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CubeSmart - Quarter Report: 2023 June (Form 10-Q)

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sts

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2023.

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)
000-54462 (CubeSmart, L.P.)

CUBESMART

CUBESMART, L.P.

(Exact Name of Registrant as Specified in its Charter)

Maryland (CubeSmart)
Delaware (CubeSmart, L.P.)

20-1024732
34-1837021

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

5 Old Lancaster Rd. Malvern, Pennsylvania

19355

(Address of Principal Executive Offices)

(Zip Code)

(610) 535-5000

(Registrant’s Telephone Number, Including Area Code)

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

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

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

CUBE

New York Stock Exchange

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

CubeSmart

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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

CubeSmart:

Large accelerated filer

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

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

Class

Outstanding at August 2, 2023

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

224,808,576

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EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2023 of CubeSmart (the “Parent Company” or “CubeSmart”) and CubeSmart, L.P. (the “Operating Partnership”). The Parent Company is a Maryland real estate investment trust (“REIT”) that owns its assets and conducts its operations through the Operating Partnership, a Delaware limited partnership, and subsidiaries of the Operating Partnership. The Parent Company, the Operating Partnership and their consolidated subsidiaries are collectively referred to in this report as the “Company”. In addition, terms such as “we”, “us” or “our” used in this report may refer to the Company, the Parent Company or the Operating Partnership.

The Parent Company is the sole general partner of the Operating Partnership and, as of June 30, 2023, owned a 99.4% interest in the Operating Partnership. The remaining 0.6% interest consists of common units of limited partnership interest issued by the Operating Partnership to third parties in exchange for contributions of properties to the Operating Partnership. As the sole general partner of the Operating Partnership, the Parent Company has full and complete authority over the Operating Partnership’s day-to-day operations and management.

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

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

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

The Company believes that combining the quarterly reports on Form 10-Q 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.

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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 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 4 - Controls and Procedures sections, signature pages and Exhibits 31 and 32, certifications for each of the Parent Company and the Operating Partnership, in order to establish that the Chief Executive Officer and the Chief Financial Officer of the Parent Company and the Chief Executive Officer and the Chief Financial Officer of the Operating Partnership have made the requisite certifications and that the Parent Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350.

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TABLE OF CONTENTS

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

Item 3. Quantitative and Qualitative Disclosures About Market Risk

41

Item 4. Controls and Procedures

41

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

42

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

43

Item 5. Other Information

43

Item 6. Exhibits

45

Filing Format

This combined Form 10-Q is being filed separately by CubeSmart and CubeSmart, L.P.

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Forward-Looking Statements

This Quarterly Report on Form 10-Q, 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 Securities Exchange Act of 1934, as amended, or the “Exchange Act.” Forward-looking statements include statements concerning the Company’s plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions and other information that is not historical information. In some cases, forward-looking statements can be identified by terminology such as “believes”, “expects”, “estimates”, “may”, “will”, “should”, “anticipates”, or “intends” or the negative of such terms or other comparable terminology, or by discussions of strategy.  Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, future events and actual results, performance, transactions or achievements, financial and otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forward-looking statements. As a result, you should not rely on or construe any forward-looking statements in this Report, or which management or persons acting on their behalf may make orally or in writing from time to time, as predictions of future events or as guarantees of future performance. We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this Report or as of the dates otherwise indicated in such forward-looking statements.  All of our forward-looking statements, including those in this Report, are qualified in their entirety by this statement.

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this Report. Any forward-looking statements should be considered in light of the risks and uncertainties referred to in Item 1A. “Risk Factors” in the Parent Company’s and the Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2022 and in our other filings with the Securities and Exchange Commission (“SEC”). These risks include, but are not limited to, the following:

adverse changes in economic conditions in the real estate industry and in the markets in which we own and operate self-storage properties;

the effect of competition from existing and new self-storage properties and operators on our ability to maintain or raise occupancy and rental rates;

the failure to execute our business plan;

adverse impacts from the COVID-19 pandemic, other pandemics, quarantines and stay at home orders, including the impact on our ability to operate our self-storage properties, the demand for self-storage, rental rates and fees and rent collection levels;

reduced availability and increased costs of external sources of capital;

increases in interest rates and operating costs;

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

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

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

the failure of acquisitions and developments to close on expected terms, or at all, or to perform as expected;

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

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

reductions in asset valuations and related impairment charges;

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cyber security breaches, cyber or ransomware attacks or a failure of our networks, systems or technology, which could adversely impact our business, customer and employee relationships or result in fraudulent payments;

changes in real estate, zoning, use and occupancy laws or regulations;

risks related to or a consequence of natural disasters or acts of violence, pandemics, active shooters, terrorism, insurrection or war that affect the markets in which we operate;

potential environmental and other liabilities;

governmental, administrative and executive orders and laws, which could adversely impact our business operations and customer and employee relationships;

uninsured or uninsurable losses and the ability to obtain insurance coverage or recovery from insurance against risks and losses;

the ability to attract and retain talent in the current labor market;

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

other risks identified in the Parent Company’s and the Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2022 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.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CUBESMART AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

June 30, 

December 31,

    

2023

    

2022

(unaudited)

ASSETS

Storage properties

$

7,323,638

$

7,295,778

Less: Accumulated depreciation

 

(1,333,907)

 

(1,247,775)

Storage properties, net (including VIE assets of $142,326 and $167,180, respectively)

 

5,989,731

 

6,048,003

Cash and cash equivalents

 

9,220

 

6,064

Restricted cash

 

1,925

 

2,861

Loan procurement costs, net of amortization

 

4,591

 

5,182

Investment in real estate ventures, at equity

 

101,482

 

105,993

Assets held for sale

2,063

3,745

Other assets, net

 

172,137

 

153,982

Total assets

$

6,281,149

$

6,325,830

LIABILITIES AND EQUITY

Unsecured senior notes, net

$

2,774,420

$

2,772,350

Revolving credit facility

 

63,200

 

60,900

Mortgage loans and notes payable, net

 

130,070

 

162,918

Lease liabilities - finance leases

65,727

65,758

Accounts payable, accrued expenses and other liabilities

 

214,733

 

213,297

Distributions payable

 

111,280

 

111,190

Deferred revenue

 

40,245

 

38,757

Security deposits

 

1,086

 

1,087

Liabilities held for sale

1,402

1,773

Total liabilities

 

3,402,163

 

3,428,030

Noncontrolling interests in the Operating Partnership

 

63,352

 

57,419

Commitments and contingencies

Equity

Common shares $.01 par value, 400,000,000 shares authorized, 224,797,239 and

224,603,462 shares issued and outstanding at June 30, 2023 and December 31, 2022,

respectively

 

2,248

 

2,246

Additional paid-in capital

 

4,132,621

 

4,125,478

Accumulated other comprehensive loss

 

(451)

 

(491)

Accumulated deficit

 

(1,333,148)

 

(1,301,030)

Total CubeSmart shareholders’ equity

 

2,801,270

 

2,826,203

Noncontrolling interests in subsidiaries

 

14,364

 

14,178

Total equity

 

2,815,634

 

2,840,381

Total liabilities and equity

$

6,281,149

$

6,325,830

See accompanying notes to the unaudited consolidated financial statements.

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CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2023

    

2022

    

2023

    

2022

REVENUES

Rental income

$

225,910

$

216,133

$

449,494

$

424,504

Other property related income

 

25,760

 

23,861

 

50,144

 

46,141

Property management fee income

 

9,135

 

8,670

 

17,695

 

16,584

Total revenues

 

260,805

 

248,664

 

517,333

 

487,229

OPERATING EXPENSES

Property operating expenses

 

74,821

73,472

145,948

 

144,039

Depreciation and amortization

 

50,358

79,046

100,687

 

161,603

General and administrative

 

14,325

13,725

28,999

 

28,250

Total operating expenses

 

139,504

 

166,243

 

275,634

 

333,892

OTHER (EXPENSE) INCOME

Interest:

Interest expense on loans

 

(23,544)

 

(23,055)

 

(47,235)

 

(45,879)

Loan procurement amortization expense

 

(1,041)

 

(959)

 

(2,081)

 

(1,916)

Equity in earnings of real estate ventures

 

790

 

680

 

3,341

 

974

Other

 

777

 

(493)

 

501

 

(9,656)

Total other expense

 

(23,018)

 

(23,827)

 

(45,474)

 

(56,477)

NET INCOME

 

98,283

 

58,594

 

196,225

 

96,860

NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

Noncontrolling interests in the Operating Partnership

 

(616)

(379)

(1,230)

 

(671)

Noncontrolling interest in subsidiaries

 

212

143

450

 

324

NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS

$

97,879

$

58,358

$

195,445

$

96,513

Basic earnings per share attributable to common shareholders

$

0.43

$

0.26

$

0.87

$

0.43

Diluted earnings per share attributable to common shareholders

$

0.43

$

0.26

$

0.86

$

0.43

Weighted average basic shares outstanding

225,388

224,960

225,342

224,812

Weighted average diluted shares outstanding

226,275

225,895

226,238

225,820

See accompanying notes to the unaudited consolidated financial statements.

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CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2023

    

2022

    

2023

    

2022

NET INCOME

$

98,283

$

58,594

$

196,225

$

96,860

Other comprehensive income:

Reclassification of realized losses on interest rate swaps

 

20

 

20

40

40

OTHER COMPREHENSIVE INCOME:

 

20

 

20

 

40

 

40

COMPREHENSIVE INCOME

 

98,303

 

58,614

 

196,265

 

96,900

Comprehensive income attributable to noncontrolling

interests in the Operating Partnership

 

(616)

 

(379)

 

(1,230)

 

(672)

Comprehensive loss attributable to noncontrolling interest

in subsidiaries

 

212

 

143

 

450

 

324

COMPREHENSIVE INCOME ATTRIBUTABLE TO THE

COMPANY

$

97,899

$

58,378

$

195,485

$

96,552

See accompanying notes to the unaudited consolidated financial statements.

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CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY

(in thousands)

(unaudited)

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

Noncontrolling

 

Additional

Accumulated Other

Total

Noncontrolling

Interests in the

 

Common Shares

Paid-in

Comprehensive

Accumulated

Shareholders’

Interests in

Total

Operating

 

Number

Amount

Capital

(Loss) Income

Deficit

Equity

Subsidiaries

Equity

Partnership

 

Balance at December 31, 2022

 

224,603

$

2,246

$

4,125,478

$

(491)

$

(1,301,030)

$

2,826,203

$

14,178

$

2,840,381

$

57,419

Distributions paid to noncontrolling interests in subsidiaries

(107)

(107)

Issuance of common shares, net

 

(91)

 

(91)

 

(91)

Issuance of restricted shares

 

22

 

 

Conversion from units to shares

 

8

361

 

361

 

361

 

(361)

Exercise of stock options

 

39

1

914

 

915

 

915

Amortization of restricted shares

1,171

 

1,171

 

1,171

Share compensation expense

730

 

730

 

730

Adjustment for noncontrolling interests in the Operating Partnership

(8,588)

 

(8,588)

 

(8,588)

 

8,588

Net income (loss)

97,566

 

97,566

 

(238)

 

97,328

 

614

Other comprehensive income

20

20

20

Common share distributions ($0.49 per share)

(110,524)

 

(110,524)

 

(110,524)

 

(695)

Balance at March 31, 2023

 

224,672

$

2,247

$

4,128,563

$

(471)

$

(1,322,576)

$

2,807,763

$

13,833

$

2,821,596

$

65,565

Contributions from noncontrolling interests in subsidiaries

797

797

Distributions paid to noncontrolling interests in subsidiaries

(54)

(54)

Issuance of common shares, net

 

(55)

 

(55)

 

(55)

Issuance of restricted shares

 

20

 

 

Exercise of stock options

 

105

1

1,800

 

1,801

 

1,801

Amortization of restricted shares

1,621

 

1,621

 

1,621

Share compensation expense

692

 

692

 

692

Adjustment for noncontrolling interests in the Operating Partnership

2,134

 

2,134

 

2,134

 

(2,134)

Net income (loss)

97,879

 

97,879

 

(212)

 

97,667

 

616

Other comprehensive income

20

20

20

Common share distributions ($0.49 per share)

(110,585)

 

(110,585)

 

(110,585)

 

(695)

Balance at June 30, 2023

 

224,797

$

2,248

$

4,132,621

$

(451)

$

(1,333,148)

$

2,801,270

$

14,364

$

2,815,634

$

63,352

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

Noncontrolling

 

Additional

Accumulated Other

Total

Noncontrolling

Interests in the

 

Common Shares

Paid-in

Comprehensive

Accumulated

Shareholders’

Interests in

Total

Operating

 

Number

Amount

Capital

(Loss) Income

Deficit

Equity

Subsidiaries

Equity

Partnership

 

Balance at December 31, 2021

    

223,918

$

2,239

$

4,088,392

$

(570)

$

(1,218,498)

$

2,871,563

$

18,597

$

2,890,160

$

108,220

Distributions paid to noncontrolling interests in subsidiaries

(2,033)

(2,033)

Issuance of common shares, net

 

(123)

 

(123)

 

(123)

Issuance of restricted shares

 

35

 

 

Conversion from units to shares

 

441

4

21,534

 

21,538

 

21,538

 

(21,538)

Exercise of stock options

 

40

1

1,225

 

1,226

 

1,226

Amortization of restricted shares

519

 

519

 

519

Share compensation expense

636

 

636

 

636

Adjustment for noncontrolling interest in the Operating Partnership

10,356

 

10,356

 

10,356

 

(10,356)

Net income (loss)

38,155

 

38,155

 

(181)

 

37,974

 

292

Other comprehensive income

19

19

19

1

Common share distributions ($0.43 per share)

(96,817)

 

(96,817)

 

(96,817)

 

(628)

Balance at March 31, 2022

 

224,434

$

2,244

$

4,112,183

$

(551)

$

(1,266,804)

$

2,847,072

$

16,383

$

2,863,455

$

75,991

Distributions paid to noncontrolling interests in subsidiaries

(61)

(61)

Issuance of common shares, net

 

(42)

 

(42)

 

(42)

Issuance of restricted shares

 

19

1

 

1

 

Amortization of restricted shares

1,373

 

1,373

 

1,373

Share compensation expense

635

 

635

 

635

Adjustment for noncontrolling interest in the Operating Partnership

13,349

 

13,349

 

13,349

 

(13,349)

Net income (loss)

58,358

 

58,358

 

(143)

 

58,215

 

379

Other comprehensive income

20

20

20

Common share distributions ($0.43 per share)

(96,819)

 

(96,819)

 

(96,819)

 

(628)

Balance at June 30, 2022

 

224,453

$

2,245

$

4,114,149

$

(531)

$

(1,291,916)

$

2,823,947

$

16,179

$

2,840,125

$

62,393

See accompanying notes to the unaudited consolidated financial statements.

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CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Six Months Ended June 30, 

    

2023

    

2022

Operating Activities

Net income

$

196,225

$

96,860

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

Depreciation and amortization

 

102,768

 

163,519

Non-cash portion of interest expense related to finance leases

(31)

(30)

Equity in earnings of real estate ventures

 

(3,341)

 

(974)

Equity compensation expense

 

4,985

 

4,505

Accretion of fair market value adjustment of debt

 

(531)

 

(551)

Changes in other operating accounts:

Other assets

 

(18,888)

 

(493)

Accounts payable and accrued expenses

 

14,097

 

18,602

Other liabilities

 

1,487

 

2,866

Net cash provided by operating activities

$

296,771

$

284,304

Investing Activities

Acquisitions of storage properties

(68,543)

Additions and improvements to storage properties

 

(25,274)

 

(17,612)

Development costs

 

(27,718)

 

(13,311)

Investment in real estate ventures

 

(10)

 

(10)

Cash distributed from real estate ventures

 

7,862

 

6,208

Proceeds from sale of real estate, net

 

 

43,193

Net cash used in investing activities

$

(45,140)

$

(50,075)

Financing Activities

Proceeds from:

Revolving credit facility

454,934

295,330

Principal payments on:

Revolving credit facility

 

(452,634)

 

(336,330)

Mortgage loans and notes payable

 

(31,698)

 

(1,204)

Loan procurement costs

 

(39)

 

Proceeds from issuance of common shares, net

 

(146)

 

(164)

Cash paid upon vesting of restricted shares

(771)

(1,342)

Exercise of stock options

 

2,716

 

1,226

Contributions from noncontrolling interests in subsidiaries

 

797

 

Distributions paid to noncontrolling interests in subsidiaries

(161)

(2,094)

Distributions paid to common shareholders

 

(221,015)

 

(193,419)

Distributions paid to noncontrolling interests in Operating Partnership

 

(1,394)

 

(1,446)

Net cash used in financing activities

$

(249,411)

$

(239,443)

Change in cash, cash equivalents and restricted cash

 

2,220

 

(5,214)

Cash, cash equivalents and restricted cash at beginning of period

 

8,925

13,318

Cash, cash equivalents and restricted cash at end of period

$

11,145

$

8,104

Supplemental Cash Flow and Noncash Information

Cash paid for interest, net of interest capitalized

$

48,357

$

40,686

Supplemental disclosure of noncash activities:

Acquisitions of storage properties

$

$

(700)

Accretion of put liability

$

$

1,833

Derivative valuation adjustment

$

40

$

40

See accompanying notes to the unaudited consolidated financial statements.

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CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

June 30, 

December 31,

    

2023

    

2022

(unaudited)

ASSETS

Storage properties

$

7,323,638

$

7,295,778

Less: Accumulated depreciation

 

(1,333,907)

 

(1,247,775)

Storage properties, net (including VIE assets of $142,326 and $167,180, respectively)

 

5,989,731

 

6,048,003

Cash and cash equivalents

 

9,220

 

6,064

Restricted cash

 

1,925

 

2,861

Loan procurement costs, net of amortization

 

4,591

 

5,182

Investment in real estate ventures, at equity

 

101,482

 

105,993

Assets held for sale

2,063

 

3,745

Other assets, net

 

172,137

 

153,982

Total assets

$

6,281,149

$

6,325,830

LIABILITIES AND CAPITAL

Unsecured senior notes, net

$

2,774,420

$

2,772,350

Revolving credit facility

 

63,200

 

60,900

Mortgage loans and notes payable, net

 

130,070

 

162,918

Lease liabilities - finance leases

65,727

65,758

Accounts payable, accrued expenses and other liabilities

 

214,733

 

213,297

Distributions payable

 

111,280

 

111,190

Deferred revenue

 

40,245

 

38,757

Security deposits

 

1,086

 

1,087

Liabilities held for sale

1,402

1,773

Total liabilities

 

3,402,163

 

3,428,030

Limited Partnership interests of third parties

 

63,352

 

57,419

Commitments and contingencies

Capital

Operating Partner

 

2,801,721

 

2,826,694

Accumulated other comprehensive loss

 

(451)

 

(491)

Total CubeSmart, L.P. capital

 

2,801,270

 

2,826,203

Noncontrolling interests in subsidiaries

 

14,364

 

14,178

Total capital

 

2,815,634

 

2,840,381

Total liabilities and capital

$

6,281,149

$

6,325,830

See accompanying notes to the unaudited consolidated financial statements.

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CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per common unit data)

(unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

2023

    

2022

    

2023

    

2022

REVENUES

Rental income

$

225,910

$

216,133

$

449,494

$

424,504

Other property related income

 

25,760

 

23,861

 

50,144

 

46,141

Property management fee income

 

9,135

 

8,670

 

17,695

 

16,584

Total revenues

 

260,805

 

248,664

 

517,333

 

487,229

OPERATING EXPENSES

Property operating expenses

 

74,821

 

73,472

 

145,948

 

144,039

Depreciation and amortization

 

50,358

 

79,046

 

100,687

 

161,603

General and administrative

 

14,325

 

13,725

 

28,999

 

28,250

Total operating expenses

 

139,504

 

166,243

 

275,634

 

333,892

OTHER (EXPENSE) INCOME

Interest:

Interest expense on loans

 

(23,544)

 

(23,055)

 

(47,235)

 

(45,879)

Loan procurement amortization expense

 

(1,041)

 

(959)

 

(2,081)

 

(1,916)

Equity in earnings of real estate ventures

 

790

 

680

 

3,341

 

974

Other

 

777

 

(493)

 

501

 

(9,656)

Total other expense

 

(23,018)

 

(23,827)

 

(45,474)

 

(56,477)

NET INCOME

 

98,283

 

58,594

 

196,225

 

96,860

NET LOSS ATTRIBUTABLE TO NONCONTROLLING

INTERESTS

Noncontrolling interest in subsidiaries

 

212

 

143

 

450

 

324

NET INCOME ATTRIBUTABLE TO CUBESMART L.P.

 

98,495

 

58,737

 

196,675

 

97,184

Operating Partnership interests of third parties

 

(616)

 

(379)

 

(1,230)

 

(671)

NET INCOME ATTRIBUTABLE TO COMMON

UNITHOLDERS

$

97,879

$

58,358

$

195,445

$

96,513

    

 

    

 

    

 

    

 

    

Basic earnings per unit attributable to common unitholders

$

0.43

$

0.26

$

0.87

$

0.43

Diluted earnings per unit attributable to common unitholders

$

0.43

$

0.26

$

0.86

$

0.43

Weighted average basic units outstanding

 

225,388

224,960

225,342

224,812

Weighted average diluted units outstanding

 

226,275

225,895

226,238

225,820

See accompanying notes to the unaudited consolidated financial statements.

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CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2023

    

2022

    

2023

    

2022

NET INCOME

$

98,283

$

58,594

$

196,225

$

96,860

Other comprehensive income:

Reclassification of realized losses on interest rate swaps

 

20

 

20

 

40

 

40

OTHER COMPREHENSIVE INCOME:

 

20

 

20

 

40

 

40

COMPREHENSIVE INCOME

 

98,303

 

58,614

 

196,265

 

96,900

Comprehensive income attributable to Operating

Partnership interests of third parties

 

(616)

 

(379)

 

(1,230)

 

(672)

Comprehensive loss attributable to noncontrolling interest

in subsidiaries

 

212

 

143

 

450

 

324

COMPREHENSIVE INCOME ATTRIBUTABLE TO

OPERATING PARTNER

$

97,899

$

58,378

$

195,485

$

96,552

See accompanying notes to the unaudited consolidated financial statements.

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CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CAPITAL

(in thousands)

(unaudited)

Number of

Total

Operating

 

Common

Accumulated Other

CubeSmart

Noncontrolling

Partnership

 

OP Units

Operating

Comprehensive

L.P.

Interests in

Total

Interest

 

Outstanding

Partner

(Loss) Income

Capital

Subsidiaries

Capital

of Third Parties

 

Balance at December 31, 2022

    

224,603

    

$

2,826,694

    

$

(491)

    

$

2,826,203

    

$

14,178

    

$

2,840,381

    

$

57,419

Distributions to noncontrolling interests in subsidiaries

(107)

(107)

Issuance of common OP units, net

 

(91)

(91)

(91)

Issuance of restricted OP units

 

22

Conversion from OP units to shares

 

8

361

361

361

(361)

Exercise of OP unit options

 

39

915

915

915

Amortization of restricted OP units

1,171

1,171

1,171

OP unit compensation expense

730

730

730

Adjustment for Limited Partnership interests of third parties

(8,588)

(8,588)

(8,588)

8,588

Net income (loss)

97,566

97,566

(238)

97,328

614

Other comprehensive income

20

20

20

Common OP unit distributions ($0.49 per unit)

(110,524)

(110,524)

(110,524)

(695)

Balance at March 31, 2023

 

224,672

 

$

2,808,234

$

(471)

$

2,807,763

$

13,833

$

2,821,596

$

65,565

Contributions from noncontrolling interests in subsidiaries

797

797

Distributions to noncontrolling interests in subsidiaries

(54)

(54)

Issuance of common OP units, net

 

(55)

(55)

(55)

Issuance of restricted OP units

 

20

Exercise of OP unit options

 

105

1,801

1,801

1,801

Amortization of restricted OP units

1,621

1,621

1,621

OP unit compensation expense

692

692

692

Adjustment for Limited Partnership interests of third parties

2,134

2,134

2,134

(2,134)

Net income (loss)

97,879

97,879

(212)

97,667

616

Other comprehensive income

20

20

20

Common OP unit distributions ($0.49 per unit)

(110,585)

(110,585)

(110,585)

(695)

Balance at June 30, 2023

 

224,797

 

$

2,801,721

$

(451)

$

2,801,270

$

14,364

$

2,815,634

$

63,352

Number of

Total

Operating

 

Common

Accumulated Other

CubeSmart

Noncontrolling

Partnership

 

OP Units

Operating

Comprehensive

L.P.

Interests in

Total

Interest

 

Outstanding

Partner

(Loss) Income

Capital

Subsidiaries

Capital

of Third Parties

 

Balance at December 31, 2021

    

223,918

    

$

2,872,133

    

$

(570)

    

$

2,871,563

    

$

18,597

    

$

2,890,160

    

$

108,220

Distributions to noncontrolling interests in subsidiaries

(2,033)

(2,033)

Issuance of common OP units, net

 

 

(123)

 

(123)

 

(123)

Issuance of restricted OP units

 

35

 

 

Conversion from OP units to shares

 

441

 

21,538

 

21,538

 

21,538

 

(21,538)

Exercise of OP unit options

 

40

 

1,226

 

1,226

 

1,226

Amortization of restricted OP units

 

519

 

519

 

519

OP unit compensation expense

 

636

 

636

 

636

Adjustment for Limited Partnership interests of third parties

 

10,356

 

10,356

 

10,356

 

(10,356)

Net income (loss)

 

38,155

 

38,155

 

(181)

 

37,974

 

292

Other comprehensive income

19

19

19

1

Common OP unit distributions ($0.43 per unit)

 

(96,817)

 

(96,817)

 

(96,817)

 

(628)

Balance at March 31, 2022

 

224,434

 

$

2,847,623

$

(551)

$

2,847,072

$

16,383

$

2,863,455

$

75,991

Distributions to noncontrolling interests in subsidiaries

(61)

(61)

Issuance of common OP units, net

 

(42)

(42)

(42)

Issuance of restricted OP units

 

19

1

1

1

Amortization of restricted OP units

1,373

1,373

1,373

OP unit compensation expense

635

635

635

Adjustment for Limited Partnership interests of third parties

13,349

13,349

13,349

(13,349)

Net income (loss)

58,358

58,358

(143)

58,215

379

Other comprehensive income

20

20

20

Common OP unit distributions ($0.43 per unit)

(96,819)

(96,819)

(96,819)

(628)

Balance at June 30, 2022

 

224,453

 

$

2,824,478

$

(531)

$

2,823,947

$

16,179

$

2,840,126

$

62,393

See accompanying notes to the unaudited consolidated financial statements.

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CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Six Months Ended June 30, 

    

2023

    

2022

Operating Activities

Net income

$

196,225

$

96,860

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

Depreciation and amortization

 

102,768

 

163,519

Non-cash portion of interest expense related to finance leases

(31)

(30)

Equity in earnings of real estate ventures

 

(3,341)

 

(974)

Equity compensation expense

 

4,985

 

4,505

Accretion of fair market value adjustment of debt

 

(531)

 

(551)

Changes in other operating accounts:

Other assets

 

(18,888)

 

(493)

Accounts payable and accrued expenses

 

14,097

 

18,602

Other liabilities

 

1,487

 

2,866

Net cash provided by operating activities

$

296,771

$

284,304

Investing Activities

Acquisitions of storage properties

 

 

(68,543)

Additions and improvements to storage properties

 

(25,274)

 

(17,612)

Development costs

 

(27,718)

 

(13,311)

Investment in real estate ventures

(10)

(10)

Cash distributed from real estate ventures

7,862

 

6,208

Proceeds from sale of real estate, net

43,193

Net cash used in investing activities

$

(45,140)

$

(50,075)

Financing Activities

Proceeds from:

Revolving credit facility

454,934

295,330

Principal payments on:

 

Revolving credit facility

(452,634)

(336,330)

Mortgage loans and notes payable

(31,698)

(1,204)

Loan procurement costs

(39)

Proceeds from issuance of common OP units

(146)

(164)

Cash paid upon vesting of restricted OP units

(771)

(1,342)

Exercise of OP unit options

2,716

1,226

Contributions from noncontrolling interests in subsidiaries

 

797

Distributions paid to noncontrolling interests in subsidiaries

 

(161)

(2,094)

Distributions paid to common OP unitholders

(222,409)

(194,865)

Net cash used in financing activities

$

(249,411)

$

(239,443)

Change in cash, cash equivalents and restricted cash

 

2,220

 

(5,214)

Cash, cash equivalents and restricted cash at beginning of period

 

8,925

 

13,318

Cash, cash equivalents and restricted cash at end of period

$

11,145

$

8,104

Supplemental Cash Flow and Noncash Information

Cash paid for interest, net of interest capitalized

$

48,357

$

40,686

Supplemental disclosure of noncash activities:

Acquisitions of storage properties

$

$

(700)

Accretion of put liability

$

$

1,833

Derivative valuation adjustment

$

40

$

40

See accompanying notes to the unaudited consolidated financial statements.

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CUBESMART AND CUBESMART, L.P.

NOTES TO UNAUDITED 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 unaudited 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 June 30, 2023, the Company owned (or partially owned and consolidated) self-storage properties located in 24 states throughout the United States and the District of Columbia that are presented under one reportable segment: the Company owns, operates, develops, manages and acquires self-storage properties.

As of June 30, 2023, the Parent Company owned approximately 99.4% of the partnership interests (“OP Units”) of the Operating Partnership. The remaining OP Units, consisting exclusively of limited partner interests, are held by persons who contributed their interests in properties to the Operating Partnership in exchange for OP Units. Under the partnership agreement, these persons have the right to tender their OP Units for redemption to the Operating Partnership at any time following a specified restricted period for cash equal to the fair value of an equivalent number of common shares of the Parent Company. In lieu of delivering cash, however, the Parent Company, as the Operating Partnership’s general partner, may, at its option, choose to acquire any OP Units so tendered by issuing common shares in exchange for the tendered OP Units. If the Parent Company so chooses, its common shares will be exchanged for OP Units on a one-for-one basis. This one-for-one exchange ratio is subject to adjustment to prevent dilution. With each such exchange or redemption, the Parent Company’s percentage ownership in the Operating Partnership will increase. In addition, whenever the Parent Company issues common or other classes of its shares, it contributes the net proceeds it receives from the issuance to the Operating Partnership and the Operating Partnership issues to the Parent Company an equal number of OP Units or other partnership interests having preferences and rights that mirror the preferences and rights of the shares issued. This structure is commonly referred to as an umbrella partnership REIT or “UPREIT”.

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and, in the opinion of each of the Parent Company’s and Operating Partnership’s respective management, include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of financial position, results of operations and cash flows for each respective company for the interim periods presented in accordance with generally accepted accounting principles in the United States (“GAAP”). Accordingly, readers of this Quarterly Report on Form 10-Q should refer to the Parent Company’s and the Operating Partnership’s combined audited financial statements prepared in accordance with GAAP, and the related notes thereto, for the year ended December 31, 2022, which are included in the Parent Company’s and the Operating Partnership’s combined Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The results of operations for the three and six months ended June 30, 2023 or 2022 are not necessarily indicative of the results of operations to be expected for any future period or the full year.

The Operating Partnership meets the criteria as a variable interest entity (“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, and the Parent Company guarantees the unsecured debt obligations of the Operating Partnership.

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3. STORAGE PROPERTIES

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

June 30, 

December 31,

    

2023

    

2022

(in thousands)

Land

$

1,588,138

$

1,588,138

Buildings and improvements

 

5,493,954

 

5,483,506

Equipment

 

146,904

 

144,605

Construction in progress

 

52,697

 

37,584

Right-of-use assets - finance leases

41,945

41,945

Storage properties

 

7,323,638

 

7,295,778

Less: Accumulated depreciation

 

(1,333,907)

 

(1,247,775)

Storage properties, net

$

5,989,731

$

6,048,003

The following table summarizes the Company’s acquisition activity since January 1, 2022.

    

    

    

Number of

    

Transaction Price

 

Asset/Portfolio

Metropolitan Statistical Area

Transaction Date

Stores

(in thousands)

2022 Acquisitions:

Maryland Asset

Washington-Arlington-Alexandria, DC-VA-MD-WV

February 2022

1

$

32,000

Texas Asset

San Antonio, TX

June 2022

1

23,000

Georgia Asset

Atlanta, GA

July 2022

1

20,700

3

$

75,700

4. INVESTMENT ACTIVITY

The Company did not acquire or dispose of any wholly-owned stores during the six months ended June 30, 2023.

2022 Acquisitions

During the year ended December 31, 2022, the Company acquired three stores located in Georgia (1), Maryland (1) and Texas (1) for an aggregate purchase price of $75.7 million. In connection with these transactions, which were accounted for as asset acquisitions, the Company allocated the purchase price and acquisition-related costs to the tangible and intangible assets acquired based on fair value. Intangible assets consisted of in-place leases, which aggregated to $3.4 million at the time of the acquisition and prior to amortization of such amounts. The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during the three and six months ended June 30, 2023 was approximately $0.5 million and $1.2 million, respectively. The amortization expense that was recognized during the three and six months ended June 30, 2022 was $0.3 million and $0.5 million, respectively.

Additionally, on February 2, 2022, the Company acquired land underlying a wholly-owned store located in Bronx, New York for $7.5 million. The land was previously subject to a ground lease in which the Company served as lessee. As a result of the transaction, which was accounted for as an asset acquisition, the Company was released from its obligations under the ground lease, and the right-of-use asset and lease liability totaling $4.1 million and $5.0 million, respectively, were removed from the Company’s consolidated balance sheets.

Also, on April 28, 2022, the Company acquired land underlying a store owned by 191 IV CUBE LLC, an unconsolidated joint venture in which the Company holds a 20% ownership interest (see note 5). The purchase price for the land was $6.1 million, and the Company now serves as the lessor in a ground lease to 191 IV CUBE LLC.

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Table of Contents

2022 Dispositions

During the year ended December 31, 2022, the Company sold the Los Angeles Athletic Club, which it purchased in December 2021 as part of its acquisition of LAACO, Ltd. (“LAACO”), for $44.0 million. No gain or loss was recognized in conjunction with the sale.

Assets Held for Sale

As of June 30, 2023, the Company determined that the California Yacht Club (the "CYC"), which it purchased in December 2021 as part of its acquisition of LAACO, met the criteria to be classified as held for sale. Accordingly, the assets and liabilities associated with the CYC have been categorized as held for sale within the Company’s consolidated balance sheets. As of June 30, 2023, the estimated fair value less selling costs of the CYC was greater than the carrying value of the CYC, and therefore no loss has been recorded in the current period.

Development Activity

As of June 30, 2023, the Company had invested in consolidated joint ventures to develop three self-storage properties located in New Jersey (1) and New York (2). Construction for these projects is expected to be completed at various times between the first and fourth quarters of 2024. As of June 30, 2023, development costs incurred to date for these projects totaled $42.9 million. Total construction costs for these projects are expected to be $82.5 million. These costs are capitalized to construction in progress while the project is under development and are reflected in Storage properties on the Company’s consolidated balance sheets.

The Company completed the construction and opened for operation the following stores during the year ended December 31, 2022. 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. No stores were completed and opened for operation during the six months ended June 30, 2023.

CubeSmart

Number of

Ownership

Total

Store Location

    

Stores

    

Date Opened

Interest

Construction Costs

(in thousands)

Valley Stream, NY (1)

1

Q3 2022

100%

$

37,200

Vienna, VA (2)

1

Q2 2022

80%

21,800

2

$

59,000

(1)This store was previously owned by a consolidated joint venture, in which the Company held a 51% ownership interest. On January 18, 2023, the noncontrolling member put its 49% interest in the venture to the Company for $15.3 million. The cash payment related to this transaction is included in Development costs in the consolidated statements of cash flows.

(2)This store is located adjacent to an existing store. Given this proximity, this store has been combined with the adjacent existing store in our store count upon opening, as well as for operational and reporting purposes.

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5. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES

The Company’s investments in unconsolidated real estate ventures are summarized as follows (dollars in thousands):

CubeSmart

Number of Stores as of

Carrying Value of Investment as of

Ownership

June 30, 

December 31,

June 30, 

December 31,

Unconsolidated Real Estate Ventures

    

Interest

2023

2022

    

2023

2022

Fontana Self Storage, LLC ("Fontana") (1)

50%

1

1

$

13,692

$

13,789

Rancho Cucamonga Self Storage, LLC ("RCSS") (1)

50%

1

1

20,863

20,994

191 V CUBE LLC ("HVP V")

20%

6

6

13,508

14,318

191 IV CUBE LLC ("HVP IV")

20%

28

28

18,210

19,853

CUBE HHF Northeast Venture LLC ("HHFNE")

10%

13

13

1,045

1,101

CUBE HHF Limited Partnership ("HHF")

50%

28

28

34,164

35,938

77

77

$

101,482

$

105,993

(1)On December 9, 2021, the Company completed the acquisition of LAACO, which included a 50% interest in Fontana and RCSS, each of which owns one self-storage property in California. As of the date of acquisition, the Company recognized differences between the Company’s equity investment in Fontana and RCSS and the underlying equity reflected at the venture level. As of June 30, 2023, this difference was $12.9 million and $19.3 million for Fontana and RCSS, respectively. These differences are being amortized over the expected useful life of the self-storage properties owned by the ventures.

As of June 30, 2023, the Company also held a 10% interest in 191 IV CUBE Southeast LLC ("HVPSE"). On August 30, 2022, HVPSE sold all 14 of its stores to an unaffiliated third-party buyer for an aggregate sales price of $235.0 million. During the six months ended June 30, 2023, the Company received distributions of $1.7 million in excess of its investment in HVPSE from proceeds that were held back at the time of the sale. These distributions are included in Equity in earnings of real estate ventures within the consolidated statements of operations. As of June 30, 2023, HVPSE had no significant assets or liabilities and was winding down its operations.

The Company determined that Fontana, RCSS, HVP V, HVPSE, HVP IV, HHFNE and HHF (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 consolidated balance sheets and the Company’s earnings from its investments in the Ventures are presented in Equity in earnings of real estate ventures within the consolidated statements of operations.

The following is a summary of the financial position of the Ventures as of June 30, 2023 and December 31, 2022.

    

June 30, 

December 31,

2023

 

2022

Assets

(in thousands)

Storage properties, net

$

728,291

$

741,563

Other assets

 

11,598

 

11,708

Total assets

$

739,889

$

753,271

Liabilities and equity

Debt

$

469,678

$

468,783

Other liabilities

21,864

16,626

Equity

CubeSmart

 

69,209

73,289

Joint venture partners

 

179,138

194,573

Total liabilities and equity

$

739,889

$

753,271

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The following is a summary of results of operations of the Ventures for the three and six months ended June 30, 2023 and 2022.

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2023

    

2022

    

2023

2022

(in thousands)

Total revenues

$

24,555

$

26,632

$

48,619

$

51,596

Operating expenses

 

(10,545)

(11,238)

 

(21,064)

 

(21,981)

Other expenses

(180)

(124)

(248)

(238)

Interest expense, net

 

(4,425)

(3,601)

 

(8,508)

 

(7,453)

Depreciation and amortization

 

(7,676)

 

(9,540)

 

(15,447)

 

(19,928)

Net income

$

1,729

$

2,129

$

3,352

$

1,996

Company’s share of net income

$

790

$

680

$

3,341

$

974

6. OTHER ASSETS

Other assets are comprised of the following as of June 30, 2023 and December 31, 2022:

June 30, 

December 31,

    

2023

    

2022

(in thousands)

Intangible assets, net of accumulated amortization of $2,263 at December 31, 2022

$

$

1,181

Accounts receivable, net

 

7,673

 

7,932

Prepaid property taxes

 

6,335

 

8,033

Prepaid property and casualty insurance

 

9,495

 

2,129

Amounts due from affiliates (see note 15)

22,698

15,947

Assets related to deferred compensation arrangements

58,668

55,572

Right-of-use assets - operating leases

50,389

49,491

Ground lease receivable

6,164

6,138

Other

 

10,715

 

7,559

Total other assets, net

$

172,137

$

153,982

7. UNSECURED SENIOR NOTES

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

    

June 30, 

December 31,

    

Effective

Issuance

Maturity

Unsecured Senior Notes

    

2023

    

2022

    

Interest Rate

Date

Date

(in thousands)

$300M 4.000% Guaranteed Notes due 2025 (1)

$

300,000

$

300,000

 

3.99

%  

Various (1)

Nov-25

$300M 3.125% Guaranteed Notes due 2026

300,000

300,000

3.18

%  

Aug-16

Sep-26

$550M 2.250% Guaranteed Notes due 2028

550,000

550,000

2.33

%  

Nov-21

Dec-28

$350M 4.375% Guaranteed Notes due 2029

350,000

350,000

4.46

%  

Jan-19

Feb-29

$350M 3.000% Guaranteed Notes due 2030

350,000

350,000

3.04

%  

Oct-19

Feb-30

$450M 2.000% Guaranteed Notes due 2031

450,000

450,000

2.10

%  

Oct-20

Feb-31

$500M 2.500% Guaranteed Notes due 2032

500,000

500,000

2.59

%  

Nov-21

Feb-32

Principal balance outstanding

2,800,000

2,800,000

Less: Discount on issuance of unsecured senior

notes, net

(10,975)

(11,801)

Less: Loan procurement costs, net

(14,605)

(15,849)

Total unsecured senior notes, net

$

2,774,420

$

2,772,350

(1)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

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notes due November 15, 2025 issued on October 26, 2015. The $50.0 million and $250.0 million tranches were priced at 101.343% and 99.735%, respectively, of the principal amount to yield 3.811% and 4.032%, respectively, to maturity. The combined weighted average effective interest rate of the 2025 notes is 3.994%.

The indenture under which the Senior Notes were issued restricts the ability of the Operating Partnership and its subsidiaries to incur debt unless the Operating Partnership and its consolidated subsidiaries comply with a leverage ratio not to exceed 60% and an interest coverage ratio of more than 1.5:1.0 after giving effect to the incurrence of the debt. The indenture also restricts the ability of the Operating Partnership and its subsidiaries to incur secured debt unless the Operating Partnership and its consolidated subsidiaries comply with a secured debt leverage ratio not to exceed 40% after giving effect to the incurrence of the debt. The indenture also contains other financial and customary covenants, including a covenant not to own unencumbered assets with a value less than 150% of the unsecured indebtedness of the Operating Partnership and its consolidated subsidiaries. As of June 30, 2023, the Operating Partnership was in compliance with all of the financial covenants under the Senior Notes.

8. REVOLVING CREDIT FACILITY

On December 9, 2011, the Company entered into a credit agreement (the “Credit Facility”), which was subsequently amended and restated. On October 26, 2022, the Company again amended and restated, in its entirety, the Credit Facility (the “Second Amended and Restated Credit Facility”) which, subsequent to the amendment and restatement, is comprised of an $850.0 million unsecured revolving facility (the “Revolver”) maturing on February 15, 2027. Under the Second Amended and Restated Credit Facility, pricing on the Revolver is dependent upon the Company’s unsecured debt credit ratings and leverage levels. At the Company’s current unsecured debt credit ratings and leverage levels, amounts drawn under the Revolver are priced using a margin of 0.775% plus a facility fee of 0.15% over the Secured Overnight Financing Rate ("SOFR") plus a 0.10% SOFR adjustment.

As of June 30, 2023, borrowings under the Revolver had an interest rate of 6.12%. Additionally, as of June 30, 2023, $786.2 million was available for borrowing under the Revolver. The available balance under the Revolver is reduced by an outstanding letter of credit of $0.6 million.

Under the Second Amended and Restated Credit Facility, the Company’s ability to borrow under the Revolver is subject to ongoing compliance with certain financial covenants which include, among other things, (1) a maximum total indebtedness to total asset value of 60.0%, and (2) a minimum fixed charge coverage ratio of 1.5:1.0. As of June 30, 2023, the Company was in compliance with all of its financial covenants related to the Second Amended and Restated Credit Facility.

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9. MORTGAGE LOANS AND NOTES PAYABLE

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

Carrying Value as of

    

June 30, 

December 31,

    

Effective

Maturity

Mortgage Loans and Notes Payable

    

2023

    

2022

    

Interest Rate

Date

(in thousands)

Nashville V, TN (1)

$

$

2,148

3.85

%  

Jun-23

New York, NY (1)

28,669

3.51

%  

Jun-23

Annapolis I, MD

4,806

4,906

3.78

%  

May-24

Brooklyn XV, NY

14,920

15,093

2.15

%  

May-24

Long Island City IV, NY

12,109

12,270

2.15

%  

May-24

Long Island City II, NY

18,060

18,283

2.25

%  

Jul-26

Long Island City III, NY

18,066

18,290

2.25

%  

Aug-26

Flushing II, NY

54,300

54,300

2.15

%  

Jul-29

Principal balance outstanding

122,261

153,959

Plus: Unamortized fair value adjustment

8,871

 

10,228

Less: Loan procurement costs, net

(1,062)

(1,269)

Total mortgage loans and notes payable, net

$

130,070

$

162,918

(1)These mortgage loans were repaid in full in June 2023.

As of June 30, 2023 and December 31, 2022, the Company’s mortgage loans payable were secured by certain of its self-storage properties with net book values of approximately $359.6 million and $442.9 million, respectively. The following table represents the future principal payment requirements on the outstanding mortgage loans and notes payable as of June 30, 2023 (in thousands):

2023

    

$

893

2024

 

32,329

2025

 

979

2026

 

33,760

2027

 

2028 and thereafter

 

54,300

Total mortgage payments

 

122,261

Plus: Unamortized fair value adjustment

 

8,871

Less: Loan procurement costs, net

(1,062)

Total mortgage loans and notes payable, net

$

130,070

10. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table summarizes the changes in accumulated other comprehensive loss for the six months ended June 30, 2023 (in thousands).

Beginning balance at December 31, 2022

$

(494)

Reclassification of realized losses on interest rate swaps (1)

40

Ending balance at June 30, 2023

(454)

Less: portion included in noncontrolling interests in the Operating Partnership

3

Total accumulated other comprehensive loss included in equity

$

(451)

(1)See note 11 for additional information about the effects of the amounts reclassified.

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11. RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS

The Company is exposed to credit risk with regard to its cash accounts. The Company holds deposits at certain financial institutions in excess of Federal Deposit Insurance Corporation limits. The Company's cash accounts are held with major financial institutions and management believes that the risk of loss due to disruption at these financial institutions is low. 

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 exposure 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 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 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 the 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 the derivative is not highly-effective as a hedge or if a derivative ceases to be a highly-effective hedge, the Company discontinues hedge accounting prospectively and reflects in its statement of operations realized and unrealized gains and losses with respect to the derivative. As of June 30, 2023 and December 31, 2022, all derivative instruments entered into by the Company had been settled.

On December 24, 2018, the Company entered into interest rate swap agreements with notional amounts that aggregated to $150.0 million (the “Interest Rate Swaps”) to protect the Company against adverse fluctuations in interest rates by reducing exposure to variability in cash flows relating to interest payments on a forecasted issuance of long-term debt. The Interest Rate Swaps qualified and were designated as cash flow hedges. Accordingly, the Interest Rate Swaps were recorded on the consolidated balance sheet at fair value and the related gains or losses were deferred in shareholders’ equity as accumulated other comprehensive income or loss. These deferred gains and losses were amortized into interest expense during the period or periods in which the related interest payments affected earnings. On January 24, 2019, in conjunction with the issuance of its 4.375% senior notes due 2029 (the “2029 Notes”), the Company settled the Interest Rate Swaps for $0.8 million. The $0.8 million termination premium will be reclassified from accumulated other comprehensive loss as an increase to interest expense over the life of the 2029 Notes, which mature on February 15, 2029. The change in unrealized losses on interest rate swaps reflects a reclassification of twenty thousand dollars and forty thousand dollars of unrealized losses from accumulated other comprehensive loss as an increase to interest expense during the three and six months ended June 30, 2023, respectively. The Company estimates that $0.1 million will be reclassified as an increase to interest expense in the next 12 months.

12. 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.

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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.

The fair values of financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, other financial instruments included in other assets, accounts payable, accrued expenses and other liabilities approximate their respective carrying values at June 30, 2023 and December 31, 2022.

The following table summarizes the carrying value and estimated fair value of the Company’s debt as of June 30, 2023 and December 31, 2022:

June 30, 2023

December 31, 2022

(in thousands)

Carrying value

$

2,967,690

$

2,996,168

Fair value

2,574,821

2,568,103

The fair value of debt estimates were based on a discounted cash flow analysis assuming market interest rates for comparable obligations at June 30, 2023 and December 31, 2022. 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.

13. NONCONTROLLING INTERESTS

Interests in Consolidated Joint Ventures

Noncontrolling interests in subsidiaries represent the ownership interests of third parties in the Company’s consolidated real estate ventures. All consolidated joint ventures were formed to develop, own and operate new stores with the exception of Anoka, which was formed to acquire an existing store that had commenced operations. The following table summarizes the Company’s consolidated joint ventures, each of which are accounted for as VIEs:

CubeSmart

June 30, 2023

Number

Ownership

Total

Total

Related Party

Consolidated Joint Ventures

    

of Stores

    

Interest

Assets

Liabilities

Loans (1)

(in thousands)

1074 Raritan Road, LLC ("Clark")

1

90%

$

5,966

$

1,302

$

350 Main Street, LLC ("Port Chester")

1

90%

5,352

104

Astoria Investors, LLC ("Astoria")

1

70%

32,536

17,937

14,375

CS Lock Up Anoka, LLC ("Anoka")

1

50%

10,611

5,576

5,540

CS Valley Forge Village Storage, LLC ("VFV")

1

70%

20,372

15,336

15,257

CS Vienna, LLC ("Vienna")

1

80%

31,648

35,288

34,875

SH3, LLC ("SH3")

1

90%

37,481

307

7

$

143,966

$

75,850

$

70,047

(1)Related party loans represent amounts payable from the joint venture to the Company and are included in total liabilities within the table above. The loans and related party interest have been eliminated in consolidation.

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

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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 0.6% of the outstanding OP Units, as of both June 30, 2023 and December 31, 2022, 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 settlement outside the control of CubeSmart and the Operating Partnership, as CubeSmart does not have the ability to settle in unregistered shares. Accordingly, consistent with the guidance, the Operating Partnership will record the OP Units owned by third parties outside of permanent capital in the consolidated balance sheets. Net income or loss related to the OP Units owned by third parties is excluded from net income or loss attributable to Operating Partner within the consolidated statements of operations.

As of June 30, 2023 and December 31, 2022, 1,418,549 and 1,426,549 OP units, respectively, were held by third parties. The per unit cash redemption amount of the outstanding OP units was calculated based upon the closing price of the common shares of CubeSmart on the New York Stock Exchange on the final trading day of the quarter. Based on the Company’s evaluation of the redemption value of the redeemable noncontrolling interest, the Company has reflected these interests at the greater of the carrying value based on the accumulation of historical cost or the redemption value as of June 30, 2023 and December 31, 2022.

14. COMMITMENTS AND CONTINGENCIES

Litigation

The Company is involved in claims from time to time, which arise in the ordinary course of business. In accordance with applicable accounting guidance, management establishes an accrued liability for claim expenses, insurance retention and litigation costs when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be exposure to loss in excess of those amounts accrued. The estimated loss, if any, is based upon currently available information and is subject to significant judgment, a variety of assumptions, and known and unknown uncertainties. In the opinion of management, the Company has made adequate provisions for potential liabilities, arising from any such matters, which are included in Accounts payable, accrued expenses and other liabilities on the consolidated balance sheets. 

15. RELATED PARTY TRANSACTIONS

The Company provides management services to certain joint ventures and other related parties. Management agreements provide for fee income to the Company based on a percentage of revenues at the managed stores. Total management fees for unconsolidated real estate ventures or other entities in which the Company held an ownership interest during the three and six months ended June 30, 2023 totaled $1.2 million and $2.3 million, respectively compared to $1.4 million and $2.6 million, respectively, during the same periods in 2022.

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

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due for management fees, payroll, and other store expenses. The amounts due to the Company were $22.7 million and $15.9 million as of June 30, 2023 and December 31, 2022, respectively, and are reflected in Other assets, net on the consolidated balance sheets. Additionally, the Company had outstanding mortgage loans receivable from consolidated joint ventures of $70.0 million and $64.4 million as of June 30, 2023 and December 31, 2022, respectively, which are eliminated in consolidation. The Company believes that all of these related-party receivables are fully collectible.

The HVP V, HVPSE, HVP IV and HHFNE operating agreements provide for acquisition, disposition and other fees payable from HVP V, HVPSE, HVP IV and HHFNE to the Company upon the closing of a property transaction by HVP V, HVPSE, HVP IV and HHFNE or any of their subsidiaries and completion of certain measures as defined in the operating agreements. During both the three and six months ended June 30, 2022, the Company recognized fees associated with property transactions of $0.2 million. There were no such fees recognized during the three or six months ended June 30, 2023. Property transaction fees are included in the component of other (expense) income designated as Other within the consolidated statements of operations.

In April 2022, the Company began serving as lessor in a ground lease related to land underlying an HVP IV property located in Texas (see note 4). During the three and six months ended June 30, 2023, the Company recognized income associated with this ground lease of $0.1 million and $0.2 million, respectively, compared to $0.1 million for both the three and six months ended June 30, 2022. This income is included in the component of other (expense) income designated as Other within the consolidated statements of operations.

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:

Three Months Ended June 30, 

Six Months Ended June 30, 

2023

2022

2023

2022

(dollars and units in thousands, except per share amounts)

Net income

    

$

98,283

    

$

58,594

$

196,225

$

96,860

Noncontrolling interests in the Operating Partnership

 

(616)

 

(379)

 

(1,230)

 

(671)

Noncontrolling interest in subsidiaries

 

212

 

143

 

450

 

324

Net income attributable to the Company’s common

shareholders

$

97,879

$

58,358

$

195,445

$

96,513

Weighted average basic shares outstanding

 

225,388

 

224,960

 

225,342

 

224,812

Share options and restricted share units

 

887

 

935

 

896

 

1,008

Weighted average diluted shares outstanding (1)

 

226,275

 

225,895

 

226,238

 

225,820

Basic earnings per share attributable to common

shareholders

$

0.43

$

0.26

$

0.87

$

0.43

Diluted earnings per share attributable to common

shareholders (2)

$

0.43

$

0.26

$

0.86

$

0.43

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Earnings per common unit and capital

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

Three Months Ended June 30, 

Six Months Ended June 30, 

2023

2022

2023

2022

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

Net income

    

$

98,283

    

$

58,594

$

196,225

$

96,860

Operating Partnership interests of third parties

 

(616)

 

(379)

 

(1,230)

 

(671)

Noncontrolling interest in subsidiaries

 

212

 

143

 

450

 

324

Net income attributable to common unitholders

$

97,879

$

58,358

$

195,445

$

96,513

Weighted average basic units outstanding

 

225,388

 

224,960

 

225,342

 

224,812

Unit options and restricted share units

 

887

 

935

 

896

 

1,008

Weighted average diluted units outstanding (1)

 

226,275

 

225,895

 

226,238

 

225,820

Basic earnings per unit attributable to common unitholders

$

0.43

$

0.26

$

0.87

$

0.43

Diluted earnings per unit attributable to common

unitholders (2)

$

0.43

$

0.26

$

0.86

$

0.43

(1)For the three and six months ended June 30, 2023, the Company declared cash dividends per common share/unit of $0.49 and $0.98, respectively. For the three and six months ended June 30, 2022, the Company declared cash dividends per common share/unit of $0.43 and $0.86, respectively.

(2)The amount of anti-dilutive options that were excluded from the computation of diluted earnings per share/unit was 0.7 million for both the three and six months ended June 30, 2023 and 0.3 million for both the three and six months ended June 30, 2022.

Income allocated to noncontrolling interests of the Operating Partnership has been excluded from the numerator and OP units have been omitted from the denominator for the purpose of computing diluted earnings per share since the effect of including these amounts in the numerator and denominator would be anti-dilutive. Weighted average OP units outstanding for both the three and six months ended June 30, 2023 were 1.4 million. Weighted average OP units outstanding for the three and six months ended June 30, 2022 were 1.5 million and 1.6 million, 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 OP unit may be redeemed for cash, or, at the Company’s option, common units on a one-for-one basis. The following is a summary of OP and common units outstanding:

As of June 30,

2023

2022

Outstanding OP units

    

1,418,549

1,460,520

Outstanding common units

224,797,239

224,452,547

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ITEM 2.  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 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 complete discussion of such risk factors, see the section entitled “Risk Factors” in the Parent Company’s and Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2022.

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 both June 30, 2023 and December 31, 2022, we owned (or partially owned and consolidated) 611 self-storage properties totaling approximately 44.1 million rentable square feet. As of June 30, 2023, we owned stores in the District of Columbia and the following 24 states: Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah and Virginia. In addition, as of June 30, 2023, we managed 727 stores for third parties (including 77 stores containing an aggregate of approximately 5.6 million rentable square feet as part of six separate unconsolidated real estate ventures) bringing the total number of stores which we owned and/or managed to 1,338. As of June 30, 2023, we managed stores for third parties in the District of Columbia and the following 40 states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, Washington and Wisconsin.

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

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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 New York, Florida, California and Texas provided approximately 17%, 15%, 11% and 9%, respectively, of total revenues for the six months ended June 30, 2023.

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 unaudited consolidated financial statements included in this Report. Certain of the accounting policies used in the preparation of these unaudited consolidated financial statements are particularly important for an understanding of the financial position and results of operations presented in this Report. For additional discussion of the Company’s significant accounting policies, see note 2 to the Consolidated Financial Statements included in the Parent Company’s and Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2022. 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 unaudited 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. To the extent that the Company (i) has the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and (ii) has the obligation or rights to absorb the VIE's losses or receive its benefits, then the Company is considered the primary beneficiary. The Company may also consider additional factors included in the authoritative guidance, such as whether or not it is the partner in the VIE that is most closely associated with the VIE. 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 nor substantive participating rights.

Self-Storage Properties

The Company records self-storage properties at cost less accumulated depreciation. Depreciation on 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. Allocations to land, building and improvements and equipment are recorded based upon their respective fair values as estimated by management. If appropriate, the Company allocates a portion of the purchase price to an intangible asset attributed to the value of in-place leases. This intangible asset is generally amortized to expense over the expected remaining term of the respective leases. Substantially all of the storage 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 associated with storage leases assumed at acquisition. Above- or below- market lease intangibles associated with assumed ground leases in which the Company serves as lessee are recorded as an adjustment to the right-of-use asset and reflect the difference between the contractual amounts to be paid pursuant to each in-place ground lease and management’s estimate of fair market lease rates. These amounts are amortized over the term of the lease. To date, no intangible asset has been

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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 three and six months ended June 30, 2023 and 2022.

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

Typically these criteria are all met when the relevant asset is under contract, significant non-refundable deposits have been made by the potential buyer, the assets are immediately available for transfer and there are no contingencies related to the sale that may prevent the transaction from closing. However, each potential transaction is evaluated based on its separate facts and circumstances. Stores classified as held for sale are reported at the lesser of carrying value or fair value less estimated costs to sell. The California Yacht Club, which we purchased in December 2021 as part of our acquisition of LAACO, Ltd., was classified as held for sale as of June 30, 2023. There were no self-storage properties classified as held for sale as of June 30, 2023.

Investments in Unconsolidated Real Estate Ventures

The Company accounts for its investments in unconsolidated real estate ventures under the equity method of accounting when it is determined that the Company has the ability to exercise significant influence over the venture. Under the equity method, investments in unconsolidated real estate ventures are recorded initially at cost, as investments in real estate entities, and subsequently adjusted for equity in earnings (losses), 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. If an investment is impaired, the loss would be measured as the excess of the carrying amount of the investment over the fair value of the investment, as estimated by management. The determination as to whether an investment is impaired requires significant management judgment about the fair value of its ownership interest. Fair value is determined through various valuation techniques, including, but not limited to, discounted cash flow models, quoted market values and third-party appraisals. There were no impairment losses related to the Company’s investments in unconsolidated real estate ventures recognized during the three and six months ended June 30, 2023 or 2022.

Differences between the Company's net investment in unconsolidated real estate ventures and its underlying equity in the net assets of the ventures are primarily a result of the Company acquiring interests in existing unconsolidated real estate ventures. The Company’s net investment in unconsolidated real estate ventures was greater than its underlying equity in the net assets of the unconsolidated real estate ventures by an aggregate of $32.3 million and $32.7 million as of June 30, 2023 and December 31, 2022, respectively. These differences are amortized over the lives of the self-storage properties owned by the real estate ventures. This amortization is included in Equity in earnings of real estate ventures within our consolidated statements of operations.

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Results of Operations

The following discussion of our results of operations should be read in conjunction with the unaudited consolidated financial statements and the accompanying notes thereto. Historical results set forth in our 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 periods 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 June 30, 2023, we owned 593 same-store properties and 18 non-same-store properties. For analytical presentation, all percentages are calculated using the numbers presented in the consolidated financial statements contained in this Report.

Acquisition and Development Activities

The comparability of our results of operations is affected by the timing of acquisition and disposition activities during the periods reported. The following table summarizes the change in the number of owned stores from January 1, 2022 through June 30, 2023:

    

2023

    

2022

Balance - January 1

 

611

 

607

Stores acquired

 

 

1

Balance - March 31

 

611

 

608

Stores acquired

 

 

1

Stores developed

1

Stores combined (1)

(1)

Balance - June 30

 

611

 

609

Stores acquired

 

 

1

Stores developed

1

Balance - September 30

 

 

611

Stores acquired

 

 

Balance - December 31

 

 

611

(1)On June 21, 2022, we completed development of a new store located in Vienna, VA for approximately $21.8 million. The developed store is located adjacent to an existing store. Given this proximity, the developed store has been combined with the adjacent existing store in our store count upon opening, as well as for operational and reporting purposes.

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Comparison of the three months ended June 30, 2023 to the three months ended June 30, 2022 (in thousands)

Non Same-Store

Other/

 

Same-Store Property Portfolio

Properties

Eliminations

Total Portfolio

 

    

    

    

    

    

%  

    

    

    

    

    

    

    

    

    

    

    

    

    

    

%  

 

2023

2022

Change

Change

2023

2022

2023

2022

2023

2022

Change

Change

 

REVENUES:

Rental income

$

219,122

$

210,423

$

8,699

 

4.1

%  

$

6,788

$

5,710

$

$

$

225,910

$

216,133

$

9,777

 

4.5

%  

Other property related income

 

9,969

 

8,634

 

1,335

 

15.5

%  

 

340

 

285

 

15,451

 

14,942

 

25,760

 

23,861

 

1,899

 

8.0

%  

Property management fee income

 

 

 

 

0.0

%  

 

 

 

9,135

 

8,670

 

9,135

 

8,670

 

465

 

5.4

%  

Total revenues

 

229,091

 

219,057

 

10,034

 

4.6

%  

 

7,128

 

5,995

 

24,586

 

23,612

 

260,805

 

248,664

 

12,141

 

4.9

%  

OPERATING EXPENSES:

Property operating expenses

 

63,336

 

61,132

 

2,204

 

3.6

%  

 

2,527

 

1,956

 

8,958

 

10,384

 

74,821

 

73,472

 

1,349

 

1.8

%  

NET OPERATING INCOME:

 

165,755

 

157,925

 

7,830

 

5.0

%  

 

4,601

 

4,039

 

15,628

 

13,228

 

185,984

 

175,192

 

10,792

 

6.2

%  

Store count

 

593

 

593

 

18

 

16

 

611

 

609

Total square footage

 

42,398

 

42,398

 

1,694

 

1,482

 

44,092

 

43,880

Period end occupancy

 

92.7

%  

 

94.4

%  

 

73.0

%  

 

70.4

%  

 

92.0

%  

 

93.6

%  

Period average occupancy

 

92.7

%  

 

94.2

%  

Realized annual rent per occupied

sq. ft. (1)

$

22.30

$

21.07

Depreciation and amortization

 

50,358

 

79,046

 

(28,688)

 

(36.3)

%  

General and administrative

 

14,325

 

13,725

 

600

 

4.4

%  

Subtotal

 

64,683

 

92,771

 

(28,088)

 

(30.3)

%  

OTHER (EXPENSE) INCOME

Interest:

Interest expense on loans

 

(23,544)

 

(23,055)

 

(489)

 

(2.1)

%  

Loan procurement amortization expense

 

(1,041)

 

(959)

 

(82)

 

(8.6)

%  

Equity in earnings of real estate ventures

 

790

 

680

 

110

 

16.2

%  

Other

 

777

 

(493)

 

1,270

 

257.6

%  

Total other income

 

(23,018)

 

(23,827)

 

809

 

3.4

%  

NET INCOME

 

98,283

 

58,594

 

39,689

 

67.7

%  

NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

Noncontrolling interests in the Operating Partnership

 

(616)

 

(379)

 

(237)

 

(62.5)

%  

Noncontrolling interests in subsidiaries

 

212

 

143

 

69

 

48.3

%  

NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS

$

97,879

$

58,358

$

39,521

 

67.7

%  

(1)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 $216.1 million during the three months ended June 30, 2022 to $225.9 million for the three months ended June 30, 2023, an increase of $9.8 million, or 4.5%. The $8.7 million increase in same-store rental income was primarily due to higher rental rates. Realized annual rent per occupied square foot in our same-store portfolio increased 5.8% as a result of higher rental rates for new and existing customers for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022. The remaining increase in rental income was due to stores acquired or opened in 2021 or 2022 included in our non-same-store portfolio.

Other property related income increased from $23.9 million during the three months ended June 30, 2022 to $25.8 million for the three months ended June 30, 2023, an increase of $1.9 million, or 8.0%. The increase was primarily due to a $1.0 million increase in fee revenue as well as a $0.5 million increase in revenue related to customer storage protection plan participation at our owned and managed stores.

Operating Expenses

Depreciation and amortization decreased from $79.0 million during the three months ended June 30, 2022 to $50.4 million for the three months ended June 30, 2023, a decrease of $28.7 million, or 36.3%. This decrease was primarily attributable to decreased amortization of in-place lease intangibles related to stores acquired in 2021.

Other (Expense) Income

Interest expense on loans increased from $23.1 million during the three months ended June 30, 2022 to $23.5 million for the three months ended June 30, 2023, an increase of $0.5 million, or 2.1%. The increase was attributable to higher interest rates during the 2023 period compared to the 2022 period, partially offset by a decrease in the average outstanding debt balance. The weighted average effective interest rate on our outstanding debt increased to 3.05% for the three months ended June 30, 2023 compared to 2.91% during the three months ended June 30, 2022. The average

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outstanding debt balance decreased to $3.04 billion during the three months ended June 30, 2023 as compared to $3.16 billion during the three months ended June 30, 2022.

For the three months ended June 30, 2022, the component of other (expense) income designated as Other includes $1.1 million of transaction-related expenses comprised of severance costs associated with the acquisition of LAACO, Ltd. in December 2021. There were no such expenses for the three months ended June 30, 2023.

Comparison of the six months ended June 30, 2023 to the six months ended June 30, 2022 (in thousands)

Non Same-Store

Other/

Same-Store Property Portfolio

Properties

Eliminations

Total Portfolio

    

    

    

    

    

%  

    

    

    

    

    

    

    

    

    

    

    

    

    

    

%  

2023

2022

Change

Change

2023

2022

2023

2022

2023

2022

Change

Change

REVENUES:

Rental income

$

436,504

$

414,608

$

21,896

 

5.3

%  

$

12,990

$

9,896

$

$

$

449,494

$

424,504

$

24,990

 

5.9

%  

Other property related income

 

19,320

 

16,618

 

2,702

 

16.3

%  

 

607

 

440

 

30,217

 

29,083

 

50,144

 

46,141

 

4,003

 

8.7

%  

Property management fee income

 

 

 

 

0.0

%  

 

 

 

17,695

 

16,584

 

17,695

 

16,584

 

1,111

 

6.7

%  

Total revenues

 

455,824

 

431,226

 

24,598

 

5.7

%  

 

13,597

 

10,336

 

47,912

 

45,667

 

517,333

 

487,229

 

30,104

 

6.2

%  

OPERATING EXPENSES:

Property operating expenses

 

123,410

 

120,600

 

2,810

 

2.3

%  

 

4,387

 

3,786

 

18,151

 

19,653

 

145,948

 

144,039

 

1,909

 

1.3

%  

NET OPERATING INCOME:

 

332,414

 

310,626

 

21,788

 

7.0

%  

 

9,210

 

6,550

 

29,761

 

26,014

 

371,385

 

343,190

 

28,195

 

8.2

%  

Store count

 

593

 

593

 

18

 

16

 

611

 

609

Total square footage

 

42,398

 

42,398

 

1,694

 

1,482

 

44,092

 

43,880

Period end occupancy

 

92.7

%  

 

94.4

%  

 

73.0

%  

 

70.4

%  

 

92.0

%  

 

93.6

%  

Period average occupancy

 

92.1

%  

 

93.6

%  

Realized annual rent per occupied

sq. ft. (1)

$

22.35

$

20.89

Depreciation and amortization

 

100,687

 

161,603

 

(60,916)

 

(37.7)

%  

General and administrative

 

28,999

 

28,250

 

749

 

2.7

%  

Subtotal

 

129,686

 

189,853

 

(60,167)

 

(31.7)

%  

OTHER (EXPENSE) INCOME

Interest:

Interest expense on loans

 

(47,235)

 

(45,879)

 

(1,356)

 

(3.0)

%  

Loan procurement amortization expense

 

(2,081)

 

(1,916)

 

(165)

 

(8.6)

%  

Equity in earnings of real estate ventures

 

3,341

 

974

 

2,367

 

243.0

%  

Other

 

501

 

(9,656)

 

10,157

 

105.2

%  

Total other expense

 

(45,474)

 

(56,477)

 

11,003

 

19.5

%  

NET INCOME

 

196,225

 

96,860

 

99,365

 

102.6

%  

NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

Noncontrolling interests in the Operating Partnership

 

(1,230)

 

(671)

 

(559)

 

(83.3)

%  

Noncontrolling interests in subsidiaries

 

450

 

324

 

126

 

38.9

%  

NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS

$

195,445

$

96,513

$

98,932

 

102.5

%  

(1)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 $424.5 million during the six months ended June 30, 2022 to $449.5 million for the six months ended June 30, 2023, an increase of $25.0 million, or 5.9%. The $21.9 million increase in same-store rental income was primarily due to higher rental rates. Realized annual rent per occupied square foot in our same-store portfolio increased 7.0% as a result of higher rental rates for new and existing customers for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. The remaining increase in rental income was due to stores acquired or opened in 2021 or 2022 included in our non-same-store portfolio.

Other property related income increased from $46.1 million during the six months ended June 30, 2022 to $50.1 million for the six months ended June 30, 2023, an increase of $4.0 million, or 8.7%. The increase was primarily due to a $2.4 million increase in fee revenue as well as a $1.1 million increase in revenue related to customer storage protection plan participation at our owned and managed stores.

Operating Expenses

Depreciation and amortization decreased from $161.6 million during the six months ended June 30, 2022 to $100.7 million for the six months ended June 30, 2023, a decrease of $60.9 million, or 37.7%. This decrease was primarily attributable to decreased amortization of in-place lease intangibles related to stores acquired in 2021.

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Other (Expense) Income

Interest expense on loans increased from $45.9 million during the six months ended June 30, 2022 to $47.2 million for the six months ended June 30, 2023, an increase of $1.4 million, or 3.0%. The increase was attributable to higher interest rates during the 2023 period compared to the 2022 period, partially offset by a decrease in the average outstanding debt balance. The weighted average effective interest rate on our outstanding debt increased to 3.05% for the six months ended June 30, 2023 compared to 2.88% during the six months ended June 30, 2022. The average outstanding debt balance decreased to $3.05 billion during the six months ended June 30, 2023 as compared to $3.18 billion during the six months ended June 30, 2022.

Equity in earnings of real estate ventures increased from $1.0 million during the six months ended June 30, 2022 to $3.3 million for the six months ended June 30, 2023, an increase of $2.3 million. The increase was primarily due to distributions during the 2023 period in excess of our equity investment associated with the sale by 191 IV CUBE Southeast LLC (“HVPSE”) of all of its 14 stores on August 30, 2022 (see note 5 to our unaudited consolidated financial statements).

For the six months ended June 30, 2022, the component of other (expense) income designated as Other includes $10.5 million of transaction-related expenses comprised primarily of severance costs associated with the acquisition of LAACO, Ltd. in December 2021. There were no such expenses for the six months ended June 30, 2023.

Cash Flows

Comparison of the six months ended June 30, 2023 to the six months ended June 30, 2022

A comparison of cash flow from operating, investing and financing activities for the six months ended June 30, 2023 and 2022 is as follows:

Six Months Ended June 30, 

 

Net cash provided by (used in):

    

2023

    

2022

    

Change

 

(in thousands)

 

Operating activities

$

296,771

$

284,304

$

12,467

Investing activities

$

(45,140)

$

(50,075)

$

4,935

Financing activities

$

(249,411)

$

(239,443)

$

(9,968)

Cash provided by operating activities increased from $284.3 million for the six months ended June 30, 2022 to $296.8 million for the six months ended June 30, 2023, reflecting an increase of $12.5 million. Our increased cash flow from operating activities was primarily attributable to increased net operating income levels in the same-store portfolio primarily due to higher rental rates in the 2023 period as compared to the corresponding 2022 period.

Cash used in investing activities decreased from $50.1 million for the six months ended June 30, 2022 to $45.1 million for the six months ended June 30, 2023, reflecting a decrease of $4.9 million. The change was primarily driven by a decrease in acquisitions of storage properties of $68.5 million. We acquired two stores and land during the six months ended June 30, 2022, with no acquisitions during the corresponding 2023 period. This decrease was offset by $43.2 million in net proceeds received from the sale of real estate during the six months ended June 30, 2022, with no comparable cash inflows during the corresponding 2023 period. Additionally, development costs increased by $14.4 million, primarily due to the payment of a put liability associated with a previously consolidated joint venture.

Cash used in financing activities was $239.4 million for the six months ended June 30, 2022 compared to $249.4 million for the six months ended June 30, 2023, reflecting an increase of $10.0 million. This change was primarily the result of a $30.5 million increase in principal payments on mortgage loans due to the repayment of two secured loans during the 2023 period with no comparable repayments during the 2022 period. This change was also due to a $27.5 million increase in cash distributions paid to common shareholders and noncontrolling interests in the Operating Partnership due to an increase in the common divided per share/unit. These increases in cash used for financing activities

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were offset by $43.3 million of additional net proceeds from our revolving credit facility during the 2023 period as compared to the corresponding 2022 period.

Liquidity and Capital Resources

Liquidity Overview

Our cash flow from operations has historically been one of our primary sources of liquidity used to fund debt service, distributions and capital expenditures. We derive substantially all of our revenue from customers who lease space at our stores and fees earned from managing stores. Therefore, our ability to generate cash from operations is dependent on the rents and management fees that we are able to charge and collect from our customers and clients. 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 could 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 its REIT taxable income, excluding capital gains, to its shareholders on an annual basis, and must pay federal income tax on undistributed income to the extent it distributes less than 100% of its REIT taxable income. The nature of our business, coupled with the requirement that we distribute a substantial portion of our income on an annual basis, will cause us to have substantial liquidity needs over both the short 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 dividends to shareholders, capital expenditures and the development of new stores. These funding requirements will vary from year to year, in some cases significantly. For the remainder of the 2023 fiscal year, we expect recurring capital expenditures to be approximately $6.0 million to $11.0 million, planned capital improvements and store upgrades to be approximately $4.5 million to $9.5 million and costs associated with the development of new stores to be approximately $16.0 to $26.0 million. Our currently scheduled principal payments on our outstanding debt are approximately $0.9 million for the remainder of 2023.

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 Second Amended and Restated Credit Facility (defined below) 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 2023 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 Second Amended and Restated 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. 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 of us.

As of June 30, 2023, we had approximately $9.2 million in available cash and cash equivalents. In addition, we had approximately $786.2 million of availability for borrowings under our Second Amended and Restated Credit Facility.

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Unsecured Senior Notes

Our unsecured senior notes, which are issued by the Operating Partnership and guaranteed by the Parent Company, are summarized as follows (collectively referred to as the “Senior Notes”):

    

June 30, 

December 31,

    

Effective

Issuance

Maturity

Unsecured Senior Notes

    

2023

    

2022

    

Interest Rate

Date

Date

(in thousands)

$300M 4.000% Guaranteed Notes due 2025 (1)

$

300,000

$

300,000

 

3.99

%  

Various (1)

Nov-25

$300M 3.125% Guaranteed Notes due 2026

300,000

300,000

3.18

%  

Aug-16

Sep-26

$550M 2.250% Guaranteed Notes due 2028

550,000

550,000

2.33

%  

Nov-21

Dec-28

$350M 4.375% Guaranteed Notes due 2029

350,000

350,000

4.46

%  

Jan-19

Feb-29

$350M 3.000% Guaranteed Notes due 2030

350,000

350,000

3.04

%  

Oct-19

Feb-30

$450M 2.000% Guaranteed Notes due 2031

450,000

450,000

2.10

%  

Oct-20

Feb-31

$500M 2.500% Guaranteed Notes due 2032

500,000

500,000

2.59

%  

Nov-21

Feb-32

Principal balance outstanding

2,800,000

2,800,000

Less: Discount on issuance of unsecured senior

notes, net

(10,975)

(11,801)

Less: Loan procurement costs, net

(14,605)

(15,849)

Total unsecured senior notes, net

$

2,774,420

$

2,772,350

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

The indenture under which the Senior Notes were issued restricts the ability of the Operating Partnership and its subsidiaries to incur debt unless the Operating Partnership and its consolidated subsidiaries comply with a leverage ratio not to exceed 60% and an interest coverage ratio of more than 1.5:1.0 after giving effect to the incurrence of the debt. The indenture also restricts the ability of the Operating Partnership and its subsidiaries to incur secured debt unless the Operating Partnership and its consolidated subsidiaries comply with a secured debt leverage ratio not to exceed 40% after giving effect to the incurrence of the debt. The indenture also contains other financial and customary covenants, including a covenant not to own unencumbered assets with a value less than 150% of the unsecured indebtedness of the Operating Partnership and its consolidated subsidiaries. As of June 30, 2023, the Operating Partnership was in compliance with all of the financial covenants under the Senior Notes.

Revolving Credit Facility

On December 9, 2011, we entered into a credit agreement (the “Credit Facility”), which was subsequently amended and restated. On October 26, 2022, we again amended and restated, in its entirety, the Credit Facility (the “Second Amended and Restated Credit Facility”) which, subsequent to the amendment and restatement, is comprised of an $850.0 million unsecured revolving facility (the “Revolver”) maturing on February 15, 2027. Under the Second Amended and Restated Credit Facility, pricing on the Revolver is dependent upon our unsecured debt credit ratings and leverage levels. At our current unsecured debt credit ratings and leverage levels, amounts drawn under the Revolver are priced using a margin of 0.775% plus a facility fee of 0.15% over the Secured Overnight Financing Rate ("SOFR") plus a 0.10% SOFR adjustment.

As of June 30, 2023, borrowings under the Revolver had an interest rate of 6.12%. Additionally, as of June 30, 2023, $786.2 million was available for borrowing under the Revolver. The available balance under the Revolver is reduced by an outstanding letter of credit of $0.6 million.

Under the Second Amended and Restated Credit Facility, our ability to borrow under the Revolver is subject to ongoing compliance with certain financial covenants which include, among other things, (1) a maximum total indebtedness to total asset value of 60.0%, and (2) a minimum fixed charge coverage ratio of 1.5:1.0. As of June

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30, 2023, we were in compliance with all of the financial covenants under the Second Amended and Restated Credit Facility.

At-the-Market Equity Program

We maintain an “at-the-market” equity program that enables us to sell common shares through sales agents pursuant to equity distribution agreements (the “Equity Distribution Agreements”).

We did not sell any common shares under the Equity Distribution Agreements during the three or six months ended June 30, 2023. As of June 30, 2023, 5.8 million common shares remained available for issuance under the Equity Distribution Agreements.

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, loss on early extinguishment 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): equity in earnings of real estate ventures, gains from sales of real estate, net, other income, gains from remeasurement of investments in real estate ventures and interest income. NOI is a measure of performance that is not calculated in accordance with GAAP.

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

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

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

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

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

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

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FFO

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

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

FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance. FFO does not represent cash generated from operating activities determined in accordance with GAAP and is not a measure of liquidity or an indicator of our ability to make cash distributions. We believe that to further understand our performance, FFO should be compared with our reported net income and considered in addition to cash flows computed in accordance with GAAP, as presented in our unaudited 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 attributable to the Company’s common shareholders to FFO (and FFO, as adjusted) attributable to common shareholders and OP unitholders for the three and six months ended June 30, 2023 and 2022.

Three Months Ended June 30, 

 

Six Months Ended June 30, 

    

2023

    

2022

    

2023

    

2022

(in thousands)

Net income attributable to the Company’s common shareholders

$

97,879

$

58,358

$

195,445

$

96,513

Add (deduct):

Real estate depreciation and amortization:

Real property

 

48,898

 

77,989

 

97,814

 

159,492

Company’s share of unconsolidated real estate ventures

 

2,115

 

2,368

 

4,249

 

4,906

Gains from sales of real estate, net (1)

 

 

 

(1,713)

 

Noncontrolling interests in the Operating Partnership

 

616

 

379

 

1,230

 

671

FFO attributable to the Company's common shareholders and OP

unitholders

$

149,508

$

139,094

$

297,025

$

261,582

Add:

Transaction-related expenses (2)

 

 

1,138

 

 

10,546

FFO, as adjusted, attributable to the Company's common

shareholders and OP unitholders

$

149,508

$

140,232

$

297,025

$

272,128

Weighted average diluted shares outstanding

226,275

225,895

226,238

 

225,820

Weighted average diluted units outstanding

1,419

 

1,460

 

1,421

 

1,588

Weighted average diluted shares and units outstanding

 

227,694

 

227,355

 

227,659

227,408

(1)Represents distributions made to the Company in excess of its investment in the 191 IV CUBE Southeast LLC ("HVPSE") unconsolidated real estate venture. HVPSE sold all 14 of its properties on August 30, 2022. The distributions during the six months ended June 30, 2023 relate to proceeds that were held back at the time of the sale. This gain is included in Equity in earnings of real estate ventures within our consolidated statements of operations.

(2)For the three months ended June 30, 2022, transaction-related expenses represent severance expenses. For the six months ended June 30, 2022, transaction-related expenses include severance expenses ($10.3 million) and other transaction expenses ($0.2 million). Prior to our acquisition of LAACO, Ltd. on December 9, 2021, the predecessor company entered into severance agreements with certain employees, including members of their executive team. These costs were known to us and the assumption of the obligation to make these payments post-closing was contemplated in our net consideration paid in the transaction. In accordance with GAAP, and based on the specific details of the arrangements with the employees prior to closing, these costs are considered post-combination compensation expenses. Transaction-related expenses are included in the component of other income (expense) designated as Other within our consolidated statements of operations.

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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 3.  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 may, from time to time, 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 rates. The range of changes chosen reflects our view of changes which are reasonably possible over a one-year period. Market values are the present value of projected future cash flows based on the market rates chosen.

As of June 30, 2023, our consolidated debt consisted of $2.92 billion of outstanding mortgage loans and notes payable and unsecured senior notes that are subject to fixed rates. Additionally, as of June 30, 2023, there were $63.2 million of outstanding unsecured credit facility borrowings 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 on our variable-rate debt increase by 100 basis points, the increase in annual interest expense on our variable-rate debt would decrease future earnings and cash flows by approximately $0.6 million a year. If market interest rates on our variable-rate debt decrease by 100 basis points, the decrease in interest expense on our variable-rate debt would increase future earnings and cash flows by approximately $0.6 million a year.

If market interest rates increase by 100 basis points, the fair value of our outstanding fixed-rate mortgage debt and unsecured senior notes would decrease by approximately $127.9 million. If market rates of interest decrease by 100 basis points, the fair value of our outstanding fixed-rate mortgage debt and unsecured senior notes would increase by approximately $131.1 million.

ITEM 4. 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,

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of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act).

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

Changes in Internal Control Over Financial Reporting

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

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 its most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

To our knowledge and except as otherwise disclosed in this quarterly report, no legal proceedings are pending against us, other than routine actions and administrative proceedings, and other actions not deemed material, and which, in the aggregate, are not expected to have a material adverse effect on our financial condition, results of operations or cash flows.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Repurchases of Parent Company Common Shares

The following table provides information about repurchases of the Parent Company’s common shares during the three months ended June 30, 2023:

    

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

 

April 1 - April 30

2,935

$

46.22

N/A

3,000,000

May 1 - May 31

$

N/A

3,000,000

June 1 - June 30

$

N/A

3,000,000

Total

 

2,935

$

46.22

 

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 (the “Board”) 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, 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.

ITEM 5. OTHER INFORMATION

Trading Arrangements

During the three months ended June 30, 2023, none of our trustees or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933, as amended).

Compensation Actions

On August 1, 2023, the Board approved and adopted amendments to the Parent Company’s Executive Deferred Compensation Plan (the “DCP”) and Executive Severance Plan (the “Severance Plan”).

The DCP was amended to (i) require a participant’s consent for any amendment to the DCP that is adverse to the participant with respect to the participant’s prior deferrals, (ii) permit DCP participants to convert their restricted share units subject to deferral elections into cash amounts in connection with a change in control (based on the then-value of the shares underlying those restricted share units) and to allow those cash amounts to be notionally invested in a variety of different investment choices, (iii) provide that, prior to the occurrence of a change of control, all obligations under the DCP must be fully funded into a trust, and (iv) require the consent of at least two thirds of DCP participants to terminate or amend the DCP to disallow new deferrals at any time during the period within 90 days prior to and 10 years following a change in control.

The Severance Plan was amended to (i) modify the definition of “good reason” to include a material reduction in a participant’s annual target bonus or a relocation of the participant’s primary work location by more than 25 miles, (ii) provide that, for a participant who has been employed by the Parent Company or a subsidiary for more than two years, the bonus component of the participant’s severance benefits will be based on the greater of the participant’s target annual

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bonus or the participant’s average annual cash incentive earned for the two calendar years prior to the year of termination, (iii) provide that, the base salary amount used for the purpose of determining a participant’s severance benefits in connection with any severance-eligible termination occurring during the Severance Plan’s change in control protection period will be the greater of the participant’s base salary on the date of termination or the participant’s base salary on the day immediately prior to the change in control, (iv) provide that, in connection with any severance-eligible termination occurring during the Severance Plan’s change in control protection period, the participant’s pro-rata annual cash incentive will be based on target performance if greater than actual Parent Company performance for the year of termination, (v) provide that, instead of reimbursing a participant for COBRA coverage premiums during the severance period, the Parent Company will pay the participant a lump-sum payment equal to the amount that would provide the participant, net of taxes on such amount, with an amount equal to the cost of the participant's medical and welfare benefits for the 24 months following the participant’s termination of employment, (vi) increase the continued automobile allowance in connection with any severance-eligible termination occurring during the Severance Plan’s change in control protection period from 18 months to 24 months, and (vii) provide that, immediately prior to a change in control, all time-vested equity awards held by a participant will vest in full, and all performance-vested equity awards held by a participant will vest at the greater of target or actual Parent Company performance.

The foregoing description of the amendments to the DCP and the Severance Plan is qualified in its entirety by reference to the full text of the DCP and the Severance Plan, respectively, which are filed as Exhibits 10.1 and 10.2, respectively, to this Quarterly Report on Form 10-Q and are incorporated herein by reference.

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ITEM 6. EXHIBITS

Exhibit No.

    

Exhibit Description

10.1†

CubeSmart Executive Deferred Compensation Plan

10.2†

CubeSmart Executive Severance Plan

10.3†

CubeSmart 2007 Equity Incentive Plan

10.4†

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

10.5†

Form of Performance-Vested Restricted Share Grant Agreement under the CubeSmart 2007 Equity Incentive Plan

10.6†

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

10.7†

Form of Restricted Share Grant Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan

10.8†

Form of Restricted Share Unit Grant Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan

10.9†

Form of Restricted Share Grant Agreement (5-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan

10.10†

Form of Restricted Share Grant Agreement for Non-Employee Trustees under the CubeSmart 2007 Equity Incentive Plan

10.11†

Form of Restricted Share Unit Grant Agreement for Non-Employee Trustees under the CubeSmart 2007 Equity Incentive Plan

31.1

Certification of Chief Executive Officer of CubeSmart as 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. (filed herewith)

31.2

Certification of Chief Financial Officer of CubeSmart as 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. (filed herewith)

31.3

Certification of Chief Executive Officer of CubeSmart, L.P., as 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. (filed herewith)

31.4

Certification of Chief Financial Officer of CubeSmart, L.P., as 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. (filed herewith)

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. (furnished herewith)

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. (furnished herewith)

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101

The following CubeSmart and CubeSmart, L.P. financial information for the three months ended June 30, 2023 formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to Unaudited Consolidated Financial Statements, tagged as blocks of text. (filed herewith)

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Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

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

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Table of Contents

SIGNATURES OF REGISTRANT

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CUBESMART

(Registrant)

Date: August 4, 2023

By:

/s/ Christopher P. Marr

Christopher P. Marr, Chief Executive Officer

(Principal Executive Officer)

Date: August 4, 2023

By:

/s/ Timothy M. Martin

Timothy M. Martin, Chief Financial Officer

(Principal Financial Officer)

Date: August 4, 2023

By:

/s/ Matthew D. DeNarie

Matthew D. DeNarie, Chief Accounting Officer

(Principal Accounting Officer)

SIGNATURES OF REGISTRANT

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

, L.P

CUBESMART, L.P.

(Registrant)

Date: August 4, 2023

By:

/s/ Christopher P. Marr

Christopher P. Marr, Chief Executive Officer

(Principal Executive Officer)

Date: August 4, 2023

By:

/s/ Timothy M. Martin

Timothy M. Martin, Chief Financial Officer

(Principal Financial Officer)

Date: August 4, 2023

By:

/s/ Matthew D. DeNarie

Matthew D. DeNarie, Chief Accounting Officer

(Principal Accounting Officer)

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