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 September 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) | 20-1024732 | |
(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 November 1, 2023 | |
Common shares, $0.01 par value per share, of CubeSmart | 224,860,966 |
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended September 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 September 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. |
2
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.
3
TABLE OF CONTENTS
Filing Format
This combined Form 10-Q is being filed separately by CubeSmart and CubeSmart, L.P.
4
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; |
5
| ● | 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.
6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CUBESMART AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, | December 31, | |||||
| 2023 |
| 2022 | |||
(unaudited) | ||||||
ASSETS | ||||||
Storage properties | $ | 7,332,817 | $ | 7,295,778 | ||
Less: Accumulated depreciation |
| (1,375,321) |
| (1,247,775) | ||
Storage properties, net (including VIE assets of $150,067 and $167,180, respectively) |
| 5,957,496 |
| 6,048,003 | ||
Cash and cash equivalents |
| 8,028 |
| 6,064 | ||
Restricted cash |
| 1,872 |
| 2,861 | ||
Loan procurement costs, net of amortization |
| 4,278 |
| 5,182 | ||
Investment in real estate ventures, at equity |
| 99,670 |
| 105,993 | ||
Assets held for sale | — | 3,745 | ||||
Other assets, net |
| 161,881 |
| 153,982 | ||
Total assets | $ | 6,233,225 | $ | 6,325,830 | ||
LIABILITIES AND EQUITY | ||||||
Unsecured senior notes, net | $ | 2,775,455 | $ | 2,772,350 | ||
Revolving credit facility |
| 15,200 |
| 60,900 | ||
Mortgage loans and notes payable, net |
| 129,130 |
| 162,918 | ||
Lease liabilities - finance leases | 65,720 | 65,758 | ||||
Accounts payable, accrued expenses and other liabilities |
| 222,052 |
| 213,297 | ||
Distributions payable |
| 111,279 |
| 111,190 | ||
Deferred revenue |
| 40,169 |
| 38,757 | ||
Security deposits |
| 1,077 |
| 1,087 | ||
Liabilities held for sale | — | 1,773 | ||||
Total liabilities |
| 3,360,082 |
| 3,428,030 | ||
Noncontrolling interests in the Operating Partnership |
| 51,877 |
| 57,419 | ||
Commitments and contingencies | ||||||
Equity | ||||||
Common shares $.01 par value, 400,000,000 shares authorized, 224,859,021 and 224,603,462 shares and at September 30, 2023 and December 31, 2022, respectively |
| 2,249 |
| 2,246 | ||
Additional paid-in capital |
| 4,137,466 |
| 4,125,478 | ||
Accumulated other comprehensive loss |
| (431) |
| (491) | ||
Accumulated deficit |
| (1,332,081) |
| (1,301,030) | ||
Total CubeSmart shareholders’ equity |
| 2,807,203 |
| 2,826,203 | ||
Noncontrolling interests in subsidiaries |
| 14,063 |
| 14,178 | ||
Total equity |
| 2,821,266 |
| 2,840,381 | ||
Total liabilities and equity | $ | 6,233,225 | $ | 6,325,830 | ||
See accompanying notes to the unaudited consolidated financial statements.
7
CUBESMART AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
REVENUES | ||||||||||||
Rental income | $ | 232,468 | $ | 226,837 | $ | 681,962 | $ | 651,341 | ||||
Other property related income |
| 25,857 |
| 25,619 |
| 76,001 |
| 71,760 | ||||
Property management fee income |
| 9,551 |
| 8,952 |
| 27,246 |
| 25,536 | ||||
Total revenues |
| 267,876 |
| 261,408 |
| 785,209 |
| 748,637 | ||||
OPERATING EXPENSES | ||||||||||||
Property operating expenses |
| 77,546 | 76,728 | 223,494 |
| 220,767 | ||||||
Depreciation and amortization |
| 49,985 | 79,574 | 150,672 |
| 241,177 | ||||||
General and administrative |
| 14,060 | 13,390 | 43,059 |
| 41,640 | ||||||
Total operating expenses |
| 141,591 |
| 169,692 |
| 417,225 |
| 503,584 | ||||
OTHER (EXPENSE) INCOME | ||||||||||||
Interest: | ||||||||||||
Interest expense on loans |
| (23,204) |
| (23,850) |
| (70,439) |
| (69,729) | ||||
Loan procurement amortization expense |
| (1,030) |
| (969) |
| (3,111) |
| (2,885) | ||||
Equity in earnings of real estate ventures |
| 1,141 |
| 46,558 |
| 4,482 |
| 47,532 | ||||
Other |
| (119) |
| (15) |
| 382 |
| (9,671) | ||||
Total other (expense) income |
| (23,212) |
| 21,724 |
| (68,686) |
| (34,753) | ||||
NET INCOME |
| 103,073 |
| 113,440 |
| 299,298 |
| 210,300 | ||||
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS | ||||||||||||
Noncontrolling interests in the Operating Partnership |
| (640) | (733) | (1,870) |
| (1,404) | ||||||
Noncontrolling interest in subsidiaries |
| 212 | 181 | 662 |
| 505 | ||||||
NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS | $ | 102,645 | $ | 112,888 | $ | 298,090 | $ | 209,401 | ||||
Basic earnings per share attributable to common shareholders | $ | 0.46 | $ | 0.50 | $ | 1.32 | $ | 0.93 | ||||
Diluted earnings per share attributable to common shareholders | $ | 0.45 | $ | 0.50 | $ | 1.32 | $ | 0.93 | ||||
Weighted average basic shares outstanding | 225,467 | 225,023 | 225,380 | 224,883 | ||||||||
Weighted average diluted shares outstanding | 226,210 | 225,966 | 226,206 | 225,881 | ||||||||
See accompanying notes to the unaudited consolidated financial statements.
8
CUBESMART AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
NET INCOME | $ | 103,073 | $ | 113,440 | $ | 299,298 | $ | 210,300 | ||||
Other comprehensive income: | ||||||||||||
Reclassification of realized losses on interest rate swaps |
| 20 |
| 20 | 60 | 60 | ||||||
OTHER COMPREHENSIVE INCOME: |
| 20 |
| 20 |
| 60 |
| 60 | ||||
COMPREHENSIVE INCOME |
| 103,093 |
| 113,460 |
| 299,358 |
| 210,360 | ||||
Comprehensive income attributable to noncontrolling interests in the Operating Partnership |
| (640) |
| (733) |
| (1,870) |
| (1,405) | ||||
Comprehensive loss attributable to noncontrolling interest in subsidiaries |
| 212 |
| 181 |
| 662 |
| 505 | ||||
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY | $ | 102,665 | $ | 112,908 | $ | 298,150 | $ | 209,460 | ||||
See accompanying notes to the unaudited consolidated financial statements.
9
CUBESMART AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Noncontrolling |
| |||||||||
Additional | Accumulated Other | Total CubeSmart | 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 | |||||||||
Distributions paid to noncontrolling interests in subsidiaries | (89) | (89) | |||||||||||||||||||||||||
Issuance of common shares, net |
| (79) |
| (79) |
| (79) | |||||||||||||||||||||
Issuance of restricted shares |
| 4 |
|
| |||||||||||||||||||||||
Conversion from units to shares |
| 58 | 1 | 2,412 |
| 2,413 |
| 2,413 |
| (2,413) | |||||||||||||||||
Amortization of restricted shares | 1,811 |
| 1,811 |
| 1,811 | ||||||||||||||||||||||
Share compensation expense | 701 |
| 701 |
| 701 | ||||||||||||||||||||||
Adjustment for noncontrolling interests in the Operating Partnership | 9,035 |
| 9,035 |
| 9,035 |
| (9,035) | ||||||||||||||||||||
Net income (loss) | 102,645 |
| 102,645 |
| (212) |
| 102,433 |
| 640 | ||||||||||||||||||
Other comprehensive income | 20 | 20 | 20 | ||||||||||||||||||||||||
Common share distributions ($0.49 per share) | (110,613) |
| (110,613) |
| (110,613) |
| (667) | ||||||||||||||||||||
Balance at September 30, 2023 | 224,859 | $ | 2,249 | $ | 4,137,466 | $ | (431) | $ | (1,332,081) | $ | 2,807,203 | $ | 14,063 | $ | 2,821,266 | $ | 51,877 | ||||||||||
See accompanying notes to the unaudited consolidated financial statements.
10
CUBESMART AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Noncontrolling |
| |||||||||
Additional | Accumulated Other | Total CubeSmart | 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 |
| 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 | $ | 2,840,126 | $ | 62,393 | |||||||||
Contributions from noncontrolling interests in subsidiaries | 3,340 |
| 3,340 | ||||||||||||||||||||||||
Distributions paid to noncontrolling interests in subsidiaries | (5,237) | (5,237) | |||||||||||||||||||||||||
Issuance of common shares, net |
| 102 | 1 | 5,054 |
| 5,055 |
| 5,055 | |||||||||||||||||||
Issuance of restricted shares |
| 1 |
|
| |||||||||||||||||||||||
Exercise of stock options |
| 12 | 364 |
| 364 |
| 364 | ||||||||||||||||||||
Amortization of restricted shares | 1,621 |
| 1,621 |
| 1,621 | ||||||||||||||||||||||
Share compensation expense | 636 |
| 636 |
| 636 | ||||||||||||||||||||||
Adjustment for noncontrolling interest in the Operating Partnership | 3,990 |
| 3,990 |
| 3,990 |
| (3,990) | ||||||||||||||||||||
Net income (loss) | 112,888 |
| 112,888 |
| (181) |
| 112,707 |
| 733 | ||||||||||||||||||
Other comprehensive income | 20 | 20 | 20 | ||||||||||||||||||||||||
Common share distributions ($0.43 per share) | (96,867) |
| (96,867) |
| (96,867) |
| (628) | ||||||||||||||||||||
Balance at September 30, 2022 | 224,568 | $ | 2,246 | $ | 4,121,824 | $ | (511) | $ | (1,271,905) | $ | 2,851,654 | $ | 14,101 | $ | 2,865,755 | $ | 58,508 | ||||||||||
See accompanying notes to the unaudited consolidated financial statements.
11
CUBESMART AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September 30, | ||||||
| 2023 |
| 2022 | |||
Operating Activities | ||||||
Net income | $ | 299,298 | $ | 210,300 | ||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||
Depreciation and amortization |
| 153,783 |
| 244,062 | ||
Non-cash portion of interest expense related to finance leases | (38) | (37) | ||||
Equity in earnings of real estate ventures |
| (4,482) |
| (47,532) | ||
Equity compensation expense |
| 7,530 |
| 6,804 | ||
Accretion of fair market value adjustment of debt |
| (714) |
| (830) | ||
Changes in other operating accounts: | ||||||
Other assets |
| (10,052) |
| 4,247 | ||
Accounts payable and accrued expenses |
| 18,408 |
| 25,982 | ||
Other liabilities |
| 1,402 |
| 3,500 | ||
Net cash provided by operating activities | $ | 465,135 | $ | 446,496 | ||
Investing Activities | ||||||
Acquisitions of storage properties | — | (89,004) | ||||
Additions and improvements to storage properties |
| (31,642) |
| (27,493) | ||
Development costs |
| (34,228) |
| (17,445) | ||
Investment in real estate ventures |
| (16) |
| (16) | ||
Cash distributed from real estate ventures |
| 10,821 |
| 59,544 | ||
Proceeds from sale of real estate, net |
| 238 |
| 43,193 | ||
Net cash used in investing activities | $ | (54,827) | $ | (31,221) | ||
Financing Activities | ||||||
Proceeds from: | ||||||
Revolving credit facility | 614,083 | 500,640 | ||||
Principal payments on: | ||||||
Revolving credit facility |
| (659,783) |
| (624,540) | ||
Mortgage loans and notes payable |
| (32,138) |
| (1,806) | ||
Loan procurement costs |
| (39) |
| (136) | ||
Issuance of common shares, net |
| (225) |
| 4,890 | ||
Cash paid upon vesting of restricted shares | (804) | (1,384) | ||||
Exercise of stock options |
| 2,716 |
| 1,590 | ||
Contributions from noncontrolling interests in subsidiaries |
| 797 |
| — | ||
Distributions paid to noncontrolling interests in subsidiaries | (250) | (7,331) | ||||
Distributions paid to common shareholders |
| (331,601) |
| (290,238) | ||
Distributions paid to noncontrolling interests in Operating Partnership |
| (2,089) |
| (2,074) | ||
Net cash used in financing activities | $ | (409,333) | $ | (420,389) | ||
Change in cash, cash equivalents and restricted cash |
| 975 |
| (5,114) | ||
Cash, cash equivalents and restricted cash at beginning of period |
| 8,925 | 13,318 | |||
Cash, cash equivalents and restricted cash at end of period | $ | 9,900 | $ | 8,204 | ||
Supplemental Cash Flow and Noncash Information | ||||||
Cash paid for interest, net of interest capitalized | $ | 80,299 | $ | 75,172 | ||
Supplemental disclosure of noncash activities: | ||||||
Acquisitions of storage properties | $ | — | $ | (700) | ||
Accretion of put liability | $ | — | $ | 2,444 | ||
Derivative valuation adjustment | $ | 60 | $ | 60 | ||
Contributions from noncontrolling interests in subsidiaries | $ | — | $ | 3,340 | ||
See accompanying notes to the unaudited consolidated financial statements.
12
CUBESMART, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, | December 31, | |||||
| 2023 |
| 2022 | |||
(unaudited) | ||||||
ASSETS | ||||||
Storage properties | $ | 7,332,817 | $ | 7,295,778 | ||
Less: Accumulated depreciation |
| (1,375,321) |
| (1,247,775) | ||
Storage properties, net (including VIE assets of $150,067 and $167,180, respectively) |
| 5,957,496 |
| 6,048,003 | ||
Cash and cash equivalents |
| 8,028 |
| 6,064 | ||
Restricted cash |
| 1,872 |
| 2,861 | ||
Loan procurement costs, net of amortization |
| 4,278 |
| 5,182 | ||
Investment in real estate ventures, at equity |
| 99,670 |
| 105,993 | ||
Assets held for sale | — |
| 3,745 | |||
Other assets, net |
| 161,881 |
| 153,982 | ||
Total assets | $ | 6,233,225 | $ | 6,325,830 | ||
LIABILITIES AND CAPITAL | ||||||
Unsecured senior notes, net | $ | 2,775,455 | $ | 2,772,350 | ||
Revolving credit facility |
| 15,200 |
| 60,900 | ||
Mortgage loans and notes payable, net |
| 129,130 |
| 162,918 | ||
Lease liabilities - finance leases | 65,720 | 65,758 | ||||
Accounts payable, accrued expenses and other liabilities |
| 222,052 |
| 213,297 | ||
Distributions payable |
| 111,279 |
| 111,190 | ||
Deferred revenue |
| 40,169 |
| 38,757 | ||
Security deposits |
| 1,077 |
| 1,087 | ||
Liabilities held for sale | — | 1,773 | ||||
Total liabilities |
| 3,360,082 |
| 3,428,030 | ||
Limited Partnership interests of third parties |
| 51,877 |
| 57,419 | ||
Commitments and contingencies | ||||||
Capital | ||||||
Operating Partner |
| 2,807,634 |
| 2,826,694 | ||
Accumulated other comprehensive loss |
| (431) |
| (491) | ||
Total CubeSmart, L.P. capital |
| 2,807,203 |
| 2,826,203 | ||
Noncontrolling interests in subsidiaries |
| 14,063 |
| 14,178 | ||
Total capital |
| 2,821,266 |
| 2,840,381 | ||
Total liabilities and capital | $ | 6,233,225 | $ | 6,325,830 | ||
See accompanying notes to the unaudited consolidated financial statements.
13
CUBESMART, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per common unit data)
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
REVENUES | ||||||||||||
Rental income | $ | 232,468 | $ | 226,837 | $ | 681,962 | $ | 651,341 | ||||
Other property related income |
| 25,857 |
| 25,619 |
| 76,001 |
| 71,760 | ||||
Property management fee income |
| 9,551 |
| 8,952 |
| 27,246 |
| 25,536 | ||||
Total revenues |
| 267,876 |
| 261,408 |
| 785,209 |
| 748,637 | ||||
OPERATING EXPENSES | ||||||||||||
Property operating expenses |
| 77,546 |
| 76,728 |
| 223,494 |
| 220,767 | ||||
Depreciation and amortization |
| 49,985 |
| 79,574 |
| 150,672 |
| 241,177 | ||||
General and administrative |
| 14,060 |
| 13,390 |
| 43,059 |
| 41,640 | ||||
Total operating expenses |
| 141,591 |
| 169,692 |
| 417,225 |
| 503,584 | ||||
OTHER (EXPENSE) INCOME | ||||||||||||
Interest: | ||||||||||||
Interest expense on loans |
| (23,204) |
| (23,850) |
| (70,439) |
| (69,729) | ||||
Loan procurement amortization expense |
| (1,030) |
| (969) |
| (3,111) |
| (2,885) | ||||
Equity in earnings of real estate ventures |
| 1,141 |
| 46,558 |
| 4,482 |
| 47,532 | ||||
Other |
| (119) |
| (15) |
| 382 |
| (9,671) | ||||
Total other (expense) income |
| (23,212) |
| 21,724 |
| (68,686) |
| (34,753) | ||||
NET INCOME |
| 103,073 |
| 113,440 |
| 299,298 |
| 210,300 | ||||
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS | ||||||||||||
Noncontrolling interest in subsidiaries |
| 212 |
| 181 |
| 662 |
| 505 | ||||
NET INCOME ATTRIBUTABLE TO CUBESMART L.P. |
| 103,285 |
| 113,621 |
| 299,960 |
| 210,805 | ||||
Operating Partnership interests of third parties |
| (640) |
| (733) |
| (1,870) |
| (1,404) | ||||
NET INCOME ATTRIBUTABLE TO COMMON UNITHOLDERS | $ | 102,645 | $ | 112,888 | $ | 298,090 | $ | 209,401 | ||||
|
|
|
|
|
|
|
|
| ||||
Basic earnings per unit attributable to common unitholders | $ | 0.46 | $ | 0.50 | $ | 1.32 | $ | 0.93 | ||||
Diluted earnings per unit attributable to common unitholders | $ | 0.45 | $ | 0.50 | $ | 1.32 | $ | 0.93 | ||||
Weighted average basic units outstanding |
| 225,467 | 225,023 | 225,380 | 224,883 | |||||||
Weighted average diluted units outstanding |
| 226,210 | 225,966 | 226,206 | 225,881 | |||||||
See accompanying notes to the unaudited consolidated financial statements.
14
CUBESMART, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
NET INCOME | $ | 103,073 | $ | 113,440 | $ | 299,298 | $ | 210,300 | ||||
Other comprehensive income: | ||||||||||||
Reclassification of realized losses on interest rate swaps |
| 20 |
| 20 |
| 60 |
| 60 | ||||
OTHER COMPREHENSIVE INCOME: |
| 20 |
| 20 |
| 60 |
| 60 | ||||
COMPREHENSIVE INCOME |
| 103,093 |
| 113,460 |
| 299,358 |
| 210,360 | ||||
Comprehensive income attributable to Operating Partnership interests of third parties |
| (640) |
| (733) |
| (1,870) |
| (1,405) | ||||
Comprehensive loss attributable to noncontrolling interest in subsidiaries |
| 212 |
| 181 |
| 662 |
| 505 | ||||
COMPREHENSIVE INCOME ATTRIBUTABLE TO OPERATING PARTNER | $ | 102,665 | $ | 112,908 | $ | 298,150 | $ | 209,460 | ||||
See accompanying notes to the unaudited consolidated financial statements.
15
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 | ||||||
Distributions to noncontrolling interests in subsidiaries | (89) | (89) | |||||||||||||||||||
Issuance of common OP units, net |
| (79) | (79) | (79) | |||||||||||||||||
Issuance of restricted OP units |
| 4 | |||||||||||||||||||
Conversion from OP units to shares |
| 58 | 2,413 | 2,413 | 2,413 | (2,413) | |||||||||||||||
Amortization of restricted OP units | 1,811 | 1,811 | 1,811 | ||||||||||||||||||
OP unit compensation expense | 701 | 701 | 701 | ||||||||||||||||||
Adjustment for Limited Partnership interests of third parties | 9,035 | 9,035 | 9,035 | (9,035) | |||||||||||||||||
Net income (loss) | 102,645 | 102,645 | (212) | 102,433 | 640 | ||||||||||||||||
Other comprehensive income | 20 | 20 | 20 | ||||||||||||||||||
Common OP unit distributions ($0.49 per unit) | (110,613) | (110,613) | (110,613) | (667) | |||||||||||||||||
Balance at September 30, 2023 |
| 224,859 |
| $ | 2,807,634 | $ | (431) | $ | 2,807,203 | $ | 14,063 | $ | 2,821,266 | $ | 51,877 | ||||||
See accompanying notes to the unaudited consolidated financial statements.
16
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, 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 | ||||||
Contributions from noncontrolling interests in subsidiaries | 3,340 |
| 3,340 | ||||||||||||||||||
Distributions to noncontrolling interests in subsidiaries | (5,237) | (5,237) | |||||||||||||||||||
Issuance of common OP units, net |
| 102 | 5,055 | 5,055 | 5,055 | ||||||||||||||||
Issuance of restricted OP units |
| 1 | |||||||||||||||||||
Exercise of OP unit options |
| 12 | 364 | 364 | 364 | ||||||||||||||||
Amortization of restricted OP units | 1,621 | 1,621 | 1,621 | ||||||||||||||||||
OP unit compensation expense | 636 | 636 | 636 | ||||||||||||||||||
Adjustment for Operating Partnership interests of third parties | 3,990 | 3,990 | 3,990 | (3,990) | |||||||||||||||||
Net income (loss) | 112,888 | 112,888 | (181) | 112,707 | 733 | ||||||||||||||||
Other comprehensive income | 20 | 20 | 20 | ||||||||||||||||||
Common OP unit distributions ($0.43 per unit) | (96,867) | (96,867) | (96,867) | (628) | |||||||||||||||||
Balance at September 30, 2022 |
| 224,568 |
| $ | 2,852,165 | $ | (511) | $ | 2,851,654 | $ | 14,101 | $ | 2,865,755 | $ | 58,508 | ||||||
See accompanying notes to the unaudited consolidated financial statements.
17
CUBESMART, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September 30, | ||||||
| 2023 |
| 2022 | |||
Operating Activities | ||||||
Net income | $ | 299,298 | $ | 210,300 | ||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||
Depreciation and amortization |
| 153,783 |
| 244,062 | ||
Non-cash portion of interest expense related to finance leases | (38) | (37) | ||||
Equity in earnings of real estate ventures |
| (4,482) |
| (47,532) | ||
Equity compensation expense |
| 7,530 |
| 6,804 | ||
Accretion of fair market value adjustment of debt |
| (714) |
| (830) | ||
Changes in other operating accounts: | ||||||
Other assets |
| (10,052) |
| 4,247 | ||
Accounts payable and accrued expenses |
| 18,408 |
| 25,982 | ||
Other liabilities |
| 1,402 |
| 3,500 | ||
Net cash provided by operating activities | $ | 465,135 | $ | 446,496 | ||
Investing Activities | ||||||
Acquisitions of storage properties |
| — |
| (89,004) | ||
Additions and improvements to storage properties |
| (31,642) |
| (27,493) | ||
Development costs |
| (34,228) |
| (17,445) | ||
Investment in real estate ventures | (16) | (16) | ||||
Cash distributed from real estate ventures | 10,821 |
| 59,544 | |||
Proceeds from sale of real estate, net | 238 | 43,193 | ||||
Net cash used in investing activities | $ | (54,827) | $ | (31,221) | ||
Financing Activities | ||||||
Proceeds from: | ||||||
Revolving credit facility | 614,083 | 500,640 | ||||
Principal payments on: |
| |||||
Revolving credit facility | (659,783) | (624,540) | ||||
Mortgage loans and notes payable | (32,138) | (1,806) | ||||
Loan procurement costs | (39) | (136) | ||||
Issuance of common OP units, net | (225) | 4,890 | ||||
Cash paid upon vesting of restricted OP units | (804) | (1,384) | ||||
Exercise of OP unit options | 2,716 | 1,590 | ||||
Contributions from noncontrolling interests in subsidiaries |
| 797 | — | |||
Distributions paid to noncontrolling interests in subsidiaries |
| (250) | (7,331) | |||
Distributions paid to common OP unitholders | (333,690) | (292,312) | ||||
Net cash used in financing activities | $ | (409,333) | $ | (420,389) | ||
Change in cash, cash equivalents and restricted cash |
| 975 |
| (5,114) | ||
Cash, cash equivalents and restricted cash at beginning of period |
| 8,925 |
| 13,318 | ||
Cash, cash equivalents and restricted cash at end of period | $ | 9,900 | $ | 8,204 | ||
Supplemental Cash Flow and Noncash Information | ||||||
Cash paid for interest, net of interest capitalized | $ | 80,299 | $ | 75,172 | ||
Supplemental disclosure of noncash activities: | ||||||
Acquisitions of storage properties | $ | — | $ | (700) | ||
Accretion of put liability | $ | — | $ | 2,444 | ||
Derivative valuation adjustment | $ | 60 | $ | 60 | ||
Contributions from noncontrolling interests in subsidiaries | $ | — | $ | 3,340 | ||
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 September 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 September 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 nine months ended September 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:
September 30, | December 31, | ||||||
| 2023 |
| 2022 | ||||
(in thousands) | |||||||
Land | $ | 1,588,138 | $ | 1,588,138 | |||
Buildings and improvements |
| 5,497,013 |
| 5,483,506 | |||
Equipment |
| 143,680 |
| 144,605 | |||
Construction in progress |
| 62,041 |
| 37,584 | |||
Right-of-use assets - finance leases | 41,945 | 41,945 | |||||
Storage properties |
| 7,332,817 |
| 7,295,778 | |||
Less: Accumulated depreciation |
| (1,375,321) |
| (1,247,775) | |||
Storage properties, net | $ | 5,957,496 | $ | 6,048,003 | |||
The following table summarizes the Company’s acquisition activity since January 1, 2022.
4. INVESTMENT ACTIVITY
In 2021, the Company acquired LAACO, Ltd. ("LAACO"), which, at the time of the acquisition, owned or partially owned 59 storage properties, the Los Angeles Athletic Club (consisting of athletic facilities, food and beverage operations and a hotel) and the California Yacht Club (consisting of sports facilities, food and beverage operations and a marina). In February 2022, the Los Angeles Athletic Club was sold for $44.0 million. No gain or loss was recognized in conjunction with this sale. In August 2023, the California Yacht Club was sold for $0.8 million. A loss of $0.2 million was recognized in conjunction with this sale, which is included in the component of other (expense) income designated as Other for the three and nine months ended September 30, 2023 within the consolidated statements of operations.
2023 Acquisitions
The Company did acquire any self-storage properties during the nine months ended September 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 nine months ended September 30, 2023 was approximately $1.2 million. No amortization expense was recognized during the three months ended September 30, 2023. The amortization expense that was recognized during the three and nine months ended September 30, 2022 was $0.9 million and $1.4 million, respectively.
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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.
Development Activity
As of September 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 September 30, 2023, development costs incurred to date for these projects totaled $51.5 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 nine months ended September 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 | September 30, | December 31, | September 30, | December 31, | ||||||||
Unconsolidated Real Estate Ventures |
| Interest | 2023 | 2022 |
| 2023 | 2022 | |||||
Fontana Self Storage, LLC ("Fontana") (1) | 50% | 1 | 1 | $ | 13,628 | $ | 13,789 | |||||
Rancho Cucamonga Self Storage, LLC ("RCSS") (1) | 50% | 1 | 1 | 20,758 | 20,994 | |||||||
191 V CUBE LLC ("HVP V") | 20% | 6 | 6 | 13,132 | 14,318 | |||||||
191 IV CUBE LLC ("HVP IV") | 20% | 28 | 28 | 17,596 | 19,853 | |||||||
CUBE HHF Northeast Venture LLC ("HHFNE") | 10% | 13 | 13 | 998 | 1,101 | |||||||
CUBE HHF Limited Partnership ("HHF") | 50% | 28 | 28 | 33,558 | 35,938 | |||||||
77 | 77 | $ | 99,670 | $ | 105,993 | |||||||
| (1) | On December 9, 2021, the Company completed the acquisition of LAACO, which included a 50% interest in Fontana and , 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 September 30, 2023, this difference was $12.9 million and $19.2 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 September 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 nine months ended September 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 , HVPSE had no significant assets or liabilities.
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 September 30, 2023 and December 31, 2022.
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The following is a summary of results of operations of the Ventures for the three and nine months ended September 30, 2023 and 2022.
6. OTHER ASSETS
Other assets are comprised of the following as of September 30, 2023 and December 31, 2022:
September 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 |
| 8,559 |
| 7,932 | ||
Prepaid property taxes |
| 8,251 |
| 8,033 | ||
Prepaid property and casualty insurance |
| 8,229 |
| 2,129 | ||
Amounts due from affiliates (see note 15) | 17,100 | 15,947 | ||||
Assets related to deferred compensation arrangements | 56,943 | 55,572 | ||||
Right-of-use assets - operating leases | 50,101 | 49,491 | ||||
Ground lease receivable | 6,178 | 6,138 | ||||
Other |
| 6,520 |
| 7,559 | ||
Total other assets, net | $ | 161,881 | $ | 153,982 | ||
7. UNSECURED SENIOR NOTES
The Company’s unsecured senior notes are summarized as follows (collectively referred to as the “Senior Notes”):
| September 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 | (10,562) | (11,801) | |||||||||||
Less: Loan procurement costs, net | (13,983) | (15,849) | |||||||||||
Total unsecured senior notes, net | $ | 2,775,455 | $ | 2,772,350 | |||||||||
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| (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 :1.0 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 September 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 September 30, 2023, borrowings under the Revolver had an interest rate of 6.34%. Additionally, as of September 30, 2023, $834.2 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 September 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 | |||||||||||
| September 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 | 4,755 | 4,906 | 3.78 | % | May-24 | ||||||
Brooklyn XV, NY | 14,834 | 15,093 | 2.15 | % | May-24 | ||||||
Long Island City IV, NY | 12,028 | 12,270 | 2.15 | % | May-24 | ||||||
Long Island City II, NY | 17,949 | 18,283 | 2.25 | % | Jul-26 | ||||||
Long Island City III, NY | 17,954 | 18,290 | 2.25 | % | Aug-26 | ||||||
Flushing II, NY | 54,300 | 54,300 | 2.15 | % | Jul-29 | ||||||
Principal balance outstanding | 121,820 | 153,959 | |||||||||
Plus: Unamortized fair value adjustment | 8,277 |
| 10,228 | ||||||||
Less: Loan procurement costs, net | (967) | (1,269) | |||||||||
Total mortgage loans and notes payable, net | $ | 129,130 | $ | 162,918 | |||||||
| (1) | These mortgage loans were repaid in full in June 2023. |
As of September 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 $357.9 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 September 30, 2023 (in thousands):
2023 |
| $ | 452 |
2024 |
| 32,329 | |
2025 |
| 979 | |
2026 |
| 33,760 | |
2027 |
| — | |
2028 and thereafter |
| 54,300 | |
Total principal payments | $ | 121,820 |
10. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizes the changes in accumulated other comprehensive loss for the nine months ended September 30, 2023 (in thousands).
Beginning balance at December 31, 2022 | $ | (494) |
Reclassification of realized losses on interest rate swaps (1) | 60 | |
Ending balance at September 30, 2023 | (434) | |
Less: portion included in noncontrolling interests in the Operating Partnership | 3 | |
Total accumulated other comprehensive loss included in equity | $ | (431) |
| (1) | See note 11 for additional information about the effects of the amounts reclassified. |
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
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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 September 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 sixty thousand dollars of unrealized losses from accumulated other comprehensive loss as an increase to interest expense during the three and nine months ended September 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.
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.
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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 September 30, 2023 and December 31, 2022.
The following table summarizes the carrying value and estimated fair value of the Company’s debt as of September 30, 2023 and December 31, 2022:
September 30, 2023 | December 31, 2022 | ||||
(in thousands) | |||||
Carrying value | $ | 2,919,785 | $ | 2,996,168 | |
Fair value | 2,485,414 | 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 September 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 | September 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% | $ | 8,547 | $ | 2,335 | $ | — | |||||
350 Main Street, LLC ("Port Chester") | 1 | 90% | 5,311 | 64 | — | ||||||||
Astoria Investors, LLC ("Astoria") | 1 | 70% | 38,105 | 23,507 | 18,603 | ||||||||
CS Lock Up Anoka, LLC ("Anoka") | 1 | 50% | 10,466 | 5,581 | 5,540 | ||||||||
CS Valley Forge Village Storage, LLC ("VFV") | 1 | 70% | 20,325 | 15,594 | 15,509 | ||||||||
CS Vienna, LLC ("Vienna") | 1 | 80% | 31,050 | 35,238 | 34,875 | ||||||||
SH3, LLC ("SH3") | 1 | 90% | 37,133 | 297 | — | ||||||||
7 | $ | 150,937 | $ | 82,616 | $ | 74,527 | |||||||
| (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 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.
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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 September 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 September 30, 2023 and December 31, 2022, 1,360,549 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 September 30, 2023 and December 31, 2022.
14. COMMITMENTS AND CONTINGENCIES
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 nine months ended September 30, 2023 totaled $1.2 million and $3.6 million, respectively compared to $1.3 million and $4.0 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 due for management fees, payroll, and other store expenses. The amounts due to the Company were $17.1 million and $15.9 million as of September 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 $74.5 million and $64.4 million as of September 30, 2023 and December 31, 2022, respectively, which are eliminated in consolidation. The Company believes that these related-party receivables are fully collectible.
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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 nine months ended September 30, 2022, the Company recognized fees associated with property transactions of $0.4 million and $0.6 million, respectively. There were no such fees recognized during the three or nine months ended September 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 nine months ended September 30, 2023, the Company recognized income associated with this ground lease of $0.1 million and $0.3 million, respectively, compared to $0.1 million for both the three and nine months ended September 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 | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||
(dollars and units in thousands, except per share amounts) | ||||||||||||||
Net income |
| $ | 103,073 |
| $ | 113,440 | $ | 299,298 | $ | 210,300 | ||||
Noncontrolling interests in the Operating Partnership |
| (640) |
| (733) |
| (1,870) |
| (1,404) | ||||||
Noncontrolling interest in subsidiaries |
| 212 |
| 181 |
| 662 |
| 505 | ||||||
Net income attributable to the Company’s common shareholders | $ | 102,645 | $ | 112,888 | $ | 298,090 | $ | 209,401 | ||||||
Weighted average basic shares outstanding |
| 225,467 |
| 225,023 |
| 225,380 |
| 224,883 | ||||||
Share options and restricted share units |
| 743 |
| 943 |
| 826 |
| 998 | ||||||
Weighted average diluted shares outstanding (1) |
| 226,210 |
| 225,966 |
| 226,206 |
| 225,881 | ||||||
Basic earnings per share attributable to common shareholders | $ | 0.46 | $ | 0.50 | $ | 1.32 | $ | 0.93 | ||||||
Diluted earnings per share attributable to common shareholders (2) | $ | 0.45 | $ | 0.50 | $ | 1.32 | $ | 0.93 | ||||||
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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:
| (1) | For the three and nine months ended September 30, 2023, the Company declared cash dividends per common share/unit of $0.49 and $1.47, respectively. For the three and nine months ended September 30, 2022, the Company declared cash dividends per common share/unit of $0.43 and $1.29, 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 nine months ended September 30, 2023 and 0.3 million for both the three and nine months ended September 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 nine months ended September 30, 2023 was 1.4 million. Weighted average OP units outstanding for both the three and nine months ended September 30, 2022 was 1.5 million.
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 September 30, | ||||
2023 | 2022 | |||
Outstanding OP units |
| 1,360,549 | 1,460,520 | |
Outstanding common units | 224,859,021 | 224,568,376 | ||
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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 September 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 September 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 September 30, 2023, we managed 763 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 1,374. As of September 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 recessionary pressures that may result in increased bad debts. Adverse economic conditions affecting disposable consumer income, such as undesirable changes in 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 nine months ended September 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 nine months ended September 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. There were no properties classified as held for sale as of September 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 nine months ended September 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 $32.1 million and $32.7 million as of September 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.
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
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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 September 30, 2023, we owned 592 same-store properties and 19 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 September 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 |
| 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 September 30, 2023 to the three months ended September 30, 2022 (in thousands)
| (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 $226.8 million during the three months ended September 30, 2022 to $232.5 million for the three months ended September 30, 2023, an increase of $5.6 million, or 2.5%. The $4.9 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 3.8% as a result of higher rental rates for new and existing customers for the three months ended September 30, 2023 as compared to the three months ended September 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.
Operating Expenses
Depreciation and amortization decreased from $79.6 million during the three months ended September 30, 2022 to $50.0 million for the three months ended September 30, 2023, a decrease of $29.6 million, or 37.2%. 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 decreased from $23.9 million during the three months ended September 30, 2022 to $23.2 million for the three months ended September 30, 2023, a decrease of $0.6 million, or 2.7%. The decrease was attributable to a decrease in the average outstanding debt balance during the 2023 period compared to the 2022 period, partially offset by higher interest rates during the 2023 period compared to the 2022 period. The average outstanding debt balance decreased to $3.00 billion during the three months ended September 30, 2023 as compared to $3.14 billion during the three months ended September 30, 2022. The weighted average effective interest rate on our outstanding debt increased to 3.04% for the three months ended September 30, 2023 compared to 2.99% during the three months ended September 30, 2022.
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Equity in earnings of real estate ventures decreased from $46.6 million during the three months ended September 30, 2022 to $1.1 million for the three months ended September 30, 2023, a decrease of $45.4 million. The decrease was primarily due to our portion of the gains and distributions in excess of our equity investment associated with the sale by 191 IV CUBE Southeast LLC (“HVPSE”) of all of its 14 stores during the 2022 period (see note 5 to our consolidated financial statements).
Comparison of the nine months ended September 30, 2023 to the nine months ended September 30, 2022 (in thousands)
| (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 $651.3 million during the nine months ended September 30, 2022 to $682.0 million for the nine months ended September 30, 2023, an increase of $30.6 million, or 4.7%. The $26.9 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 6.0% as a result of higher rental rates for new and existing customers for the nine months ended September 30, 2023 as compared to the nine months ended September 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 $71.8 million during the nine months ended September 30, 2022 to $76.0 million for the nine months ended September 30, 2023, an increase of $4.2 million, or 5.9%. The increase was primarily due to a $3.0 million increase in fee revenue.
Operating Expenses
Depreciation and amortization decreased from $241.2 million during the nine months ended September 30, 2022 to $150.7 million for the nine months ended September 30, 2023, a decrease of $90.5 million, or 37.5%. 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 $69.7 million during the nine months ended September 30, 2022 to $70.4 million for the nine months ended September 30, 2023, an increase of $0.7 million, or 1.0%. 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 nine months ended September 30, 2023 compared to 2.91% during the nine months ended September 30, 2022. The average outstanding debt balance decreased to $3.03 billion during the nine months ended September 30, 2023 as compared to $3.16 billion during the nine months ended September 30, 2022.
Equity in earnings of real estate ventures decreased from $47.5 million during the nine months ended September 30, 2022 to $4.5 million for the nine months ended September 30, 2023, a decrease of $43.1 million. The decrease was primarily due to our portion of the gains and distributions in excess of our equity investment associated with the sale by HVPSE of all of its 14 stores during the 2022 period (see note 5 to our consolidated financial statements).
For the nine months ended September 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 nine months ended September 30, 2023.
Cash Flows
Comparison of the nine months ended September 30, 2023 to the nine months ended September 30, 2022
A comparison of cash flow from operating, investing and financing activities for the nine months ended September 30, 2023 and 2022 is as follows:
Nine Months Ended September 30, |
| |||||||||
Net cash provided by (used in): |
| 2023 |
| 2022 |
| Change |
| |||
(in thousands) |
| |||||||||
Operating activities | $ | 465,135 | $ | 446,496 | $ | 18,639 | ||||
Investing activities | $ | (54,827) | $ | (31,221) | $ | (23,606) | ||||
Financing activities | $ | (409,333) | $ | (420,389) | $ | 11,056 | ||||
Cash provided by operating activities increased from $446.5 million for the nine months ended September 30, 2022 to $465.1 million for the nine months ended September 30, 2023, reflecting an increase of $18.6 million. The 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 compared to the corresponding 2022 period.
Cash used in investing activities increased from $31.2 million for the nine months ended September 30, 2022 to $54.8 million for the nine months ended September 30, 2023, reflecting an increase of $23.6 million. This change was primarily the result of a $48.7 million decrease in cash distributed from real estate ventures due to distributions related to the sale by HVPSE of all 14 of its stores during the 2022 period. Additionally, net proceeds received from the sale of real estate decreased by $43.0 million as a result of the sale during the 2022 period of the Los Angeles Athletic Club, which we purchased in December 2021 as part of our acquisition of LAACO, Ltd. Also, development costs increased by $16.8 million, primarily due to the payment of a put liability associated with a previously consolidated joint venture. These increases were partially offset by a decrease in acquisitions of storage properties of $89.0 million. We acquired two stores and land during the nine months ended September 30, 2022, with no acquisitions during the corresponding 2023 period.
Cash used in financing activities was $420.4 million for the nine months ended September 30, 2022 compared to $409.3 million for the nine months ended September 30, 2023, reflecting a decrease of $11.1 million. This change was primarily the result of $78.2 million of decreased net repayments on the Credit Facility (as defined below) during the
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2023 period as compared to the corresponding 2022 period. This change was partially offset by a $41.4 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. Additionally, principal payments on mortgage loans increased $30.3 million due to the repayment of two secured loans during the 2023 period with no comparable repayments during the 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 $2.0 million to $7.0 million, planned capital improvements and store upgrades to be approximately $1.0 million to $5.0 million and costs associated with the development of new stores to be approximately $7.0 to $17.0 million. Our currently scheduled principal payments on our outstanding debt are approximately $0.5 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.
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As of September 30, 2023, we had approximately $8.0 million in available cash and cash equivalents. In addition, we had approximately $834.2 million of availability for borrowings under our Second Amended and Restated Credit Facility.
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”):
| September 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 | (10,562) | (11,801) | |||||||||||
Less: Loan procurement costs, net | (13,983) | (15,849) | |||||||||||
Total unsecured senior notes, net | $ | 2,775,455 | $ | 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 September 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 September 30, 2023, borrowings under the Revolver had an interest rate of 6.34%. Additionally, as of September 30, 2023, $834.2 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.
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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 September 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 nine months ended September 30, 2023. As of September 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 nine months ended September 30, 2023 and 2022.
| (1) | For the three months ended September 30, 2023, represents a loss related to the sale of the California Yacht Club, which was acquired in 2021 as part of the Company's acquisition of LAACO, Ltd. This amount is included in the component of other (expense) income designated as Other within our consolidated statements of operations. For the three and nine months ended September 30, 2022 and the nine months ended September 30, 2023, includes gains on sale and 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 nine months ended September 30, 2023 relate to proceeds that were held back at the time of the sale. These gains are included in Equity in earnings of real estate ventures within our consolidated statements of operations. |
| (2) | For the nine months ended September 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., 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 September 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 September 30, 2023, there were $15.2 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 $0.2 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 $0.2 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 $120.2 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 $122.4 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 September 30, 2023:
| Total Number of Shares Purchased (1) |
| Average |
| Total |
| Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
| ||
July 1 - July 31 | 429 | $ | 44.66 | N/A | 3,000,000 | |||||
August 1 - August 31 | — | $ | — | N/A | 3,000,000 | |||||
September 1 - September 30 | 343 | $ | 40.49 | N/A | 3,000,000 | |||||
Total |
| 772 | $ | 42.81 |
| 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 September 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 November 1, 2023, the Board approved and adopted an amendment and restatement of the Parent Company’s Executive Severance Plan (the “Severance Plan”).
The Severance Plan was restated to include amended terms that provide for the following: (i) in the event of a participant’s employment termination due to death or disability occurring during the Severance Plan’s change in control protection period, the participant will be entitled to the same benefits to which such participant would have been entitled had such termination otherwise constituted a severance-eligible termination under the Severance Plan, (ii) in the event of a participant’s severance-eligible termination or employment termination due to death or disability occurring during the Severance Plan’s change in control protection period but prior to the change in control, such participant’s then-outstanding equity awards will remain outstanding through the consummation of the change in control, and receive the same treatment as if such participant were employed as of immediately prior to the change in control, and (iii) immediately prior to a change in control, (x) all time-vested equity awards held by each participant will vest in full, and all performance-vested equity awards held by each participant will vest at the greater of target and actual Parent Company performance levels, (y) all equity awards subject to exercise will be deemed exercised on a net-exercise basis unless the participant elects for such awards to remain outstanding and unexercised following such change in control, and if the participant so elects, the Company will cause the surviving corporation or successor or affiliate to assume the
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awards or grant new awards in substitution therefor, and (z) each equity award continued or assumed by, or substituted for, to the extent subject to exercise, will remain outstanding and exercisable through the 10th anniversary of the original grant date of such award following the participant’s severance-eligible termination or a termination due to death or disability. Except as described in the immediately preceding sentence, no other substantive amendments were made to the Severance Plan.
The foregoing description of the amendments to the Severance Plan is qualified in its entirety by reference to the full text of the Severance Plan, which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
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ITEM 6. EXHIBITS
Exhibit No. |
| Exhibit Description | ||
101 | The following CubeSmart and CubeSmart, L.P. financial information for the three months ended September 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) | |||
104 | 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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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: November 3, 2023 | By: | /s/ Christopher P. Marr | |
Christopher P. Marr, Chief Executive Officer | |||
(Principal Executive Officer) | |||
Date: November 3, 2023 | By: | /s/ Timothy M. Martin | |
Timothy M. Martin, Chief Financial Officer | |||
(Principal Financial Officer) | |||
Date: November 3, 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.
CUBESMART, L.P. | |||
(Registrant) | |||
Date: November 3, 2023 | By: | /s/ Christopher P. Marr | |
Christopher P. Marr, Chief Executive Officer | |||
(Principal Executive Officer) | |||
Date: November 3, 2023 | By: | /s/ Timothy M. Martin | |
Timothy M. Martin, Chief Financial Officer | |||
(Principal Financial Officer) | |||
Date: November 3, 2023 | By: | /s/ Matthew D. DeNarie | |
Matthew D. DeNarie, Chief Accounting Officer | |||
(Principal Accounting Officer) | |||
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Exhibit 10.1
AMENDED AND RESTATED CUBESMART EXECUTIVE SEVERANCE PLAN
(Effective November 1, 2023)
CubeSmart, a Maryland real estate investment trust (“CubeSmart”), has adopted this Amended and Restated CubeSmart Executive Severance Plan (the “Plan”) for the benefit of certain senior executive employees of the CubeSmart and CubeSmart’s operating partnership, CubeSmart, L.P., a Delaware limited partnership, on the terms and conditions hereinafter stated. All capitalized terms used herein are defined in Section 1 hereof. The Plan, as set forth herein, is intended to help retain qualified employees, maintain a stable work environment and provide economic security to eligible employees in the event of certain qualifying terminations of employment.
The benefits under the Plan are not intended as deferred compensation and no individual shall have a vested right in such benefits. The Plan is not intended to be an “employee pension benefit plan” or “pension plan” within the meaning of Section 3(2) of ERISA. Rather, this Plan is unfunded, has no trustee and is administered by the Plan Administrator. This Plan is intended to be a “welfare benefit plan” within the meaning of Section 3(1) of ERISA and to meet the descriptive requirements of a plan constituting a “severance pay plan” within the meaning of regulations published by the Secretary of Labor at Title 29, Code of Federal Regulations, Section 2510.2(b), and is to be administered as a “top-hat” welfare plan exempt from the substantive requirements of ERISA. In addition, the Plan is intended to be a “separation pay plan” under Section 409A to the greatest possible extent, in accordance with the regulations issued thereunder.
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For purposes of this Section 1.4, no act, or failure to act, by an Eligible Employee shall be considered “willful” unless committed in bad faith and without a reasonable belief that the act or omission was in the best interests of the Company or any Subsidiary. Notwithstanding the foregoing, if there exists (without regard to this sentence) an event or condition that constitutes Cause under clause (c), (d), (e) or (f) above, the Eligible Employee shall have thirty (30) days from the date written notice is given by the Company of such event or condition to cure such event or condition to the extent curable and, if the Eligible Employee does so, such event or condition shall not constitute Cause hereunder.
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Notwithstanding the foregoing, if there exists (without regard to this sentence) an event or condition that constitutes Good Reason above, the Eligible Employee must deliver to the Company within ninety (90) days following the event or condition that constitutes Good Reason a written notice detailing the event or condition that constitutes Good Reason and the Eligible Employee’s proposed Effective Date of Termination, and the Company shall have thirty (30) days from the date on which the Executive gives the written notice thereof to cure such event or condition. If the Company fails to cure such an event or condition constituting Good Reason during the Company’s thirty (30)-day cure period, the Eligible Employee must terminate employment within fifteen (15) days following the end of the Company’s thirty (30)-day cure period in order for such termination of employment to be for Good Reason. If the Company cures the event or condition that constitutes Good Reason as detailed in the Eligible Employee’s written notice within the Company’s thirty (30)-day cure period, such event or condition shall not constitute Good Reason hereunder.
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Unless a more favorable treatment is otherwise provided in an individual agreement with an Eligible Employee, if any of the payments or benefits provided or to be provided by the Company or its affiliates to an Eligible Employee or for the benefit of an Eligible Employee pursuant to this Plan or otherwise (“Covered Payments”) constitute parachute payments within the meaning of Section 280G of the Code and would, but for this Section 4, be subject to the excise tax imposed under Section 4999 of the Code (or any successor provision thereto) or any similar tax imposed by state or local law or any interest or penalties with respect to such taxes (collectively, the “Excise Tax”), then the Covered Payments shall be payable either (a) in full or (b) reduced to the minimum extent necessary to ensure that no portion of the Covered Payments is subject to the Excise Tax, whichever of the foregoing (a) or (b) results in the Eligible Employee’s receipt on an after-tax basis of the greatest amount of benefits after taking into account the applicable federal, state, local and foreign income, employment and excise taxes (including the Excise Tax).
The Plan was originally adopted on November 1, 2016, and has been amended and restated effective as of November 1, 2023. The Plan may be terminated or amended by the Board or the Committee at any time. Notwithstanding the foregoing, in no event shall any termination of the Plan or any amendment of the Plan that reduces benefits or excludes Eligible Employees be effective during the twenty-four (24) month period following a Change in Control without the consent of each affected Eligible Employee.
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CubeSmart
5 Old Lancaster Road
Malvern, PA 19355
Attn: Chief Human Resources Officer
The Plan Administrator shall, within ninety (90) days after receipt of such written claim, decide the claim and send written notification to the Claimant as to its disposition; provided that the Plan Administrator may elect to extend such period for an additional ninety (90) days if special circumstances so warrant and the Claimant is so notified in writing prior to the expiration of the original ninety (90)-day period. If the claim is wholly or partially denied, such written notification
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shall (a) state the specific reason or reasons for the denial; (b) make specific reference to pertinent Plan provisions on which the denial is based; (c) provide a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or information is necessary; and (d) set forth the procedure by which the Claimant may appeal the denial of his or her claim. The Claimant may request a review of such denial by making application in writing to the Plan Administrator within sixty (60) days after receipt of such denial. Such application must be via certified mail. The named appeals fiduciary is the Plan Administrator or the person(s) named by the Plan Administrator to review the Claimant’s appeal. Such Claimant (or his or her duly authorized representative) may, upon written request to the Plan Administrator, review any documents pertinent to his or her claim, and submit in writing issues and comments in support of his or her claim or position. Within sixty (60) days after receipt of a written appeal, the named appeals fiduciary shall decide the appeal and notify the Claimant of the final decision; provided that the named appeals fiduciary may elect to extend such sixty (60)-day period up to an additional 60 (60) days after receipt of the written appeal. The final decision shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the Claimant, and specific references to the pertinent Plan provisions on which the decision is based.
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Eligible Employees and any severance benefits to which Eligible Employees shall be entitled under the Plan shall be subject to any Company clawback policy maintained by CubeSmart or any affiliate from time to time as necessary to comply with applicable law or exchange listing requirements.
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EXHIBIT A
SEVERANCE AND GENERAL RELEASE AGREEMENT
This agreement made and entered into between CubeSmart, a Maryland real estate investment trust (the “Company”), and ____________ (the “Executive”);
WHEREAS, the Executive has been employed by the Company (or its predecessor) since ;
WHEREAS, the Executive’s employment with the Company has been terminated effective ;
WHEREAS, the Executive is an Eligible Employee under the Company’s Amended and Restated Executive Severance Plan (the “Severance Plan”), which provides for certain termination benefits (the “Termination Benefits”), in connection with such termination, upon the terms set forth in such Plan.
NOW, THEREFORE, the parties agree as follows:
The Executive hereby irrevocably and unconditionally releases and forever discharges the Company, its subsidiaries, parent companies, and related entities, and each of the Company and its affiliates’ successors, assigns, agents, directors, officers, employees, representatives, and attorneys, and all persons acting by, through, under or in concert with
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any of them (collectively “Released Parties”), or any of them, from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorney’s fees and costs actually incurred), of any nature whatsoever, known or unknown (“Claims”), which the Executive now has, or claims to have, or which the Executive at any time heretofore had, or claimed to have, against each or any of the Released Parties. The definition of Claims also specifically encompasses all claims of under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 1981(a), the Age Discrimination in Employment Act of 1967, as amended, the Employment Retirement Income Security Act, the Family and Medical Leave Act, the Americans with Disabilities Act, as well as all claims under state law provided under other applicable state law or local ordinance concerning the Executive’s employment or termination of the Executive’s employment. The Executive is not waiving his right to vested benefits under the written terms of any Company 401(k) Plan, claims for unemployment or workers’ compensation benefits, any medical claim incurred during the Executive’s employment that is payable under applicable medical plans or an employer-insured liability plan, claims arising after the date on which the Executive signs this Agreement, or claims that are not otherwise waivable under applicable law.
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Please take notice that federal law provides criminal and civil immunity to federal and state claims for trade secret misappropriation to individuals who disclose a trade secret to their attorney, a court, or a government official in certain, confidential circumstances that are set forth at 18 U.S.C. §§ 1833(b)(1) and 1833(b)(2), related to the reporting or investigation of a suspected violation of the law, or in connection with a lawsuit for retaliation for reporting a suspected violation of the law.
| 8. | The Executive agrees to indemnify and hold each and all of the Released Parties harmless from and against any and all loss, costs, damage, or expense, including, without limitation, attorneys’ fees, incurred by the Released Parties, or any of them, arising out of the Executive’s breach of this Agreement or the fact that any representation made by him herein was false when made. |
| 9. | In the event of any breach of this Agreement or the Restrictive Covenant Agreement by the Executive, the Company shall be entitled to immediately cease payment of the Termination Benefits in addition to any other remedy it may have. Both parties understand and agree that should either of them breach any material term of this Agreement, the non-breaching party can institute an action to enforce the terms of this Agreement. If legal action is commenced to enforce any provision of this Agreement, the substantially prevailing party in such action shall be entitled to recover its attorneys’ fees and expenses through any and all trial courts or appellate courts, in addition to any other relief that may be granted. |
| 10. | The Executive represents that he has not heretofore assigned or transferred, or purported to assign or transfer to any person or entity, any Claim or any portion thereof or interest therein. |
| 11. | The Executive represents and acknowledges that in executing this Agreement he does not rely and has not relied upon any other representation or statement made by any of the Released Parties or by any of the Released Parties’ agents, representatives or attorneys, except as set forth herein, with regard to the subject matter, basis or effect of this Agreement. |
| 12. | The Executive further agrees that he will not disparage the Company, its business, its employees, officers or agents, or any of the Company’s affiliates or related entities in any manner harmful to their business or business reputation. Except as provided by Section 7, the Executive and the Company agree to keep the matters contained herein confidential. The Executive will not discuss this Agreement with any current or former employee(s) of the Company. This Section 12 shall not prevent the Executive from communicating confidentially with his attorney(s) or |
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| spouse, or to the extent required by public disclosure laws or as required by laws, regulations, or a final and binding court order or other compulsory process, including without limitation as set forth in Section 3.2 of the Restrictive Covenant Agreement. Nothing in this Section 12 shall not prevent the Company from communicating confidentially with its attorney(s), officers, or directors of the corporation, or to the extent required by public disclosure laws or as required by laws, regulations, or a final and binding court order or other compulsory process. |
| 13. | This Agreement shall be binding upon the Company, the Executive and their respective heirs, administrators, representatives, executors, successors, and assigns, and shall inure to the benefit of the Released Parties and each of them, and to their heirs, administrators, representatives, executor, successors and assigns. |
| 14. | All terms not defined herein shall have the meanings set forth in the Severance Plan. |
| 15. | This Agreement shall in all respects be interpreted, enforced and governed under the laws of the State of Maryland. |
| 16. | This Agreement sets forth the entire agreement between the parties hereto. Any modification, amendment or change to this Agreement must be made in writing and signed by both parties. |
The Company hereby advises the Executive to consult with an attorney prior to executing this Agreement. The Executive acknowledges that the Executive has been given a period of twenty-one (21) days within which to consider this Agreement. The Executive agrees that changes to this Agreement before its execution, whether material or immaterial, do not restart the Executive’s time to review the Agreement. The Executive further acknowledges that this Agreement may be revoked by the Executive at any time during the seven (7) day period beginning on the date that the Executive has signed this Agreement by providing written notice of revocation to:
CubeSmart
5 Old Lancaster Road
Malvern, PA 19355
Attn: Chief Human Resources Officer
Facsimile No.: (610) 293-5720
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This Agreement shall not become effective if the Executive revokes the Agreement during this 7-day period and will not become effective otherwise until after expiration of the 7-day period. The Executive shall not be entitled to receive any Termination Benefits under this Agreement or otherwise until the expiration of the revocation period.
| CUBESMART |
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| /s/ |
Date | Name: |
| Title: |
| |
| |
| EXECUTIVE |
| |
| /s/ |
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EXHIBIT B
RESTRICTIVE COVENANT AGREEMENT
THIS RESTRICTIVE COVENANT AGREEMENT (this “Agreement”) is entered into as of , 20__ by and between CubeSmart, a Maryland real estate investment trust (the “Company”), and (the “Executive”).
WHEREAS, the Executive’s employment with the Company, CubeSmart, L.P., a Delaware limited partnership of which the Company is the general partner, or any of their direct or indirect subsidiaries (collectively, the “REIT”) terminated on ___________, 20__ (“Termination Date”).
WHEREAS, as a condition to receiving the applicable termination benefits (“Termination Benefits”) in accordance with the Company’s Amended and Restated Executive Severance Plan (the “Severance Plan”), the Company and the Executive agree that the Executive will not engage in competition with the Company and will refrain from taking certain other actions pursuant to the terms and conditions hereof in an effort to protect the Company’s legitimate business interests and goodwill and for other business purposes.
NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows:
Please take notice that federal law provides criminal and civil immunity to federal and state claims for trade secret misappropriation to individuals who disclose a trade secret to their attorney, a court, or a government official in certain, confidential circumstances that are set forth at 18 U.S.C. §§ 1833(b)(1) and 1833(b)(2), related to the reporting or investigation of a suspected violation of the law, or in connection with a lawsuit for retaliation for reporting a suspected violation of the law.
The Executive shall assign to the Company all rights to trade secrets and other products relating to the Company’s business developed by him alone or in conjunction with others at any time while employed by the Company.
(i)if to the Executive, to the address set forth in the records of the Company; and
(ii)if to the Company:
CubeSmart
5 Old Lancaster Road
Malvern, PA 19355
Attn: Chief Human Resources Officer
Facsimile No.: (610) 293-5720
Execution in Counterparts. To facilitate execution, this Agreement may be executed in as many counterparts as may be required. It shall not be necessary that the signature of or on behalf of each party appears on each counterpart, but it shall be sufficient that the signature of or on behalf of each party appears on one or more of the counterparts. All counterparts shall collectively constitute a single agreement.
[Signature Page Follows]
IN WITNESS WHEREOF, each of the undersigned has executed and delivered this Agreement, or caused this Agreement to be duly executed on its behalf, as of the date first set forth above.
THE EXECUTIVE: |
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THE COMPANY: |
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CUBESMART |
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By: |
Name: |
EXHIBIT C
ELIGIBLE EMPLOYEES
Position | Tier |
President and Chief Executive Officer | I |
Chief Financial Officer | II |
Chief Legal Officer | III |
Chief Operating Officer | III |
Chief Human Resources Officer | III |
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Christopher P. Marr, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of CubeSmart;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Trustees (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 3, 2023 | /s/ Christopher P. Marr | |
| Christopher P. Marr | |
| Chief Executive Officer | |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy M. Martin, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of CubeSmart;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Trustees (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 3, 2023 | /s/ Timothy M. Martin | |
| Timothy M. Martin | |
| Chief Financial Officer | |
Exhibit 31.3
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Christopher P. Marr, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of CubeSmart L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Trustees (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 3, 2023 | /s/ Christopher P. Marr | |
| Christopher P. Marr | |
| Chief Executive Officer | |
Exhibit 31.4
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy M. Martin, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of CubeSmart L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Trustees (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 3, 2023 | /s/ Timothy M. Martin | |
| Timothy M. Martin | |
| Chief Financial Officer | |
Exhibit 32.1
Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
The undersigned, the Chief Executive Officer and Chief Financial Officer of CubeSmart (the “Company”), each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(a) The Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2023 (the “Report”) filed on the date hereof with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 3, 2023 | /s/ Christopher P. Marr | |
| Christopher P. Marr | |
| Chief Executive Officer | |
| | |
| | |
Date: November 3, 2023 | /s/ Timothy M. Martin | |
| Timothy M. Martin | |
| Chief Financial Officer | |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
The undersigned, the Chief Executive Officer and Chief Financial Officer of CubeSmart L.P. (the “Company”), each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(a) The Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2023 (the “Report”) filed on the date hereof with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 3, 2023 | /s/ Christopher P. Marr | |
| Christopher P. Marr | |
| Chief Executive Officer | |
| | |
| | |
Date: November 3, 2023 | /s/ Timothy M. Martin | |
| Timothy M. Martin | |
| Chief Financial Officer | |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.