under development and are reflected in Storage properties on the Company’s consolidated balance sheets.

 

The Company has completed the construction and opened for operation the following stores since January 1, 2015. The costs associated with the construction of these stores are capitalized to land, building, and improvements as well as equipment and are reflected in Storage properties on the Company’s consolidated balance sheets.

F-27


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CubeSmart

 

 

 

 

 

Number of

 

 

 

Ownership

 

Total

Store Location

    

Stores

    

Date Opened

 

Interest

 

Construction Costs

 

 

 

 

 

 

 

 

(in thousands)

Brooklyn, NY

 

1

 

Q4 2017

 

51%

 

$

49,300

Washington, D.C.

 

1

 

Q3 2017

 

100%

 

 

27,800

New York, NY

 

1

 

Q3 2017

 

90%

 

 

81,200

North Palm Beach, FL

 

1

 

Q1 2017

 

100%

 

 

9,700

Bronx, NY (1) (2)

 

1

 

Q2 2016

 

100%

 

 

32,200

Queens, NY (1)

 

1

 

Q1 2016

 

100%

 

 

31,800

Brooklyn, NY (3)

 

1

 

Q4 2015

 

100%

 

 

14,800

Queens, NY

 

1

 

Q4 2015

 

90%

 

 

17,400

Arlington, VA

 

1

 

Q2 2015

 

90%

 

 

17,100

 

 

9

 

 

 

 

 

$

281,300

 

(1)

These stores were previously owned through two separate consolidated joint ventures, of which the Company owned a 51% interest in each. On April 5, 2016, the noncontrolling member in the venture that owned the Queens, NY store put its 49% interest in the venture to the Company for $12.5 million. On August 12, 2016, the noncontrolling member in the venture that owned the Bronx, NY store put its 49% interest in the venture to the Company for $17.0 million.

 

(2)

This store is subject to a ground lease.

 

(3)

During the fourth quarter of 2015, the Company, through a joint venture in which the Company owned a 90% interest and that it previously consolidated, completed the construction and opened for operation a store located in Brooklyn, NY. On June 2, 2017, the Company acquired the noncontrolling member’s 10% interest in the venture for $9.0 million.  Prior to this transaction, the noncontrolling member’s interest was reported in Noncontrolling interests in subsidiaries on the consolidated balance sheets. Since the Company retained its controlling interest in the joint venture and the store is now wholly owned, this transaction was accounted for as an equity transaction. The carrying amount of the noncontrolling interest was reduced to zero to reflect the purchase, and the $8.6 million difference between the purchase price paid by the Company and the carrying amount of the noncontrolling interest was recorded as an adjustment to equity attributable to the Company.  In conjunction with the Company’s acquisition of the noncontrolling interest, the $9.8 million related party loan extended by the Company to the venture during the construction period was repaid in full.

 

2016 Acquisitions

 

During the year ended December 31, 2016, the Company acquired 28 stores, including three stores upon completion of construction and the issuance of a certificate of occupancy, located throughout the United States for an aggregate purchase price of approximately $403.6 million. In connection with these acquisitions, the Company allocated a portion of the purchase price to the tangible and intangible assets acquired based on fair value. Intangible assets consist of in-place leases, which aggregated $18.8 million at the time of the acquisitions and prior to any amortization of such amounts. The estimated life of these in-place leases was 12 months, and the amortization expense that was recognized during the years ended December 31, 2017 and 2016 was approximately $8.3 million and $10.5 million, respectively. In connection with one of the acquired stores, the Company assumed mortgage debt that was recorded at a fair value of $6.5 million, which fair value includes an outstanding principal balance totaling $6.3 million and a net premium of $0.2 million to reflect the estimated fair value of the debt at the time of assumption.

 

 2015 Acquisitions

 

On December 15, 2015, the Company acquired all of the issued and outstanding uncertificated shares of common stock of a privately held self-storage REIT (“PSI”) for $115.8 million. As of the date of the acquisition, PSI owned real property consisting of 12 fully operational self-storage properties which were acquired for $109.8 million, and one self-storage property that was under construction, which was acquired for $6.0 million (the “PSI Assets”). The PSI Assets are located in Arizona, Florida, Georgia, Massachusetts, New York, North Carolina, Tennessee, and Texas. In connection with this acquisition, the Company allocated a portion of the purchase price to the intangible value of in-place leases, which aggregated to $6.7 million at the time of the acquisition and prior to any amortization of such amounts. The estimated life of these in-place leases was 12 months, and the amortization expense that was recognized during the years ended December 31, 2016 and 2015 was approximately $6.1 million and $0.6 million, respectively.

F-28


 

 

 

During 2014, the Operating Partnership entered into an Agreement for Purchase and Sale with certain limited liability companies controlled by HSRE REIT I and HSRE REIT II, both Maryland real estate investment trusts, to acquire (the “HSRE Acquisition”) 26 self-storage properties for an aggregate purchase price of $223.0 million plus customary closing costs. During 2014, the Company closed on the first tranche of 22 stores comprising the HSRE Acquisition, for an aggregate purchase price of $195.5 million. On March 18, 2015, the Company closed on the second tranche of the remaining four stores comprising the HSRE Acquisition, for an aggregate purchase price of $27.5 million. The four stores purchased in the second tranche are located in Illinois. In connection with this acquisition, the Company allocated a portion of the purchase price to the intangible value of in-place leases, which aggregated to $2.7 million at the time of the acquisition and prior to any amortization of such amounts. The estimated life of these in-place leases was 12 months, and the amortization expense that was recognized during the years ended December 31, 2016 and 2015 was approximately $0.7 million and $2.0 million, respectively.

 

During the year ended December 31, 2015, the Company acquired 13 additional self-storage properties, including one store upon completion of construction and the issuance of a certificate of occupancy, located throughout the United States for an aggregate purchase price of approximately $155.0 million. In connection with these acquisitions, the Company allocated a portion of the purchase price to the tangible and intangible assets acquired based on fair value. Intangible assets consist of in-place leases, which aggregated $10.7 million at the time of the acquisitions and prior to any amortization of such amounts. The estimated life of these in-place leases was 12 months, and the amortization expense that was recognized during the years ended December 31, 2016 and 2015 was approximately $6.0 million and $4.7 million, respectively. In connection with one of the acquired stores, the Company assumed mortgage debt that was recorded at a fair value of $2.7 million, which fair value includes an outstanding principal balance totaling $2.5 million and a net premium of $0.2 million to reflect the estimated fair value of the debt at the time of assumption.

 

2015 Dispositions

 

On October 8, 2015, the Company sold seven stores in Texas and one store in Florida for an aggregate sales price of approximately $37.8 million. In connection with these sales, the Company recorded gains that totaled $14.4 million. The proceeds from these sales were held in escrow to fund future acquisitions under a tax free like kind exchange. The total net proceeds of $36.4 million were subsequently applied to three separate acquisitions, of which one closed in December 2015 and two closed in January 2016.

 

On October 2, 2015, USIFB, a consolidated real estate joint venture in which the Company owned a 97% interest, sold its remaining asset in London, England, for an aggregate sales price of £6.5 million (approximately $9.9 million). In connection with the sale, the Company recorded a gain of $3.0 million net of a foreign currency translation loss of $1.2 million.

 

 

5. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES

 

191 IV CUBE LLC (“HVP IV”)

 

On October 16, 2017, the Company acquired a self-storage property located in Texas for $9.4 million, which it then contributed to a newly-formed joint venture on November 1, 2017. In return for contributing the property to HVP IV, the Company received approximately $7.5 million in cash and a 20% ownership interest in the venture. Subsequent to December 31, 2017, HVP IV acquired two self-storage properties in Arizona (1) and Texas (1) for an aggregate purchase price of $20.5 million.

 

CUBE HHF Northeast Venture LLC (“HHFNE”)

 

On December 15, 2016, the Company invested a 10% ownership interest in a newly-formed joint venture that acquired 13 self-storage properties located in Connecticut (3), Massachusetts (6), Rhode Island (2), and Vermont (2). HHFNE paid $87.5 million for these stores, of which $6.0 million was allocated to the value of the in-place lease intangible. The acquisition was funded primarily through an advance totaling $44.5 million on the venture’s loan facility. The remainder of the purchase price was contributed pro-rata by the Company and its unaffiliated joint venture partner. The Company’s total contribution to HHFNE related to this portfolio acquisition was $3.8 million. The loan bears interest at LIBOR plus 1.90% and matures on December 15, 2019 with options to extend the maturity date through December 15, 2021, subject to satisfaction of certain conditions and payment of the extension fees as stipulated in the loan agreement.

 

191 III CUBE LLC (“HVP III”)

 

During the fourth quarter of 2015, the Company invested a 10% ownership interest in a newly-formed joint venture that agreed to acquire a property portfolio comprised of 37 self-storage properties located in Michigan (17), Tennessee (10), Massachusetts (7), and Florida (3). HVP III paid $242.5 million for these 37 stores, of which $18.9 million was allocated to the value of the in-place lease

F-29


 

 

intangible. HVP III acquired 30 of the stores on December 8, 2015 for $193.7 million, one of the stores on January 26, 2016 for $5.7 million, five of the stores on April 21, 2016 for $36.1 million, and one store on June 15, 2016 for $7.0 million. In connection with six of the acquired stores, HVP III assumed mortgage debt that was recorded at a fair value of $25.3 million, which includes an outstanding principal balance totaling $23.7 million and a net premium of $1.6 million to reflect the estimated fair value of the debt at the time of assumption. The remainder of the purchase price was funded through advances totaling $116.0 million on the venture’s $122.0 million loan facility and amounts contributed pro-rata by the Company and its unaffiliated joint venture partner. The Company’s total contribution to HVP III related to this portfolio acquisition was $10.7 million. The loan facility bears interest at LIBOR plus 2.00% per annum and matures on December 7, 2018 with options to extend the maturity date through December 7, 2020, subject to satisfaction of certain conditions and payment of the extension fees as stipulated in the loan agreement.

 

During the first quarter of 2016, HVP III agreed to acquire a portfolio comprised of 31 self-storage properties located in South Carolina (22), Georgia (5), and North Carolina (4) that were previously managed by the Company. HVP III paid $115.5 million for these 31 stores, of which $10.6 million was allocated to the value of the in-place lease intangible. HVP III acquired 30 of the stores on March 30, 2016 for $112.8 million and one of the stores on November 29, 2016 for $2.7 million. In conjunction with the acquisitions, HVP III refinanced its existing loan facility by entering into an increased amended and restated loan facility not to exceed $185.5 million. The acquisitions were funded primarily through advances totaling $63.5 million on the venture’s amended and restated loan facility. The remainder of the purchase price was contributed pro-rata by the Company and its unaffiliated joint venture partner. The Company’s total contribution to HVP III related to this portfolio acquisition was $5.4 million, bringing its total investment in HVP III to $16.1 million as of December 31, 2016. The amended and restated loan facility bears interest at LIBOR plus 2.00% per annum. The initial maturity date was extended to March 30, 2019 with options to extend through March 30, 2021, subject to satisfaction of certain conditions and payment of the extension fees as stipulated in the amended and restated loan agreement.

 

CUBE HHF Limited Partnership (“HHF”)

 

On December 10, 2013, the Company invested a 50% ownership interest in a newly-formed joint venture that acquired 35 self-storage properties located in Texas (34) and North Carolina (1). HHF paid $315.7 million for these stores, of which $12.1 million was allocated to the value of the in-place lease intangible. The Company and the unaffiliated joint venture partner each contributed cash equal to 50% of the capital required to fund the acquisition. On May 1, 2014, HHF obtained a $100.0 million loan secured by the 34 self-storage properties located in Texas that are owned by the venture. There is no recourse to the Company, subject to customary exceptions to non-recourse provisions. The loan bears interest at 3.59% per annum and matures on April 30, 2021. This financing completed the planned capital structure of HHF and proceeds (net of closing costs) of $99.2 million were distributed proportionately to the partners. 

 

Based upon the facts and circumstances at formation of HVP IV, HHFNE, HVP III, and HHF (the “Ventures”), the Company determined that the Ventures are not VIEs in accordance with the accounting standard for the consolidation of VIEs. As a result, the Company used the voting interest model under the accounting standard for consolidation in order to determine whether to consolidate the Ventures. Based upon each member's substantive participating rights over the activities of each entity as stipulated in the operating agreements, the Ventures are not consolidated by the Company and are accounted for under the equity method of accounting. The Company’s investments in the Ventures are included in Investment in real estate ventures, at equity on the Company’s consolidated balance sheets and the Company’s earnings from its investments in the Ventures are presented in Equity in losses of real estate ventures on the Company’s consolidated statements of operations.

 

The amounts reflected in the following table are based on the historical financial information of the Ventures. The following is a summary of the financial position of the Ventures as of December 31, 2017 and 2016 (in thousands):

 

F-30


 

 

 

 

 

 

 

 

 

 

 

    

December 31, 

    

December 31, 

 

 

 

2017

 

2016

 

Assets

 

 

 

 

 

 

 

Storage properties, net

 

$

647,668

 

$

667,975

 

Other assets

 

 

8,284

 

 

17,003

 

Total assets

 

$

655,952

 

$

684,978

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

Other liabilities

 

$

6,853

 

$

6,516

 

Debt

 

 

346,475

 

 

345,631

 

Equity

 

 

 

 

 

 

 

CubeSmart

 

 

91,206

 

 

98,682

 

Joint venture partners

 

 

211,418

 

 

234,149

 

Total liabilities and equity

 

$

655,952

 

$

684,978

 

 

The following is a summary of results of operations of the Ventures for the years ended December 31, 2017, 2016 and 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 

 

 

    

 

2017

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

$

81,058

 

$

64,931

 

$

31,249

 

Operating expenses

 

 

 

34,705

 

 

29,900

 

 

15,042

 

Interest expense, net

 

 

 

11,703

 

 

9,432

 

 

3,846

 

Depreciation and amortization

 

 

 

45,086

 

 

53,701

 

 

16,214

 

Net loss

 

 

 

(10,436)

 

 

(28,102)

 

 

(3,853)

 

Company’s share of net loss

 

 

 

(1,386)

 

 

(2,662)

 

 

(411)

 

 

The results of operations above include the periods from November 1, 2017 (date of acquisition) through December 31, 2017 for HVP IV, December 15, 2016 (date of acquisition) through December 31, 2017 for HHFNE, and December 8, 2015 (date of acquisition) through December 31, 2017 for HVP III.

   

6.  UNSECURED SENIOR NOTES

 

The Company’s unsecured senior notes are summarized as follows (collectively referred to as the “Senior Notes”):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

December 31, 

    

December 31, 

    

Effective

 

Issuance

 

Maturity

 

Unsecured Senior Notes

    

2017

    

2016

    

Interest Rate

 

Date

 

Date

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

$250M 4.800% Guaranteed Notes due 2022

 

$

250,000

 

$

250,000

 

4.82

%  

 

Jun-12

 

Jul-22

 

$300M 4.375% Guaranteed Notes due 2023 (1)

 

 

300,000

 

 

250,000

 

4.33

%  

 

Various (1)

 

Dec-23

 

$300M 4.000% Guaranteed Notes due 2025 (2)

 

 

300,000

 

 

250,000

 

3.99

%  

 

Various (2)

 

Nov-25

 

$300M 3.125% Guaranteed Notes due 2026

 

 

300,000

 

 

300,000

 

3.18

%  

 

Aug-16

 

Sep-26

 

Principal balance outstanding

 

 

1,150,000

 

 

1,050,000

 

 

 

 

 

 

 

 

Less: Discount on issuance of unsecured senior notes, net

 

 

(617)

 

 

(3,971)

 

 

 

 

 

 

 

 

Less: Loan procurement costs, net

 

 

(6,923)

 

 

(6,953)

 

 

 

 

 

 

 

 

Total unsecured senior notes, net

 

$

1,142,460

 

$

1,039,076

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

On April 4, 2017, the Operating Partnership issued $50.0 million of its 4.375% senior notes due 2023, which are part of the same series as the $250.0 million principal amount of the Operating Partnership’s 4.375% senior notes due December 15, 2023 issued on December 17, 2013.  The $50.0 million and $250.0 million traunches were priced at 105.040% and 98.995%, respectively, of the principal amount to yield 3.495% and 4.501%, respectively, to maturity.  The combined weighted-average effective interest rate of the 2023 notes is 4.330%.

 

(2)

On April 4, 2017, the Operating Partnership issued $50.0 million of its 4.000% senior notes due 2025, which are part of the same series as the $250.0 million principal amount of the Operating Partnership’s 4.000% senior notes due November 15, 2025 issued on October 26, 2015.  The $50.0 million and $250.0 million traunches were priced at 101.343% and 99.735%, respectively, of the

F-31


 

 

principal amount to yield 3.811% and 4.032%, respectively, to maturity.  The combined weighted-average effective interest rate of the 2025 notes is 3.994%.

 

The indenture under which the Senior Notes were issued restricts the ability of the Operating Partnership and its subsidiaries to incur debt unless the Operating Partnership and its consolidated subsidiaries comply with a leverage ratio not to exceed 60% and an interest coverage ratio of more than 1.5:1 after giving effect to the incurrence of the debt. The indenture also restricts the ability of the Operating Partnership and its subsidiaries to incur secured debt unless the Operating Partnership and its consolidated subsidiaries comply with a secured debt leverage ratio not to exceed 40% after giving effect to the incurrence of the debt. The indenture also contains other financial and customary covenants, including a covenant not to own unencumbered assets with a value less than 150% of the unsecured indebtedness of the Operating Partnership and its consolidated subsidiaries. As of and for the year ended December 31, 2017, the Operating Partnership was in compliance with all of the financial covenants under the Senior Notes.

 

7.  REVOLVING CREDIT FACILITY AND UNSECURED TERM LOANS

 

On December 9, 2011, the Company entered into a credit agreement (the “Credit Facility”), which was subsequently amended on April 5, 2012, June 18, 2013, and April 22, 2015 to provide for, amongst other things, a $500.0 million unsecured revolving facility (the “Revolver”) with a maturity date of April 22, 2020.  Pricing on the Revolver is dependent on the Company’s unsecured debt credit ratings. At the Company’s current Baa2/BBB level, amounts drawn under the Revolver are priced at 1.25% over LIBOR, inclusive of a facility fee of 0.15%.  As of December 31, 2017, $417.6 million was available for borrowing under the Revolver.  The available balance under the Revolver is reduced by an outstanding letter of credit of $0.7 million.  As of December 31, 2017, the Company also had a $200.0 million unsecured term loan outstanding under the Credit Facility, which is included in the table below.

   

On June 20, 2011, the Company entered into an unsecured term loan agreement (the “Term Loan Facility”), which was subsequently amended on June 18, 2013 and August 5, 2014, consisting of a $100.0 million unsecured term loan with a five-year maturity and a $100.0 million unsecured term loan with a seven-year maturity.

 

The Company’s unsecured term loans under the Credit Facility and Term Loan Facility are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying Value as of:

 

Effective Interest

 

 

 

 

    

December 31, 

    

December 31, 

    

Rate as of

 

Maturity

 

Unsecured Term Loans

    

2017

    

2016

    

December 31, 2017 (1)

 

Date

 

 

 

(in thousands)

 

 

 

 

 

 

Credit Facility

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured term loan

 

$

200,000

 

$

200,000

 

2.86

%  

 

Jan-19

 

Term Loan Facility

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured term loan (2)

 

 

 —

 

 

100,000

 

 —

%  

 

Jun-18

 

Unsecured term loan (3)

 

 

100,000

 

 

100,000

 

3.62

%  

 

Jan-20

 

Principal balance outstanding

 

 

300,000

 

 

400,000

 

 

 

 

 

 

Less: Loan procurement costs, net

 

 

(604)

 

 

(1,251)

 

 

 

 

 

 

Total unsecured term loans, net

 

$

299,396

 

$

398,749

 

 

 

 

 

 

 

(1)

Pricing on the Term Loan Facility and the unsecured term loan under the Credit Facility is dependent on the Company’s unsecured debt credit ratings. At the Company’s current Baa2/BBB level, amounts drawn under the term loan scheduled to mature in January 2019 are priced at 1.30% over LIBOR, while amounts drawn under the term loan scheduled to mature in January 2020 are priced at 1.15% over LIBOR, excluding the impact of interest rate swaps.  As of December 31, 2017, borrowings under the Credit Facility, inclusive of the Revolver, and Term Loan Facility, as amended and after giving effect to the interest rate swaps, had an effective weighted average interest rate of 3.05%.

 

(2)

On April 6, 2017, the Company used the net proceeds from the issuance of $50.0 million of its 4.375% Senior Notes due 2023 and $50.0 million of its 4.000% Senior Notes due 2025 to repay all of the outstanding indebtedness under its unsecured term loan that was scheduled to mature in June 2018.  Unamortized loan procurement costs of $0.2 million were written off in conjunction with the repayment.

 

(3)

As of December 31, 2017, the Company had interest rate swaps in place on these borrowings that fix 30-day LIBOR (see note 10).

 

F-32


 

 

The Term Loan Facility and the unsecured term loan under the Credit Facility were fully drawn as of December 31, 2017 and no further borrowings may be made under the term loans.  The Company’s ability to borrow under the Revolver is subject to ongoing compliance with certain financial covenants which include:

 

·

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

 

·

Minimum fixed charge coverage ratio of 1.50:1.00; and

 

·

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

 

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

 

As of December 31, 2017, the Company was in compliance with all of its financial covenants and it anticipates being in compliance with all of its financial covenants through the terms of the Credit Facility and Term Loan Facility.

 

8.  MORTGAGE LOANS AND NOTES PAYABLE

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying Value as of:

 

 

 

 

 

 

 

    

December 31, 

    

December 31, 

    

Effective

 

Maturity

 

Mortgage Loans and Notes Payable

    

2017

    

2016

    

Interest Rate

 

Date

 

 

 

(in thousands)

 

 

 

 

 

 

YSI 67

 

$

 —

 

$

6,216

 

2.55

%  

 

Mar-17

 

YSI 33

 

 

9,547

 

 

9,860

 

6.42

%  

 

Jul-19

 

YSI 26

 

 

8,228

 

 

8,423

 

4.56

%  

 

Nov-20

 

YSI 57

 

 

2,889

 

 

2,957

 

4.61

%  

 

Nov-20

 

YSI 55

 

 

22,508

 

 

22,952

 

4.85

%  

 

Jun-21

 

YSI 24

 

 

25,700

 

 

26,464

 

4.64

%  

 

Jun-21

 

YSI 65

 

 

2,411

 

 

2,457

 

3.85

%  

 

Jun-23

 

YSI 66

 

 

31,727

 

 

32,257

 

3.51

%  

 

Jun-23

 

YSI 68

 

 

5,786

 

 

 —

 

3.78

%  

 

May-24

 

Principal balance outstanding

 

 

108,796

 

 

111,586

 

 

 

 

 

 

Plus: Unamortized fair value adjustment

 

 

3,286

 

 

3,742

 

 

 

 

 

 

Less: Loan procurement costs, net

 

 

(648)

 

 

(710)

 

 

 

 

 

 

Total mortgage loans and notes payable, net

 

$

111,434

 

$

114,618

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2017 and 2016, the Company’s mortgage loans payable were secured by certain of its self-storage properties with net book values of approximately $236.9 million and $233.1 million, respectively. The following table represents the future principal payment requirements on the outstanding mortgage loans and notes payable as of December 31, 2017 (in thousands):

 

 

 

 

 

2018

    

$

2,650

2019

 

 

11,652

2020

 

 

12,791

2021

 

 

45,057

2022

 

 

923

2023 and thereafter

 

 

35,723

Total mortgage payments

 

 

108,796

Plus: Unamortized fair value adjustment

 

 

3,286

Less: Loan procurement costs, net

 

 

(648)

Total mortgage loans and notes payable, net

 

$

111,434

 

F-33


 

 

 

9.  ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

 

The following table summarizes the changes in accumulated other comprehensive income (loss) by component for the year ended December 31, 2017 (in thousands):

 

 

 

 

 

 

    

Unrealized losses

 

 

 

on interest rate

 

 

 

swaps

 

 

 

 

 

 

Other comprehensive gain before reclassifications

 

$

192

 

Amounts reclassified from accumulated other comprehensive loss

 

 

1,661

(1)

Net current-period other comprehensive gain

 

 

1,853

 

Balance at December 31, 2016

 

 

(1,850)

 

Balance at December 31, 2017

 

$

 3

 

 

(1) See note 10 for additional information about the effects of the amounts reclassified.

 

10.  RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS

 

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

 

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

 

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

 

The following table summarizes the terms and fair values of the Company’s derivative financial instruments as of December 31, 2017 and 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedge

 

Hedge

 

Notional Amount

 

 

 

 

Effective

 

 

 

Fair Value

 

Product

    

Type (1)

 

December 31, 2017

    

December 31, 2016

    

Strike

 

Date

    

Maturity

    

December 31, 2017

    

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

 

Cash flow

 

$

 —

 

$

75,000

 

1.3360

%  

 

12/30/2011

 

3/31/2017

 

$

 —

 

$

(103)

 

Swap

 

Cash flow

 

 

 —

 

 

50,000

 

1.3360

%  

 

12/30/2011

 

3/31/2017

 

 

 —

 

 

(69)

 

Swap

 

Cash flow

 

 

 —

 

 

50,000

 

1.3360

%  

 

12/30/2011

 

3/31/2017

 

 

 —

 

 

(69)

 

Swap

 

Cash flow

 

 

 —

 

 

25,000

 

1.3375

%  

 

12/30/2011

 

3/31/2017

 

 

 —

 

 

(34)

 

Swap

 

Cash flow

 

 

40,000

 

 

40,000

 

2.4590

%  

 

6/20/2011

 

6/20/2018

 

 

(161)

 

 

(797)

 

Swap

 

Cash flow

 

 

40,000

 

 

40,000

 

2.4725

%  

 

6/20/2011

 

6/20/2018

 

 

(163)

 

 

(804)

 

Swap

 

Cash flow

 

 

20,000

 

 

20,000

 

2.4750

%  

 

6/20/2011

 

6/20/2018

 

 

(82)

 

 

(404)

 

 

 

 

 

$

100,000

 

$

300,000

 

 

 

 

 

 

 

 

$

(406)

 

$

(2,280)

 

 

(1)

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

 

F-34


 

 

The Company measures its derivative instruments at fair value and records them in the balance sheet as either an asset or liability.  As of December 31, 2017 and 2016, all derivative instruments were included in Accounts payable, accrued expenses, and other liabilities in the accompanying consolidated balance sheets.  The effective portions of changes in the fair value of the derivatives are reported in accumulated other comprehensive income (loss).  Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.  The change in unrealized losses on interest rate swaps reflects a reclassification of $1.7 million of unrealized losses from accumulated other comprehensive loss as an increase to interest expense during 2017.  The Company estimates that $0.4 million will be reclassified as an increase to interest expense in 2018.

 

11.  FAIR VALUE MEASUREMENTS

 

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

 

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

 

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

 

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

 

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

 

Financial assets and liabilities carried at fair value as of December 31, 2017 are classified in the table below in one of the three categories described above (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Level 1

    

Level 2

    

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap derivative liabilities

 

$

 —

 

$

406

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities at fair value

 

$

 —

 

$

406

 

$

 —

 

 

Financial assets and liabilities carried at fair value as of December 31, 2016 are classified in the table below in one of the three categories described above (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Level 1

    

Level 2

    

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap derivative liabilities

 

$

 

$

2,280

 

$

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities at fair value

 

$

 —

 

$

2,280

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

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

 

·

Interest rate swap derivative assets and liabilities — valued using LIBOR yield curves at the reporting date. Counterparties to these contracts are most often highly rated financial institutions, none of which experienced any significant downgrades in 2017 that would reduce the amount owed by the Company.  Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company’s derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and the counterparties. However, as of December 31, 2017, the Company has assessed the significance of the effect

F-35


 

 

of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

 

The fair values of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximate their respective carrying values as of December 31, 2017 and 2016.  The aggregate carrying value of the Company’s debt was $1.6 billion as of December 31, 2017 and 2016. The estimated fair value of the Company’s debt was $1.7 billion and $1.6 billion as of December 31, 2017 and 2016, respectively. These estimates were based on a discounted cash flow analysis assuming market interest rates for comparable obligations as of December 31, 2017 and 2016. The Company estimates the fair value of its fixed rate debt and the credit spreads over variable market rates on its variable rate debt by discounting the future cash flows of each instrument at estimated market rates or credit spreads consistent with the maturity of the debt obligation with similar credit policies, which is classified within level 2 of the fair value hierarchy. Rates and credit spreads take into consideration general market conditions and maturity.

 

12.  NONCONTROLLING INTERESTS

 

Interests in Consolidated Real Estate Joint Ventures

 

Noncontrolling interests in subsidiaries represent the ownership interests of third parties in the Company’s consolidated real estate ventures. The Company has determined that these ventures are variable interest entities, and that the Company is the primary beneficiary. Accordingly, the Company consolidates the assets, liabilities, and results of operations of the real estate ventures in the table below (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Date Opened /

 

CubeSmart

 

 

 

 

 

 

 

 

 

Number

 

 

 

Estimated

 

Ownership

 

December 31, 2017

 

Development Ventures

   

of Stores

   

Location

   

Opening

 

Interest

 

Total Assets

 

Total Liabilities

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CS 1158 McDonald Ave, LLC ("McDonald Ave") (1)

 

1

 

Brooklyn, NY

 

Q3 2019 (est.)

 

51%

 

$

18,472

 

$

2,429

 

CS SJM E 92nd Street, LLC ("92nd St") (3)

 

1

 

New York, NY

 

Q2 2019 (est.)

 

90%

 

 

1,366

 

 

1,096

 

CS 160 East 22nd St, LLC ("22nd St") (1)

 

1

 

Bayonne, NJ

 

Q1 2019 (est.)

 

51%

 

 

5,533

 

 

3,382

 

2225 46th St, LLC ("46th St") (1)

 

1

 

Queens, NY

 

Q4 2018 (est.)

 

51%

 

 

27,130

 

 

9,551

 

CS SDP Waltham, LLC ("Waltham") (3)

 

1

 

Waltham, MA

 

Q4 2018 (est.)

 

90%

 

 

5,981

 

 

704

 

2880 Exterior St, LLC ("Exterior St") (1)

 

1

 

Bronx, NY

 

Q3 2018 (est.)

 

51%

 

 

62,763

 

 

31,575

 

3068 Cropsey Avenue, LLC ("Cropsey Ave") (1)

 

1

 

Brooklyn, NY

 

Q4 2017

 

51%

 

 

47,952

 

 

22,189

 

444 55th Street Holdings, LLC ("55th St") (2)

 

1

 

New York, NY

 

Q3 2017

 

90%

 

 

82,216

 

 

33,858

 

186 Jamaica Avenue, LLC ("Jamaica Ave") (3)

 

1

 

Brooklyn, NY

 

Q4 2015

 

90%

 

 

18,478

 

 

13,289

 

Shirlington Rd, LLC ("SRLLC") (3)

 

1

 

Arlington, VA

 

Q2 2015

 

90%

 

 

16,320

 

 

12,819

 

 

 

10

 

 

 

 

 

 

 

$

286,211

 

$

130,892

 

 

(1)

The noncontrolling members of McDonald Ave, 22nd St, 46th St, Exterior St, and Cropsey Ave have the option to put their ownership interest in the ventures to the Company for $10.0 million, $11.5 million, $14.2 million, $37.8 million and $20.4 million, respectively, within the one-year period after construction of each store is substantially complete. Additionally, the Company has a one-year option to call the ownership interest of the noncontrolling members of McDonald Ave, 22nd St, 46th St, Exterior St, and Cropsey Ave for $10.0 million, $11.5 million, $14.2 million, $37.8 million and $20.4 million, respectively, beginning on the second anniversary of the respective store’s construction being substantially complete. The Company is accreting the respective liabilities during the development periods and, as of December 31, 2017, has accrued $2.2 million, $3.3 million, $8.2 million, $28.9 million and $20.4 million related to McDonald Ave, 22nd St, 46th St, Exterior St, and Cropsey Ave, respectively.

 

(2)

In connection with the acquired property, 55th St assumed mortgage debt that was recorded at a fair value of $35.0 million, which fair value includes an outstanding principal balance totaling $32.5 million and a net premium of $2.5 million to reflect the estimated fair value of the debt at the time of assumption. The loan accrues interest at a fixed rate of 4.68%, matures on June 7, 2023, and is fully guaranteed by the Company.

 

(3)

The Company has a related party commitment to these ventures to fund all or a portion of the construction costs. As of December 31, 2017, the Company has fully funded its $12.8 million loan commitment to Jamaica Ave and $12.7 million of a total $14.6 million loan commitment to SRLLC, which are included in the total liability amounts within the table above. These loans and related interest were eliminated during consolidation. As of December 31, 2017, the Company has not funded any of its $10.8 million or $6.2 million loan commitments to Waltham and 92nd St, respectively.

 

F-36


 

 

See note 4 for details regarding the Company’s June 2, 2017 acquisition of the noncontrolling interest in a previously consolidated joint venture that developed and owned a store in Brooklyn, NY.

 

USIFB was formed to own, operate, acquire, and develop self-storage properties in England.  The Company owned a 97% interest in USIFB through a wholly-owned subsidiary, and USIFB commenced operations at two stores in London, England during 2008.  The Company determined that USIFB is a variable interest entity, and that the Company is the primary beneficiary.  Accordingly, the Company consolidates the assets, liabilities, and results of operations of USIFB. On December 31, 2013 the Company provided a $6.8 million (£4.1 million) loan secured by a mortgage on real estate assets of USIFB.  On June 30, 2014, one of the assets was sold for net proceeds of $7.0 million and the loan was repaid with proceeds from the sale. The loan and any related interest were eliminated during consolidation. On October 2, 2015, USIFB sold its remaining asset in London, England, for an aggregate sales price of £6.5 million (approximately $9.9 million). In connection with the sale, the Company recorded a gain of $3.0 million net of a foreign currency translation loss of $1.2 million.

 

Operating Partnership Ownership

 

The Company follows guidance regarding the classification and measurement of redeemable securities.  Under this guidance, securities that are redeemable for cash or other assets, at the option of the holder and not solely within the control of the issuer, must be classified outside of permanent equity/capital.  This classification results in certain outside ownership interests being included as redeemable noncontrolling interests outside of permanent equity/capital in the consolidated balance sheets.  The Company makes this determination based on terms in applicable agreements, specifically in relation to redemption provisions.

 

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

 

Approximately 1.0% and 1.1% of the outstanding OP Units as of December 31, 2017 and December 31, 2016, respectively, were not owned by CubeSmart, the sole general partner.  The interests in the Operating Partnership represented by these OP Units were a component of the consideration that the Operating Partnership paid to acquire certain self-storage properties. The holders of the OP Units are limited partners in the Operating Partnership and have the right to require CubeSmart to redeem all or part of their OP Units for, at the general partner’s option, an equivalent number of common shares of CubeSmart or cash based upon the fair value of an equivalent number of common shares of CubeSmart.  However, the partnership agreement contains certain provisions that could result in a cash settlement outside the control of CubeSmart and the Operating Partnership, as CubeSmart does not have the ability to settle in unregistered shares.  Accordingly, consistent with the guidance, the Operating Partnership records the OP Units owned by third parties outside of permanent capital in the consolidated balance sheets. Net income or loss related to the OP Units owned by third parties is excluded from net income or loss attributable to Operating Partner in the consolidated statements of operations.

 

On May 14, 2015, the Company closed on the acquisition of real property that has been developed into a self-storage property in Washington, D.C. In conjunction with the closing, the Company issued 20,408 OP Units, valued at approximately $0.5 million to pay a portion of the consideration. On April 18, 2016, upon completion of certain milestones, the Company issued 61,224 additional OP Units, valued at approximately $1.5 million, to pay the remaining consideration. The store commenced operations during the third quarter of 2017.

   

On May 9, 2017, the Company acquired a store in Maryland for $18.2 million and assumed an existing mortgage loan with an outstanding balance of approximately $5.9 million. In conjunction with the closing, the Company issued 440,160 OP Units, valued at approximately $12.3 million, to pay the remaining consideration.

 

On April 12, 2017, the Company acquired a store in Illinois for $11.2 million. In conjunction with the closing, the Company paid $9.7 million and issued 58,400 Class C OP Units to pay the remaining consideration.

 

As of December 31, 2017 and 2016, 1,878,253 and 2,032,394 OP Units, respectively, were held by third parties.  The per unit cash redemption amount of the outstanding OP Units was calculated based upon the average of the closing prices of the common shares of CubeSmart on the New York Stock Exchange for the final 10 trading days of the year. Based on the Company’s evaluation of the redemption value of the redeemable noncontrolling interests, the Company has reflected these interests at their redemption value as of December 31, 2017 and 2016. As of December 31, 2017, the Operating Partnership recorded an increase to OP Units owned by third

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parties and a corresponding decrease to capital of $4.0 million. As of December 31, 2016, the Operating Partnership recorded a decrease to OP Units owned by third parties and a corresponding increase to capital of $7.4 million. 

 

13.  RELATED PARTY TRANSACTIONS

 

Affiliated Real Estate Investments

 

The Company provides management services to certain joint ventures and other related parties.  Management agreements provide for fee income to the Company based on a percentage of reveneus at the managed stores.  Total management fees for unconsolidated joint ventures or other entities in which the Company held an ownership interest for the years ending December 31, 2017, 2016 and 2015 were $3.8 million, $2.9 million and $1.0 million, respectively.

 

The management agreements for certain joint ventures, other related parties and third-party stores provide for the reimbursement to the Company for certain expenses incurred to manage the stores.  These amounts consist of amounts due for management fees, payroll and other store expenses.  The amounts due to the Company were $7.5 million and $3.3 million as of December 31, 2017 and 2016, respectively, and are included in Other Assets, net in the Company’s consolidated balance sheets.  Additionally, as discussed in note 12 the Company had outstanding mortgage loans receivable from consolidated joint ventures of $25.5 million and $34.7 million as of December 31, 2017 and 2016, respectively, which are eliminated for consolidation purposes.  The Company believes that all of these related-party receivables are fully collectible.

 

The HVP III, HVP IV, and HHFNE operating agreements provide for acquisition fees payable from HVP III, HVP IV, and HHFNE to the Company in an amount equal to 0.5% of the purchase price upon closing of an acquisition by HVP III, HVP IV, and HHFNE, or any of their subsidiaries and completion of certain measures as defined in the operating agreements. The Company recognized $0.5 million and $1.8 million in acquisition fees during the years ended December 31, 2017 and 2016, respectively, which are included in Other income on the consolidated statements of operations. The Company did not recognize any acquisition fees during the year ended December 31, 2015.

 

14.  COMMITMENTS AND CONTINGENCIES

 

Ground Leases

 

The Company currently owns eight operating self-storage properties and two self-storage properties currently under development that are subject to ground leases, and two other operating self-storage properties that have portions of land that are subject to ground leases. The Company recorded ground rent expense of approximately $3.4 million, $2.7 million, and $2.4 million for the years ended December 31, 2017, 2016 and 2015, respectively.  Total future minimum rental payments under non-cancelable ground leases are as follows:

 

 

 

 

 

 

 

    

Ground Lease

 

 

 

Amount

 

 

 

(in thousands)

 

 

 

 

 

 

2018

 

$

2,500

 

2019

 

 

2,670

 

2020

 

 

2,743

 

2021

 

 

2,812

 

2022

 

 

2,971

 

2023 and thereafter

 

 

119,343

 

 

 

$

133,039

 

 

Development Commitments

 

The Company has development agreements for the construction of six new self-storage properties (see note 4), which will require payments of approximately $82.7 million, due in installments upon completion of certain construction milestones, during 2018 and 2019.

 

Litigation

 

The Company is involved in claims from time to time, which arise in the ordinary course of business.  In accordance with applicable accounting guidance, management establishes an accrued liability for litigation when those matters present loss contingencies that are both probable and reasonably estimable.  In such cases, there may be exposure to loss in excess of those amounts accrued.  The estimated loss, if any, is based upon currently available information and is subject to significant judgment, a variety of assumptions, and known and

F-38


 

 

unknown uncertainties.  In the opinion of management, the Company has made adequate provisions for potential liabilities, arising from any such matters, which are included in Accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets.  However, litigation is inherently unpredictable, and the costs and other effects of pending or future litigation, governmental investigations, legal and administrative cases and proceedings (whether civil or criminal), settlements, judgments and investigations, claims, and changes in any such matters, could have a material adverse effect on the Company’s business, financial condition, and operating results.

 

On July 13, 2015, a putative class action was filed against the Company in the Federal District Court of New Jersey seeking to obtain declaratory, injunctive and monetary relief for a class of New Jersey consumers based upon alleged violations by the Company of the New Jersey Truth in Customer Contract, Warranty and Notice Act and the New Jersey Consumer Fraud Act.  On December 15, 2017, the court granted preliminary approval of a settlement for the class action. The settlement and associated expenses, which were previously reserved for, did not have a material impact on the Company’s consolidated financial position or results of operations.

 

Insurance Recovery

 

As a result of hurricanes that occurred during the third quarter of 2017, the Company incurred damage at certain stores located in Florida and Texas.  During the year ended December 31, 2017, the Company recorded $1.1 million in charges based on the damage assessment and terms of the deductibles under the insurance policies, inclusive of its $0.1 million portion of the charge taken by HHF.  These charges are comprised of $0.3 million in net book value write-offs related to damaged assets and $0.8 million in estimated deductibles related to costs incurred for repairs and cleanup. The Company has comprehensive insurance coverage and, after receipt of $0.3 million in October 2017, recorded a receivable of $1.0 million as of December 31, 2017 for the remaining anticipated insurance recoveries which is included in Other assets within the Company’s consolidated balance sheets. To the extent that insurance proceeds, which are on a replacement cost basis, ultimately exceed the net book value of the damaged assets, a gain will be recognized in the period in which all contingencies related to the insurance claim have been resolved. The estimated charges for the insurance deductibles and asset write-offs are included in Property operating expenses and Depreciation and amortization, respectively within the Company’s consolidated statements of operations. The Company’s portion of the charge taken by HHF is included in Equity in losses of real estate ventures within the Company’s consolidated statements of operations.

 

15.  SHARE-BASED COMPENSATION PLANS

 

On June 1, 2016 the Company’s shareholders approved an amendment and restatement of the Company’s 2007 Equity Incentive Plan, a share-based employee compensation plan originally approved by shareholders on May 8, 2007 and subsequently amended with shareholder approval on June 2, 2010 (as amended and restated, the “2007 Plan”).  The purpose of the 2007 Plan is to attract and retain highly qualified executive officers, Trustees and key employees and other persons and to motivate such officers, Trustees, key employees, and other persons to serve the Company and its affiliates to expend maximum effort to improve the business results and earnings of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company.  To this end, the 2007 Plan provides for the grant of share options, share appreciation rights, restricted shares, restricted share units, performance awards, which may be denominated in cash or shares, included restricted shares and restricted share units, and other share-based awards, including unrestricted common shares or awards denominated or payable in, or valued in whole or part by reference to, common shares.  Any of these awards may, but need not, be made as performance incentives to reward attainment of annual or long-term performance goals.  Share options granted under the 2007 Plan may be non-qualified share options or incentive share options.

 

Upon shareholder approval of the amendment and restatement of the 2007 Plan in June 2016, 4,500,000 additional common shares were made available for award under the 2007 Plan.  As a result, these 4,500,000 additional shares, together with the 991,117 shares that remained available for future awards under the 2007 Plan at the time of the shareholder approval, plus any common shares that are restored to availability upon expiration or forfeiture of outstanding options or restricted share awards, would constitute the “Aggregate Share Reserve”.  As of December 31, 2017: (i)  4,936,124 common shares remained available for future awards under the 2007 Plan; (ii) 465,045 unvested restricted share awards were outstanding under the 2007 Plan; and (iii) 1,833,173 common shares were subject to outstanding options under the 2007 Plan (with the outstanding options having a weighted average exercise price of $16.55 per share and a weighted average term to maturity of 5.26 years).

 

Prior to the June 2016 amendments, the 2007 Plan used a “Fungible Units” methodology for computing the maximum number of common shares available for issuance under the 2007 Plan.  The Fungible Units methodology assigned weighted values to different types of awards under the 2007 Plan without assigning specific numerical limits for different types of awards. As amended in June 2016, the 2007 Plan provides that any common shares made the subject of awards under the 2007 Plan will count against the Aggregate Share Reserve as one (1) unit. The Aggregate Share Reserve and the computation of the number of common shares available for issuance is

F-39


 

 

subject to adjustment upon certain corporate transactions or events, including share splits, reverse share splits and recapitalizations.  The number of shares counted against the Aggregate Share Reserve includes the full number of shares subject to the award, and is not reduced in the event shares are withheld to fund withholding tax obligations, or, in the case of options and share appreciation rights, where shares are applied to pay the exercise price.  If an option or other award granted under the 2007 Plan expires, is forfeited or otherwise terminates, the common shares subject to any portion of the award that expires, is forfeited or that otherwise terminates, as the case may be, again becomes available for issuance under the 2007 Plan.

 

The 2007 Plan is administered by the Compensation Committee of the Company’s Board of Trustees (the “Compensation Committee”), which is appointed by the Board of Trustees.  The Compensation Committee interprets the 2007 Plan and, subject to its right to delegate authority to grant awards, determines the terms and provisions of option grants and share awards.

 

Subject to adjustment upon certain corporate transactions or events, a participant (other than a non-employee trustee) may not receive awards under the 2007 Plan in any one calendar year covering more than 1,000,000 shares.  Subject to adjustment upon certain corporate transactions or events, a non-employee trustee may not receive awards under the 2007 Plan in any one calendar year covering more than 250,000 shares.

 

Under the 2007 Plan, the Compensation Committee determines the vesting schedule of each share award and option, subject to a one-year minimum vesting requirement, but with permitted acceleration of vesting in the event of a participant’s death or disability, or in the event of a change in control or certain changes in our capital structure.  Notwithstanding the foregoing one-year minimum vesting limitation, up to five percent of the shares subject to the Aggregate Share Reserve may be subject to awards that are not subject to such limitation.  The exercise price for options is equivalent to the fair value of the underlying common shares at the grant date.  The Compensation Committee also determines the term of each option, which shall not exceed 10 years from the grant date.

 

On October 19, 2004, the Company’s sole shareholder approved a share-based employee compensation plan, the 2004 Equity Incentive Plan (the “2004 Plan”).  The 2004 Plan expired in October 2014.  Prior to its expiration, a total of 3.0 million common shares were reserved for issuance under the 2004 Plan. Subsequent to its expiration, no new equity awards may be granted under the 2004 Plan, and to the extent that options expire unexercised or are terminated, surrendered or canceled, the options and share awards no longer become available for future grants under the 2004 Plan. As of December 31, 2017, there were approximately five thousand shares outstanding under the 2004 Plan.

 

Share Options

 

The fair values for options granted in 2017, 2016, and 2015 were estimated at the time the options were granted using the Black-Scholes option-pricing model applying the following weighted average assumptions:

 

 

 

 

 

 

 

 

 

 

 

 

Assumptions:

    

2017

    

2016

    

2015

 

Risk-free interest rate

 

 

2.2

%  

 

1.8

%  

 

1.5

%  

Expected dividend yield

 

 

3.5

%  

 

2.7

%  

 

2.6

%  

Volatility (1)

 

 

33.00

%  

 

33.00

%  

 

33.00

%  

Weighted average expected life of the options (2)

 

 

6.0

years

 

6.0

years

 

6.0

years

Weighted average grant date fair value of options granted per share

 

$

6.12

 

$

7.61

 

$

6.23

 

 

(1)

Expected volatility is based upon the level of volatility historically experienced.

(2)

Expected life is based upon our expectations of share option recipients’ expected exercise and termination patterns.

 

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options. In addition, option-pricing models require the input of highly subjective assumptions, including the expected share price volatility. Volatility for the 2017, 2016 and 2015 grants was based on the trading history of the Company’s shares.

 

In 2017, 2016, and 2015, the Company recognized compensation expense related to options issued to employees and executives of approximately $1.5 million, $1.3 million and $1.0 million, respectively, which is included in General and administrative expense on the Company’s consolidated statements of operations. During 2017, 289,104 share options were issued for which the fair value of the options at their respective grant dates was approximately $1.8 million. The share options vest over three years. As of December 31, 2017, the Company had approximately $1.8 million of unrecognized option compensation cost related to all grants that will be recorded over the next three years.

 

F-40


 

 

The table below summarizes the option activity under the 2004 Plan and the 2007 Plan for the years ended December 31, 2017, 2016 and 2015:

 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

 

    

Weighted Average

 

 

 

Number of Shares

 

Weighted Average

 

Remaining

 

 

 

Under Option

 

Strike Price

 

Contractual Term

 

Balance at December 31, 2014

 

3,692,301

 

$

11.76

 

4.16

 

Options granted

 

202,485

 

 

25.00

 

9.08

 

Options canceled

 

(18,230)

 

 

19.75

 

 —

 

Options exercised

 

(1,454,612)

 

 

11.31

 

2.38

 

Balance at December 31, 2015

 

2,421,944

 

$

13.07

 

4.08

 

Options granted

 

213,008

 

 

30.32

 

9.07

 

Options exercised

 

(695,262)

 

 

18.69

 

0.29

 

Balance at December 31, 2016

 

1,939,690

 

$

12.94

 

4.85

 

Options granted

 

289,104

 

 

26.30

 

9.07

 

Options exercised

 

(395,621)

 

 

5.98

 

1.14

 

Balance at December 31, 2017

 

1,833,173

 

$

16.55

 

5.26

 

 

 

 

 

 

 

 

 

 

Vested or expected to vest at December 31, 2017

 

1,833,173

 

$

16.55

 

5.26

 

Exercisable at December 31, 2017

 

1,337,280

 

$

12.58

 

4.04

 

 

As of December 31, 2017, the aggregate intrinsic value of options outstanding, of options that vested or expected to vest, and of options that were exercisable was approximately $35.3 million.  The aggregate intrinsic value of options exercised was approximately $8.8 million for the year ended December 31, 2017.

 

Restricted Shares

 

The Company applies the fair value method of accounting for contingently issued shares.  As such, each grant is recognized ratably over the related vesting period.  Approximately 166,000 restricted shares and share units were issued during 2017 for which the fair value of the restricted shares and share units at their respective grant dates was approximately $4.7 million, which vest over three to five years.  During 2016, approximately 155,000 restricted shares and share units were issued for which the fair value of the restricted shares and share units at their respective grant dates was approximately $5.2 million.  As of December 31, 2017 the Company had approximately $5.2 million of remaining unrecognized restricted share and share unit compensation costs that will be recognized over the next five years.  Restricted share awards are considered to be performance awards and are valued using the share price on the grant date.  The compensation expense recognized related to these awards and remaining unrecognized compensation costs are included in the amounts disclosed above.

 

In 2017, 2016 and 2015, the Company recognized compensation expense related to restricted shares and share units issued to employees and Trustees of approximately $4.1 million, $3.6 million, and $2.7 million, respectively; these amounts were recorded in general and administrative expense. The following table presents non-vested restricted share and share unit activity during 2017:

 

 

 

 

 

 

    

Number of Non-

 

 

 

Vested Restricted

 

 

 

Shares and Share Units

 

Non-Vested at January 1, 2017

 

323,022

 

Granted

 

165,709

 

Vested

 

(130,500)

 

Forfeited

 

(5,769)

 

Non-Vested at  December 31, 2017

 

352,462

 

 

On January 23, 2017, 52,426 restricted share units were granted to certain executives.  The restricted share units were granted in the form of deferred share units with a market condition, entitling the holders thereof to receive common shares at a future date.  The deferred share units will be awarded based on the Company’s total return to shareholders with respect to a specified peer group consisting of publicly traded REITs over a three-year period.  The fair value of the restricted share units on the grant date was approximately $1.8 million.  The Company used a Monte Carlo simulation analysis to estimate the fair value of the awards.  The restricted share units will cliff vest upon the third anniversary of the effective date, or December 31, 2019.  The compensation expense recognized related to these awards and remaining unrecognized compensation costs are included in the amounts disclosed above.

 

F-41


 

 

On January 22, 2016, 37,008 restricted share units were granted to certain executives.  The restricted share units were granted in the form of deferred share units with a market condition, entitling the holders thereof to receive common shares at a future date.  The deferred share units will be awarded based on the Company’s total return to shareholders with respect to a specified peer group consisting of publicly traded REITs over a three-year period.  The fair value of the restricted share units on the grant date was approximately $1.6 million.  The Company used a Monte Carlo simulation analysis to estimate the fair value of the awards.  The restricted share units will cliff vest upon the third anniversary of the effective date, or December 31, 2018.  The compensation expense recognized related to these awards and remaining unrecognized compensation costs are included in the amounts disclosed above.

 

On January 23, 2015, 35,614 restricted share units were granted to certain executives.  The restricted share units were granted in the form of deferred share units with a market condition, entitling the holders thereof to receive common shares at a future date.  The deferred share units will be awarded based on the Company’s total return to shareholders with respect to a specified peer group consisting of publicly traded REITs over a three-year period.  The fair value of the restricted share units on the grant date was approximately $1.3 million.  The Company used a Monte Carlo simulation analysis to estimate the fair value of the awards.  The restricted share units will cliff vest upon the third anniversary of the effective date, or December 31, 2017.  The compensation expense recognized related to these awards and remaining unrecognized compensation costs are included in the amounts disclosed above.

 

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

 

Earnings per common share and shareholders’ equity

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31, 

 

 

 

2017

 

2016

 

2015

 

 

 

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

 

 

    

 

    

    

 

    

    

 

    

    

 

Net income

 

$

135,611

 

$

88,376

 

$

78,756

 

 

Noncontrolling interests in the Operating Partnership

 

 

(1,593)

 

 

(941)

 

 

(960)

 

 

Noncontrolling interest in subsidiaries

 

 

270

 

 

470

 

 

(84)

 

 

Distributions to preferred shareholders (1)

 

 

 —

 

 

(5,045)

 

 

(6,008)

 

 

Preferred share redemption charge

 

 

 —

 

 

(2,937)

 

 

 —

 

 

Net income attributable to the Company’s common shareholders

 

$

134,288

 

$

79,923

 

$

71,704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding

 

 

180,525

 

 

178,246

 

 

168,640

 

 

Share options and restricted share units

 

 

923

 

 

1,287

 

 

1,551

 

 

Weighted-average diluted shares outstanding (2)

 

 

181,448

 

 

179,533

 

 

170,191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to common shareholders

 

$

0.74

 

$

0.45

 

$

0.43

 

 

Diluted earnings per share attributable to common shareholders

 

$

0.74

 

$

0.45

 

$

0.42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common unit and capital

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31, 

 

 

 

2017

 

2016

 

2015

 

 

 

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

 

 

    

 

    

    

 

    

    

 

    

    

 

Net income

 

$

135,611

 

$

88,376

 

$

78,756

 

 

Operating Partnership interests of third parties

 

 

(1,593)

 

 

(941)

 

 

(960)

 

 

Noncontrolling interest in subsidiaries

 

 

270

 

 

470

 

 

(84)

 

 

Distribution to preferred unitholders (1)

 

 

 —

 

 

(5,045)

 

 

(6,008)

 

 

Preferred unit redemption charge

 

 

 —

 

 

(2,937)

 

 

 —

 

 

Net income attributable to common unitholders

 

$

134,288

 

$

79,923

 

$

71,704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average units outstanding

 

 

180,525

 

 

178,246

 

 

168,640

 

 

Unit options and restricted share units

 

 

923

 

 

1,287

 

 

1,551

 

 

Weighted-average diluted units outstanding (2)

 

 

181,448

 

 

179,533

 

 

170,191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per unit attributable to common unitholders

 

$

0.74

 

$

0.45

 

$

0.43

 

 

Diluted earnings per unit attributable to common unitholders

 

$

0.74

 

$

0.45

 

$

0.42

 

 


(1)

For the year ended December 31, 2016, the Company declared cash dividends per preferred share/unit of $1.626 prior to redemption of the preferred shares on November 2, 2016. For the year ended December 31, 2015,  the Company declared cash dividends per preferred share/unit of $1.938.

 

(2)

For the years ended December 31, 2017, 2016 and 2015, the Company declared cash dividends per common share/unit of $1.11, $0.90, and $0.69, respectively.

 

The OP units and common units have essentially the same economic characteristics as they share equally in the total net income or loss and distributions of the Operating Partnership.  An Operating Partnership unit may be redeemed for cash, or at the Company’s option, common units on a one-for-one basis.  Outstanding noncontrolling interest units in the Operating Partnership were 1,878,253; 2,032,394 and 2,159,650 as of December 31, 2017, 2016 and 2015, respectively. There were 182,215,735; 180,083,111 and 174,667,870 common units outstanding as of December 31, 2017, 2016 and 2015, respectively.

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Common and Preferred Shares

 

On November 2, 2016, the Company redeemed all 3.1 million outstanding shares of 7.75% Series A Cumulative Redeemable Preferred Shares (the “Series A Preferred Shares”) at a cash redemption price of $25.00 per share plus accumulated and unpaid dividends up to and including the date of redemption of $0.17374 per share. The redemption price of $77.5 million for the redemption of the Series A Preferred Shares was paid by the Company from available cash balances. In connection with the redemption, the Company recognized a charge of $2.9 million related to excess redemption costs over the original net proceeds.

 

The Company maintains an at-the-market equity program that enables it to offer and sell up to 40.0 million common shares through sales agents pursuant to equity distribution agreements (the “Equity Distribution Agreements”).  The Company’s sales activity under the program for the years ended December 31, 2017, 2016, and 2015 is summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31, 

 

 

2017

 

2016

 

2015

 

 

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

Number of shares sold

 

 

1,036

 

 

4,408

 

 

8,977

Average sales price per share

 

$

29.13

 

$

31.25

 

$

26.35

Net proceeds after deducting offering costs

 

$

29,642

 

$

136,120

 

$

234,240

 

The proceeds from the sales conducted during the years ended December 31, 2017, 2016, and 2015 were used to fund acquisitions of storage properties and for general corporate purposes.  As of December 31, 2017, 2016, and 2015, 4.7 million common shares, 5.8 million common shares, and 10.2 million common shares, respectively, remained available for issuance under the Equity Distribution Agreements.

 

17.  INCOME TAXES

 

Deferred income taxes are established for temporary differences between financial reporting basis and tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse.  A valuation allowance for deferred tax assets is provided if the Company believes that it is more likely than not that all or some portion of the deferred tax asset will not be realized.  No valuation allowance was recorded as of December 31, 2017 or 2016.  The Company had net deferred tax assets of $1.4 million and $1.3 million, which are included in other assets on the Company’s consolidated balance sheets as of December 31, 2017 and 2016, respectively.  The Company believes it is more likely than not the deferred tax assets will be realized.

 

18.  PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

 

During the years ended December 31, 2017 and 2016, the Company acquired seven self-storage properties for an aggregate purchase price of approximately $80.7 million (see note 3) and 28 stores for an aggregate purchase price of approximately $403.6 million, respectively.

 

The condensed consolidated pro forma financial information set forth below reflects adjustments to the Company’s historical financial data to give effect to each of the acquisitions and related financing activity (including the issuance of common shares) that occurred during 2017 and 2016 as if each had occurred as of January 1, 2016 and 2015, respectively.  The unaudited pro forma information presented below does not purport to represent what the Company’s actual results of operations would have been for the periods indicated, nor does it purport to represent the Company’s future results of operations.

 

F-44


 

 

The following table summarizes, on a pro forma basis, the Company’s consolidated results of operations for the year ended December 31, 2017 and 2016 based on the assumptions described above:

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 

 

 

 

2017

    

2016

 

 

 

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

Pro forma revenues

 

$

560,852

 

$

523,821

 

Pro forma net income

 

$

145,941

 

$

115,269

 

Earnings per share attributable to common shareholders:

 

 

 

 

 

 

 

Basic - as reported

 

$

0.74

 

$

0.45

 

Diluted - as reported

 

$

0.74

 

$

0.45

 

Basic - as pro forma

 

$

0.80

 

$

0.63

 

Diluted - as pro forma

 

$

0.80

 

$

0.62

 

 

 

 

 

 

 

 

 

 

 

19.  SUBSEQUENT EVENTS

 

Subsequent to December 31, 2017, the Company acquired one self-storage property in Texas for a purchase price of $12.2 million. The purchase price was funded with $7.4 million of cash and $4.8 million through the issuance of 168,011 common units. Following a 13-month lock-up period, the holder may tender the common units for redemption by the Operating Partnership for a cash amount per common unit equal to the market value of an equivalent number of common shares of the Company.  The Company has the right, but not the obligation, to assume and satisfy the redemption obligation of the Operating Partnership by issuing one common share in exchange for each common unit tendered for redemption. 

 

 

 

20.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

 

The following is a summary of quarterly financial information for the years ended December 31, 2017 and 2016 (in thousands, except per share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

    

March 31, 

    

June 30, 

    

September 30, 

    

December 31, 

 

 

 

2017

 

2017

 

2017

 

2017

 

Total revenues

 

$

133,037

 

$

138,559

 

$

143,865

 

$

143,482

 

Total operating expenses

 

 

92,646

 

 

91,025

 

 

91,586

 

 

87,971

 

Net income attributable to the Company

 

 

24,986

 

 

32,458

 

 

37,297

 

 

39,547

 

Basic earnings per share

 

 

0.14

 

 

0.18

 

 

0.21

 

 

0.22

 

Diluted earnings per share

 

 

0.14

 

 

0.18

 

 

0.21

 

 

0.22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

    

March 31, 

    

June 30, 

    

September 30, 

    

December 31, 

 

 

 

2016

 

2016

 

2016

 

2016

 

Total revenues

 

$

118,871

 

$

126,526

 

$

132,096

 

$

132,546

 

Total operating expenses

 

 

90,145

 

 

93,509

 

 

92,585

 

 

90,848

 

Net income attributable to the Company

 

 

15,750

 

 

20,424

 

 

24,884

 

 

26,847

 

Basic earnings per share

 

 

0.08

 

 

0.11

 

 

0.13

 

 

0.13

 

Diluted earnings per share

 

 

0.08

 

 

0.11

 

 

0.13

 

 

0.13

 

 

The sum of quarterly earnings per share amounts do not necessarily equal the full year amounts.

 

 

 

 

F-45


 

Table of Contents

CUBESMART

SCHEDULE III

REAL ESTATE AND RELATED DEPRECIATION

December 31, 2017

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying Amount at

 

 

 

 

 

 

 

 

 

 

 

Initial Cost

 

Costs

 

December 31, 2017

 

 

 

 

 

 

 

 

  

 

  

 

  

Buildings

  

Subsequent

  

 

  

Buildings

  

 

  

Accumulated

  

Year

 

 

 

Square

 

 

 

 

 

&

 

to

 

 

 

&

 

 

 

Depreciation

 

Acquired/

 

Description

 

Footage

 

Encumbrances

 

Land

 

Improvements

 

Acquisition

 

Land

 

Improvements

 

Total

 

(B)

 

Developed

 

Chandler I, AZ

 

47,680

 

 

 

327

 

1,257

 

399

 

327

 

1,480

 

1,807

 

608

 

2005

 

Chandler II, AZ

 

82,915

 

 

 

1,518

 

7,485

 

108

 

1,518

 

7,592

 

9,110

 

1,045

 

2013

 

Gilbert I, AZ

 

57,200

 

 

 

951

 

4,688

 

90

 

951

 

4,779

 

5,730

 

730

 

2013

 

Gilbert II, AZ

 

114,080

 

 

 

1,199

 

11,846

 

152

 

1,199

 

11,998

 

13,197

 

383

 

2016

 

Glendale, AZ

 

56,807

 

 

 

201

 

2,265

 

1,195

 

418

 

2,899

 

3,317

 

1,356

 

1998

 

Green Valley, AZ

 

25,050

 

 

 

298

 

1,153

 

196

 

298

 

1,139

 

1,437

 

437

 

2005

 

Mesa I, AZ

 

52,575

 

 

 

920

 

2,739

 

311

 

921

 

2,603

 

3,524

 

1,034

 

2006

 

Mesa II, AZ

 

45,511

 

 

 

731

 

2,176

 

284

 

731

 

2,132

 

2,863

 

854

 

2006

 

Mesa III, AZ

 

59,629

 

 

 

706

 

2,101

 

254

 

706

 

1,971

 

2,677

 

805

 

2006

 

Peoria, AZ

 

110,835

 

 

 

1,436

 

7,082

 

241

 

1,436

 

7,322

 

8,758

 

596

 

2015

 

Phoenix I, AZ

 

101,275

 

 

 

1,134

 

3,376

 

560

 

1,135

 

3,284

 

4,419

 

1,315

 

2006

 

Phoenix II, AZ

 

83,160

 

 

 

756

 

2,251

 

1,636

 

847

 

3,187

 

4,034

 

1,210

 

2006/2011

 

Phoenix III, AZ

 

121,730

 

 

 

2,115

 

10,429

 

130

 

2,115

 

10,559

 

12,674

 

1,295

 

2014

 

Phoenix IV, AZ

 

69,610

 

 

 

930

 

12,277

 

85

 

930

 

12,363

 

13,293

 

454

 

2016

 

Queen Creek, AZ

 

94,462

 

 

 

1,159

 

5,716

 

84

 

1,159

 

5,800

 

6,959

 

513

 

2015

 

Scottsdale, AZ

 

80,725

 

 

 

443

 

4,879

 

1,758

 

883

 

5,521

 

6,404

 

2,638

 

1998

 

Surprise , AZ

 

72,325

 

 

 

584

 

3,761

 

107

 

584

 

3,868

 

4,452

 

256

 

2015

 

Tempe I, AZ

 

53,890

 

 

 

749

 

2,159

 

575

 

749

 

2,424

 

3,173

 

846

 

2005

 

Tempe II, AZ

 

68,409

 

 

 

588

 

2,898

 

2,153

 

588

 

5,051

 

5,639

 

761

 

2013

 

Tucson I, AZ

 

59,800

 

 

 

188

 

2,078

 

1,076

 

384

 

2,650

 

3,034

 

1,258

 

1998

 

Tucson II, AZ

 

43,950

 

 

 

188

 

2,078

 

1,090

 

391

 

2,683

 

3,074

 

1,241

 

1998

 

Tucson III, AZ

 

49,820

 

 

 

532

 

2,048

 

258

 

533

 

1,945

 

2,478

 

771

 

2005

 

Tucson IV, AZ

 

48,040

 

 

 

674

 

2,595

 

371

 

675

 

2,545

 

3,220

 

984

 

2005

 

Tucson V, AZ

 

45,134

 

 

 

515

 

1,980

 

357

 

515

 

1,981

 

2,496

 

786

 

2005

 

Tucson VI, AZ

 

40,790

 

 

 

440

 

1,692

 

229

 

430

 

1,623

 

2,053

 

648

 

2005

 

Tucson VII, AZ

 

52,663

 

 

 

670

 

2,576

 

324

 

670

 

2,486

 

3,156

 

994

 

2005

 

Tucson VIII, AZ

 

46,650

 

 

 

589

 

2,265

 

336

 

589

 

2,250

 

2,839

 

888

 

2005

 

Tucson IX, AZ

 

67,496

 

 

 

724

 

2,786

 

469

 

725

 

2,734

 

3,459

 

1,075

 

2005

 

Tucson X, AZ

 

46,350

 

 

 

424

 

1,633

 

327

 

425

 

1,650

 

2,075

 

629

 

2005

 

Tucson XI, AZ

 

42,700

 

 

 

439

 

1,689

 

416

 

439

 

1,814

 

2,253

 

767

 

2005

 

Tucson XII, AZ

 

42,275

 

 

 

671

 

2,582

 

343

 

672

 

2,497

 

3,169

 

965

 

2005

 

Tucson XIII, AZ

 

45,800

 

 

 

587

 

2,258

 

350

 

587

 

2,238

 

2,825

 

886

 

2005

 

Tucson XIV, AZ

 

48,995

 

 

 

707

 

2,721

 

468

 

708

 

2,641

 

3,349

 

1,058

 

2005

 

Benicia, CA

 

74,770

 

 

 

2,392

 

7,028

 

305

 

2,392

 

6,249

 

8,641

 

2,426

 

2005

 

Citrus Heights, CA

 

75,620

 

 

 

1,633

 

4,793

 

234

 

1,634

 

4,253

 

5,887

 

1,720

 

2005

 

Corona, CA

 

94,975

 

 

 

2,107

 

10,385

 

78

 

2,107

 

10,462

 

12,569

 

1,054

 

2014

 

Diamond Bar, CA

 

103,558

 

 

 

2,522

 

7,404

 

273

 

2,524

 

6,585

 

9,109

 

2,645

 

2005

 

Escondido, CA

 

143,645

 

 

 

3,040

 

11,804

 

223

 

3,040

 

9,669

 

12,709

 

3,140

 

2007

 

Fallbrook, CA

 

45,926

 

 

 

133

 

1,492

 

1,849

 

432

 

2,832

 

3,264

 

1,333

 

1997

 

Fremont, CA

 

51,324

 

 

 

1,158

 

5,711

 

164

 

1,158

 

5,876

 

7,034

 

743

 

2014

 

Lancaster, CA

 

60,475

 

 

 

390

 

2,247

 

1,059

 

556

 

2,571

 

3,127

 

1,034

 

2001

 

Long Beach, CA

 

124,571

 

 

 

3,138

 

14,368

 

903

 

3,138

 

13,335

 

16,473

 

4,995

 

2006

 

Murrieta, CA

 

49,775

 

 

 

1,883

 

5,532

 

249

 

1,903

 

4,915

 

6,818

 

1,910

 

2005

 

North Highlands, CA

 

57,094

 

 

 

868

 

2,546

 

429

 

868

 

2,517

 

3,385

 

1,021

 

2005

 

Ontario, CA

 

93,590

 

 

 

1,705

 

8,401

 

345

 

1,705

 

8,745

 

10,450

 

897

 

2014

 

Orangevale, CA

 

50,542

 

 

 

1,423

 

4,175

 

312

 

1,423

 

3,813

 

5,236

 

1,546

 

2005

 

Pleasanton, CA

 

83,600

 

 

 

2,799

 

8,222

 

215

 

2,799

 

7,194

 

9,993

 

2,789

 

2005

 

Rancho Cordova, CA

 

53,978

 

 

 

1,094

 

3,212

 

390

 

1,095

 

3,059

 

4,154

 

1,201

 

2005

 

Rialto I, CA

 

57,391

 

 

 

899

 

4,118

 

212

 

899

 

3,758

 

4,657

 

1,434

 

2006

 

Rialto II, CA

 

99,783

 

 

 

277

 

3,098

 

1,756

 

672

 

4,057

 

4,729

 

2,030

 

1997

 

Riverside I, CA

 

67,220

 

 

 

1,351

 

6,183

 

598

 

1,351

 

5,949

 

7,300

 

2,232

 

2006

 

Riverside II, CA

 

85,176

 

 

 

1,170

 

5,359

 

372

 

1,170

 

4,941

 

6,111

 

1,900

 

2006

 

Roseville, CA

 

59,944

 

 

 

1,284

 

3,767

 

425

 

1,284

 

3,593

 

4,877

 

1,459

 

2005

 

Sacramento I, CA

 

50,664

 

 

 

1,152

 

3,380

 

324

 

1,152

 

3,144

 

4,296

 

1,266

 

2005

 

Sacramento II, CA

 

111,736

 

 

 

2,085

 

6,750

 

327

 

2,086

 

6,413

 

8,499

 

1,547

 

2005/2017

 

San Bernardino I, CA

 

31,070

 

 

 

51

 

572

 

1,188

 

182

 

1,432

 

1,614

 

660

 

1997

 

San Bernardino II, CA

 

41,546

 

 

 

112

 

1,251

 

1,359

 

306

 

2,067

 

2,373

 

952

 

1997

 

San Bernardino III, CA

 

35,416

 

 

 

98

 

1,093

 

1,321

 

242

 

1,918

 

2,160

 

889

 

1997

 

San Bernardino IV, CA

 

83,227

 

 

 

1,872

 

5,391

 

219

 

1,872

 

4,894

 

6,766

 

1,882

 

2005

 

San Bernardino V, CA

 

56,745

 

 

 

783

 

3,583

 

571

 

783

 

3,628

 

4,411

 

1,394

 

2006

 

San Bernardino VII, CA

 

78,809

 

 

 

1,475

 

6,753

 

309

 

1,290

 

6,315

 

7,605

 

2,444

 

2006

 

San Bernardino VIII, CA

 

103,567

 

 

 

1,691

 

7,741

 

603

 

1,692

 

6,391

 

8,083

 

2,501

 

2006

 

San Marcos, CA

 

37,425

 

 

 

775

 

2,288

 

175

 

776

 

2,093

 

2,869

 

835

 

2005

 

Santa Ana, CA

 

63,916

 

 

 

1,223

 

5,600

 

436

 

1,223

 

5,258

 

6,481

 

1,985

 

2006

 

South Sacramento, CA

 

52,390

 

 

 

790

 

2,319

 

344

 

791

 

2,244

 

3,035

 

891

 

2005

 

Spring Valley, CA

 

55,035

 

 

 

1,178

 

5,394

 

848

 

1,178

 

5,498

 

6,676

 

2,075

 

2006

 

Temecula I, CA

 

81,340

 

 

 

660

 

4,735

 

1,001

 

899

 

5,165

 

6,064

 

2,307

 

1998

 

Temecula II, CA

 

84,520

 

 

 

3,080

 

5,839

 

708

 

3,080

 

5,612

 

8,692

 

1,736

 

2007

 

Vista I, CA

 

74,238

 

 

 

711

 

4,076

 

2,346

 

1,118

 

5,099

 

6,217

 

2,059

 

2001

 

Vista II, CA

 

147,753

 

 

 

4,629

 

13,599

 

174

 

4,629

 

11,712

 

16,341

 

4,590

 

2005

 

Walnut, CA

 

50,708

 

 

 

1,578

 

4,635

 

326

 

1,595

 

4,223

 

5,818

 

1,644

 

2005

 

West Sacramento, CA

 

39,765

 

(A)

 

1,222

 

3,590

 

216

 

1,222

 

3,239

 

4,461

 

1,278

 

2005

 

Westminster, CA

 

68,393

 

 

 

1,740

 

5,142

 

379

 

1,743

 

4,634

 

6,377

 

1,880

 

2005

 

Aurora, CO

 

75,717

 

 

 

1,343

 

2,986

 

559

 

1,343

 

2,996

 

4,339

 

1,102

 

2005

 

Centennial, CO

 

62,400

 

 

 

1,281

 

8,958

 

92

 

1,281

 

9,049

 

10,330

 

452

 

2016

 

Colorado Springs I, CO

 

47,975

 

 

 

771

 

1,717

 

409

 

771

 

1,783

 

2,554

 

683

 

2005

 

Colorado Springs II, CO

 

62,400

 

 

 

657

 

2,674

 

269

 

656

 

2,435

 

3,091

 

934

 

2006

 

Denver I, CO

 

59,200

 

 

 

673

 

2,741

 

227

 

646

 

2,490

 

3,136

 

1,010

 

2006

 

Denver II, CO

 

74,390

 

 

 

1,430

 

7,053

 

120

 

1,430

 

7,172

 

8,602

 

1,213

 

2012

 

Denver III, CO

 

76,025

 

 

 

1,828

 

12,109

 

65

 

1,828

 

12,174

 

14,002

 

496

 

2016

 

Federal Heights, CO

 

54,770

 

 

 

878

 

1,953

 

275

 

879

 

1,830

 

2,709

 

702

 

2005

 

Golden, CO

 

87,800

 

 

 

1,683

 

3,744

 

564

 

1,684

 

3,636

 

5,320

 

1,367

 

2005

 

Littleton, CO

 

53,490

 

 

 

1,268

 

2,820

 

388

 

1,268

 

2,701

 

3,969

 

983

 

2005

 

Northglenn, CO

 

43,102

 

 

 

862

 

1,917

 

432

 

662

 

2,135

 

2,797

 

750

 

2005

 

Bloomfield, CT

 

48,700

 

 

 

78

 

880

 

2,408

 

360

 

2,678

 

3,038

 

1,180

 

1997

 

 

F-46


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying Amount at

 

 

 

 

 

 

 

 

 

 

 

Initial Cost

 

Costs

 

December 31, 2017

 

 

 

 

 

 

  

 

  

 

  

 

  

Buildings

  

Subsequent

  

 

  

Buildings

  

 

  

Accumulated

  

Year

 

 

 

Square

 

 

 

 

 

&

 

to

 

 

 

&

 

 

 

Depreciation

 

Acquired/

 

Description 

 

Footage

 

Encumbrances

 

Land

 

Improvements

 

Acquisition

 

Land

 

Improvements

 

Total

 

(B)

 

Developed

 

Branford, CT

 

50,629

 

 

 

217

 

2,433

 

1,516

 

504

 

3,236

 

3,740

 

1,587

 

1995

 

Bristol, CT

 

47,725

 

 

 

1,819

 

3,161

 

104

 

1,819

 

2,801

 

4,620

 

1,211

 

2005

 

East Windsor, CT

 

45,966

 

 

 

744

 

1,294

 

508

 

744

 

1,531

 

2,275

 

680

 

2005

 

Enfield, CT

 

52,875

 

 

 

424

 

2,424

 

460

 

473

 

2,107

 

2,580

 

890

 

2001

 

Gales Ferry, CT

 

54,905

 

 

 

240

 

2,697

 

1,550

 

489

 

3,555

 

4,044

 

1,878

 

1995

 

Manchester I, CT

 

46,925

 

 

 

540

 

3,096

 

476

 

563

 

2,576

 

3,139

 

1,019

 

2002

 

Manchester II, CT

 

52,725

 

 

 

996

 

1,730

 

325

 

996

 

1,748

 

2,744

 

739

 

2005

 

Manchester III, CT

 

60,113

 

 

 

671

 

3,308

 

157

 

671

 

3,465

 

4,136

 

444

 

2014

 

Milford, CT

 

44,885

 

 

 

87

 

1,050

 

1,210

 

274

 

1,767

 

2,041

 

849

 

1996

 

Monroe, CT

 

58,500

 

 

 

2,004

 

3,483

 

656

 

2,004

 

3,454

 

5,458

 

1,557

 

2005

 

Mystic, CT

 

50,825

 

 

 

136

 

1,645

 

2,071

 

410

 

2,958

 

3,368

 

1,406

 

1996

 

Newington I, CT

 

42,620

 

 

 

1,059

 

1,840

 

272

 

1,059

 

1,818

 

2,877

 

764

 

2005

 

Newington II, CT

 

36,140

 

 

 

911

 

1,584

 

291

 

911

 

1,601

 

2,512

 

685

 

2005

 

Norwalk I, CT

 

30,160

 

 

 

646

 

3,187

 

58

 

646

 

3,244

 

3,890

 

569

 

2012

 

Norwalk II, CT

 

78,175

 

 

 

1,171

 

15,422

 

108

 

1,171

 

15,530

 

16,701

 

784

 

2016

 

Old Saybrook I, CT

 

87,000

 

 

 

3,092

 

5,374

 

706

 

3,092

 

5,226

 

8,318

 

2,247

 

2005

 

Old Saybrook II, CT

 

26,425

 

 

 

1,135

 

1,973

 

254

 

1,135

 

1,899

 

3,034

 

850

 

2005

 

Shelton, CT

 

78,405

 

 

 

1,613

 

9,032

 

217

 

1,613

 

8,165

 

9,778

 

1,614

 

2011

 

South Windsor, CT

 

72,025

 

 

 

90

 

1,127

 

1,493

 

272

 

2,228

 

2,500

 

1,018

 

1996

 

Stamford, CT

 

28,907

 

 

 

1,941

 

3,374

 

188

 

1,941

 

3,022

 

4,963

 

1,273

 

2005

 

Wilton, CT

 

84,515

 

 

 

2,409

 

12,261

 

404

 

2,421

 

12,727

 

15,148

 

2,353

 

2012

 

Washington I, DC

 

62,685

 

(A)

 

871

 

12,759

 

536

 

894

 

10,573

 

11,467

 

3,328

 

2008

 

Washington II, DC

 

82,697

 

 

 

3,152

 

13,612

 

202

 

3,154

 

12,039

 

15,193

 

2,302

 

2011

 

Washington III, DC

 

78,340

 

 

 

4,469

 

15,438

 

58

 

4,469

 

15,497

 

19,966

 

894

 

2016

 

Washington IV, DC

 

71,971

 

 

 

6,359

 

20,417

 

 2

 

6,359

 

20,419

 

26,778

 

133

 

2017

 

Boca Raton, FL

 

37,968

 

 

 

529

 

3,054

 

1,605

 

813

 

3,551

 

4,364

 

1,459

 

2001

 

Boynton Beach I, FL

 

61,725

 

 

 

667

 

3,796

 

1,927

 

958

 

4,392

 

5,350

 

1,795

 

2001

 

Boynton Beach II, FL

 

61,514

 

 

 

1,030

 

2,968

 

443

 

1,030

 

2,973

 

4,003

 

1,145

 

2005

 

Boynton Beach III, FL

 

67,393

 

 

 

1,225

 

6,037

 

247

 

1,225

 

6,285

 

7,510

 

718

 

2014

 

Boynton Beach IV, FL

 

76,098

 

 

 

1,455

 

7,171

 

54

 

1,455

 

7,226

 

8,681

 

576

 

2015

 

Bradenton I, FL

 

68,398

 

 

 

1,180

 

3,324

 

250

 

1,180

 

3,053

 

4,233

 

1,216

 

2004

 

Bradenton II, FL

 

88,063

 

 

 

1,931

 

5,561

 

1,131

 

1,931

 

5,596

 

7,527

 

2,221

 

2004

 

Cape Coral I, FL

 

76,857

 

 

 

472

 

2,769

 

2,574

 

830

 

4,040

 

4,870

 

1,997

 

2000

 

Cape Coral II, FL

 

67,955

 

 

 

1,093

 

5,387

 

99

 

1,093

 

5,485

 

6,578

 

545

 

2014

 

Coconut Creek I, FL

 

78,846

 

 

 

1,189

 

5,863

 

173

 

1,189

 

6,035

 

7,224

 

1,030

 

2012

 

Coconut Creek II, FL

 

90,147

 

 

 

1,937

 

9,549

 

174

 

1,937

 

9,723

 

11,660

 

1,223

 

2014

 

Dania Beach, FL

 

180,588

 

 

 

3,584

 

10,324

 

1,656

 

3,584

 

10,442

 

14,026

 

4,087

 

2004

 

Dania, FL

 

58,165

 

 

 

205

 

2,068

 

1,519

 

481

 

2,888

 

3,369

 

1,431

 

1996

 

Davie, FL

 

80,985

 

 

 

1,268

 

7,183

 

1,240

 

1,373

 

6,152

 

7,525

 

2,384

 

2001

 

Deerfield Beach, FL

 

57,230

 

 

 

946

 

2,999

 

2,001

 

1,311

 

4,490

 

5,801

 

2,044

 

1998

 

Delray Beach I, FL

 

67,833

 

 

 

798

 

4,539

 

822

 

883

 

4,075

 

4,958

 

1,707

 

2001

 

Delray Beach II, FL

 

75,710

 

 

 

957

 

4,718

 

222

 

957

 

4,940

 

5,897

 

737

 

2013

 

Delray Beach III, FL

 

94,377

 

 

 

2,086

 

10,286

 

155

 

2,086

 

10,442

 

12,528

 

1,174

 

2014

 

Delray Beach IV, FL

 

97,945

 

 

 

2,208

 

14,384

 

 5

 

2,208

 

14,388

 

16,596

 

36

 

2017

 

Ft. Lauderdale I, FL

 

70,093

 

 

 

937

 

3,646

 

2,490

 

1,384

 

5,455

 

6,839

 

2,490

 

1999

 

Ft. Lauderdale II, FL

 

49,577

 

 

 

862

 

4,250

 

86

 

862

 

4,337

 

5,199

 

557

 

2013

 

Ft. Myers I, FL

 

67,534

 

 

 

303

 

3,329

 

940

 

328

 

3,269

 

3,597

 

1,504

 

1999

 

Ft. Myers II, FL

 

83,375

 

 

 

1,030

 

5,080

 

135

 

1,030

 

5,215

 

6,245

 

592

 

2014

 

Ft. Myers III, FL

 

81,554

 

 

 

1,148

 

5,658

 

155

 

1,148

 

5,814

 

6,962

 

657

 

2014

 

Jacksonville I, FL

 

79,705

 

 

 

1,862

 

5,362

 

156

 

1,862

 

4,836

 

6,698

 

1,742

 

2005

 

Jacksonville II, FL

 

64,970

 

 

 

950

 

7,004

 

170

 

950

 

5,626

 

6,576

 

1,822

 

2007

 

Jacksonville III, FL

 

65,840

 

 

 

860

 

7,409

 

1,010

 

1,670

 

6,018

 

7,688

 

1,960

 

2007

 

Jacksonville IV, FL

 

77,525

 

 

 

870

 

8,049

 

1,159

 

1,651

 

7,133

 

8,784

 

2,297

 

2007

 

Jacksonville V, FL

 

82,523

 

 

 

1,220

 

8,210

 

362

 

1,220

 

6,835

 

8,055

 

2,230

 

2007

 

Jacksonville VI, FL

 

67,375

 

 

 

755

 

3,725

 

122

 

755

 

3,846

 

4,601

 

384

 

2014

 

Kendall, FL

 

75,495

 

(A)

 

2,350

 

8,106

 

476

 

2,350

 

6,808

 

9,158

 

2,156

 

2007

 

Lake Worth I, FL

 

160,622

 

 

 

183

 

6,597

 

7,507

 

354

 

10,905

 

11,259

 

4,972

 

1998

 

Lake Worth II, FL

 

86,924

 

 

 

1,552

 

7,654

 

176

 

1,552

 

7,829

 

9,381

 

922

 

2014

 

Lake Worth III, FL

 

92,510

 

 

 

957

 

4,716

 

211

 

957

 

4,928

 

5,885

 

421

 

2015

 

Lakeland, FL

 

49,095

 

 

 

81

 

896

 

1,247

 

256

 

1,556

 

1,812

 

737

 

1994

 

Leisure City, FL

 

56,225

 

 

 

409

 

2,018

 

164

 

409

 

2,181

 

2,590

 

384

 

2012

 

Lutz I, FL

 

66,795

 

 

 

901

 

2,478

 

264

 

901

 

2,356

 

3,257

 

928

 

2004

 

Lutz II, FL

 

69,232

 

 

 

992

 

2,868

 

400

 

992

 

2,773

 

3,765

 

1,077

 

2004

 

Margate I, FL

 

53,660

 

 

 

161

 

1,763

 

2,202

 

399

 

3,285

 

3,684

 

1,603

 

1996

 

Margate II, FL

 

65,380

 

 

 

132

 

1,473

 

1,859

 

383

 

2,712

 

3,095

 

1,286

 

1996

 

Merritt Island, FL

 

50,261

 

 

 

716

 

2,983

 

667

 

796

 

2,738

 

3,534

 

1,038

 

2002

 

Miami I, FL

 

46,500

 

 

 

179

 

1,999

 

1,850

 

484

 

2,850

 

3,334

 

1,373

 

1996

 

Miami II, FL

 

66,960

 

 

 

253

 

2,544

 

1,619

 

561

 

3,332

 

3,893

 

1,649

 

1996

 

Miami III, FL

 

151,620

 

 

 

4,577

 

13,185

 

867

 

4,577

 

12,228

 

16,805

 

4,537

 

2005

 

Miami IV, FL

 

76,695

 

 

 

1,852

 

10,494

 

936

 

1,963

 

9,869

 

11,832

 

2,126

 

2011

 

Miramar, FL

 

80,130

 

 

 

1,206

 

5,944

 

80

 

1,206

 

6,025

 

7,231

 

881

 

2013

 

Naples I, FL

 

48,100

 

 

 

90

 

1,010

 

2,631

 

270

 

3,100

 

3,370

 

1,469

 

1996

 

Naples II, FL

 

65,850

 

 

 

148

 

1,652

 

4,294

 

558

 

5,252

 

5,810

 

2,535

 

1997

 

Naples III, FL

 

80,021

 

 

 

139

 

1,561

 

4,147

 

598

 

4,079

 

4,677

 

1,994

 

1997

 

Naples IV, FL

 

40,625

 

 

 

262

 

2,980

 

613

 

407

 

2,996

 

3,403

 

1,473

 

1998

 

New Smyrna Beach, FL

 

81,454

 

 

 

1,261

 

6,215

 

193

 

1,261

 

6,407

 

7,668

 

647

 

2014

 

North Palm Beach, FL

 

46,275

 

 

 

1,374

 

7,649

 

29

 

1,374

 

7,679

 

9,053

 

234

 

2017

 

Oakland Park, FL

 

63,231

 

 

 

3,007

 

10,145

 

11

 

3,007

 

10,157

 

13,164

 

47

 

2017

 

Ocoee, FL

 

76,150

 

 

 

1,286

 

3,705

 

198

 

1,286

 

3,386

 

4,672

 

1,280

 

2005

 

Orange City, FL

 

59,580

 

 

 

1,191

 

3,209

 

230

 

1,191

 

2,952

 

4,143

 

1,180

 

2004

 

Orlando II, FL

 

63,184

 

 

 

1,589

 

4,576

 

202

 

1,589

 

4,138

 

5,727

 

1,565

 

2005

 

Orlando III, FL

 

101,510

 

 

 

1,209

 

7,768

 

742

 

1,209

 

7,122

 

8,331

 

2,408

 

2006

 

Orlando IV, FL

 

76,601

 

 

 

633

 

3,587

 

184

 

633

 

3,268

 

3,901

 

734

 

2010

 

Orlando V, FL

 

75,327

 

 

 

950

 

4,685

 

127

 

950

 

4,811

 

5,761

 

803

 

2012

 

Orlando VI, FL

 

67,275

 

 

 

640

 

3,154

 

141

 

640

 

3,295

 

3,935

 

334

 

2014

 

Oviedo, FL

 

49,276

 

 

 

440

 

2,824

 

607

 

440

 

2,759

 

3,199

 

963

 

2006

 

Palm Coast I, FL

 

47,400

 

 

 

555

 

2,735

 

110

 

555

 

2,845

 

3,400

 

366

 

2014

 

Palm Coast II, FL

 

122,490

 

 

 

1,511

 

7,450

 

353

 

1,511

 

7,804

 

9,315

 

999

 

2014

 

Palm Harbor, FL

 

82,685

 

 

 

2,457

 

16,178

 

118

 

2,457

 

16,297

 

18,754

 

782

 

2016

 

Pembroke Pines, FL

 

67,321

 

 

 

337

 

3,772

 

2,808

 

953

 

5,434

 

6,387

 

2,633

 

1997

 

Royal Palm Beach II, FL

 

81,238

 

 

 

1,640

 

8,607

 

301

 

1,640

 

7,247

 

8,887

 

2,358

 

2007

 

Sanford I, FL

 

61,810

 

 

 

453

 

2,911

 

187

 

453

 

2,532

 

2,985

 

848

 

2006

 

Sanford II, FL

 

69,755

 

 

 

1,003

 

4,944

 

215

 

1,003

 

5,159

 

6,162

 

526

 

2014

 

 

F-47


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying Amount at

 

 

 

 

 

 

 

 

 

 

 

Initial Cost

 

Costs

 

December 31, 2017

 

 

 

 

 

 

  

 

  

 

  

 

  

Buildings

  

Subsequent

  

 

  

Buildings

  

 

  

Accumulated

  

Year

 

 

 

Square

 

 

 

 

 

&

 

to

 

 

 

&

 

 

 

Depreciation

 

Acquired/

 

Description 

 

Footage

 

Encumbrances

 

Land

 

Improvements

 

Acquisition

 

Land

 

Improvements

 

Total

 

(B)

 

Developed

 

Sarasota, FL

 

71,142

 

 

 

333

 

3,656

 

1,399

 

529

 

3,842

 

4,371

 

1,739

 

1999

 

St. Augustine, FL

 

59,725

 

 

 

135

 

1,515

 

3,411

 

383

 

4,322

 

4,705

 

2,126

 

1996

 

St. Petersburg, FL

 

66,025

 

 

 

2,721

 

10,173

 

422

 

2,721

 

10,594

 

13,315

 

508

 

2016

 

Stuart, FL

 

86,756

 

 

 

324

 

3,625

 

3,185

 

685

 

5,823

 

6,508

 

2,781

 

1997

 

SW Ranches, FL

 

64,975

 

 

 

1,390

 

7,598

 

284

 

1,390

 

6,020

 

7,410

 

1,938

 

2007

 

Tampa I, FL

 

83,938

 

 

 

2,670

 

6,249

 

258

 

2,670

 

5,154

 

7,824

 

1,659

 

2007

 

Tampa II, FL

 

74,790

 

 

 

2,291

 

10,262

 

123

 

2,291

 

10,385

 

12,676

 

495

 

2016

 

West Palm Beach I, FL

 

66,906

 

 

 

719

 

3,420

 

1,667

 

835

 

3,841

 

4,676

 

1,602

 

2001

 

West Palm Beach II, FL

 

94,353

 

 

 

2,129

 

8,671

 

439

 

2,129

 

7,805

 

9,934

 

3,132

 

2004

 

West Palm Beach III, FL

 

77,410

 

 

 

804

 

3,962

 

74

 

804

 

4,036

 

4,840

 

655

 

2012

 

West Palm Beach IV, FL

 

102,742

 

 

 

1,499

 

7,392

 

318

 

1,499

 

7,709

 

9,208

 

883

 

2014

 

Winter Park, FL

 

54,416

 

 

 

866

 

4,268

 

92

 

866

 

4,360

 

5,226

 

446

 

2014

 

Alpharetta, GA

 

90,501

 

 

 

806

 

4,720

 

1,060

 

967

 

4,032

 

4,999

 

1,622

 

2001

 

Atlanta, GA

 

66,625

 

 

 

822

 

4,053

 

73

 

822

 

4,127

 

4,949

 

706

 

2012

 

Austell, GA

 

83,655

 

 

 

1,635

 

4,711

 

381

 

1,643

 

4,436

 

6,079

 

1,485

 

2006

 

Decatur, GA

 

145,320

 

 

 

616

 

6,776

 

400

 

616

 

6,183

 

6,799

 

3,118

 

1998

 

Duluth, GA

 

70,885

 

 

 

373

 

2,044

 

216

 

373

 

1,935

 

2,308

 

400

 

2011

 

Lawrenceville, GA

 

73,740

 

 

 

546

 

2,903

 

424

 

546

 

2,910

 

3,456

 

614

 

2011

 

Lithia Springs, GA

 

66,750

 

 

 

748

 

5,552

 

125

 

748

 

5,675

 

6,423

 

380

 

2015

 

Norcross I, GA

 

85,420

 

 

 

514

 

2,930

 

954

 

632

 

2,969

 

3,601

 

1,171

 

2001

 

Norcross II, GA

 

52,595

 

 

 

366

 

2,025

 

224

 

366

 

1,965

 

2,331

 

414

 

2011

 

Norcross III, GA

 

46,955

 

 

 

938

 

4,625

 

70

 

938

 

4,696

 

5,634

 

876

 

2012

 

Norcross IV, GA

 

57,505

 

 

 

576

 

2,839

 

117

 

576

 

2,956

 

3,532

 

503

 

2012

 

Peachtree City I, GA

 

49,875

 

 

 

435

 

2,532

 

788

 

529

 

2,541

 

3,070

 

997

 

2001

 

Peachtree City II, GA

 

59,950

 

 

 

398

 

1,963

 

120

 

398

 

2,084

 

2,482

 

350

 

2012

 

Smyrna, GA

 

57,015

 

 

 

750

 

4,271

 

318

 

750

 

3,471

 

4,221

 

1,414

 

2001

 

Snellville, GA

 

79,950

 

 

 

1,660

 

4,781

 

355

 

1,660

 

4,473

 

6,133

 

1,477

 

2007

 

Suwanee I, GA

 

85,125

 

 

 

1,737

 

5,010

 

343

 

1,737

 

4,653

 

6,390

 

1,534

 

2007

 

Suwanee II, GA

 

80,340

 

 

 

800

 

6,942

 

93

 

622

 

5,831

 

6,453

 

1,897

 

2007

 

Villa Rica, GA

 

65,281

 

 

 

757

 

5,616

 

147

 

757

 

5,763

 

6,520

 

385

 

2015

 

Addison, IL

 

31,575

 

 

 

428

 

3,531

 

475

 

428

 

3,505

 

3,933

 

1,369

 

2004

 

Aurora, IL

 

73,985

 

 

 

644

 

3,652

 

203

 

644

 

3,335

 

3,979

 

1,311

 

2004

 

Bartlett, IL

 

51,395

 

 

 

931

 

2,493

 

306

 

931

 

2,395

 

3,326

 

944

 

2004

 

Bellwood, IL

 

86,350

 

 

 

1,012

 

5,768

 

1,070

 

1,012

 

5,103

 

6,115

 

2,004

 

2001

 

Blue Island, IL

 

55,125

 

 

 

633

 

3,120

 

47

 

633

 

3,167

 

3,800

 

281

 

2015

 

Bolingbrook, IL

 

82,425

 

 

 

1,675

 

8,254

 

175

 

1,675

 

8,430

 

10,105

 

860

 

2014

 

Chicago I, IL

 

95,845

 

 

 

2,667

 

13,118

 

953

 

2,667

 

14,070

 

16,737

 

1,453

 

2014

 

Chicago II, IL

 

78,585

 

 

 

833

 

4,035

 

73

 

833

 

4,108

 

4,941

 

416

 

2014

 

Chicago III, IL

 

84,990

 

 

 

2,427

 

11,962

 

813

 

2,427

 

12,775

 

15,202

 

1,327

 

2014

 

Chicago IV, IL

 

60,495

 

 

 

1,296

 

6,385

 

56

 

1,296

 

6,442

 

7,738

 

564

 

2015

 

Chicago V, IL

 

51,775

 

 

 

1,044

 

5,144

 

53

 

1,044

 

5,197

 

6,241

 

456

 

2015

 

Chicago VI, IL

 

71,785

 

 

 

1,596

 

9,535

 

47

 

1,596

 

9,582

 

11,178

 

483

 

2016

 

Chicago VII, IL

 

91,292

 

 

 

 —

 

11,191

 

290

 

 —

 

11,481

 

11,481

 

58

 

2017

 

Countryside, IL

 

97,356

 

 

 

2,607

 

12,684

 

185

 

2,607

 

12,870

 

15,477

 

1,303

 

2014

 

Des Plaines, IL

 

69,450

 

 

 

1,564

 

4,327

 

815

 

1,564

 

4,503

 

6,067

 

1,703

 

2004

 

Downers Grove, IL

 

71,625

 

 

 

1,498

 

13,153

 

23

 

1,498

 

13,176

 

14,674

 

678

 

2016

 

Elk Grove Village, IL

 

64,054

 

 

 

1,446

 

3,535

 

306

 

1,446

 

3,311

 

4,757

 

1,348

 

2004

 

Evanston, IL

 

57,715

 

 

 

1,103

 

5,440

 

218

 

1,103

 

5,657

 

6,760

 

848

 

2013

 

Glenview, IL

 

100,085

 

 

 

3,740

 

10,367

 

578

 

3,740

 

9,478

 

13,218

 

3,719

 

2004

 

Gurnee, IL

 

80,300

 

 

 

1,521

 

5,440

 

380

 

1,521

 

5,056

 

6,577

 

2,004

 

2004

 

Hanover, IL

 

41,190

 

 

 

1,126

 

2,197

 

307

 

1,126

 

2,166

 

3,292

 

862

 

2004

 

Harvey, IL

 

60,090

 

 

 

869

 

3,635

 

354

 

869

 

3,447

 

4,316

 

1,324

 

2004

 

Joliet, IL

 

72,865

 

 

 

547

 

4,704

 

251

 

547

 

4,296

 

4,843

 

1,703

 

2004

 

Kildeer, IL

 

74,463

 

 

 

2,102

 

2,187

 

4,570

 

1,997

 

6,554

 

8,551

 

979

 

2004

 

Lombard, IL

 

58,241

 

 

 

1,305

 

3,938

 

932

 

1,305

 

4,264

 

5,569

 

1,679

 

2004

 

Maywood, IL

 

60,225

 

 

 

749

 

3,689

 

31

 

749

 

3,720

 

4,469

 

325

 

2015

 

Mount Prospect, IL

 

64,950

 

 

 

1,701

 

3,114

 

645

 

1,701

 

3,306

 

5,007

 

1,249

 

2004

 

Mundelein, IL

 

44,700

 

 

 

1,498

 

2,782

 

412

 

1,498

 

2,778

 

4,276

 

1,052

 

2004

 

North Chicago, IL

 

53,400

 

 

 

1,073

 

3,006

 

510

 

1,073

 

3,031

 

4,104

 

1,183

 

2004

 

Plainfield I, IL

 

53,900

 

 

 

1,770

 

1,715

 

346

 

1,740

 

1,768

 

3,508

 

667

 

2004

 

Plainfield II, IL

 

51,900

 

 

 

694

 

2,000

 

285

 

694

 

1,952

 

2,646

 

702

 

2005

 

Riverwoods, IL

 

73,915

 

 

 

1,585

 

7,826

 

92

 

1,585

 

7,918

 

9,503

 

199

 

2017

 

Schaumburg, IL

 

31,160

 

 

 

538

 

645

 

257

 

538

 

765

 

1,303

 

287

 

2004

 

Streamwood, IL

 

64,305

 

 

 

1,447

 

1,662

 

491

 

1,447

 

1,841

 

3,288

 

702

 

2004

 

Warrenville, IL

 

48,796

 

 

 

1,066

 

3,072

 

505

 

1,066

 

3,145

 

4,211

 

1,112

 

2005

 

Waukegan, IL

 

79,500

 

 

 

1,198

 

4,363

 

650

 

1,198

 

4,360

 

5,558

 

1,668

 

2004

 

West Chicago, IL

 

48,175

 

 

 

1,071

 

2,249

 

497

 

1,071

 

2,388

 

3,459

 

909

 

2004

 

Westmont, IL

 

53,400

 

 

 

1,155

 

3,873

 

318

 

1,155

 

3,650

 

4,805

 

1,408

 

2004

 

Wheeling I, IL

 

54,210

 

 

 

857

 

3,213

 

458

 

857

 

3,199

 

4,056

 

1,255

 

2004

 

Wheeling II, IL

 

67,825

 

 

 

793

 

3,816

 

550

 

793

 

3,814

 

4,607

 

1,510

 

2004

 

Woodridge, IL

 

50,232

 

 

 

943

 

3,397

 

303

 

943

 

3,225

 

4,168

 

1,248

 

2004

 

Schererville, IN

 

67,604

 

 

 

1,134

 

5,589

 

54

 

1,134

 

5,643

 

6,777

 

645

 

2014

 

Boston I, MA

 

33,286

 

 

 

538

 

3,048

 

266

 

538

 

2,890

 

3,428

 

651

 

2010

 

Boston II, MA

 

60,470

 

 

 

1,516

 

8,628

 

726

 

1,516

 

6,899

 

8,415

 

2,597

 

2002

 

Boston III, MA

 

108,205

 

 

 

3,211

 

15,829

 

706

 

3,211

 

16,535

 

19,746

 

1,682

 

2014

 

Brockton, MA

 

59,296

 

 

 

577

 

4,394

 

34

 

577

 

4,427

 

5,004

 

293

 

2015

 

Haverhill, MA

 

60,589

 

 

 

669

 

6,610

 

54

 

669

 

6,664

 

7,333

 

444

 

2015

 

Lawrence, MA

 

34,672

 

 

 

585

 

4,737

 

263

 

585

 

5,000

 

5,585

 

331

 

2015

 

Leominster, MA

 

54,073

 

 

 

90

 

1,519

 

2,533

 

338

 

3,411

 

3,749

 

1,564

 

1998

 

Medford, MA

 

58,685

 

 

 

1,330

 

7,165

 

374

 

1,330

 

6,046

 

7,376

 

1,793

 

2007

 

Stoneham, MA

 

61,300

 

 

 

1,558

 

7,679

 

319

 

1,558

 

7,998

 

9,556

 

1,150

 

2013

 

Tewksbury, MA

 

62,402

 

 

 

1,537

 

7,579

 

276

 

1,537

 

7,854

 

9,391

 

902

 

2014

 

Walpole, MA

 

74,890

 

 

 

634

 

13,069

 

324

 

634

 

13,393

 

14,027

 

594

 

2016

 

Annapolis, MD

 

92,332

 

5,786

 

2,643

 

13,938

 

38

 

2,643

 

13,976

 

16,619

 

271

 

2017

 

Baltimore, MD

 

93,750

 

 

 

1,050

 

5,997

 

1,443

 

1,173

 

5,297

 

6,470

 

2,116

 

2001

 

Beltsville, MD

 

63,687

 

 

 

1,277

 

6,295

 

72

 

1,268

 

6,375

 

7,643

 

937

 

2013

 

California, MD

 

77,840

 

 

 

1,486

 

4,280

 

341

 

1,486

 

4,030

 

5,516

 

1,558

 

2004

 

Capitol Heights, MD

 

79,600

 

 

 

2,704

 

13,332

 

43

 

2,704

 

13,376

 

16,080

 

1,028

 

2015

 

Clinton, MD

 

84,225

 

 

 

2,182

 

10,757

 

133

 

2,182

 

10,890

 

13,072

 

1,417

 

2013

 

District Heights, MD

 

78,240

 

 

 

1,527

 

8,313

 

540

 

1,527

 

7,728

 

9,255

 

1,578

 

2011

 

Elkridge, MD

 

63,475

 

 

 

1,155

 

5,695

 

239

 

1,155

 

5,934

 

7,089

 

790

 

2013

 

Gaithersburg I, MD

 

87,045

 

 

 

3,124

 

9,000

 

480

 

3,124

 

8,218

 

11,342

 

3,215

 

2005

 

Gaithersburg II, MD

 

74,150

 

 

 

2,383

 

11,750

 

69

 

2,383

 

11,819

 

14,202

 

913

 

2015

 

 

F-48


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying Amount at

 

 

 

 

 

 

 

 

 

 

 

Initial Cost

 

Costs

 

December 31, 2017

 

 

 

 

 

 

  

 

  

 

  

 

  

Buildings

  

Subsequent

  

 

  

Buildings

  

 

  

Accumulated

  

Year

 

 

 

Square

 

 

 

 

 

&

 

to

 

 

 

&

 

 

 

Depreciation

 

Acquired/

 

Description 

 

Footage

 

Encumbrances

 

Land

 

Improvements

 

Acquisition

 

Land

 

Improvements

 

Total

 

(B)

 

Developed

 

Hyattsville, MD

 

52,830

 

 

 

1,113

 

5,485

 

100

 

1,113

 

5,586

 

6,699

 

819

 

2013

 

Laurel, MD

 

162,896

 

 

 

1,409

 

8,035

 

3,673

 

1,928

 

8,853

 

10,781

 

3,644

 

2001

 

Temple Hills I, MD

 

97,270

 

 

 

1,541

 

8,788

 

2,596

 

1,800

 

8,886

 

10,686

 

3,573

 

2001

 

Temple Hills II, MD

 

84,225

 

 

 

2,229

 

10,988

 

54

 

2,229

 

11,042

 

13,271

 

1,378

 

2014

 

Timonium, MD

 

66,717

 

 

 

2,269

 

11,184

 

199

 

2,269

 

11,382

 

13,651

 

1,426

 

2014

 

Upper Marlboro, MD

 

62,290

 

 

 

1,309

 

6,455

 

99

 

1,309

 

6,552

 

7,861

 

968

 

2013

 

Bloomington, MN

 

101,028

 

 

 

1,598

 

12,298

 

124

 

1,598

 

12,424

 

14,022

 

458

 

2016

 

Belmont, NC

 

81,850

 

 

 

385

 

2,196

 

959

 

451

 

2,339

 

2,790

 

939

 

2001

 

Burlington I, NC

 

109,300

 

 

 

498

 

2,837

 

875

 

498

 

2,898

 

3,396

 

1,222

 

2001

 

Burlington II, NC

 

42,165

 

 

 

320

 

1,829

 

442

 

340

 

1,731

 

2,071

 

709

 

2001

 

Cary, NC

 

112,402

 

 

 

543

 

3,097

 

827

 

543

 

3,228

 

3,771

 

1,350

 

2001

 

Charlotte I, NC

 

69,000

 

 

 

782

 

4,429

 

1,537

 

1,068

 

4,510

 

5,578

 

1,722

 

2002

 

Charlotte II, NC

 

53,736

 

 

 

821

 

8,764

 

55

 

821

 

8,818

 

9,639

 

284

 

2016

 

Cornelius, NC

 

59,270

 

 

 

2,424

 

4,991

 

929

 

2,424

 

5,920

 

8,344

 

374

 

2015

 

Pineville, NC

 

77,747

 

 

 

2,490

 

9,169

 

140

 

2,490

 

9,309

 

11,799

 

622

 

2015

 

Raleigh, NC

 

48,675

 

 

 

209

 

2,398

 

422

 

296

 

2,344

 

2,640

 

1,106

 

1998

 

Bordentown, NJ

 

50,550

 

 

 

457

 

2,255

 

170

 

457

 

2,424

 

2,881

 

399

 

2012

 

Brick, NJ

 

51,720

 

 

 

234

 

2,762

 

1,466

 

485

 

3,395

 

3,880

 

1,737

 

1996

 

Cherry Hill I, NJ

 

51,500

 

 

 

222

 

1,260

 

182

 

222

 

1,260

 

1,482

 

300

 

2010

 

Cherry Hill II, NJ

 

65,500

 

 

 

471

 

2,323

 

317

 

471

 

2,640

 

3,111

 

420

 

2012

 

Clifton, NJ

 

105,550

 

 

 

4,346

 

12,520

 

300

 

4,340

 

11,140

 

15,480

 

4,177

 

2005

 

Cranford, NJ

 

91,280

 

 

 

290

 

3,493

 

2,757

 

779

 

5,055

 

5,834

 

2,370

 

1996

 

East Hanover, NJ

 

107,679

 

 

 

504

 

5,763

 

4042

 

1,315

 

7,873

 

9,188

 

3,984

 

1996

 

Egg Harbor I, NJ

 

36,025

 

 

 

104

 

510

 

66

 

104

 

565

 

669

 

125

 

2010

 

Egg Harbor II, NJ

 

70,400

 

 

 

284

 

1,608

 

278

 

284

 

1,666

 

1,950

 

397

 

2010

 

Elizabeth, NJ

 

38,830

 

 

 

751

 

2,164

 

692

 

751

 

2,533

 

3,284

 

918

 

2005

 

Fairview, NJ

 

27,876

 

 

 

246

 

2,759

 

583

 

246

 

2,736

 

2,982

 

1,335

 

1997

 

Freehold, NJ

 

81,420

 

 

 

1,086

 

5,355

 

203

 

1,086

 

5,558

 

6,644

 

946

 

2012

 

Hamilton, NJ

 

70,550

 

 

 

1,885

 

5,430

 

498

 

1,893

 

5,160

 

7,053

 

1,721

 

2006

 

Hoboken, NJ

 

34,130

 

 

 

1,370

 

3,947

 

774

 

1,370

 

4,087

 

5,457

 

1,622

 

2005

 

Linden, NJ

 

100,425

 

 

 

517

 

6,008

 

2,522

 

1,043

 

6,994

 

8,037

 

3,339

 

1996

 

Lumberton, NJ

 

96,025

 

 

 

987

 

4,864

 

315

 

987

 

5,178

 

6,165

 

873

 

2012

 

Morris Township, NJ

 

72,226

 

 

 

500

 

5,602

 

2,984

 

1,072

 

6,947

 

8,019

 

3,292

 

1997

 

Parsippany, NJ

 

84,655

 

 

 

475

 

5,322

 

5,740

 

844

 

9,723

 

10,567

 

3,115

 

1997

 

Rahway, NJ

 

83,121

 

 

 

1,486

 

7,326

 

660

 

1,486

 

7,986

 

9,472

 

1,119

 

2013

 

Randolph, NJ

 

52,565

 

 

 

855

 

4,872

 

1,358

 

1,108

 

4,541

 

5,649

 

1,811

 

2002

 

Ridgefield, NJ

 

67,803

 

 

 

1,810

 

8,925

 

315

 

1,810

 

9,239

 

11,049

 

700

 

2015

 

Roseland, NJ

 

53,569

 

 

 

1,844

 

9,759

 

145

 

1,844

 

9,904

 

11,748

 

665

 

2015

 

Sewell, NJ

 

57,826

 

 

 

484

 

2,766

 

1,414

 

706

 

3,102

 

3,808

 

1,267

 

2001

 

Somerset, NJ

 

57,485

 

 

 

1,243

 

6,129

 

205

 

1,243

 

6,333

 

7,576

 

1,056

 

2012

 

Whippany, NJ

 

92,070

 

 

 

2,153

 

10,615

 

131

 

2,153

 

10,746

 

12,899

 

1,581

 

2013

 

Albuquerque I, NM

 

65,927

 

 

 

1,039

 

3,395

 

356

 

1,039

 

3,168

 

4,207

 

1,289

 

2005

 

Albuquerque II, NM

 

58,798

 

 

 

1,163

 

3,801

 

268

 

1,163

 

3,446

 

4,609

 

1,432

 

2005

 

Albuquerque III, NM

 

57,536

 

 

 

664

 

2,171

 

364

 

664

 

2,145

 

2,809

 

887

 

2005

 

Henderson, NV

 

75,150

 

 

 

1,246

 

6,143

 

100

 

1,246

 

6,241

 

7,487

 

635

 

2014

 

Las Vegas I, NV

 

48,732

 

 

 

1,851

 

2,986

 

581

 

1,851

 

3,155

 

5,006

 

1,353

 

2006

 

Las Vegas II, NV

 

48,850

 

 

 

3,354

 

5,411

 

435

 

3,355

 

5,265

 

8,620

 

2,261

 

2006

 

Las Vegas III, NV

 

84,600

 

 

 

1,171

 

10,034

 

110

 

1,171

 

10,144

 

11,315

 

396

 

2016

 

Las Vegas IV, NV

 

91,557

 

 

 

1,116

 

8,575

 

92

 

1,116

 

8,665

 

9,781

 

355

 

2016

 

Las Vegas V, NV

 

107,226

 

 

 

1,460

 

9,560

 

176

 

1,460

 

9,736

 

11,196

 

338

 

2016

 

Las Vegas VI, NV

 

92,707

 

 

 

1,386

 

12,299

 

98

 

1,386

 

12,397

 

13,783

 

361

 

2016

 

Baldwin, NY

 

61,380

 

 

 

1,559

 

7,685

 

624

 

1,559

 

8,309

 

9,868

 

626

 

2015

 

Bronx I, NY

 

67,864

 

 

 

2,014

 

11,411

 

1,021

 

2,014

 

10,840

 

12,854

 

2,539

 

2010

 

Bronx II, NY

 

99,046

 

 

 

 —

 

28,289

 

1,697

 

 —

 

29,451

 

29,451

 

5,659

 

2011

 

Bronx III, NY

 

105,900

 

 

 

6,459

 

36,180

 

185

 

6,460

 

32,018

 

38,478

 

6,261

 

2011

 

Bronx IV, NY

 

74,580

 

 

 

 —

 

22,074

 

124

 

 —

 

19,543

 

19,543

 

3,836

 

2011

 

Bronx V, NY

 

54,704

 

 

 

 —

 

17,556

 

208

 

 —

 

15,653

 

15,653

 

3,075

 

2011

 

Bronx VI, NY

 

45,970

 

 

 

 —

 

16,803

 

361

 

 —

 

15,132

 

15,132

 

2,959

 

2011

 

Bronx VII, NY

 

78,625

 

8,228

 

 —

 

22,512

 

186

 

 —

 

22,807

 

22,807

 

4,227

 

2012

 

Bronx VIII, NY

 

30,550

 

2,889

 

1,245

 

6,137

 

163

 

1,251

 

6,330

 

7,581

 

1,181

 

2012

 

Bronx IX, NY

 

147,870

 

22,508

 

7,967

 

39,279

 

1,332

 

7,967

 

40,610

 

48,577

 

7,374

 

2012

 

Bronx X, NY

 

159,805

 

25,700

 

9,090

 

44,816

 

475

 

9,090

 

45,291

 

54,381

 

7,838

 

2012

 

Bronx XI, NY

 

46,425

 

 

 

 —

 

17,130

 

265

 

 —

 

17,396

 

17,396

 

1,733

 

2014

 

Bronx XII, NY

 

89,785

 

 

 

 —

 

31,603

 

73

 

 —

 

31,674

 

31,674

 

1,564

 

2016

 

Brooklyn I, NY

 

57,566

 

 

 

1,795

 

10,172

 

329

 

1,795

 

9,084

 

10,879

 

2,097

 

2010

 

Brooklyn II, NY

 

60,920

 

 

 

1,601

 

9,073

 

494

 

1,601

 

8,269

 

9,870

 

1,943

 

2010

 

Brooklyn III, NY

 

41,510

 

 

 

2,772

 

13,570

 

142

 

2,772

 

13,794

 

16,566

 

2,712

 

2011

 

Brooklyn IV, NY

 

37,545

 

 

 

2,283

 

11,184

 

164

 

2,284

 

11,411

 

13,695

 

2,251

 

2011

 

Brooklyn V, NY

 

47,020

 

 

 

2,374

 

11,636

 

109

 

2,374

 

11,798

 

14,172

 

2,307

 

2011

 

Brooklyn VI, NY

 

74,920

 

 

 

4,210

 

20,638

 

100

 

4,211

 

20,845

 

25,056

 

4,076

 

2011

 

Brooklyn VII, NY

 

72,750

 

 

 

5,604

 

27,452

 

192

 

5,604

 

27,809

 

33,413

 

5,447

 

2011

 

Brooklyn VIII, NY

 

61,555

 

 

 

4,982

 

24,561

 

89

 

4,982

 

24,649

 

29,631

 

2,882

 

2014

 

Brooklyn IX, NY

 

46,980

 

 

 

2,966

 

14,620

 

106

 

2,966

 

14,726

 

17,692

 

1,721

 

2014

 

Brooklyn X, NY

 

55,875

 

 

 

3,739

 

7,703

 

2,916

 

4,885

 

9,472

 

14,357

 

622

 

2015

 

Brooklyn XI, NY

 

110,075

 

 

 

10,093

 

35,385

 

226

 

10,093

 

35,610

 

45,703

 

2,069

 

2016

 

Brooklyn XII, NY

 

131,588

 

 

 

1,077

 

6,057

 

 —

 

1,077

 

6,056

 

7,133

 

 —

 

2017

 

Holbrook, NY

 

60,397

 

 

 

2,029

 

10,737

 

57

 

2,029

 

10,794

 

12,823

 

719

 

2015

 

Jamaica I, NY

 

88,385

 

 

 

2,043

 

11,658

 

1,802

 

2,043

 

10,739

 

12,782

 

4,408

 

2001

 

Jamaica II, NY

 

92,805

 

 

 

5,391

 

26,413

 

386

 

5,391

 

26,942

 

32,333

 

5,259

 

2011

 

Long Island City, NY

 

88,825

 

 

 

5,700

 

28,101

 

43

 

5,700

 

28,144

 

33,844

 

2,759

 

2014

 

New Rochelle I, NY

 

43,596

 

 

 

1,673

 

4,827

 

1,212

 

1,673

 

5,380

 

7,053

 

1,872

 

2005

 

New Rochelle II, NY

 

63,300

 

 

 

3,167

 

2,713

 

434

 

3,762

 

18,980

 

22,742

 

3,521

 

2012

 

New York, NY

 

94,912

 

31,727

 

42,022

 

38,753

 

 —

 

42,022

 

38,753

 

80,775

 

405

 

2017

 

North Babylon, NY

 

78,350

 

 

 

225

 

2,514

 

4,230

 

568

 

5,595

 

6,163

 

2,615

 

1998

 

Patchogue, NY

 

47,759

 

 

 

1,141

 

5,624

 

48

 

1,141

 

5,672

 

6,813

 

574

 

2014

 

Queens I, NY

 

74,188

 

 

 

5,158

 

12,339

 

757

 

5,160

 

13,094

 

18,254

 

928

 

2015

 

Queens II, NY

 

90,728

 

 

 

6,208

 

25,815

 

 6

 

6,208

 

25,822

 

32,030

 

1,661

 

2016

 

Riverhead, NY

 

38,490

 

 

 

1,068

 

1,149

 

204

 

1,068

 

1,075

 

2,143

 

487

 

2005

 

Southold, NY

 

59,945

 

 

 

2,079

 

2,238

 

347

 

2,079

 

2,181

 

4,260

 

951

 

2005

 

Staten Island, NY

 

96,573

 

 

 

1,919

 

9,463

 

848

 

1,919

 

10,312

 

12,231

 

1,429

 

2013

 

Tuckahoe, NY

 

50,978

 

 

 

2,363

 

17,411

 

286

 

2,363

 

11,926

 

14,289

 

2,322

 

2011

 

West Hempstead, NY

 

83,395

 

 

 

2,237

 

11,030

 

159

 

2,237

 

11,188

 

13,425

 

1,889

 

2012

 

White Plains, NY

 

85,864

 

 

 

3,295

 

18,049

 

1,020

 

3,295

 

16,577

 

19,872

 

3,522

 

2011

 

F-49


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying Amount at

 

 

 

 

 

 

 

 

 

 

 

Initial Cost

 

Costs

 

December 31, 2017

 

 

 

 

 

 

  

 

  

 

  

 

  

Buildings

  

Subsequent

  

 

  

Buildings

  

 

  

Accumulated

  

Year

 

 

 

Square

 

 

 

 

 

&

 

to

 

 

 

&

 

 

 

Depreciation

 

Acquired/

 

Description 

 

Footage

 

Encumbrances

 

Land

 

Improvements

 

Acquisition

 

Land

 

Improvements

 

Total

 

(B)

 

Developed

 

Woodhaven, NY

 

50,665

 

 

 

2,015

 

11,219

 

90

 

2,015

 

10,012

 

12,027

 

1,960

 

2011

 

Wyckoff, NY

 

60,210

 

 

 

1,961

 

11,113

 

325

 

1,961

 

9,956

 

11,917

 

2,221

 

2010

 

Yorktown, NY

 

78,879

 

 

 

2,382

 

11,720

 

193

 

2,382

 

11,927

 

14,309

 

2,342

 

2011

 

Cleveland I, OH

 

46,000

 

 

 

525

 

2,592

 

270

 

524

 

2,512

 

3,036

 

1,009

 

2005

 

Cleveland II, OH

 

58,325

 

 

 

290

 

1,427

 

230

 

289

 

1,404

 

1,693

 

573

 

2005

 

Columbus I, OH

 

71,905

 

 

 

1,234

 

3,151

 

148

 

1,239

 

2,823

 

4,062

 

1,084

 

2006

 

Columbus II, OH

 

36,409

 

 

 

769

 

3,788

 

209

 

769

 

3,997

 

4,766

 

407

 

2014

 

Columbus III, OH

 

51,200

 

 

 

326

 

1,607

 

118

 

326

 

1,725

 

2,051

 

179

 

2014

 

Columbus IV, OH

 

60,950

 

 

 

443

 

2,182

 

99

 

443

 

2,281

 

2,724

 

236

 

2014

 

Columbus V, OH

 

73,325

 

 

 

838

 

4,128

 

114

 

838

 

4,242

 

5,080

 

430

 

2014

 

Columbus VI, OH

 

63,525

 

 

 

701

 

3,454

 

99

 

701

 

3,553

 

4,254

 

362

 

2014

 

Grove City, OH

 

89,290

 

 

 

1,756

 

4,485

 

280

 

1,761

 

4,147

 

5,908

 

1,553

 

2006

 

Hilliard, OH

 

89,290

 

 

 

1,361

 

3,476

 

255

 

1,366

 

3,243

 

4,609

 

1,232

 

2006

 

Lakewood, OH

 

39,332

 

 

 

405

 

854

 

637

 

405

 

1,335

 

1,740

 

997

 

1989

 

Lewis Center, OH

 

76,024

 

 

 

1,056

 

5,206

 

141

 

1,056

 

5,346

 

6,402

 

544

 

2014

 

Middleburg Heights, OH

 

93,200

 

 

 

63

 

704

 

2,316

 

332

 

2,352

 

2,684

 

1,063

 

1980

 

North Olmsted I, OH

 

48,672

 

 

 

63

 

704

 

1,520

 

214

 

1,737

 

1,951

 

822

 

1979

 

North Olmsted II, OH

 

47,850

 

 

 

290

 

1,129

 

1,229

 

469

 

2,032

 

2,501

 

1,637

 

1988

 

North Randall, OH

 

80,297

 

 

 

515

 

2,323

 

3,246

 

898

 

4,303

 

5,201

 

2,017

 

1998

 

Reynoldsburg, OH

 

67,245

 

 

 

1,290

 

3,295

 

338

 

1,295

 

3,178

 

4,473

 

1,213

 

2006

 

Strongsville, OH

 

43,683

 

 

 

570

 

3,486

 

418

 

570

 

3,071

 

3,641

 

1,018

 

2007

 

Warrensville Heights, OH

 

90,281

 

 

 

525

 

766

 

3,249

 

935

 

3,417

 

4,352

 

1,511

 

1980

 

Westlake, OH

 

62,750

 

 

 

509

 

2,508

 

260

 

508

 

2,379

 

2,887

 

985

 

2005

 

Conshohocken, PA

 

81,285

 

 

 

1,726

 

8,508

 

174

 

1,726

 

8,682

 

10,408

 

1,479

 

2012

 

Exton, PA

 

57,750

 

 

 

541

 

2,668

 

124

 

519

 

2,814

 

3,333

 

476

 

2012

 

Langhorne, PA

 

64,938

 

 

 

1,019

 

5,023

 

343

 

1,019

 

5,366

 

6,385

 

898

 

2012

 

Levittown, PA

 

76,130

 

 

 

926

 

5,296

 

1,267

 

926

 

4,842

 

5,768

 

1,956

 

2001

 

Malvern, PA

 

18,848

 

 

 

2,959

 

18,198

 

1,657

 

2,959

 

19,853

 

22,812

 

2,182

 

2013

 

Montgomeryville, PA

 

84,145

 

 

 

975

 

4,809

 

221

 

975

 

5,029

 

6,004

 

871

 

2012

 

Norristown, PA

 

61,746

 

 

 

662

 

3,142

 

776

 

638

 

4,048

 

4,686

 

850

 

2011

 

Philadelphia I, PA

 

96,016

 

 

 

1,461

 

8,334

 

1,913

 

1,461

 

6,904

 

8,365

 

2,832

 

2001

 

Philadelphia II, PA

 

68,279

 

 

 

1,012

 

4,990

 

163

 

1,012

 

5,153

 

6,165

 

636

 

2014

 

Exeter, RI

 

41,275

 

 

 

547

 

2,697

 

126

 

547

 

2,823

 

3,370

 

290

 

2014

 

Johnston, RI

 

77,275

 

 

 

1,061

 

5,229

 

101

 

1,061

 

5,331

 

6,392

 

541

 

2014

 

Wakefield, RI

 

45,745

 

 

 

823

 

4,058

 

50

 

823

 

4,108

 

4,931

 

413

 

2014

 

Woonsocket, RI

 

72,900

 

 

 

1,049

 

5,172

 

143

 

1,049

 

5,315

 

6,364

 

541

 

2014

 

Antioch, TN

 

75,985

 

 

 

588

 

4,906

 

350

 

588

 

4,489

 

5,077

 

1,734

 

2005

 

Nashville I, TN

 

107,850

 

 

 

405

 

3,379

 

773

 

405

 

3,563

 

3,968

 

1,346

 

2005

 

Nashville II, TN

 

83,174

 

 

 

593

 

4,950

 

221

 

593

 

4,476

 

5,069

 

1,758

 

2005

 

Nashville III, TN

 

101,525

 

 

 

416

 

3,469

 

289

 

416

 

3,425

 

3,841

 

1,331

 

2006

 

Nashville IV, TN

 

102,450

 

 

 

992

 

8,274

 

377

 

992

 

7,409

 

8,401

 

2,858

 

2006

 

Nashville V, TN

 

74,560

 

2,411

 

895

 

4,311

 

802

 

895

 

5,113

 

6,008

 

415

 

2015

 

Nashville VI, TN

 

72,436

 

 

 

2,749

 

8,443

 

97

 

2,749

 

8,539

 

11,288

 

570

 

2015

 

Allen, TX

 

62,170

 

 

 

714

 

3,519

 

113

 

714

 

3,632

 

4,346

 

631

 

2012

 

Austin I, TX

 

59,645

 

 

 

2,239

 

2,038

 

275

 

2,239

 

1,964

 

4,203

 

737

 

2005

 

Austin II, TX

 

64,415

 

(A)

 

734

 

3,894

 

377

 

738

 

3,709

 

4,447

 

1,321

 

2006

 

Austin III, TX

 

70,585

 

 

 

1,030

 

5,468

 

326

 

1,035

 

5,135

 

6,170

 

1,791

 

2006

 

Austin IV, TX

 

65,308

 

 

 

862

 

4,250

 

332

 

862

 

4,582

 

5,444

 

554

 

2014

 

Austin V, TX

 

67,850

 

 

 

1,050

 

5,175

 

240

 

1,050

 

5,415

 

6,465

 

571

 

2014

 

Austin VI, TX

 

62,850

 

 

 

1,150

 

5,669

 

262

 

1,150

 

5,932

 

7,082

 

605

 

2014

 

Austin VII, TX

 

71,023

 

 

 

1,429

 

6,263

 

132

 

1,429

 

6,394

 

7,823

 

426

 

2015

 

Austin VIII, TX

 

61,075

 

 

 

2,935

 

7,007

 

49

 

2,935

 

7,057

 

9,992

 

427

 

2016

 

Bryan, TX

 

60,400

 

 

 

1,394

 

1,268

 

561

 

1,396

 

1,592

 

2,988

 

509

 

2005

 

Carrollton, TX

 

77,380

 

 

 

661

 

3,261

 

137

 

661

 

3,398

 

4,059

 

545

 

2012

 

Cedar Park, TX

 

88,700

 

 

 

3,350

 

7,950

 

39

 

3,350

 

7,989

 

11,339

 

483

 

2016

 

College Station, TX

 

26,550

 

 

 

812

 

740

 

199

 

813

 

752

 

1,565

 

275

 

2005

 

Cypress, TX

 

58,161

 

 

 

360

 

1,773

 

145

 

360

 

1,919

 

2,279

 

341

 

2012

 

Dallas I, TX

 

58,582

 

 

 

2,475

 

2,253

 

482

 

2,475

 

2,288

 

4,763

 

866

 

2005

 

Dallas II, TX

 

76,673

 

 

 

940

 

4,635

 

229

 

940

 

4,864

 

5,804

 

646

 

2013

 

Dallas III, TX

 

83,427

 

 

 

2,608

 

12,857

 

253

 

2,608

 

13,110

 

15,718

 

1,283

 

2014

 

Dallas IV, TX

 

114,550

 

 

 

2,369

 

11,850

 

65

 

2,369

 

11,914

 

14,283

 

1,061

 

2015

 

Dallas V, TX

 

54,499

 

 

 

 —

 

11,604

 

84

 

 —

 

11,689

 

11,689

 

906

 

2015

 

Denton, TX

 

60,846

 

 

 

553

 

2,936

 

305

 

569

 

2,746

 

3,315

 

923

 

2006

 

Fort Worth I, TX

 

50,416

 

 

 

1,253

 

1,141

 

353

 

1,253

 

1,256

 

2,509

 

444

 

2005

 

Fort Worth II, TX

 

72,900

 

 

 

868

 

4,607

 

392

 

874

 

4,331

 

5,205

 

1,547

 

2006

 

Fort Worth III, TX

 

80,445

 

 

 

1,000

 

4,928

 

128

 

1,000

 

5,057

 

6,057

 

455

 

2015

 

Fort Worth IV, TX

 

77,329

 

 

 

1,274

 

7,693

 

31

 

1,274

 

7,724

 

8,998

 

423

 

2016

 

Frisco I, TX

 

50,854

 

 

 

1,093

 

3,148

 

193

 

1,093

 

2,883

 

3,976

 

1,080

 

2005

 

Frisco II, TX

 

71,599

 

 

 

1,564

 

4,507

 

202

 

1,564

 

4,093

 

5,657

 

1,531

 

2005

 

Frisco III, TX

 

74,665

 

 

 

1,147

 

6,088

 

572

 

1,154

 

5,850

 

7,004

 

2,050

 

2006

 

Frisco IV, TX

 

75,175

 

 

 

719

 

4,072

 

281

 

719

 

3,795

 

4,514

 

893

 

2010

 

Frisco V, TX

 

74,415

 

 

 

1,159

 

5,714

 

133

 

1,159

 

5,846

 

7,005

 

708

 

2014

 

Frisco VI, TX

 

69,176

 

 

 

1,064

 

5,247

 

170

 

1,064

 

5,417

 

6,481

 

556

 

2014

 

Garland I, TX

 

70,100

 

 

 

751

 

3,984

 

590

 

767

 

3,981

 

4,748

 

1,402

 

2006

 

Garland II, TX

 

68,425

 

 

 

862

 

4,578

 

297

 

862

 

4,278

 

5,140

 

1,447

 

2006

 

Grapevine, TX

 

78,019

 

 

 

1,211

 

8,559

 

112

 

1,211

 

8,671

 

9,882

 

469

 

2016

 

Houston III, TX

 

61,590

 

 

 

575

 

524

 

388

 

576

 

799

 

1,375

 

316

 

2005

 

Houston IV, TX

 

43,750

 

 

 

960

 

875

 

677

 

961

 

1,352

 

2,313

 

436

 

2005

 

Houston V, TX

 

124,279

 

 

 

1,153

 

6,122

 

1,336

 

991

 

6,709

 

7,700

 

2,140

 

2006

 

Houston VI, TX

 

54,690

 

 

 

575

 

524

 

5,783

 

983

 

4,985

 

5,968

 

1,044

 

2011

 

Houston VII, TX

 

46,991

 

 

 

681

 

3,355

 

179

 

681

 

3,534

 

4,215

 

666

 

2012

 

Houston VIII, TX

 

54,209

 

 

 

1,294

 

6,377

 

375

 

1,294

 

6,753

 

8,047

 

1,170

 

2012

 

Houston IX, TX

 

51,208

 

 

 

296

 

1,459

 

129

 

296

 

1,588

 

1,884

 

278

 

2012

 

Humble, TX

 

70,702

 

 

 

706

 

5,727

 

95

 

706

 

5,822

 

6,528

 

389

 

2015

 

Katy, TX

 

71,308

 

 

 

1,329

 

6,552

 

84

 

1,329

 

6,637

 

7,966

 

861

 

2013

 

Keller, TX

 

88,060

 

 

 

1,330

 

7,960

 

316

 

1,331

 

7,660

 

8,991

 

1,584

 

2006/2017

 

Lewisville I, TX

 

67,340

 

 

 

476

 

2,525

 

418

 

492

 

2,506

 

2,998

 

865

 

2006

 

Lewisville II, TX

 

127,659

 

 

 

1,464

 

7,217

 

328

 

1,464

 

7,545

 

9,009

 

1,052

 

2013

 

Lewisville III, TX

 

93,855

 

 

 

1,307

 

15,025

 

175

 

1,307

 

15,201

 

16,508

 

824

 

2016

 

Little Elm I, TX

 

60,065

 

 

 

892

 

5,529

 

127

 

892

 

5,657

 

6,549

 

319

 

2016

 

Little Elm II, TX

 

96,896

 

 

 

1,219

 

9,864

 

83

 

1,219

 

9,948

 

11,167

 

542

 

2016

 

Mansfield I, TX

 

63,025

 

 

 

837

 

4,443

 

267

 

843

 

4,129

 

4,972

 

1,479

 

2006

 

F-50


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying Amount at

 

 

 

 

 

 

 

 

 

 

 

Initial Cost

 

Costs

 

December 31, 2017

 

 

 

 

 

 

  

 

  

 

  

 

  

Buildings

  

Subsequent

  

 

  

Buildings

  

 

  

Accumulated

  

Year

 

 

 

Square

 

 

 

 

 

&

 

to

 

 

 

&

 

 

 

Depreciation

 

Acquired/

 

Description 

 

Footage

 

Encumbrances

 

Land

 

Improvements

 

Acquisition

 

Land

 

Improvements

 

Total

 

(B)

 

Developed

 

Mansfield II, TX

 

57,375

 

 

 

662

 

3,261

 

144

 

662

 

3,405

 

4,067

 

609

 

2012

 

Mansfield III, TX

 

70,920

 

 

 

947

 

4,703

 

166

 

947

 

4,870

 

5,817

 

195

 

2016

 

McKinney I, TX

 

47,020

 

 

 

1,632

 

1,486

 

213

 

1,634

 

1,459

 

3,093

 

548

 

2005

 

McKinney II, TX

 

70,050

 

 

 

855

 

5,076

 

227

 

857

 

4,677

 

5,534

 

1,680

 

2006

 

McKinney III, TX

 

53,750

 

 

 

652

 

3,213

 

69

 

652

 

3,281

 

3,933

 

316

 

2014

 

North Richland Hills, TX

 

57,200

 

 

 

2,252

 

2,049

 

254

 

2,252

 

1,924

 

4,176

 

716

 

2005

 

Pearland, TX

 

72,050

 

 

 

450

 

2,216

 

359

 

450

 

2,576

 

3,026

 

428

 

2012

 

Richmond, TX

 

102,330

 

 

 

1,437

 

7,083

 

157

 

1,437

 

7,240

 

8,677

 

938

 

2013

 

Roanoke, TX

 

59,300

 

 

 

1,337

 

1,217

 

171

 

1,337

 

1,161

 

2,498

 

434

 

2005

 

San Antonio I, TX

 

73,329

 

 

 

2,895

 

2,635

 

358

 

2,895

 

2,460

 

5,355

 

921

 

2005

 

San Antonio II, TX

 

73,155

 

 

 

1,047

 

5,558

 

223

 

1,052

 

5,088

 

6,140

 

1,727

 

2006

 

San Antonio III, TX

 

71,825

 

 

 

996

 

5,286

 

297

 

996

 

4,861

 

5,857

 

1,623

 

2007

 

San Antonio IV, TX

 

61,500

 

 

 

829

 

3,891

 

145

 

829

 

4,037

 

4,866

 

153

 

2016

 

Spring, TX

 

72,751

 

 

 

580

 

3,081

 

289

 

580

 

2,879

 

3,459

 

1,025

 

2006

 

Murray I, UT

 

60,280

 

 

 

3,847

 

1,017

 

525

 

3,848

 

1,326

 

5,174

 

544

 

2005

 

Murray II, UT

 

71,621

 

 

 

2,147

 

567

 

526

 

2,147

 

922

 

3,069

 

366

 

2005

 

Salt Lake City I, UT

 

56,446

 

 

 

2,695

 

712

 

526

 

2,696

 

1,052

 

3,748

 

428

 

2005

 

Salt Lake City II, UT

 

51,676

 

 

 

2,074

 

548

 

411

 

1,937

 

794

 

2,731

 

334

 

2005

 

Alexandria, VA

 

114,100

 

 

 

2,812

 

13,865

 

235

 

2,812

 

14,101

 

16,913

 

2,471

 

2012

 

Arlington, VA

 

96,143

 

 

 

6,836

 

9,843

 

94

 

6,836

 

9,938

 

16,774

 

975

 

2015

 

Burke Lake, VA

 

91,467

 

 

 

2,093

 

10,940

 

1,184

 

2,093

 

10,528

 

12,621

 

2,312

 

2011

 

Fairfax, VA

 

73,265

 

 

 

2,276

 

11,220

 

307

 

2,276

 

11,528

 

13,804

 

1,948

 

2012

 

Fredericksburg I, VA

 

69,475

 

 

 

1,680

 

4,840

 

349

 

1,680

 

4,516

 

6,196

 

1,599

 

2005

 

Fredericksburg II, VA

 

61,057

 

 

 

1,757

 

5,062

 

412

 

1,757

 

4,782

 

6,539

 

1,707

 

2005

 

Leesburg, VA

 

85,503

 

 

 

1,746

 

9,894

 

181

 

1,746

 

8,787

 

10,533

 

1,700

 

2011

 

Manassas, VA

 

72,745

 

 

 

860

 

4,872

 

255

 

860

 

4,464

 

5,324

 

1,011

 

2010

 

McLearen, VA

 

69,385

 

 

 

1,482

 

8,400

 

226

 

1,482

 

7,471

 

8,953

 

1,661

 

2010

 

Vienna, VA

 

55,111

 

 

 

2,300

 

11,340

 

147

 

2,300

 

11,487

 

13,787

 

1,945

 

2012

 

Divisional Offices

 

 

 

 

 

 

 

 

 

374

 

 

 

374

 

374

 

96

 

 

 

 

 

33,759,762

 

 

 

689,793

 

3,031,426

 

289,554

 

711,140

 

3,086,252

 

3,797,392

 

652,455

 

 

 


(A)

This store is part of the YSI 33 Loan portfolio, with a balance of $9,547 as of December 31, 2017.

(B)

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

 

Activity in storage properties during 2017 and 2016 was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

    

2017

    

2016

 

Storage properties*

 

 

 

 

 

 

 

Balance at beginning of year

 

$

3,998,180

 

$

3,467,032

 

Acquisitions & improvements

 

 

247,546

 

 

490,980

 

Fully depreciated assets

 

 

(53,903)

 

 

(61,232)

 

Dispositions and other

 

 

(9,179)

 

 

 —

 

Construction in progress, net

 

 

(20,929)

 

 

101,400

 

Balance at end of year

 

$

4,161,715

 

$

3,998,180

 

 

 

 

 

 

 

 

 

Accumulated depreciation*

 

 

 

 

 

 

 

Balance at beginning of year

 

$

671,364

 

$

594,049

 

Depreciation expense

 

 

135,732

 

 

138,547

 

Fully depreciated assets

 

 

(53,903)

 

 

(61,232)

 

Dispositions and other

 

 

(268)

 

 

 —

 

Balance at end of year

 

$

752,925

 

$

671,364

 

Storage properties, net

 

$

3,408,790

 

$

3,326,816

 


*These amounts include equipment that is housed at the Company’s stores which is excluded from Schedule III above.

 

F-51