Table of Contents
UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-32324 (CubeSmart)
Commission file number 000-54462 (CubeSmart, L.P.)
CUBESMART
CUBESMART, L.P.
(Exact Name of Registrant as Specified in Its Charter)
Maryland (CubeSmart)
20-1024732 (CubeSmart)
Delaware (CubeSmart, L.P.)
34-1837021 (CubeSmart, L.P.)
(State or Other Jurisdiction of
(IRS Employer
Incorporation or Organization)
Identification No.)
5 Old Lancaster Road
19355
Malvern, Pennsylvania
(Zip Code)
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code (610) 535-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
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
Securities registered pursuant to Section 12(g) of the Act: Units of General Partnership Interest of CubeSmart, L.P.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
CubeSmart
Yes
No
CubeSmart, L.P.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
◻
⌧
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.
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).
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 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.:
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.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
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).
As of June 30, 2020, the last business day of CubeSmart’s most recently completed second fiscal quarter, the aggregate market value of common shares held by non-affiliates of CubeSmart was $5,228,744,387. As of February 24, 2021, the number of common shares of CubeSmart outstanding was 199,699,623.
As of June 30, 2020, the last business day of CubeSmart, L.P.’s most recently completed second fiscal quarter, the aggregate market value of the 1,872,308 units of limited partnership (the “OP Units”) held by non-affiliates of CubeSmart, L.P. was $50,533,593 based upon the last reported sale price of $26.99 per share on the New York Stock Exchange on June 30, 2020 of the common shares of CubeSmart, the sole general partner of CubeSmart, L.P. (For this computation, the market value of all OP Units beneficially owned by CubeSmart has been excluded.)
Documents incorporated by reference: Portions of the Proxy Statement for the 2021 Annual Meeting of Shareholders of CubeSmart to be filed subsequently with the SEC are incorporated by reference into Part III of this report.
EXPLANATORY NOTE
This report combines the annual reports on Form 10-K for the year ended December 31, 2020 of CubeSmart (the “Parent Company” or “CubeSmart”) and CubeSmart, L.P. (the “Operating Partnership”). The Parent Company is a Maryland real estate investment trust, or REIT, that owns its assets and conducts its operations through the Operating Partnership, a Delaware limited partnership, and subsidiaries of the Operating Partnership. The Parent Company, the Operating Partnership and their consolidated subsidiaries are collectively referred to in this report as the “Company”. In addition, terms such as “we”, “us”, or “our” used in this report may refer to the Company, the Parent Company and/or the Operating Partnership.
The Parent Company is the sole general partner of the Operating Partnership and, as of December 31, 2020, owned a 96.4% interest in the Operating Partnership. The remaining 3.6% 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 consolidated financial statements of the Parent Company and the Operating Partnership are nearly identical.
The Company believes that combining the annual reports on Form 10-K of the Parent Company and the Operating Partnership into a single report will:
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
2
statements. The separate discussions of the Parent Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company’s operations on a consolidated basis and how management operates the Company.
This report also includes separate Item 9A - Controls and Procedures sections, signature pages and 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 (the “Exchange Act”) and 18 U.S.C. §1350.
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TABLE OF CONTENTS
PART I
5
Item 1.
Business
6
Item 1A.
Risk Factors
15
Item 1B.
Unresolved Staff Comments
28
Item 2.
Properties
29
Item 3.
Legal Proceedings
31
Item 4.
Mining Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
33
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
34
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
44
Item 8.
Financial Statements and Supplementary Data
45
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
46
PART III
Item 10.
Trustees, Executive Officers, and Corporate Governance
Item 11.
Executive Compensation
47
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13.
Certain Relationships and Related Transactions, and Trustee Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
53
4
Forward-Looking Statements
This Annual Report on Form 10-K, or this Report, together with other statements and information publicly disseminated by the Parent Company and the Operating Partnership, contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Forward-looking statements include statements concerning the Company’s plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions and other information that is not historical information. In some cases, forward-looking statements can be identified by terminology such as “believes”, “expects”, “estimates”, “may”, “will”, “should”, “anticipates” or “intends” or the negative of such terms or other comparable terminology, or by discussions of strategy. Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, future events and actual results, performance, transactions or achievements, financial and otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forward-looking statements. As a result, you should not rely on or construe any forward-looking statements in this Report, or which management 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 this Report and in our other filings with the Securities and Exchange Commission (“SEC”). These risks include, but are not limited to, the following:
Given these uncertainties and the other risks identified elsewhere in this Report, we caution readers not to place undue reliance on forward-looking statements. We undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise except as may be required by securities laws. Because of the factors referred to above, the future events discussed in or incorporated by reference in this Report may not occur and actual results, performance or achievement could differ materially from that anticipated or implied in the forward-looking statements.
ITEM 1. BUSINESS
Overview
We are a self-administered and self-managed real estate company focused primarily on the ownership, operation, management, acquisition and development of self-storage properties in the United States.
As of December 31, 2020, we owned 543 self-storage properties located in 24 states and in the District of Columbia containing an aggregate of approximately 38.5 million rentable square feet. As of December 31, 2020, approximately 92.3% of the rentable square footage at our owned stores was leased to approximately 340,000 customers, and no single customer represented a significant concentration of our revenues. As of December 31, 2020, 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 December 31, 2020, we managed 723 stores for third parties (including 105 stores containing an aggregate of approximately 7.5 million net rentable square feet as part of five separate unconsolidated real estate ventures) bringing the total number of stores we owned and/or managed to 1,266. As of December 31, 2020, we managed stores for third parties in the District of Columbia and the following 38 states: Alabama, Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington and Wisconsin.
Our self-storage properties are designed to offer affordable and easily-accessible storage space for our residential and commercial customers. Our customers rent storage cubes for their exclusive use, typically on a month-to-month basis. Additionally, some of our stores offer outside storage areas for vehicles and boats. Our stores are designed to accommodate both residential and commercial customers, with features such as wide aisles and load-bearing capabilities for large truck access. All of our stores have a storage associate available to assist our customers during business hours, and 309, or approximately 56.9%, of our owned stores have a manager who resides in an apartment at the store. Our customers can access their storage cubes during business hours, and some of our stores provide customers with 24-hour access through computer-controlled access systems. Our goal is to provide customers with the highest standard of physical attributes and service in the industry. To that end, 462, or approximately 85.1%, of our owned stores include climate-controlled cubes.
The Parent Company was formed in July 2004 as a Maryland REIT. The Parent Company owns its assets and conducts its business through the Operating Partnership, and its subsidiaries. The Parent Company controls the Operating Partnership as its sole general partner and, as of December 31, 2020, owned a 96.4% interest in the Operating Partnership. The Operating Partnership was formed in July 2004 as a Delaware limited partnership and has been engaged in virtually all aspects of the self-storage business, including the development, acquisition, management, ownership and operation of self-storage properties.
Impact of COVID-19 on the Consolidated Financial Statements and Business Operations
Since the first quarter of 2020, the world has been impacted by the spread of a novel strain of coronavirus, its variants and the disease that they cause known as COVID-19, which has limited our ability to operate our business using traditional means. Since mid-March, federal, state and local government agencies in the markets within which we operate have issued public health responses aimed at reducing the spread of COVID-19, which include quarantines, stay-at-home orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. As a result, the United States has experienced, among other things, an unprecedented increase in unemployment, significant volatility within its debt and equity capital markets and extreme economic contraction.
Despite the operating restrictions placed on many businesses by governmental mandates that promote distancing, self-storage has been designated as an essential business. Accordingly, our stores have remained open throughout the pandemic to allow for customers to move in, move out, pay rent and access their belongings at all locations. Additionally, with the health and welfare of its teammates and customers in mind, we have implemented SmartRentalTM, a contactless online rental process that eliminates the need for face-to-face interaction, and shifted our corporate headquarters, divisional offices and sales center to remote work.
In late March 2020, in response to the pandemic and certain state and local government orders, we paused all rate increases to existing customers and suspended our normal delinquency processes temporarily, which impacted revenue growth. In May 2020, as permitted by governmental mandates, we began resuming our delinquency and rental rate increase processes on a jurisdiction by jurisdiction basis. To date, we have not experienced any material degradation in rent collections or occupancy, however future customer behavior and their ability to pay rent will be determined by the duration and scope of the pandemic; actions that have been and continue to be taken by governmental entities, individuals and businesses in response to the pandemic; and the continued impact on economic activity from the pandemic and actions taken in response thereto.
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Acquisition and Disposition Activity
As of December 31, 2020 and 2019, we owned 543 and 523 stores, respectively, that contained an aggregate of 38.5 million and 36.6 million rentable square feet with occupancy levels of 92.3% and 89.5%, respectively. A complete listing of, and additional information about, our stores is included in Item 2 of this Report. The following is a summary of our 2020, 2019 and 2018 acquisition and disposition activity:
Number of
Purchase / Sale Price
Asset/Portfolio
Metropolitan Statistical Area
Transaction Date
Stores
(in thousands)
2020 Acquisitions:
Texas Asset
San Antonio, TX
February 2020
1
$
9,025
Maryland Asset
Baltimore-Towson, MD
April 2020
17,200
New Jersey Asset
New York-Northern New Jersey-Long Island, NY-NJ-PA
48,450
Florida Asset
Palm Bay-Melbourne-Titusville, FL
November 2020
3,900
Austin-Round Rock, TX
10,750
Dallas-Fort Worth-Arlington, TX
10,150
Nevada Asset
Las Vegas-Paradise, NV
December 2020
16,800
New York Asset
6,750
Storage Deluxe Assets
8
540,000
Florida Assets
Orlando-Kissimmee, FL / Deltona-Daytona Beach-Ormond Beach, FL
45,500
Tampa-St. Petersburg-Clearwater, FL
10,000
Virginia Asset
Washington-Arlington-Alexandria, DC-VA-MD-WV
17,350
21
735,875
2020 Disposition:
12,750
2019 Acquisitions:
March 2019
22,000
Cape Coral-Fort Myers, FL
April 2019
19,000
Arizona Asset
Phoenix-Mesa-Scottsdale, AZ
May 2019
1,550
HVP III Assets
Various (see note 4)
June 2019
18
128,250
(1)
Georgia Asset
Atlanta-Sandy Springs-Marietta, GA
August 2019
14,600
South Carolina Asset
Charleston-North Charleston, SC
3,300
October 2019
7,300
Orlando-Kissimmee, FL
November 2019
32,100
California Asset
Los Angeles-Long Beach-Santa Ana, CA
December 2019
18,500
246,600
2019 Disposition:
College Station-Bryan, TX
4,146
2018 Acquisitions:
January 2018
12,200
Houston-Sugar Land-Baytown, TX
May 2018
Metro DC Asset
July 2018
34,200
September 2018
14,350
North Carolina Asset
Charlotte-Gastonia-Concord, NC-SC
11,000
October 2018
53,250
23,150
San Diego-Carlsbad-San Marcos, CA
November 2018
19,118
37,000
Illinois Asset
Chicago-Naperville-Joliet, IL-IN-WI
December 2018
4,250
10
227,518
2018 Dispositions:
Arizona Assets
17,502
The comparability of our results of operations is affected by the timing of acquisition and disposition activities during the periods reported. As of December 31, 2020, 2019 and 2018, we owned 543, 523 and 493 self-storage properties and related assets, respectively. The following table summarizes the change in number of owned stores from January 1, 2018 through December 31, 2020:
2020
2019
2018
Balance - January 1
523
493
484
Stores acquired
Balance - March 31
524
494
485
Stores developed
—
Stores combined (1)
(1)
Balance - June 30
527
516
486
Balance - September 30
519
490
Stores sold
(2)
Balance - December 31
543
Financing and Investing Activities
The following summarizes certain financing and investing activities during the year ended December 31, 2020:
9
Business Strategy
Our business strategy consists of several elements:
Investment and Market Selection Process
We maintain a disciplined and focused process in the acquisition and development of self-storage properties. Our investment committee is comprised of four senior officers who oversee our investment process. Our investment process involves six stages — identification, initial due diligence, economic assessment, investment committee approval (and when required, the approval of our Board of Trustees (the “Board”)), final due diligence and documentation. Through our investment committee, we intend to focus on the following criteria:
Segment
We have one reportable segment: we own, operate, develop, manage and acquire self-storage properties.
Concentration
Our self-storage properties are located in major metropolitan areas as well as suburban areas and have numerous customers per store. No single customer represented a significant concentration of our 2020 revenues. Our stores in New York, Florida, Texas and California provided approximately 16%, 15%, 9% and 8%, respectively, of our total revenues for the year ended December 31, 2020. Our stores in Florida, New York, Texas and California provided approximately 16%, 16%, 10% and 8%, respectively, of our total revenues for the year ended December 31, 2019. Our stores in Florida, New York, Texas and California provided approximately 17%, 16%, 10% and 8%, respectively, of our total revenues for the year ended December 31, 2018.
Seasonality
We typically experience seasonal fluctuations in occupancy levels at our stores, which are generally slightly higher during the summer months due to increased moving activity.
Financing Strategy
We maintain a capital structure that we believe is reasonable and prudent and that will enable us to have ample cash flow to cover debt service and make distributions to our shareholders. As of December 31, 2020, our debt to total market capitalization ratio (determined by dividing the carrying value of our total indebtedness by the sum of (a) the market value of the Parent Company’s outstanding common shares and units of the Operating Partnership held by third parties and (b) the carrying value of our total indebtedness) was approximately 25.6% compared to approximately 23.9% as of December 31, 2019. Our ratio of debt to the undepreciated cost of our total assets as of December 31, 2020 was approximately 41.0% compared to approximately 39.0% as of December 31, 2019. We expect to finance additional investments in self-storage properties through the most attractive sources of capital available at the time of the transaction, in a manner consistent with maintaining a strong financial position and future financial flexibility, subject to limitations on incurrence of indebtedness in our unsecured credit facilities and the indenture that governs our unsecured notes. These capital sources may include existing cash, borrowings under the revolving portion of our credit facility, additional secured or unsecured financings, sales of common or preferred shares of the Parent Company in public offerings or private placements, additional issuances of debt securities, issuances of common or preferred units in our Operating Partnership in exchange for contributed properties and formations of joint ventures. We also may sell stores that have unattractive risk-adjusted returns and use the sales proceeds to fund other acquisitions.
Competition
Self-storage properties compete based on a number of factors, including location, rental rates, occupancy, security, suitability of the store’s design to prospective customers’ needs and the manner in which the store is operated and marketed. In particular, the number of competing self-storage properties in a market could have a material effect on our occupancy levels, rental rates and on the overall operating performance of our stores. We believe that the primary competition for potential customers of any of our self-storage properties comes from other self-storage providers within a three-mile radius of that store. We believe our stores are well-positioned within their respective markets, and we emphasize customer service, convenience, security, professionalism and cleanliness.
Our key competitors include local and regional operators as well as the other public self-storage REITs, including Public Storage, Extra Space Storage Inc., Life Storage, Inc. and National Storage Affiliates Trust. These companies, some of which operate significantly more stores than we do and have greater resources than we have, and other entities may be able to accept more risk than we determine is prudent for us, including risks with respect to the geographic proximity of investments and the payment of higher acquisition prices. This competition may reduce the number of suitable acquisition opportunities available to us, increase the price required to acquire stores and reduce the demand for self-storage space at our stores. Nevertheless, we believe that our experience in operating, managing, acquiring, developing and obtaining financing for self-storage properties should enable us to compete effectively.
Government Regulation
We are subject to various laws, ordinances and regulations, including regulations relating to lien sale rights and procedures and various federal, state and local regulations that apply generally to the ownership of real property and the operation of self-storage properties.
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Under the Americans with Disabilities Act of 1990 and applicable state accessibility act laws (collectively, the “ADA”), all places of public accommodation are required to meet federal requirements related to physical access and use by disabled persons. A number of other federal, state and local laws may also impose access and other similar requirements at our stores. A failure to comply with the ADA or similar state or local requirements could result in the governmental imposition of fines or the award of damages to private litigants affected by the noncompliance. Although we believe that our stores comply in all material respects with these requirements (or would be eligible for applicable exemptions from material requirements because of adaptive assistance provided), a determination that one or more of our stores or websites is not in compliance with the ADA or similar state or local requirements would result in the incurrence of additional costs associated with bringing them into compliance.
Under various federal, state and local laws, ordinances and regulations, an owner or operator of real property may become liable for the costs of removal or remediation of hazardous substances released on or in its property. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substances. The presence of hazardous substances, or the failure to properly remediate such substances, when released, may adversely affect the property owner’s ability to sell the real estate or to borrow using the real estate as collateral, and may cause the property owner to incur substantial remediation costs. In addition to claims for cleanup costs, the presence of hazardous substances on a property could result in a claim by a private party for personal injury or a claim by an adjacent property owner or user for property damage. We may also become liable for the costs of removal or remediation of hazardous substances stored at our properties by a customer even though storage of hazardous substances would be without our knowledge or approval and in violation of the customer’s storage lease agreement with us.
Our practice is to conduct or obtain environmental assessments in connection with the acquisition or development of properties. Whenever the environmental assessment for one of our stores indicates that a store is impacted by soil or groundwater contamination from prior owners/operators or other sources, we work with our environmental consultants and, where appropriate, state governmental agencies, to ensure that the store is either cleaned up, that no cleanup is necessary because the low level of contamination poses no significant risk to public health or the environment, or that the responsibility for cleanup rests with a third party. In certain cases, we have purchased environmental liability insurance coverage to indemnify us against claims for contamination or other adverse environmental conditions that may affect a property.
We are not aware of any environmental cleanup liability that we believe will have a material adverse effect on us. We cannot provide assurance, however, that these environmental assessments and investigations have revealed or will reveal all potential environmental liabilities, that no prior owner created any material environmental condition not known to us or the independent consultant or that future events or changes in environmental laws will not result in the imposition of environmental liability on us.
We have not received notice from any governmental authority of any material noncompliance, claim or liability in connection with any of our stores, nor have we been notified of a claim for personal injury or property damage by a private party in connection with any of our stores relating to environmental conditions.
We are not aware of any environmental condition with respect to any of our stores that could reasonably be expected to have a material adverse effect on our financial condition or results of operations, and we do not expect that the cost of compliance with environmental regulations will have a material adverse effect on our financial condition or results of operations. We cannot provide assurance, however, that this will continue to be the case.
Insurance
We carry comprehensive liability, fire, casualty, extended coverage and rental loss insurance covering all of the properties in our portfolio. We also carry environmental insurance coverage on certain stores in our portfolio. We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice. We do not carry insurance for losses such as loss from riots, war or acts of God, and, in some cases, flood and environmental hazards, because such coverage is either not available or not available at commercially reasonable rates. Some of our policies, such as those covering losses due to terrorism, hurricanes, floods and earthquakes, are insured subject to limitations involving large deductibles or co-payments and policy limits that may not be sufficient to cover losses. Additionally, we use a combination of insurance products to provide risk mitigation for potential liabilities associated with automobiles, workers’ compensation, employment practices, general contractors, directors and officers, employee health-care benefits and personal injuries that might be sustained at our stores.
Offices
Our principal executive offices are located at 5 Old Lancaster Road, Malvern, PA 19355. Our telephone number is (610) 535-5000.
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Human Capital
At CubeSmart, we refer to our employees as teammates, because collaboration towards shared goals defines our workplace. We care deeply about the experience our teammates have working with us. The CubeSmart work experience takes a holistic approach to our teammates’ total wellbeing at work. Our teammate value proposition includes promoting a sense of belonging to a team; providing opportunities to make a meaningful difference at work and in their communities; supporting our teammates’ ongoing personal and professional development; and offering competitive pay and rewards.
As of December 31, 2020, CubeSmart employed 3,111 teammates, all within the United States. Of the total employees, 90% were hourly and 10% salaried; we have no union presence or collective bargaining agreements. Our average teammate tenure as of December 31, 2020 was 3.4 years.
Company Culture and Teammate Experience
We measure our teammates’ experience each year through our Teammate Engagement Survey. In 2020, our annual engagement survey had a 91% participation rate. Results are communicated within individual teams to share what we learned and discuss both the positive aspects about working at CubeSmart and where we have opportunities to improve. Supervisors work with their teams to create action plans that are specific to the engagement and wellbeing of the individuals within those teams. Through ongoing conversations and transparent commitment to continuous improvement, every CubeSmart teammate plays a role in building our company culture and making the experience working here the best it can be.
Teammate Development and Wellbeing
As part of our culture, it is our goal to help teammates grow with us and leverage their development both at CubeSmart and beyond. We believe in providing all teammates with training and development opportunities to succeed in their role. We plan, design and deliver training programs for all levels of the organization, from orientation and general job skills to enhancing leadership capabilities through skills trainings and mentoring. In 2020, we provided an average of 22 hours of training per teammate.
When recruiting new teammates, our talent management team engages with our store management teams to identify a pool of potential candidates to serve our customers and deliver best in class customer service. We recruited, hired and trained 1,274 teammates during the year ended December 31, 2020. Additionally, more than 370 teammates were promoted into new roles and/or transitioned into new positions to further their career development.
We believe that career growth and personal development is an important part of our teammates’ personal and professional success. To further support our teammates’ success, we offer a number of benefits aimed at supporting the wellbeing of our teammates and their families. Those benefits include: medical, dental, vision, disability and life insurance coverage. We also offer a variety of programs designed to provide teammates with the ability to rest, rejuvenate and take care of their families such as paid holidays, vacation and sick time, and parental leave. Our Employee Assistance Program is available to all teammates, providing extra support as they and their families experience life changes and challenges.
Another important part of our teammates’ wellbeing is their connection to a larger sense of purpose. We empower our teammates to find this with us and provide programs and opportunities for them. Our Idea Center provides a forum where teammates can submit ideas to enhance the workplace, streamline systems and processes and identify solutions and best practices. We encourage our teammates to participate in community service and philanthropy, and provide paid time off for teammates who participate in these activities. Also, through our matching gifts program, we match qualified charitable contributions made by teammates up to $100 per teammate each year.
Diversity, Equity and Inclusion
Our Philosophy Regarding Respect in the Workplace defines our approach to diversity, inclusion and treatment of differences. Our Philosophy is acknowledged by teammates and states:
At CubeSmart, we respect, value, and celebrate the unique attributes, characteristics and perspectives that make each teammate who they are. We believe that our business is better because of the diversity of participation, thought, and action that comes from the unique individuals who come to work here. Every teammate deserves the right to come to work as their authentic self. Our goal for CubeSmart is to be a place where people feel supported, listened to, and able to do their personal best. Our philosophy isn’t any different from our philosophy regarding Customer interactions, namely to “treat our Customers as they want to be treated.” When it comes to our teammates, we ask that every teammate “treat our teammates as they want to be treated.”
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As of December 31, 2020, of our total teammate population, 54% are female and 46% are male. Approximately 47% have self-identified as Black or African American, Hispanic or Latino, Asian, American Indian, or of two or more races. The average teammate age is 40; 43% of our teammates are 34 and younger while 36% of our teammates are 45 or older.
COVID-19 Update
The situation surrounding the COVID-19 virus in our country changed our business operations. Throughout the pandemic, we have closely monitored legal requirements and the advice of experts, and put actions into place as we found to be necessary. The goal of these actions was to find a way to still provide a differentiated CubeSmart customer experience while safeguarding the health of our teammates and customers in this ever-changing environment. The actions we took in 2020 to support the wellbeing of our teammates included:
Available Information
We file registration statements, proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports with the SEC. You may obtain copies of these documents by accessing the SEC’s website at www.sec.gov. Our internet website address is www.cubesmart.com. You also can obtain on our website, free of charge, copies of our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports, after we electronically file such reports or amendments with, or furnish them to, the SEC. Our internet website and the information contained therein or connected thereto are not intended to be incorporated by reference into this Report.
Also available on our website, free of charge, are copies of our Code of Business Conduct and Ethics, our Corporate Governance Guidelines and the charters for each of the committees of our Board — the Audit Committee, the Corporate Governance and Nominating Committee and the Compensation Committee. Copies of each of these documents are also available in print free of charge, upon request by any shareholder. You can obtain copies of these documents by contacting Investor Relations by mail at 5 Old Lancaster Road, Malvern, PA 19355.
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ITEM 1A. RISK FACTORS
An investment in our securities involves various risks. Investors should carefully consider the risks set forth below together with other information contained in this Report. These risks are not the only ones that we may face. Additional risks not presently known to us, or that we currently consider immaterial, may also impair our business, financial condition, operating results and ability to make distributions to our shareholders.
Risks Related to our Business and Operations
Adverse macroeconomic and business conditions may significantly and negatively affect our rental rates, occupancy levels and therefore our results of operations.
We are susceptible to the effects of adverse macro-economic events that can result in higher unemployment, shrinking demand for products, large-scale business failures and tight credit markets. Our results of operations are sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending, as well as to increased bad debts due to recessionary pressures. Adverse economic conditions affecting disposable consumer income, such as employment levels, business conditions, interest rates, tax rates and fuel and energy costs, could reduce consumer spending or cause consumers to shift their spending to other products and services. A general reduction in the level of discretionary spending or shifts in consumer discretionary spending could adversely affect our growth and profitability.
It is difficult to determine the breadth and duration of economic and financial market disruptions and the many ways in which they may affect our customers and our business in general. Nonetheless, financial and macroeconomic disruptions could have a significant adverse effect on our sales, profitability and results of operations.
Our financial performance is dependent upon economic and other conditions of the markets in which our stores are located.
We are susceptible to adverse developments in the markets in which we operate, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors. Our stores in New York, Florida, Texas and California accounted for approximately 16%, 15%, 9% and 8%, respectively, of our total 2020 revenues. As a result of this geographic concentration of our stores, we are particularly susceptible to adverse market conditions in these areas. Any adverse economic or real estate developments in these markets, or in any of the other markets in which we operate, or any decrease in demand for self-storage space resulting from the local business climate, could adversely affect our rental revenues, which could impair our ability to satisfy our debt service obligations and pay distributions to our shareholders.
Our business, financial condition, results of operations and share price have, and may continue to be, impacted by the COVID-19 pandemic and such impact could be materially adverse.
Since the first quarter of 2020, the world has been impacted by the spread of a novel strain of coronavirus and its variants and the disease that it causes known as COVID-19, which has resulted in global business disruptions and significant volatility in U.S. and international debt and equity markets. There continues to be significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. economy. The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations, financial condition and share price will depend on numerous evolving factors, including, among others: the duration and scope of the pandemic; actions that have been and continue to be taken by governmental entities, individuals and businesses in response to the pandemic; the impact on economic activity from the pandemic and actions taken in response thereto; the impact on capital availability and costs of capital; the impact on our employees any other operational disruptions or difficulties we may face; and, the effect on our customers and their ability to make rental payments. Any of these events, individually or in aggregate, could have a material adverse impact on the Company’s business, financial condition, results of operations and share price.
We face risks associated with property acquisitions.
We intend to continue to acquire individual and portfolios of self-storage properties. The purchase agreements that we enter into in connection with acquisitions typically contain closing conditions that need to be satisfied before the acquisitions can be consummated. The satisfaction of many of these conditions is outside of our control, and we therefore cannot assure that any of our pending or future acquisitions will be consummated. These conditions include, among other things, satisfactory examination of the title, zoning and entitlements to the properties, the ability to obtain title insurance and customary closing deliverables and conditions. Moreover, in the
event we are unable to complete pending or future acquisitions, we may have incurred significant legal, accounting, due diligence and other transaction costs in connection with such acquisitions without realizing the expected benefits.
Those acquisitions that we do consummate would increase our size and may potentially alter our capital structure. Although we believe that future acquisitions that we complete will enhance our financial performance, the success of acquisitions is subject to the risks that:
In addition, we often do not obtain third-party appraisals of acquired properties and instead rely on internal value determinations.
We will incur costs and will face integration challenges when we acquire additional stores.
As we acquire or develop additional self-storage properties and bring additional self-storage properties onto our third-party management platform, we will be subject to risks associated with integrating and managing new stores, including customer retention and mortgage default risks. In the case of a large portfolio purchase, we could experience strains in our existing systems and management capacities. In addition, acquisitions or developments may cause disruptions in our operations and divert management’s attention away from day-to-day operations. Furthermore, our income may decline because we will be required to depreciate/amortize in future periods costs for acquired real property and intangible assets. Our failure to successfully integrate any future acquisitions into our portfolio could have an adverse effect on our operating costs and our ability to make distributions to our shareholders.
The acquisition of new stores that lack operating history with us will make it more difficult to predict revenue potential.
We intend to continue to acquire additional stores. These acquisitions could fail to perform in accordance with expectations. If we fail to accurately estimate occupancy levels, rental rates, operating costs or costs of improvements to bring an acquired store up to the standards established for our intended market position, the performance of the store may be below expectations. Acquired stores may have characteristics or deficiencies affecting their valuation or revenue potential that we have not yet discovered. We cannot assure that the performance of stores acquired by us will increase or be maintained under our management.
Our development activities may be more costly or difficult to complete than we anticipate.
We intend to continue to develop self-storage properties where market conditions warrant such investment. Once made, these investments may not produce results in accordance with our expectations. Risks associated with development and construction activities include:
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We depend on external sources of capital that are outside of our control; the unavailability of capital from external sources could adversely affect our ability to acquire or develop stores, satisfy our debt obligations and/or make distributions to shareholders.
We depend on external sources of capital to fund acquisitions and development, to satisfy our debt obligations and to make distributions to our shareholders required to maintain our status as a REIT, and these sources of capital may not be available on favorable terms, if at all. Our access to external sources of capital depends on a number of factors, including the market’s perception of our growth potential, our current and potential future earnings and our ability to continue to qualify as a REIT for federal income tax purposes. If we are unable to obtain external sources of capital, we may not be able to acquire or develop properties when strategic opportunities exist, satisfy our debt obligations, make distributions to shareholders that would permit us to qualify as a REIT or avoid paying tax on our REIT taxable income.
If we are unable to promptly re-let our cubes or if the rates upon such re-letting are significantly lower than expected, our business and results of operations would be adversely affected.
We derive revenues principally from rents received from customers who rent cubes at our self-storage properties under month-to-month leases. Any delay in re-letting cubes as vacancies arise would reduce our revenues and harm our operating results. In addition, lower than expected rental rates upon re-letting could adversely affect our revenues and impede our growth.
Store ownership through joint ventures may limit our ability to act exclusively in our interest.
We co-invest with, and we may continue to co-invest with, third parties through joint ventures. In any such joint venture, we may not be in a position to exercise sole decision-making authority regarding the stores owned through joint ventures. Investments in joint ventures may, under certain circumstances, involve risks not present when a third party is not involved, including the possibility that joint venture partners might become bankrupt or fail to fund their share of required capital contributions. Joint venture partners may have business interests or goals that are inconsistent with our business interests or goals and may be in a position to take actions contrary to our policies or objectives. Such investments also have the potential risk of impasse on strategic decisions, such as a sale, in cases where neither we nor the joint venture partner would have full control over the joint venture. In other circumstances, joint venture partners may have the ability without our agreement to make certain major decisions, including decisions about sales, capital expenditures, and/or financing. Any disputes that may arise between us and our joint venture partners could result in litigation or arbitration that could increase our expenses and distract our officers and/or Trustees from focusing their time and effort on our business. In addition, we might in certain circumstances be liable for the actions of our joint venture partners, and the activities of a joint venture could adversely affect our ability to qualify as a REIT, even though we do not control the joint venture.
We face significant competition for customers and acquisition and development opportunities.
Actions by our competitors may decrease or prevent increases of the occupancy and rental rates of our stores. We compete with numerous developers, owners and operators of self-storage properties, including other REITs, as well as on-demand storage providers, some of which own or may in the future own stores similar to ours in the same submarkets in which our stores are located and some of which may have greater capital resources. In addition, due to the relatively low cost of each individual self-storage property, other developers, owners and operators have the capability to build additional stores that may compete with our stores.
If our competitors build new stores that compete with our stores or offer space at rental rates below the rental rates we currently charge our customers, we may lose potential customers, and we may be pressured to reduce our rental rates below those we currently charge in order to retain customers when our customers’ leases expire. As a result, our financial condition, cash flow, cash available for distribution, market price of our shares and ability to satisfy our debt service obligations could be materially adversely affected. In addition, increased competition for customers may require us to make capital improvements to our stores that we would not have otherwise made. Any unbudgeted capital improvements we undertake may reduce cash available for distributions to our shareholders.
We also face significant competition for acquisitions and development opportunities. Some of our competitors have greater financial resources than we do and a greater ability to borrow funds to acquire stores. These competitors may also be willing to accept more risk than we can prudently manage, including risks with respect to the geographic proximity of investments and the payment of higher acquisition prices. This competition for investments may reduce the number of suitable investment opportunities available to us, may increase acquisition costs and may reduce demand for self-storage space in certain areas where our stores are located and, as a result, adversely affect our operating results.
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Potential losses may not be covered by insurance.
We carry comprehensive liability, fire, casualty, extended coverage and rental loss insurance covering all of the properties in our portfolio. We also carry environmental insurance coverage on certain stores in our portfolio. We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice. We do not carry insurance for losses such as loss from riots, war or acts of God, and, in some cases, flood and environmental hazards, because such coverage is either not available or is not available at commercially reasonable rates. Some of our policies, such as those covering losses due to terrorism, hurricanes, floods and earthquakes, are insured subject to limitations involving large deductibles or co-payments and policy limits that may not be sufficient to cover losses. If we experience a loss at a store that is uninsured or that exceeds policy limits, we could lose the capital invested in that store as well as the anticipated future cash flows from that store. Inflation, changes in building codes and ordinances, environmental considerations and other factors also might make it impractical or undesirable to use insurance proceeds to replace a store after it has been damaged or destroyed. In addition, if the damaged stores are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these stores were irreparably damaged.
Additionally, we use a combination of insurance products, some of which include deductibles and self-insured retention amounts, to provide risk mitigation for potential liabilities associated with automobiles, workers’ compensation, employment practices, general contractors, cyber risks, crime, directors and officers, employee health-care benefits and personal injuries that might be sustained at our stores. Liabilities associated with the risks that are retained by us are estimated, in part, by considering historical claims experience and actuarial assumptions. Our results of operations could be materially impacted by claims and other expenses related to such insurance plans if future occurrences and claims differ from these assumptions and historical trends.
Our insurance coverage may not comply with certain loan requirements.
Certain of our stores serve as collateral for our mortgage-backed debt, some of which we assumed in connection with our acquisition of stores and requires us to maintain insurance, deductibles, retentions and other policy terms at levels that are not commercially reasonable in the current insurance environment. We may be unable to obtain required insurance coverage if the cost and/or availability make it impractical or impossible to comply with debt covenants. If we cannot comply with a lender’s requirements, the lender could declare a default, which could affect our ability to obtain future financing and have a material adverse effect on our results of operations and cash flows and our ability to obtain future financing. In addition, we may be required to self-insure against certain losses or our insurance costs may increase.
Potential liability for environmental contamination could result in substantial costs.
We are subject to federal, state and local environmental regulations that apply generally to the ownership of real property and the operation of self-storage properties. If we fail to comply with those laws, we could be subject to significant fines or other governmental sanctions.
Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at a property and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by such parties in connection with contamination. Such liability may be imposed whether or not the owner or operator knew of, or was responsible for, the presence of these hazardous or toxic substances. The cost of investigation, remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to properly remediate such substances, may adversely affect our ability to sell or rent such property or to borrow using such property as collateral. In addition, in connection with the ownership, operation and management of properties, we are potentially liable for property damage or injuries to persons and property.
Our practice is to conduct or obtain environmental assessments in connection with the acquisition or development of additional stores. We carry environmental insurance coverage on certain stores in our portfolio. We obtain or examine environmental assessments from qualified and reputable environmental consulting firms (and intend to conduct such assessments prior to the acquisition or development of additional stores). The environmental assessments received to date have not revealed, nor do we have actual knowledge of, any environmental liability that we believe will have a material adverse effect on us. However, we cannot assure that our environmental assessments have identified or will identify all material environmental conditions, that any prior owner of any property did not create a material environmental condition not actually known to us, that environmental conditions on neighboring properties will not have an impact on any of our properties, or that a material environmental condition does not otherwise exist with respect to any of our properties.
Americans with Disabilities Act and applicable state accessibility act compliance may require unanticipated expenditures.
Under the ADA, all places of public accommodation are required to meet federal requirements related to access and use by disabled persons. A number of other federal, state and local laws may also impose access and other similar requirements at our properties or websites. A failure to comply with the ADA or similar state or local requirements could result in the governmental imposition of fines or the award of damages to private litigants affected by the noncompliance. Although we believe that our properties and websites comply in all material respects with these requirements (or would be eligible for applicable exemptions from material requirements because of adaptive assistance provided), a determination that one or more of our properties or websites is not in compliance with the ADA or similar state or local requirements would result in the incurrence of additional costs associated with bringing the properties or websites into compliance. If we are required to make substantial modifications to comply with the ADA or similar state or local requirements, we may be required to incur significant unanticipated expenditures, which could have an adverse effect on our operating costs and our ability to make distributions to our shareholders.
We face system security risks as we depend upon automated processes and the internet, which could damage our reputation, cause us to incur substantial additional costs and become subject to litigation if our systems or processes are penetrated.
We are increasingly dependent upon automated information technology processes and internet commerce, and many of our new customers come from the telephone or over the internet. Moreover, the nature of our business involves the receipt and retention of personal information about our customers. We also rely extensively on third-party vendors to retain data, process transactions and provide other systems and services. These systems, and our systems, are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, malware and other destructive or disruptive security breaches and catastrophic events, such as a natural disaster or a terrorist event or cyber-attack. In addition, experienced computer programmers and hackers may be able to penetrate our security systems and misappropriate our confidential information, create system disruptions or cause shutdowns. Such data security breaches as well as system disruptions and shutdowns could result in additional costs to repair or replace such networks or information systems and possible legal liability, including government enforcement actions and private litigation. In addition, our customers could lose confidence in our ability to protect their personal information, which could cause them to discontinue leasing at our stores.
If we are unable to attract and retain team members or contract with third parties having the specialized skills or technologies needed to support our systems, implement improvements to our customer-facing technology in a timely manner, allow accurate visibility to product availability when customers are ready to rent, quickly and efficiently fulfill our customers rental and payment methods they demand or provide a convenient and consistent experience for our customers regardless of the ultimate sales channel, our ability to compete and our results of operations could be adversely affected.
Risks Related to the Real Estate Industry
Our performance and the value of our self-storage properties are subject to risks associated with our properties and with the real estate industry.
Our rental revenues, operating costs and the value of our real estate assets, and consequently the value of our securities, are subject to the risk that if our stores do not generate revenues sufficient to meet our operating expenses, including debt service and capital expenditures, our cash flow and ability to pay distributions to our shareholders will be adversely affected. Events or conditions beyond our control that may adversely affect our operations or the value of our properties include but are not limited to:
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In addition, prolonged periods of economic slowdown or recession, rising interest rates, declining demand for self-storage or the public perception that any of these events may occur, could result in a general decline in rental revenues, which could impair our ability to satisfy our debt service obligations and to make distributions to our shareholders.
Rental revenues are significantly influenced by demand for self-storage space generally, and a decrease in such demand would likely have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio.
Because our real estate portfolio consists primarily of self-storage properties, we are subject to risks inherent in investments in a single industry. A decrease in the demand for self-storage space would have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio. Demand for self-storage space could be adversely affected by weakness in the national, regional and local economies, changes in supply of, or demand for, similar or competing self-storage properties in an area and the excess amount of self-storage space in a particular market. To the extent that any of these conditions occur, they are likely to affect market rents for self-storage space, which could cause a decrease in our rental revenue. Any such decrease could impair our ability to satisfy debt service obligations and make distributions to our shareholders.
Because real estate is illiquid, we may not be able to sell properties when appropriate.
Real estate property investments generally cannot be sold quickly. Also, the tax laws applicable to REITs require that we hold our properties for investment, rather than for sale in the ordinary course of business, which may cause us to forgo or defer sales of properties that otherwise would be in our best interest. Therefore, we may not be able to dispose of properties promptly, or on favorable terms, in response to economic or other market conditions, which may adversely affect our financial position.
Risks Related to our Qualification and Operation as a REIT
Failure to qualify as a REIT would subject us to U.S. federal income tax which would reduce the cash available for distribution to our shareholders.
We operate our business to qualify to be taxed as a REIT for federal income tax purposes. We have not requested and do not plan to request a ruling from the IRS that we qualify as a REIT, and the statements in this Report are not binding on the IRS or any court. As a REIT, we generally will not be subject to federal income tax on the income that we distribute currently to our shareholders. Many of the REIT requirements, however, are highly technical and complex. The determination that we are a REIT requires an analysis of various factual matters and circumstances that may not be totally within our control. For example, to qualify as a REIT, at least 95% of our gross income must come from specific passive sources, such as rent, that are itemized in the REIT tax laws. In addition, to qualify as a REIT, we cannot own specified amounts of debt and equity securities of some issuers. We also are required to distribute to our shareholders with respect to each year at least 90% of our REIT taxable income, excluding net capital gains. The fact that we hold substantially all of our assets through the Operating Partnership and its subsidiaries and joint ventures further complicates the application of the REIT requirements for us. Even a technical or inadvertent mistake could jeopardize our REIT status, and, given the highly complex nature of the rules governing REITs and the ongoing importance of factual determinations, we cannot provide any assurance that we will continue to qualify as a REIT. Changes to rules governing REITs were made by legislation commonly known as the Tax Cuts and Jobs Act (the “TCJA”) and the Protecting Americans From Tax Hikes Act of 2015, signed into law on December 22, 2017 and December 18, 2015, respectively, and Congress and the IRS might make further changes to the tax laws and regulations, and the courts might issue new rulings that make it more difficult, or impossible, for us to remain qualified as a REIT. If we fail to qualify as a REIT for federal income tax purposes and are able to avail ourselves of one or more of the statutory savings provisions in order to maintain our REIT status, we would nevertheless be required to pay penalty taxes of $50,000 or more for each such failure.
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If we fail to qualify as a REIT for federal income tax purposes, and are unable to avail ourselves of certain savings provisions set forth in the Internal Revenue Code, we would be subject to federal income tax at regular corporate rates on all of our income. As a taxable corporation, we would not be allowed to take a deduction for distributions to shareholders in computing our taxable income or pass through long-term capital gains to individual shareholders at favorable rates. We also could be subject to increased state and local taxes. We would not be able to elect to be taxed as a REIT for four years following the year we first failed to qualify unless the IRS were to grant us relief under certain statutory provisions. If we failed to qualify as a REIT, we would have to pay significant income taxes, which would reduce our net earnings available for investment or distribution to our shareholders. This likely would have a significant adverse effect on our earnings and likely would adversely affect the value of our securities. In addition, we would no longer be required to pay any distributions to shareholders.
Furthermore, we owned a subsidiary REIT (“PSI”) that was liquidated on December 31, 2018. Prior to liquidation, PSI was independently subject to, and was required to comply with, the same REIT requirements that we must satisfy in order to qualify as a REIT, together with all other rules applicable to REITs. If PSI failed to qualify as a REIT during our period of ownership, and certain statutory relief provisions do not apply, as a result of a protective election made jointly by PSI and CubeSmart, PSI should be taxed as a taxable REIT subsidiary. See the section entitled “Taxation of CubeSmart−Requirements for Qualification−Taxable REIT Subsidiaries” in Exhibit 99.1 for more information regarding taxable REIT subsidiaries.
Failure of the Operating Partnership (or a subsidiary partnership or joint venture) to be treated as a partnership would have serious adverse consequences to our shareholders.
If the IRS were to successfully challenge the tax status of the Operating Partnership or any of its subsidiary partnerships or joint ventures for federal income tax purposes, the Operating Partnership or the affected subsidiary partnership or joint venture would be taxable as a corporation. In such event, we would cease to qualify as a REIT and the imposition of a corporate tax on the Operating Partnership, a subsidiary partnership or joint venture would reduce the amount of cash available for distribution from the Operating Partnership to us and ultimately to our shareholders.
To maintain our REIT status, we may be forced to borrow funds on a short-term basis during unfavorable market conditions.
As a REIT, we are subject to certain distribution requirements, including the requirement to distribute 90% of our REIT taxable income, excluding net capital gains, which may result in our having to make distributions at a disadvantageous time or to borrow funds at unfavorable rates. Compliance with this requirement may hinder our ability to operate solely on the basis of maximizing profits.
We will pay some taxes even if we qualify as a REIT, which will reduce the cash available for distribution to our shareholders.
Even if we qualify as a REIT for federal income tax purposes, we will be required to pay certain federal, state and local taxes on our income and property. For example, we will be subject to income tax to the extent we distribute less than 100% of our REIT taxable income, including capital gains. Additionally, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which dividends paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The determination as to whether a particular sale is a prohibited transaction depends on the facts and circumstances related to that sale. We cannot guarantee that sales of our properties would not be prohibited transactions unless we comply with certain statutory safe-harbor provisions.
In addition, any net taxable income earned directly by our taxable REIT subsidiaries, or through entities that are disregarded for federal income tax purposes as entities separate from our taxable REIT subsidiaries, will be subject to federal and possibly state corporate income tax. We have elected to treat some of our subsidiaries as taxable REIT subsidiaries, and we may elect to treat other subsidiaries as taxable REIT subsidiaries in the future. In this regard, several provisions of the laws applicable to REITs and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation. For example, a taxable REIT subsidiary is limited in its ability to deduct certain interest payments made to an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on some deductions taken by a taxable REIT subsidiary if the economic arrangements between the REIT, the REIT’s customers, and the taxable REIT subsidiary are not comparable to similar arrangements between unrelated parties. Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to federal income tax on that income because not all states and localities follow the federal income tax treatment of REITs. To the extent that we and our affiliates are required to pay federal, state and local taxes, we will have less cash available for distributions to our shareholders.
We face possible federal, state and local tax audits.
Because we are organized and qualify as a REIT, we are generally not subject to federal income taxes, but are subject to certain state and local taxes. Certain entities through which we own real estate either have undergone, or are currently undergoing, tax audits. Although we believe that we have substantial arguments in favor of our positions in the ongoing audits, in some instances there is no controlling precedent or interpretive guidance on the specific point at issue. Collectively, tax deficiency notices received to date from the jurisdictions conducting the ongoing audits have not been material. However, there can be no assurance that future audits will not occur with increased frequency or that the ultimate result of such audits will not have a material adverse effect on our results of operations.
Legislative or regulatory tax changes related to REITs could materially and adversely affect our business.
At any time, the federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be changed, possibly with retroactive effect. We cannot predict if or when any new federal income tax law, regulation or administrative interpretation, or any amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective or whether any such law, regulation or interpretation may take effect retroactively. We and our shareholders could be adversely affected by any such change in, or any new, federal income tax law, regulation or administrative interpretation.
For example, the TCJA made significant changes to the U.S. federal income tax rules for taxation of individuals and corporations, generally effective for taxable years beginning after December 31, 2017. In addition to reducing corporate and non-corporate tax rates, the TCJA eliminated or restricted various deductions. One such deduction limitation was a general limitation of the deduction for net business interest expense in excess of 30% (50% for non-partnership entities for their 2019 and 2020 taxable years and for partnerships for their 2020 taxable years under the Coronavirus Aid, Relief and Economic Security Act of 2020) of a business’s “adjusted taxable income,” except for taxpayers that engage in certain real estate businesses and elect out of this rule (provided that such electing taxpayers must use an alternative depreciation system with longer depreciation periods). Most of the changes applicable to individuals were temporary and apply only to taxable years beginning after December 31, 2017 and before January 1, 2026. The TCJA made numerous large and small changes to the tax rules that do not affect the REIT qualification rules directly but may otherwise affect us or our shareholders.
Shareholders are urged to consult with their tax advisors with respect to the status of the TCJA and any other regulatory or administrative developments and proposals and their potential effect on investment in our capital stock.
Dividends paid by REITs do not qualify for the reduced tax rates provided under current law.
Dividends paid by REITs are generally not eligible for the reduced 15% maximum tax rate for dividends paid to individuals (20% for those with taxable income above certain thresholds that are adjusted annually under current law). The more favorable rates applicable to regular corporate dividends could cause shareholders who are individuals to perceive investments in REITs to be relatively less attractive than investments in the stock of non-REIT corporations that pay dividends to which more favorable rates apply, which could reduce the value of REIT stocks.
Legislation modifies the rules applicable to partnership tax audits.
The Bipartisan Budget Act of 2015 requires our Operating Partnership and any subsidiary partnership to pay the hypothetical increase in partner-level taxes (including interest and penalties) resulting from an adjustment of partnership tax items on audit or in other tax proceedings, unless the partnership elects an alternative method under which the taxes resulting from the adjustment (and interest and penalties) are assessed at the partner level. Uncertainties remain as to the application of these rules, including the application of the alternative method to partners that are REITs, and the impact they will have on us. However, it is possible that partnerships in which we invest may be subject to U.S. federal income tax, interest and penalties in the event of a U.S. federal income tax audit as a result of these law changes.
Risks Related to our Debt Financings
We face risks related to current debt maturities, including refinancing risk.
Certain of our mortgages, bank loans and unsecured debt (including our senior notes) will have significant outstanding balances on their maturity dates, commonly known as “balloon payments.” We may not have the cash resources available to repay those amounts, and we may have to raise funds for such repayment either through the issuance of equity or debt securities, additional bank borrowings (which may include extension of maturity dates), joint ventures or asset sales. Furthermore, we are restricted from incurring certain additional
22
indebtedness and making certain other changes to our capital and debt structure under the terms of the senior notes and the indenture governing the senior notes.
There can be no assurance that we will be able to refinance our debt on favorable terms or at all. To the extent we cannot refinance debt on favorable terms or at all, we may be forced to dispose of properties on disadvantageous terms or pay higher interest rates, either of which would have an adverse impact on our financial performance and ability to pay dividends to our shareholders.
As a result of our interest rate hedges, swap agreements and other, similar arrangements, we face counterparty risks.
We may be exposed to the potential risk of counterparty default or non-payment with respect to interest rate hedges, swap agreements, floors, caps and other interest rate hedging contracts that we may enter into from time to time, in which event we could suffer a material loss on the value of those agreements. Although these agreements may lessen the impact of rising interest rates on us, they also expose us to the risk that other parties to the agreements will not perform or that we cannot enforce the agreements. There is no assurance that our potential counterparties on these agreements will perform their obligations under such agreements.
Financing our future growth plan or refinancing existing debt maturities could be impacted by negative capital market conditions.
From time to time, domestic financial markets experience volatility and uncertainty. At times in recent years liquidity has tightened in the domestic financial markets, including the investment grade debt and equity capital markets from which we historically sought financing. Consequently, there is greater uncertainty regarding our ability to access the credit markets in order to attract financing on reasonable terms; there can be no assurance that we will be able to continue to issue common or preferred equity securities at a reasonable price. Our ability to finance new acquisitions and refinance future debt maturities could be adversely impacted by our inability to secure permanent financing on reasonable terms, if at all.
The terms and covenants relating to our indebtedness could adversely impact our economic performance.
Like other real estate companies that incur debt, we are subject to risks associated with debt financing, such as the insufficiency of cash flow to meet required debt service payment obligations and the inability to refinance outstanding indebtedness at maturity. If our debt cannot be paid, refinanced or extended at maturity, we may not be able to make distributions to shareholders at expected levels or at all and may not be able to acquire new stores. Failure to make distributions to our shareholders could result in our failure to qualify as a REIT for federal income tax purposes. Furthermore, an increase in our interest expense could adversely affect our cash flow and ability to make distributions to shareholders. If we do not meet our debt service obligations, any stores securing such indebtedness could be foreclosed on, which would have a material adverse effect on our cash flow and ability to make distributions and, depending on the number of stores foreclosed on, could threaten our continued viability.
Our Credit Facility (defined below) contains (and any new or amended facility we may enter into from time to time will likely contain) customary affirmative and negative covenants, including financial covenants that, among other things, require us to comply with certain liquidity and other tests. Our ability to borrow under the Credit Facility is (and any new or amended facility we may enter into from time to time will be) subject to compliance with such financial and other covenants. In the event that we fail to satisfy these covenants, we would be in default under the Credit Facility and may be required to repay such debt with capital from other sources. Under such circumstances, other sources of debt or equity capital may not be available to us, or may be available only on unattractive terms. Moreover, the presence of such covenants in our credit agreements could cause us to operate our business with a view toward compliance with such covenants, which might not produce optimal returns for shareholders. Similarly, the indenture under which we have issued unsecured senior notes contains customary financial covenants, including limitations on incurrence of additional indebtedness.
Increases in interest rates on variable-rate indebtedness would increase our interest expense, which could adversely affect our cash flow and ability to make distributions to shareholders. Rising interest rates could also restrict our ability to refinance existing debt when it matures. In addition, an increase in interest rates could decrease the amounts that third parties are willing to pay for our assets, thereby limiting our ability to alter our portfolio promptly in relation to economic or other conditions.
Our organizational documents contain no limitation on the amount of debt we may incur. As a result, we may become highly leveraged in the future.
Our organizational documents do not limit the amount of indebtedness that we may incur. We could alter the balance between our total outstanding indebtedness and the value of our assets at any time. If we become more highly leveraged, then the resulting increase in debt service could adversely affect our ability to make payments on our outstanding indebtedness and to pay our anticipated distributions and/or the distributions required to maintain our REIT status, and could harm our financial condition.
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Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect our financial results.
As of December 31, 2020, we did not have any outstanding debt that was indexed to the London Interbank Offered Rate (“LIBOR”) other than borrowings under our Revolver. On July 27, 2017, the Financial Conduct Authority (“FCA”), which regulates LIBOR, announced its intention to phase out LIBOR rates by the end of 2021. On November 30, 2020, the ICE Benchmark Administration Limited (“IBA”) announced that it is considering an 18-month extension (to June 30, 2023) on certain U.S. dollar LIBOR rates, including the rate that our Revolver is indexed to. It is not possible to predict the further effect of these announcements, any changes in the methods by which LIBOR is determined, or any other reforms to LIBOR that may be enacted in the United Kingdom, the European Union or elsewhere. Such developments may cause LIBOR to perform differently than in the past, or cease to exist. In addition, any other legal or regulatory changes made by the FCA, the IBA, the European Money Markets Institute (formerly Euribor-EBF), the European Commission or any other successor governance or oversight body, or future changes adopted by such body, in the method by which LIBOR is determined or the transition from LIBOR to a successor benchmark may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the publication of LIBOR, and changes in the rules or methodologies in LIBOR, which may discourage market participants from continuing to administer or to participate in LIBOR’s determination, and, in certain situations, could result in LIBOR no longer being determined and published. If a published U.S. dollar LIBOR rate becomes unavailable, the interest rates on our debt which is indexed to LIBOR will be determined using alternative methods, which may result in interest obligations which are more than or do not otherwise correlate over time with the payments that would have been made on such debt if U.S. dollar LIBOR was available in its current form. Further, the same costs and risks that may lead to the unavailability of U.S. dollar LIBOR may make one or more of the alternative methods impossible or impracticable to determine. Any of these proposals or consequences could have a material adverse effect on our financing costs, and as a result, our financial condition, operating results and cash flows.
Risks Related to our Organization and Structure
We are dependent upon our senior management team whose continued service is not guaranteed.
Our executive team, including our named executive officers, has extensive self-storage, real estate and public company experience. Our Chief Executive Officer, Chief Financial Officer, Chief Legal Officer and Chief Operating Officer are parties to the Company’s executive severance plan, however, we cannot provide assurance that any of them will remain in our employment. The loss of services of one or more members of our senior management team could adversely affect our operations and our future growth.
We are dependent upon our on-site personnel to maximize customer satisfaction; any difficulties we encounter in hiring, training and retaining skilled field personnel may adversely affect our rental revenues.
As of December 31, 2020, we had 2,654 property-level personnel involved in the management and operation of our stores. The customer service, marketing skills and knowledge of local market demand and competitive dynamics of our store managers are contributing factors to our ability to maximize our rental income and to achieve the highest sustainable rent levels at each of our stores. We compete with various other companies in attracting and retaining qualified and skilled personnel. Competitive pressures may require that we enhance our pay and benefits package to compete effectively for such personnel. If there is an increase in these costs or if we fail to attract and retain qualified and skilled personnel, our business and operating results could be adversely affected.
Certain provisions of Maryland law could inhibit changes in control, which may discourage third parties from conducting a tender offer or seeking other change of control transactions that could involve a premium price for our shares or otherwise benefit our shareholders.
Certain provisions of Maryland law may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the holders of our common shares with the opportunity to realize a premium over the then-prevailing market price of those shares, including:
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We have opted out of these provisions of Maryland law. However, our Board may opt to make these provisions applicable to us at any time without shareholder approval.
Our Trustees also have the discretion, granted in our bylaws and Maryland law, without shareholder approval to, among other things (1) create a staggered Board, (2) amend our bylaws or repeal individual bylaws in a manner that provides the Board with greater authority, and (3) issue additional equity securities. Any such action could inhibit or impede a third party from making a proposal to acquire us at a price that could be beneficial to our shareholders.
Our shareholders have limited control to prevent us from making any changes to our investment and financing policies.
Our Board has adopted policies with respect to certain activities. These policies may be amended or revised from time to time at the discretion of our Board without a vote of our shareholders. This means that our shareholders have limited control over changes in our policies. Such changes in our policies intended to improve, expand or diversify our business may not have the anticipated effects and consequently may adversely affect our business and prospects, results of operations and share price.
Our rights and the rights of our shareholders to take action against our Trustees and officers are limited.
Maryland law provides that a trustee or officer has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our declaration of trust and bylaws require us to indemnify our Trustees and officers for actions taken by them in those capacities on our behalf, to the extent permitted by Maryland law. Accordingly, in the event that actions taken in good faith by any Trustee or officer impede our performance, our shareholders’ ability to recover damages from that Trustee or officer will be limited.
Our declaration of trust permits our Board to issue preferred shares with terms that may discourage third parties from conducting a tender offer or seeking other change of control transactions that could involve a premium price for our shares or otherwise benefit our shareholders.
Our declaration of trust permits our Board to issue up to 40,000,000 preferred shares, having those preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications or terms or conditions of redemption as determined by our Board. In addition, our Board may reclassify any unissued common shares into one or more classes or series of preferred shares. Thus, our Board could authorize, without shareholder approval, the issuance of preferred shares with terms and conditions that could have the effect of discouraging a takeover or other transaction in which holders of some or a majority of our shares might receive a premium for their shares over the then-prevailing market price of our shares. We currently do not expect that the Board would require shareholder approval prior to such a preferred issuance. In addition, any preferred shares that we issue would rank senior to our common shares with respect to the payment of distributions, in which case we could not pay any distributions on our common shares until full distributions have been paid with respect to such preferred shares.
Risks Related to our Securities
Additional issuances of equity securities may be dilutive to shareholders.
The interests of our shareholders could be diluted if we issue additional equity securities to finance future acquisitions or developments or to repay indebtedness. Our Board may authorize the issuance of additional equity securities, including preferred shares, without shareholder approval. Our ability to execute our business strategy depends upon our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing, including common and preferred equity.
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Many factors could have an adverse effect on the market value of our securities.
A number of factors might adversely affect the price of our securities, many of which are beyond our control. These factors include:
The market value of our equity securities is based primarily upon the market’s perception of our growth potential and our current and potential future earnings and cash distributions. Consequently, our equity securities may trade at prices that are higher or lower than our net asset value per equity security. If our future earnings or cash distributions are less than expected, it is likely that the market price of our equity securities will diminish.
The market price of our common shares has been, and may continue to be, particularly volatile, and our shareholders may be unable to resell their shares at a profit.
The market price of our common shares has been subject to fluctuation and may continue to fluctuate or decline. Between January 1, 2018 and December 31, 2020, the closing price per share of our common shares has ranged from a high of $36.31 (on September 4, 2019) to a low of $20.85 (on March 23, 2020). In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. If our share price is volatile, we may become the target of securities litigation, which could result in substantial costs and divert our management’s attention and resources from our business.
General Risk Factors
Many states and local jurisdictions are facing severe budgetary problems which may have an adverse impact on our business and financial results.
Many states and jurisdictions are facing severe budgetary problems. Action that may be taken in response to these problems, such as increases in property taxes on commercial properties, changes to sales taxes or other governmental efforts, including mandating medical insurance, paid time off and severance payments for employees, could adversely impact our business and results of operations.
We may incur impairment charges.
We evaluate on a quarterly basis our real estate portfolio for indicators of impairment. Impairment charges reflect management’s judgment of the probability and severity of the decline in the value of real estate assets we own. These charges and provisions may be required in the future as a result of factors beyond our control, including, among other things, changes in the economic environment and market conditions affecting the value of real property assets or natural or man-made disasters. If we are required to take impairment charges, our results of operations will be adversely impacted.
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Rising operating expenses could reduce our cash flow and funds available for future distributions.
Our stores and any other stores we acquire or develop in the future are, and will be, subject to operating risks common to real estate in general, any or all of which may negatively affect us. Our stores are subject to increases in operating expenses such as real estate, sales and other taxes, personnel costs including mandated minimum hourly wage rates and the cost of providing specific medical coverage and governmental mandated benefits to our employees, utilities, customer acquisition costs, insurance, administrative expenses and costs for repairs and maintenance. If operating expenses increase without a corresponding increase in revenues, our profitability could diminish and limit our ability to make distributions to our shareholders.
We cannot assure our ability to pay dividends in the future.
Historically, we have paid quarterly distributions to our shareholders, and we intend to continue to pay quarterly dividends and to make distributions to our shareholders in amounts such that all or substantially all of our taxable income in each year, subject to certain adjustments, is distributed. This, along with other factors, should enable us to continue to qualify for the tax benefits accorded to a REIT under the Internal Revenue Code. We have not established a minimum dividends payment level, and all future distributions will be made at the discretion of our Board. Our ability to pay dividends will depend upon, among other factors:
Certain of these matters are beyond our control and any significant difference between our expectations and actual results could have a material adverse effect on our cash flow and our ability to make distributions to shareholders.
We may become subject to litigation or threatened litigation which may divert management’s time and attention, require us to pay damages and expenses or restrict the operation of our business.
We may become subject to disputes with commercial parties with whom we maintain relationships or other parties with whom we do business. Any such dispute could result in litigation between us and the other parties. Whether or not any dispute actually proceeds to litigation, we may be required to devote significant management time and attention to its successful resolution (through litigation, settlement or otherwise), which would detract from our management’s ability to focus on our business. Any such resolution could involve the payment of damages or expenses by us, which may be significant. In addition, any such resolution could involve our agreement with terms that restrict the operation of our business.
There are other commercial parties, at both a local and national level, that may assert that our use of our brand names and other intellectual property conflict with their rights to use brand names, internet domains and other intellectual property that they consider to be similar to ours. Any such commercial dispute and related resolution would involve all of the risks described above, including, in particular, our agreement to restrict the use of our brand name or other intellectual property.
We also could be sued for personal injuries and/or property damage occurring on our properties. We maintain liability insurance with limits that we believe are adequate to provide for the defense and/or payment of any damages arising from such lawsuits. There can be no assurance that such coverage will cover all costs and expenses from such suits.
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Legislative actions and changes may cause our general and administrative costs and compliance costs to increase.
In order to comply with laws adopted by federal, state or local government or regulatory bodies, we may be required to increase our expenditures and hire additional personnel and additional outside legal, accounting and advisory services, all of which may cause our general and administrative and compliance costs to increase. Significant workforce-related legislative changes could increase our expenses and adversely affect our operations. Examples of possible workforce-related legislative changes include changes to an employer's obligation to recognize collective bargaining units, the process by which collective bargaining agreements are negotiated or imposed, minimum wage requirements and health care and medical and family leave mandates. In addition, changes in the regulatory environment affecting health care reimbursements, and increased compliance costs related to enforcement of federal and state wage and hour statutes and common law related to overtime, among others, could cause our expenses to increase without an ability to pass through any increased expenses through higher prices.
Privacy concerns could result in regulatory changes that may harm our business.
Personal privacy has become a significant issue in the jurisdictions in which we operate. Many jurisdictions in which we operate, including California and New York, have imposed restrictions and requirements on the use of personal information by those collecting such information. The regulatory framework for privacy issues is rapidly evolving and future enactment of more restrictive laws, rules or regulations and/or future enforcement actions or investigations could have a materially adverse impact on us through increased costs or restrictions on our business. Failure to comply with such laws and regulations could result in consent orders or regulatory penalties and significant legal liability, including fines, which could damage our reputation and have an adverse effect on our results of operations or financial condition.
Terrorist attacks, active shooter incidents and other acts of violence or war may adversely impact our performance and may affect the markets on which our securities are traded.
Terrorist attacks at or against our stores, the United States or our interests, may negatively impact our operations and the value of our securities. Attacks, armed conflicts or active-shooter situations could negatively impact the demand for self-storage and increase the cost of insurance coverage for our stores, which could reduce our profitability and cash flow. Furthermore, any terrorist attacks, armed conflicts or active-shooter situations could result in increased volatility in or damage to the United States and worldwide financial markets and economy.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of December 31, 2020, we owned 543 self-storage properties that contain approximately 38.5 million rentable square feet and are located in 24 states and the District of Columbia. The following table sets forth summary information regarding our stores by state as of December 31, 2020.
Total
% of Total
Rentable
Ending
State
Units
Square Feet
Occupancy
Florida
89
64,517
6,757,664
17.5
%
93.3
Texas
69
41,623
4,907,408
12.7
92.4
New York
57
81,333
4,510,761
11.7
88.3
California
43
29,486
3,125,150
8.1
95.3
Illinois
42
25,240
2,695,892
7.0
93.8
Arizona
18,208
1,945,585
5.0
93.0
New Jersey
19,852
1,896,315
4.9
92.0
Maryland
15,042
1,487,626
3.9
92.7
Georgia
12,432
1,454,877
3.8
90.9
Ohio
11,091
1,290,303
3.3
Connecticut
10,744
1,193,152
3.1
94.5
Massachusetts
11,967
1,172,310
3.0
89.9
Virginia
8,819
867,440
2.3
90.8
North Carolina
6,666
760,223
2.0
91.9
Tennessee
5,650
755,515
91.0
Nevada
5,703
724,282
1.9
91.4
Colorado
6,024
697,377
1.8
94.3
Pennsylvania
6,321
624,356
1.6
South Carolina
3,881
432,389
1.1
Washington D.C.
5,292
409,500
92.9
Rhode Island
2,021
245,545
0.6
94.8
Utah
2,319
239,198
88.6
New Mexico
1,692
182,261
0.5
92.5
Minnesota
1,037
101,028
0.3
90.7
Indiana
579
67,600
0.2
Total/Weighted average
397,539
38,543,757
100.0
92.3
We have grown by adding stores to our portfolio through acquisitions and development. The tables set forth below show the average occupancy, annual rent per occupied square foot and total revenues for our stores owned as of December 31, 2020, and for each of the previous three years, grouped by the year during which we first owned or operated the store.
Stores by Year Acquired - Average Occupancy
Average Occupancy
Year Acquired (1)
# of Stores
2017 and earlier
480
33,720,992
91.6
992,334
78.4
66.1
56.7
2,023,024
83.1
74.2
1,807,407
72.3
All stores owned as of December 31, 2020
90.4
90.6
Stores by Year Acquired - Annual Rent Per Occupied Square Foot (2)
Rent per Square Foot
17.71
17.81
17.46
22.57
22.69
24.76
14.62
15.18
30.89
18.22
17.80
17.58
Stores by Year Acquired - Total Revenues (dollars in thousands)
Total Revenues
589,232
581,157
564,292
18,609
15,730
4,137
26,271
11,841
4,337
638,449
608,728
568,429
Unconsolidated Real Estate Ventures
As of December 31, 2020, we held common ownership interests ranging from 10% to 50% in four unconsolidated real estate ventures for an aggregate investment balance of $92.1 million. We formed interests in these real estate ventures with unaffiliated third parties to acquire, own and operate self-storage properties in select markets. As of December 31, 2020, these four unconsolidated real estate ventures owned 83 self-storage properties that contain an aggregate of approximately 5.8 million net rentable square feet. The self-storage properties owned by these four real estate ventures are managed by us and are located in Arizona (2), Connecticut (5), Florida (6), Georgia (10), Maryland (1), Massachusetts (6), Minnesota (1), North Carolina (1), Pennsylvania (1), Rhode Island (2), South Carolina (4), Texas (42) and Vermont (2).
On September 5, 2018, we invested $5.0 million in exchange for 100% of the Class A preferred units of Capital Storage Partners, LLC (“Capital Storage”), a newly formed venture that acquired 22 self-storage properties that contain an aggregate of approximately 1.7 million net rentable square feet. The stores owned by Capital Storage are located in Florida (4), Oklahoma (5) and Texas (13). The Class A preferred units earn an 11% cumulative dividend prior to any other distributions.
Each of these ventures has assets and liabilities that we do not consolidate in our financial statements.
We account for our investments in real estate ventures using the equity method when it is determined that we have the ability to exercise significant influence over the venture. See note 5 to the consolidated financial statements for further disclosure regarding the assets, liabilities and operating results of our unconsolidated real estate ventures which we account for using the equity method of accounting.
Capital Expenditures
We have a capital improvement program that includes office upgrades, adding climate control to select cubes, construction of parking areas and other store upgrades. For 2021, we anticipate spending approximately $10.5 million to $15.5 million associated with these capital expenditures. For 2021, we also anticipate spending approximately $11.0 million to $16.0 million on recurring capital expenditures and approximately $34.0 million to $49.0 million on the development of new self-storage properties.
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ITEM 3. LEGAL PROCEEDINGS
To our knowledge, 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.
ITEM 4. MINING SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Repurchase of Parent Company Common Shares
The following table provides information about repurchases of the Parent Company’s common shares during the three months ended December 31, 2020:
TotalNumber ofShares Purchased (1)
AveragePrice PaidPer Share
TotalNumber ofSharesPurchasedas Part ofPubliclyAnnouncedPlans or Programs
MaximumNumber ofShares thatMay Yet BePurchasedUnder thePlans orPrograms
October 1 - October 31
390
33.17
N/A
3,000,000
November 1 - November 30
154
33.80
December 1 - December 31
78
33.08
622
33.31
On September 27, 2007, the Parent Company announced that the Board of Trustees approved a share repurchase program for up to 3.0 million of the Parent Company’s outstanding common shares. Unless terminated earlier by resolution of the Board of Trustees, the program will expire when the number of authorized shares has been repurchased. The Parent Company has made no repurchases under this program to date.
Market Information for and Holders of Record of Common Shares
As of December 31, 2020, there were 148 registered record holders of the Parent Company’s common shares and 20 holders (other than the Parent Company) of the Operating Partnership’s common units. These amounts do not include common shares held by brokers and other institutions on behalf of shareholders. The Parent Company’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol CUBE. There is no established trading market for units of the Operating Partnership.
Since our initial quarter as a publicly-traded REIT, we have made regular quarterly distributions to our shareholders. Distributions to shareholders are usually taxable as ordinary income, although a portion of the distribution may be designated as a capital gain or may constitute a tax-free return of capital. Annually, we provide each of the Parent Company’s common shareholders a statement detailing the tax characterization of dividends paid during the preceding year as ordinary income, capital gain or return of capital. The characterization of the Parent Company’s dividends for 2020 consisted of a 74.174% ordinary income distribution, a 2.138% capital gain distribution and a 23.688% return of capital distribution from earnings and profits.
We intend to continue to declare quarterly distributions. However, we cannot provide any assurance as to the amount or timing of future distributions.
To the extent that we make distributions in excess of our earnings and profits, as computed for federal income tax purposes, these distributions will represent a return of capital, rather than a dividend, for federal income tax purposes. Distributions that are treated as a return of capital for federal income tax purposes generally will not be taxable as a dividend to a U.S. shareholder, but will reduce the shareholder’s basis in its shares (but not below zero) and therefore can result in the shareholder having a higher gain upon a subsequent sale of such shares. Return of capital distributions in excess of a shareholder’s basis generally will be treated as gain from the sale of such shares for federal income tax purposes.
Recent Sales of Unregistered Equity Securities and Use of Proceeds
Recent Sales of Operating Partnership Unregistered Equity Securities
On October 21, 2020, the Operating Partnership entered into an agreement to acquire a portfolio of eight open and operating self-storage properties located in the outer boroughs of New York City for an aggregate purchase price of approximately $540.0 million, and agreed to fund a portion of the acquisition price in the form of common units, designated Class B Units at the time of issuance. In two separate tranches during December 2020, the Operating Partnership closed on the acquisition and funded approximately $175.1 million of the acquisition price through the issuance of 5,272,023 common units. Following a 13-month lock-up period, the holders may tender the common units for redemption by the Operating Partnership for a cash amount per common unit equal to the market value of an equivalent number of common shares of the Company. The Company has the right, but not the obligation, to assume and satisfy the redemption obligation of the Operating Partnership by issuing one common share in exchange for each common unit tendered for redemption. The common units were sold to accredited investors unaffiliated with the Company in private placement transactions exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) of such Act.
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Share Performance Graph
The SEC requires us to present a chart comparing the cumulative total shareholder return, assuming reinvestment of dividends, on our common shares with the cumulative total shareholder return of (i) a broad equity index and (ii) a published industry or peer group index. The following chart compares the yearly cumulative total shareholder return for our common shares with the cumulative shareholder return of companies on (i) the S&P 500 Index, (ii) the Russell 2000 Index and (iii) the NAREIT All Equity REIT Index as provided by NAREIT for the period beginning December 31, 2015 and ending December 31, 2020.
For the year ended December 31,
Index
2015
2016
2017
100.00
90.16
101.62
105.06
119.87
133.82
S&P 500 Index
111.96
136.40
130.42
171.49
203.04
Russell 2000 Index
121.31
139.08
123.76
155.35
186.36
NAREIT All Equity REIT Index
108.63
118.05
113.28
145.75
138.28
ITEM 6. SELECTED FINANCIAL DATA
Reserved.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Report. Some of the statements we make in this section are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this Report entitled “Forward-Looking Statements”. Certain risk factors may cause actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see the section in this Report entitled “Risk Factors”.
We are an integrated self-storage real estate company, and as such we have in-house capabilities in the operation, design, development, leasing, management and acquisition of self-storage properties. The Parent Company’s operations are conducted solely through the Operating Partnership and its subsidiaries. The Parent Company has elected to be taxed as a REIT for U.S. federal income tax purposes. As of December 31, 2020 and December 31, 2019, we owned 543 self-storage properties totaling approximately 38.5 million rentable square feet and 523 self-storage properties totaling approximately 36.6 million rentable square feet, respectively. As of December 31, 2020, 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 December 31, 2020, we managed 723 stores for third parties (including 105 stores containing an aggregate of approximately 7.5 million net rentable square feet as part of five separate unconsolidated real estate ventures), bringing the total number of stores we owned and/or managed to 1,266. As of December 31, 2020, we managed stores for third parties in the District of Columbia and the following 38 states: Alabama, Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, 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 maximize revenues by managing rental rates and occupancy levels.
We typically experience seasonal fluctuations in the occupancy levels of our stores, which are generally slightly higher during the summer months due to increased moving activity.
Our results of operations may be sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending and moving trends, as well as to increased bad debts due to recessionary pressures. Adverse economic conditions affecting disposable consumer income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs, and other matters could reduce consumer spending or cause consumers to shift their spending to other products and services. A general reduction in the level of discretionary spending or shifts in consumer discretionary spending could adversely affect our growth and profitability.
We continue our focus on maximizing internal growth opportunities and selectively pursuing targeted acquisitions and developments of self-storage properties.
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, Texas and California provided approximately 16%, 15%, 9%, and 8%, respectively, of total revenues for the year ended December 31, 2020.
Summary of Critical Accounting Policies and Estimates
Set forth below is a summary of the accounting policies and estimates that management believes are critical to the preparation of the consolidated financial statements included in this Report. Certain of the accounting policies used in the preparation of these consolidated financial statements are particularly important for an understanding of the financial position and results of operations presented in the
historical consolidated financial statements included in this Report. A summary of significant accounting policies is also provided in the notes to our consolidated financial statements (see note 2 to the consolidated financial statements). These policies require the application of judgment and assumptions by management and, as a result, are subject to a degree of uncertainty. Due to this uncertainty, actual results could differ materially from estimates calculated and utilized by management.
Basis of Presentation
The accompanying consolidated financial statements include all of the accounts of the Company, and its majority-owned and/or controlled subsidiaries. The portion of these entities not owned by the Company is presented as noncontrolling interests as of and during the periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation.
When the Company obtains an economic interest in an entity, the Company evaluates the entity to determine if the entity is deemed a variable interest entity (“VIE”) and if the Company is deemed to be the primary beneficiary, in accordance with authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) on the consolidation of VIEs. When an entity is not deemed to be a VIE, the Company considers the provisions of additional FASB guidance to determine whether a general partner, or the general partners as a group, control a limited partnership or similar entity when the limited partners have certain rights. The Company consolidates (i) entities that are VIEs and of which the Company is deemed to be the primary beneficiary and (ii) entities that are non-VIEs which the Company controls and in which the limited partners do not have substantive participating rights, or the ability to dissolve the entity or remove the Company without cause.
Self-Storage Properties
The Company records self-storage properties at cost less accumulated depreciation. Depreciation on the buildings, improvements 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.
In allocating the purchase price for an acquisition, the Company determines whether the acquisition includes intangible assets or liabilities. The Company allocates a portion of the purchase price to an intangible asset attributable to the value of in-place leases. This intangible asset is generally amortized to expense over the expected remaining term of the respective leases. Substantially all of the leases in place at acquired stores are at market rates, as the majority of the leases are month-to-month contracts. Accordingly, to date, no portion of the purchase price has been allocated to above- or below-market lease intangibles 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 recorded for the value of customer relationships because the Company does not have any concentrations of significant customers and the average customer turnover is fairly frequent.
Long-lived assets classified as “held for use” are reviewed for impairment when events and circumstances such as declines in occupancy and operating results indicate that there may be an impairment. The carrying value of these long-lived assets is compared to the undiscounted future net operating cash flows, plus a terminal value, attributable to the assets to determine if the store’s basis is recoverable. If a store’s basis is not considered recoverable, an impairment loss is recorded to the extent the net carrying value of the asset exceeds the fair value. The impairment loss recognized equals the excess of net carrying value over the related fair value of the asset. There were no impairment losses recognized in accordance with these procedures during the years ended December 31, 2020, 2019 and 2018.
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.
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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 and are not depreciated. There were no stores classified as held for sale as of December 31, 2020.
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) and cash contributions, less cash distributions and impairments. On a periodic basis, management also assesses whether there are any indicators that the carrying value of the Company’s investments in unconsolidated real estate entities may be other than temporarily impaired. An investment is impaired only if the fair value of the investment, as estimated by management, is less than the carrying value of the investment and the decline is other than temporary. To the extent impairment that is other than temporary has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the fair value of the investment, as estimated by management. Fair value is determined through various valuation techniques, including but not limited to, discounted cash flow models, quoted market values and third-party appraisals. There were no impairment losses related to the Company’s investments in unconsolidated real estate ventures recognized during the years ended December 31, 2020, 2019 and 2018.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements affecting our business, see note 2 to the consolidated financial statements.
Results of Operations
The following discussion of our results of operations should be read in conjunction with the consolidated financial statements and the accompanying notes thereto. Historical results set forth in the consolidated statements of operations reflect only the existing stores for each period presented and should not be taken as indicative of future operations. We consider our same-store portfolio to consist of only those stores owned and operated on a stabilized basis at the beginning and at the end of the applicable years presented. We consider a store to be stabilized once it has achieved an occupancy rate that we believe, based on our assessment of market-specific data, is representative of similar self-storage assets in the applicable market for a full year measured as of the most recent January 1 and has not been significantly damaged by natural disaster or undergone significant renovation. We believe that same-store results are useful to investors in evaluating our performance because they provide information relating to changes in store-level operating performance without taking into account the effects of acquisitions, developments or dispositions. As of December 31, 2020, we owned 475 same-store properties and 68 non same-store properties. All of the non same-store properties were 2019 and 2020 acquisitions, dispositions, developed stores, stores with a significant portion of net rentable square footage taken out of service or stores that have not yet reached stabilization as defined above. For analytical presentation, all percentages are calculated using the numbers presented in the financial statements contained in this Report.
The comparability of our results of operations is affected by the timing of acquisition and disposition activities during the periods reported. As of December 31, 2020, 2019 and 2018, we owned 543, 523 and 493 self-storage properties and related assets, respectively.
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The following table summarizes the change in number of owned stores from January 1, 2018 through December 31, 2020:
Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019 (dollars in thousands)
Non Same-Store
Other/
Same-Store Property Portfolio
Eliminations
Total Portfolio
Change
REVENUES:
Rental income
529,053
522,477
6,576
1.3
51,956
29,927
581,009
552,404
28,605
5.2
Other property related income
52,234
54,470
(2,236)
(4.1)
6,161
3,800
12,328
9,288
70,723
67,558
3,165
4.7
Property management fee income
0.0
27,445
23,953
3,492
14.6
Total revenues
581,287
576,947
4,340
0.8
58,117
33,727
39,773
33,241
679,177
643,915
35,262
5.5
OPERATING EXPENSES:
Property operating expenses
173,585
169,540
4,045
2.4
20,955
14,506
29,094
25,693
223,634
209,739
13,895
6.6
NET OPERATING INCOME:
407,702
407,407
295
0.1
37,162
19,221
10,679
7,548
455,543
434,176
21,367
Store count
475
68
48
Total square footage
33,196
5,348
3,408
38,544
36,604
Period end occupancy (1)
93.4
91.2
85.3
73.5
89.5
Period average occupancy (2)
93.2
92.2
Realized annual rent per occupied sq. ft. (3)
17.10
17.07
Depreciation and amortization
156,573
163,547
(6,974)
(4.3)
General and administrative
41,423
38,560
2,863
7.4
Subtotal
197,996
202,107
(4,111)
(2.0)
OTHER (EXPENSE) INCOME
Interest:
Interest expense on loans
(75,890)
(72,525)
(3,365)
(4.6)
Loan procurement amortization expense
(2,674)
(2,819)
145
5.1
Loss on early extinguishment of debt
(18,020)
Equity in earnings of real estate ventures
178
11,122
(10,944)
(98.4)
Gains from sale of real estate, net
6,710
1,508
5,202
345.0
Other
(240)
1,416
(1,656)
(116.9)
Total other expense
(89,936)
(61,298)
(28,638)
(46.7)
NET INCOME
167,611
170,771
(3,160)
(1.9)
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Noncontrolling interests in the Operating Partnership
(1,825)
(1,708)
(117)
(6.9)
Noncontrolling interests in subsidiaries
(165)
54
(219)
(405.6)
NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS
165,621
169,117
(3,496)
(2.1)
Revenues
Rental income increased from $552.4 million in 2019 to $581.0 million in 2020, an increase of $28.6 million, or 5.2%. The $6.6 million increase in same-store rental income was due primarily to a 1.0% increase in average occupancy for 2020 compared to 2019. The
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remaining increase was primarily attributable to $22.0 million of additional rental income from the stores acquired or opened in 2019 and 2020 included in our non same-store portfolio.
Other property related income increased from $67.6 million in 2019 to $70.7 million in 2020, an increase of $3.2 million, or 4.7%. The $2.2 million decrease in same-store other property related income was mainly attributable to a decrease in fee revenue due to the impact of COVID-19. This decrease was offset by a $2.4 million increase in other property related income derived from the stores acquired or opened in 2019 and 2020 included in our non same-store portfolio as well as a $3.0 million increase in other property related income at our managed stores due to an increase in stores under management (723 stores as of December 31, 2020 compared to 649 stores as of December 31, 2019).
Property management fee income increased from $24.0 million in 2019 to $27.4 million in 2020, an increase of $3.5 million, or 14.6%. This increase was attributable to an increase in management fees related to the third-party management business resulting from the increase in stores under management described above.
Operating Expenses
Property operating expenses increased from $209.7 million in 2019 to $223.6 million in 2020, an increase of $13.9 million, or 6.6%. The $4.0 million increase in property operating expenses on the same-store portfolio was primarily due to increases in property taxes and advertising costs of $2.1 million and $3.8 million, respectively, offset by decreases in personnel and maintenance costs of $1.6 million and $0.4 million, respectively. The remainder of the increase was attributable to $6.4 million of increased expenses associated with newly acquired or developed stores and $3.4 million of increased expenses associated with the growth in our third-party management program.
Depreciation and amortization decreased from $163.5 million in 2019 to $156.6 million in 2020, a decrease of $7.0 million, or 4.3%. This decrease is primarily attributable to fully depreciated and amortized assets associated with acquisitions in prior years.
General and administrative expenses increased from $38.6 million in 2019 to $41.4 million in 2020, an increase of $2.9 million or 7.4%. The change is primarily attributable to increased personnel expenses resulting from additional employee headcount to support our growth.
Other (expense) income
Interest expense increased from $72.5 million in 2019 to $75.9 million in 2020, an increase of $3.4 million, or 4.6%. The increase was attributable to a higher amount of outstanding debt during 2020 compared to 2019. The average outstanding debt balance increased $182.1 million to $2,036.5 million during 2020 as compared to $1,854.4 million during 2019 as the result of borrowings to fund a portion of our growth. The weighted average effective interest rate on our outstanding debt for 2020 and 2019 was 3.82% and 4.06%, respectively.
Loss on early extinguishment of debt was $18.0 million in 2020, which was related to the early redemption of $250.0 million of outstanding 4.800% senior notes due 2022 (the “2022 Notes”), with no comparable amount in 2019. See Liquidity and Capital Resources below.
Equity in earnings of real estate ventures decreased from $11.1 million in 2019 to $0.2 million in 2020. The change was mainly driven by a prior year gain attributable to HVP III, a real estate venture in which we previously owned a 10% interest. Our $10.7 million share of the gain was recorded in connection with HVP III’s sale of 50 properties during 2019.
Gains from sale of real estate, net were $6.7 million in 2020 compared to $1.5 million in 2019, an increase of $5.2 million. These gains are determined on a transactional basis and, accordingly, are not comparable across reporting periods.
The component of other (expense) income designated as other decreased from income of $1.4 million in 2019 to expense of $0.2 million in 2020, primarily due to fees earned in 2019 in connection with HVP III’s sale of 50 properties.
Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018
Refer to the section entitled “Results of Operations” within Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2019 for a comparison of the year ended December 31, 2019 to the year ended December 31, 2018.
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Non-GAAP Financial Measures
NOI
We define net operating income, which we refer to as “NOI”, as total continuing revenues less continuing property operating expenses. NOI also can be calculated by adding back to net income (loss): interest expense on loans, loan procurement amortization expense, loan procurement amortization expense — early repayment of debt, acquisition related costs, equity in losses of real estate ventures, other expense, depreciation and amortization expense, general and administrative expense and deducting from net income (loss): gains from sale of real estate, net, other income, gains from remeasurement of investments in real estate ventures and interest income. NOI is not a measure of performance calculated in accordance with GAAP.
We use NOI as a measure of operating performance at each of our stores, and for all of our stores in the aggregate. NOI should not be considered as a substitute for operating income, net income, cash flows provided by operating, investing and financing activities, or other income statement or cash flow statement data prepared in accordance with GAAP.
We believe NOI is useful to investors in evaluating our operating performance because:
There are material limitations to using a measure such as NOI, including the difficulty associated with comparing results among more than one company and the inability to analyze certain significant items, including depreciation and interest expense, that directly affect our net income. We compensate for these limitations by considering the economic effect of the excluded expense items independently as well as in connection with our analysis of net income. NOI should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as total revenues, operating income and net income.
FFO
Funds from operations (“FFO”) is a widely used performance measure for real estate companies and is provided here as a supplemental measure of operating performance. The April 2002 National Policy Bulletin of the National Association of Real Estate Investment Trusts, as amended 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 consolidated financial statements.
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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.
The following table presents a reconciliation of net income to FFO and FFO, as adjusted, for the years ended December 31, 2020 and 2019:
Net income attributable to the Company’s common shareholders
Add (deduct):
Real estate depreciation and amortization:
Real property
152,897
160,485
Company’s share of unconsolidated real estate ventures
7,430
7,052
Gains from sale of real estate, net (1)
(6,710)
(12,175)
1,825
1,708
FFO attributable to common shareholders and OP unitholders
321,063
326,187
Add:
Loss on early extinguishment of debt (2)
18,020
141
FFO, as adjusted, attributable to common shareholders and OP unitholders
339,083
326,328
Weighted average diluted shares outstanding
194,943
191,576
Weighted average diluted units outstanding
2,137
1,886
Weighted average diluted shares and units outstanding
197,080
193,462
Cash Flows
Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019
A comparison of cash flow related to operating, investing and financing activities for the years ended December 31, 2020 and 2019 is as follows:
Net cash provided by (used in):
Operating activities
351,033
331,768
19,265
Investing activities
(511,441)
(375,664)
(135,777)
Financing activities
108,196
95,855
12,341
Cash provided by operating activities for the years ended December 31, 2020 and 2019 was $351.0 million and $331.8 million, respectively, reflecting an increase of $19.3 million. Our increased cash flow from operating activities was primarily attributable to stores
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acquired and developed during 2019 and 2020, as well as increased management fees related to the third-party management business resulting from more stores under management (723 stores as of December 31, 2020 compared to 649 stores as of December 31, 2019).
Cash used in investing activities increased from $375.7 million for the year ended December 31, 2019 to $511.4 million for the year ended December 31, 2020, an increase of $135.8 million. The change was primarily driven by an increase in cash used for acquisitions of storage properties. Cash used during the year ended December 31, 2020 included the acquisition of 21 stores and land for an aggregate net purchase price of $415.9 million, net of $154.4 million of assumed debt and $175.1 million of OP units issued. Including the acquisition of the remaining interest in HVP III, a previously unconsolidated real estate venture, cash used during the year ended December 31, 2019 related to the acquisition of 29 stores for an aggregate net purchase price of $238.3 million, net of $3.6 million of OP units issued. Additionally, there was a $47.5 million decrease in development costs from the year ended December 31, 2019 compared to the year ended December 31, 2020 resulting from the payment of put liabilities associated with three previously consolidated development joint ventures during the 2019 period.
Cash provided by financing activities increased from $95.9 million for the year ended December 31, 2019 to $108.2 million for the year ended December 31, 2020, an increase of $12.3 million. During the years ended December 31, 2020 and 2019, we received net proceeds from unsecured senior notes of $445.8 million and $696.4 million, respectively, reflecting a decrease of $250.6 million that was primarily due to the timing and size of each offering. During the year ended December 31, 2020, we made principal payments on our 2022 Notes of $250.0 million with no comparable payments during 2019, and, additionally, there was a decrease of $75.6 million in proceeds received from the issuance of common shares during 2020 compared to 2019, due to fewer common shares sold under our at-the-market equity program in 2020 compared to 2019. During the year ended December 31, 2020, we also made principal payments on mortgage loans of $46.1 million compared to $11.7 million during the year ended December 31, 2019, reflecting an increase of $34.4 million that is primarily attributable to the repayment of three mortgage loans during 2020. These reductions in cash provided by financing activities were offset by a $200.0 million cash payment made to repay our unsecured term loan in January 2019 with no comparable payment in 2020. In addition, net borrowings on the revolving credit facility were $117.8 million during the year ended December 31, 2020 compared to net payments of $299.5 million during the year ended December 31, 2019.
Refer to the section entitled “Cash Flows” within Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2019 for a comparison of the year ended December 31, 2019 to the year ended December 31, 2018.
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 that we are able to charge and collect from our customers. We believe that the properties in which we invest, self-storage properties, are less sensitive than other real estate product types to near-term economic downturns. However, prolonged economic downturns will adversely affect our cash flows from operations.
In order to qualify as a REIT for federal income tax purposes, the Parent Company is required to distribute at least 90% of REIT taxable income, excluding capital gains, to its shareholders on an annual basis or pay federal income tax. The nature of our business, coupled with 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 and long term.
Our short-term liquidity needs consist primarily of funds necessary to pay operating expenses associated with our stores, refinancing of certain mortgage indebtedness, interest expense and scheduled principal payments on debt, expected distributions to limited partners and shareholders, capital expenditures and the development of new stores. These funding requirements will vary from year to year, in some cases significantly. In the 2021 fiscal year, we expect recurring capital expenditures to be approximately $11.0 million to $16.0 million, planned capital improvements and store upgrades to be approximately $10.5 million to $15.5 million and costs associated with the development of new stores to be approximately $34.0 million to $49.0 million. Our currently scheduled principal payments on debt are approximately $46.4 million in 2021.
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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 Revolver 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 2021 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 Revolver, sales of common or preferred shares of the Parent Company and common or preferred units of the Operating Partnership and/or cash generated through store dispositions and joint venture transactions.
We believe that, as a publicly traded REIT, we will have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity. However, we cannot provide any assurance that this will be the case. Our ability to incur additional debt will be dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. In addition, dislocation in the United States debt markets may significantly reduce the availability and increase the cost of long-term debt capital, including conventional mortgage financing and commercial mortgage-backed securities financing. There can be no assurance that such capital will be readily available in the future. Our ability to access the equity capital markets will be dependent on a number of factors as well, including general market conditions for REITs and market perceptions about us.
As of December 31, 2020, we had approximately $3.6 million in available cash and cash equivalents. In addition, we had approximately $631.6 million of availability for borrowings under the revolving portion of our Amended and Restated Credit Facility (defined below).
Unsecured Senior Notes
On October 6, 2020, we issued $450.0 million in aggregate principal amount of unsecured senior notes due February 15, 2031, which bear interest at a rate of 2.000% per annum (the “2031 Notes”). The 2031 Notes were priced at 99.074% of the principal amount to yield 2.100% at maturity. Net proceeds from the offering were used to repay, in full, $250.0 million of outstanding 4.800% senior notes due in July 2022. The remaining proceeds from the offering were used to repay all of the outstanding indebtedness under the revolving portion of our Credit Facility (defined below) and for working capital and other general corporate purposes.
Our unsecured senior notes are summarized as follows (collectively referred to as the “Senior Notes”):
December 31,
Effective
Issuance
Maturity
Interest Rate
Date
$250M 4.800% Guaranteed Notes due 2022 (1)
250,000
4.82
Jun-12
Jul-22
$300M 4.375% Guaranteed Notes due 2023 (2)
300,000
4.33
Various (2)
Dec-23
$300M 4.000% Guaranteed Notes due 2025 (3)
3.99
Various (3)
Nov-25
$300M 3.125% Guaranteed Notes due 2026
3.18
Aug-16
Sep-26
$350M 4.375% Guaranteed Notes due 2029
350,000
4.46
Jan-19
Feb-29
$350M 3.000% Guaranteed Notes due 2030
3.04
Oct-19
Feb-30
$450M 2.000% Guaranteed Notes due 2031
450,000
2.10
Oct-20
Feb-31
Principal balance outstanding
2,050,000
1,850,000
Less: Discount on issuance of unsecured senior notes, net
(7,470)
(3,860)
Less: Loan procurement costs, net
(12,158)
(10,415)
Total unsecured senior notes, net
2,030,372
1,835,725
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 and for the year ended December 31, 2020, the Operating Partnership was in compliance with all of the financial covenants under the Senior Notes.
Revolving Credit Facility and Unsecured Term Loans
On December 9, 2011, we entered into a credit agreement (the “Credit Facility”), which was subsequently amended on April 5, 2012, June 18, 2013 and April 22, 2015 to provide for, among other things, a $500.0 million unsecured revolving facility with a maturity date of April 22, 2020. On June 19, 2019, we amended and restated, in its entirety, the Credit Facility (the “Amended and Restated Credit Facility”) which, subsequent to the amendment and restatement, is comprised of a $750.0 million unsecured revolving credit facility (the “Revolver”) maturing on June 19, 2024. Under the Amended and Restated Credit Facility, pricing on the Revolver is dependent upon our unsecured debt credit ratings. At our current Baa2/BBB level, amounts drawn under the Revolver are priced at 1.10% over LIBOR, inclusive of a facility fee of 0.15%. We incurred costs of $3.9 million in 2019 in connection with amending and restating the Credit Facility and capitalized such costs as a component of Loan procurement costs, net of amortization on the consolidated balance sheets.
On January 31, 2019, we used a portion of the net proceeds from the issuance of $350.0 million of 4.375% Senior Notes due 2029 (the “2029 Notes”) to repay all of the outstanding indebtedness under the $200.0 million unsecured term loan portion of the Credit Facility.
As of December 31, 2020, borrowings under the Revolver had an effective weighted average interest rate of 1.24%. Additionally, as of December 31, 2020, $631.6 million was available for borrowing under the Revolver. The available balance under the Revolver is reduced by an outstanding letter of credit of $0.6 million.
Under the 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 and for the year ended December 31, 2020, the Operating Partnership was in compliance with all of its financial covenants.
On June 20, 2011, we entered into an unsecured term loan agreement (the “Term Loan Facility”), which was subsequently amended on June 18, 2013 and August 5, 2014, consisting of, among other things, a $100.0 million unsecured term loan that was scheduled to mature in January 2020. On June 19, 2019, we used an initial advance at closing of the Amended and Restated Credit Facility to repay all of the outstanding indebtedness under the unsecured term loan portion of the Term Loan Facility. Unamortized loan procurement costs of $0.1 million were written off in conjunction with the repayment
Issuance of Common Shares
We maintain an at-the-market equity program that enables us to offer and sell up to 60.0 million common shares through sales agents pursuant to equity distribution agreements (the “Equity Distribution Agreements”). Our sales activity under the program for the years ended December 31, 2020, 2019 and 2018 is summarized below:
(dollars and shares in thousands, except per share amounts)
Number of shares sold
3,627
5,899
4,291
Average sales price per share
33.69
33.64
31.09
Net proceeds after deducting offering costs
120,727
196,304
131,835
We used proceeds from sales of common shares under the program during the years ended December 31, 2020, 2019 and 2018 to fund acquisitions of storage properties and for general corporate purposes. As of December 31, 2020, 2019 and 2018, 10.9 million common shares, 4.6 million common shares and 10.5 million common shares, respectively, remained available for issuance under the Equity Distribution Agreements.
Other Material Changes in Financial Position
Selected Assets
Storage properties, net
4,505,814
3,774,485
731,329
Other assets, net
170,753
101,443
69,310
Selected Liabilities
Unsecured senior notes, net
194,647
Revolving credit facility
117,800
Mortgage loans and notes payable, net
216,504
96,040
120,464
Lease liabilities - finance leases
65,599
249,414
62,088
187,326
Storage properties, net increased $731.3 million from December 31, 2019 to December 31, 2020, primarily as a result of the acquisition of 21 storage properties, additions and improvements to storage properties, and development costs incurred during the year.
Other assets, net increased $69.3 million from December 31, 2019 to December 31, 2020, primarily due to the value assigned to the in-place leases at the 21 storage properties acquired during the year and the right-of-use asset associated with the assumption of a ground lease in connection with the acquisition of the Storage Deluxe Assets that was classified as an operating lease.
Unsecured senior notes, net increased $194.6 million from December 31, 2019 to December 31, 2020 as a result of the issuance of the 2031 Notes on October 6, 2020 offset by the redemption of the 2022 Notes on October 30, 2020.
Revolving credit facility increased $117.8 million from December 31, 2019 to December 31, 2020 primarily as a result of borrowings used to fund the acquisitions of 21 storage properties, additions and improvements to storage properties, and development costs incurred during the year.
Mortgage loans and notes payable, net increased $120.5 million from December 31, 2019 to December 31, 2020 primarily due to the assumption of six mortgage loans, one of which was repaid immediately upon assumption, in connection with the acquisition of a portfolio of eight stores located in the outer boroughs of New York City (the “Storage Deluxe Assets”).
Lease liabilities – finance leases increased $65.6 million from December 31, 2019 to December 31, 2020 due to the assumption of two ground leases in connection with the acquisition of the Storage Deluxe Assets.
Noncontrolling interests in the Operating Partnership increased $187.3 million from December 31, 2019 to December 31, 2020, primarily due to the issuance of OP Units in connection with the acquisition of the Storage Deluxe Assets and the acquisition of the noncontrolling interest in a joint venture that developed a store located in Brooklyn, NY.
Off-Balance Sheet Arrangements
We do not have off-balance sheet arrangements, financings or other relationships with other unconsolidated entities (other than our co-investment partnerships) or other persons, also known as variable interest entities not previously discussed.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our future income, cash flows and fair values relevant to financial instruments depend upon prevailing market interest rates.
Market Risk
Our investment policy relating to cash and cash equivalents is to preserve principal and liquidity while maximizing the return through investment of available funds.
Effect of Changes in Interest Rates on our Outstanding Debt
Our interest rate risk objectives are to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we manage our exposure to fluctuations in market interest rates for a portion of our borrowings through the use of derivative financial instruments such as interest rate swaps or caps to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of our variable-rate debt. The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates. The range of changes chosen reflects our view of changes which are reasonably possible over a one-year period. Market values are the present value of projected future cash flows based on the market interest rates chosen.
As of December 31, 2020 our consolidated debt consisted of $2,252.8 million of outstanding mortgage loans and notes payable and unsecured senior notes that are subject to fixed rates. Additionally, as of December 31, 2020, there were $117.8 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 $1.2 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 $1.2 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 $143.0 million. If market interest rates decrease by 100 basis points, the fair value of our outstanding fixed-rate mortgage debt and unsecured senior notes would increase by approximately $161.8 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements required by this item appear with an Index to Financial Statements and Schedules, starting on page F-1 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
Controls and Procedures (Parent Company)
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Report, the Parent Company carried out an evaluation, under the supervision and with the participation of its management, including its chief executive officer and chief financial officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act).
Based on that evaluation, the Parent Company’s chief executive officer and chief financial officer have concluded that the Parent Company’s disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information required to be disclosed by the Parent Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Parent Company’s management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There has been no change in the Parent Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during its most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Management’s report on internal control over financial reporting of the Parent Company is set forth on page F-2 of this Report, and is incorporated herein by reference. The effectiveness of the Parent Company’s internal control over financial reporting as of December 31, 2020 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its report which is included herein.
Controls and Procedures (Operating Partnership)
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.
There has been no change in the Operating Partnership’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.
Management’s report on internal control over financial reporting of the Operating Partnership is set forth on page F-3 of this Report, and is incorporated herein by reference. The effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2020 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its report which is included herein.
ITEM 9B. OTHER INFORMATION
ITEM 10. TRUSTEES, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
We have adopted a Code of Ethics for all of our employees, officers and trustees, including our principal executive officer and principal financial officer, which is available on our website at www.cubesmart.com. We intend to disclose any amendment to, or a waiver from, a provision of our Code of Ethics on our website within four business days following the date of the amendment or waiver.
The remaining information required by this item regarding trustees, executive officers and corporate governance is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement for the Annual Shareholders Meeting to be held in 2021 (the “Proxy Statement”) under the captions “Proposal 1: Election of Trustees,” “Executive Officers,” “Meetings and Committees of the Board of Trustees,” and “Shareholder Proposals and Nominations for the 2021 Annual Meeting.” The information required by this item
regarding compliance with Section 16(a) of the Exchange Act is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement under the caption “Delinquent Section 16(a) Reports.”
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement under the captions “Compensation Committee Report,” “Meetings and Committees of the Board of Trustees Compensation Committee Interlocks and Insider Participation,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Severance Plan and Potential Payments Upon Termination or Change in Control,” and “Trustee Compensation.”
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The following table sets forth certain information regarding our equity compensation plans as of December 31, 2020.
Number of securities remaining
Number of securities to
Weighted average
available for future issuance under
be issued upon exercise
exercise price of
equity compensation plans
of outstanding options,
outstanding options,
(excluding securities
Plan Category
warrants and rights
reflected in column(a))
(a)
(b)
(c)
Equity compensation plans approved by shareholders
2,118,090
26.37
3,233,009
Equity compensation plans not approved by shareholders
The information regarding security ownership of certain beneficial owners and management required by this item is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement under the caption “Security Ownership of Management” and “Security Ownership of Beneficial Owners.”
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND TRUSTEE INDEPENDENCE
The information required by this item is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement under the captions “Corporate Governance - Independence of Trustees,” “Policies and Procedures Regarding Review, Approval or Ratification of Transactions With Related Persons,” and “Transactions With Related Persons.”
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement under the captions “Audit Committee Matters - Fees Paid to Our Independent Registered Public Accounting Firm” and “- Audit Committee Pre-Approval Policies and Procedures.”
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report:
1. Financial Statements.
The response to this portion of Item 15 is submitted as a separate section of this report.
2. Financial Statement Schedules.
3. Exhibits.
The list of exhibits filed with this Report is set forth in response to Item 15(b). The required exhibit index has been filed with the exhibits.
(b) Exhibits. The following documents are filed as exhibits to this report:
3.1*
Articles of Amendment to the Declaration of Trust of CubeSmart, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed on May 28, 2015.
3.2*
Articles of Restatement of the Declaration of Trust of CubeSmart, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed on May 28, 2015.
3.3*
Articles Supplementary to Declaration of Trust of CubeSmart classifying and designating CubeSmart’s 7.75% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, incorporated by reference to Exhibit 3.3 to CubeSmart’s Form 8-A, filed on October 31, 2011.
3.4*
Articles of Amendment to the Declaration of Trust of CubeSmart, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on November 3, 2016.
3.5*
Certificate of Limited Partnership of U-Store-It, L.P., incorporated by reference to Exhibit 3.1 to CubeSmart, L.P.’s Registration Statement on Form 10, filed on July 15, 2011.
3.6*
Amendment No. 1 to Certificate of Limited Partnership of CubeSmart, L.P., dated September 14, 2011, incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K, filed on September 16, 2011.
3.7*
Second Amended and Restated Agreement of Limited Partnership of U-Store-It, L.P. dated as of October 27, 2004, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on November 2, 2004.
3.8*
Amendment No. 1 to Second Amended and Restated Agreement of Limited Partnership of CubeSmart, L.P. dated as of September 14, 2011, incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K, filed on September 16, 2011.
3.9*
Amendment No. 2 to Second Amended and Restated Agreement of Limited Partnership of CubeSmart, L.P. dated as of November 2, 2011, incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on November 2, 2011.
3.10*
Class C Unit Supplement No. 1 to Second Amended and Restated Agreement of Limited Partnership of CubeSmart, L.P. dates as of April 12, 2017, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on April 18, 2017.
3.11*
Articles of Amendment to the Declaration of Trust of CubeSmart, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on June 2, 2017.
3.12*
Fourth Amended and Restated Bylaws of CubeSmart, effective August 5, 2020, incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, filed on August 7, 2020.
4.1*
Form of Common Share Certificate, incorporated by reference to Exhibit 4.1 to Amendment No. 3 to the Company’s Registration Statement on Form S-11, filed on October 20, 2004, File No. 333-117848.
4.2*
Form of Certificate for CubeSmart’s 7.75% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, incorporated by reference to Exhibit 4.1 to CubeSmart’s Form 8-A, filed on October 31, 2011.
4.3*
Indenture, dated as of September 16, 2011, among CubeSmart, L.P., CubeSmart and U.S. Bank National Association, incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-3, filed on September 16, 2011.
4.4*
First Supplemental Indenture, dated as of June 26, 2012, among the Company, the Operating Partnership and U.S. Bank National Association, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on June 26, 2012.
4.5*
Second Supplemental Indenture, dated as of December 17, 2013, among the Company, the Operating Partnership and U.S. Bank National Association, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on December 17, 2013.
4.6*
Form of $250 million aggregate principal amount of 4.375% senior notes due December 15, 2023, incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on December 17, 2013.
4.7*
Form of CubeSmart Notation of Guarantee, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on December 17, 2013.
4.8*
Third Supplemental Indenture, dated as of October 26, 2015, among CubeSmart, CubeSmart, L.P. and U.S. Bank National Association, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on October 26, 2015.
4.9*
Form of $250 million aggregate principal amount of 4.000% senior note due November 15, 2025, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on October 26, 2015.
4.10*
Fourth Supplemental Indenture, dated as of August 15, 2016, among CubeSmart, CubeSmart, L.P. and U.S. Bank National Association, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on August 15, 2016.
4.11*
Form of $300 million aggregate principal amount of 3.125% senior notes due September 1, 2026, incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on August 15, 2016.
4.12*
Form of CubeSmart Notation of Guarantee, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on August 15, 2016.
4.13*
Form of $50 million aggregate principal amount of 4.375% senior notes due December 15, 2023, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on April 5, 2017.
4.14*
Form of $50 million aggregate principal amount of 4.000% senior notes due November 15, 2025, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on April 5, 2017.
4.15*
Fifth Supplemental Indenture, dated as of April 4, 2017, among CubeSmart, CubeSmart, L.P. and U.S. Bank National Association, incorporated herein by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K, filed on April 5, 2017.
4.16*
Form of $350 million aggregate principal amount of 4.375% senior notes due February 15, 2029, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on January 30, 2019.
4.17*
Sixth Supplemental Indenture, dated as of January 30, 2019, among CubeSmart, CubeSmart, L.P. and U.S. Bank National Association, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on January 30, 2019.
4.18*
Form of $350 million aggregate principal amount of 3.000% senior notes due February 15, 2030, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on October 11, 2019.
4.19*
Form of CubeSmart Notation of Guarantee, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on October 11, 2019.
4.20*
Seventh Supplemental Indenture, dated of as October 11, 2019, among CubeSmart, CubeSmart, L.P. and U.S. Bank National Association, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on October 11, 2019.
49
4.21*
Form of $450 million aggregate principal amount of 2.000% senior notes due February 15, 2031, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on October 6, 2020.
4.22*
Form of CubeSmart Guarantee, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on October 6, 2020.
4.23*
Eighth Supplemental Indenture, dated of as October 6, 2020, among CubeSmart, CubeSmart, L.P. and U.S. Bank National Association, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on October 6, 2020.
4.24*
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, incorporated herein by reference to Exhibit 4.23 to the Company’s Annual Report on Form 10-K, filed on February 21, 2020.
10.1*†
Indemnification Agreement, dated as of October 27, 2004, by and among U-Store-It Trust, U-Store-It, L.P. and David J. LaRue (substantially identical agreements have been entered into with Christopher P. Marr, Timothy M. Martin, Jeffrey P. Foster, Joel D. Keaton, Piero Bussani, Dorothy Dowling, John W. Fain, Marianne M. Keler, John F. Remondi, Jeffrey F. Rogatz and Deborah R. Salzberg), incorporated by reference to Exhibit 10.19 to the Company’s Current Report on Form 8-K, filed on November 2, 2004.
10.2*†
Form of Restricted Share Agreement for Non-Employee Trustees under the U-Store-It Trust 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.83 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, filed on February 29, 2008.
10.3*†
Form of Nonqualified Share Option Agreement under the U-Store-It Trust 2004 Equity Incentive Plan, incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, filed on May 10, 2007.
10.4*†
Form of Restricted Share Agreement under the U-Store-It Trust 2004 Equity Incentive Plan, incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, filed on May 10, 2007.
10.5*†
Form of Nonqualified Share Option Agreement under the U-Store-It Trust 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on January 25, 2008.
10.6*†
Form of Restricted Share Agreement under the U-Store-It Trust 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on January 25, 2008.
10.7*†
U-Store-It Trust Trustees Deferred Compensation Plan, amended and restated effective January 1, 2009, incorporated by reference to Exhibit 10.78 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, filed on March 2, 2009.
10.8*†
U-Store-It Trust Executive Deferred Compensation Plan, amended and restated effective January 1, 2009, incorporated by reference to Exhibit 10.79 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, filed on March 2, 2009.
10.9*†
U-Store-It Trust Deferred Trustees Plan, effective as of May 31, 2005, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on June 6, 2005.
10.10*†
Form of Restricted Share Agreement under the CubeSmart 2007 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K, filed on February 28, 2013.
10.11*†
Form of Non-Qualified Share Option Agreement under the CubeSmart 2007 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K, filed on February 28, 2013.
10.12*†
Form of 2012 Performance-Vested Restricted Share Unit Award Agreement under the CubeSmart 2007 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on January 31, 2012.
50
10.13*†
Form of Restricted Share Unit Award Agreement (2-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.47 to the Company’s Annual Report on Form 10-K, filed on February 28, 2013.
10.14*†
Form of Performance-Vested Restricted Share Unit Award Agreement under the CubeSmart 2007 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.48 to the Company’s Annual Report on Form 10-K, filed on February 28, 2013.
10.15*
Waiver of Ownership Limitation, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, filed on May 6, 2013.
10.16*†
Advisory Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, filed on November 8, 2013.
10.17*†
Form of Non-Qualified Share Option Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.58 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.
10.18*†
Form of Non-Qualified Share Option Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.59 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.
10.19*†
Form of Performance Share Award Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.60 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.
10.20*†
Form of Performance Share Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.61 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.
10.21*†
Form of Restricted Share Award Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.63 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.
10.22*†
Form of Restricted Share Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, incorporated by reference to Exhibit 10.64 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.
10.23*†
Form of Restricted Share Award Agreement (5-Year Vesting) under the CubeSmart 2004 Equity Incentive Plan, incorporated by reference to Exhibit 10.65 to the Company’s Annual Report on Form 10-K, filed on February 28, 2014.
10.24*†
Amended and Restated CubeSmart 2007 Equity Incentive Plan, effective June 1, 2016, incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement, filed on April 14, 2016.
10.25*†
CubeSmart Executive Severance Plan, effective January 1, 2017, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed on November 4, 2016.
10.26*†
Form of Non-Qualified Share Option Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
10.27*†
Form of Non-Qualified Share Option Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
10.28*†
Form of Restricted Share Award Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.44 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
51
10.29*†
Form of Restricted Share Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
10.30*†
Form of Restricted Share Award Agreement (5-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
10.31*†
Form of Restricted Share Unit Award Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.47 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
10.32*†
Form of Restricted Share Unit Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.48 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
10.33*†
Form of Performance-Vested Restricted Share Award Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.49 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
10.34*†
Form of Performance-Vested Restricted Share Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.50 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
10.35*†
Form of Performance-Vested Restricted Share Unit Award Agreement for Executive Officers (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.51 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
10.36*†
Form of Performance-Vested Restricted Share Unit Award Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 10.52 to the Company’s Annual Report on Form 10-K, filed on February 17, 2017.
10.37*†
Form of Restricted Share Agreement under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed on January 3, 2019.
10.38*†
Form of Non-Qualified Share Option Agreement under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed on January 3, 2019.
10.39*†
Form of Performance-Vested Restricted Share Agreement under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K, filed on January 3, 2019.
10.40*
Amended and Restated Credit Agreement, dated as of June 19, 2019, by and among CubeSmart, L.P., CubeSmart, the lenders referred to therein, and Wells Fargo Bank, National Association, as administrative agent for the Lenders, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on June 21, 2019.
10.41*
Second Amended and Restated Equity Distribution Agreement, dated March 4, 2020, by and among CubeSmart, CubeSmart, L.P. and Wells Fargo Securities, LLC, incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed on March 4, 2020.
10.42*
Second Amended and Restated Equity Distribution Agreement, dated March 4, 2020, by and among CubeSmart, CubeSmart, L.P. and BofA Securities, Inc., incorporated by reference to Exhibit 1.2 to the Company’s Current Report on Form 8-K, filed on March 4, 2020.
52
10.43*
Second Amended and Restated Equity Distribution Agreement, dated March 4, 2020, by and among CubeSmart, CubeSmart, L.P. and BMO Capital Markets Corp., incorporated by reference to Exhibit 1.3 to the Company’s Current Report on Form 8-K, filed on March 4, 2020.
10.44*
Second Amended and Restated Equity Distribution Agreement, dated March 4, 2020, by and among CubeSmart, CubeSmart, L.P. and Jefferies LLC, incorporated by reference to Exhibit 1.4 to the Company’s Current Report on Form 8-K, filed on March 4, 2020.
10.45*
Second Amended and Restated Equity Distribution Agreement, dated March 4, 2020, by and among CubeSmart, CubeSmart, L.P. and Barclays Capital Inc., incorporated by reference to Exhibit 1.5 to the Company’s Current Report on Form 8-K, filed on March 4, 2020.
21.1
List of Subsidiaries.
23.1
Consent of KPMG LLP relating to financial statements of CubeSmart.
23.2
Consent of KPMG LLP relating to financial statements of CubeSmart, L.P.
31.1
Certification of Chief Executive Officer of CubeSmart required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer of CubeSmart required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3
Certification of Chief Executive Officer of CubeSmart, L.P. required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.4
Certification of Chief Financial Officer of CubeSmart, L.P. required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer and Chief Financial Officer of CubeSmart pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Executive Officer and Chief Financial Officer of CubeSmart, L.P. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1
Material United States Federal Income Tax Considerations.
101
The following CubeSmart and CubeSmart, L.P. financial information for the year ended December 31, 2020, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statement of Equity, (iv) the Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements, detailed tagged and filed herewith.
104
Cover Page Interactive Data File – embedded within the Inline XBRL document (included as Exhibit 101).
*
Incorporated herein by reference as above indicated.
†
Denotes a management contract or compensatory plan, contract or arrangement.
ITEM 16. FORM 10-K SUMMARY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
By:
/s/ Timothy M. Martin
Timothy M. Martin
Chief Financial Officer
Date: February 26, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature
Title
/s/ Marianne M. Keler
Chair of the Board of Trustees
February 26, 2021
Marianne M. Keler
/s/ Christopher P. Marr
Chief Executive Officer and Trustee
Christopher P. Marr
(Principal Executive Officer)
(Principal Financial and Accounting Officer)
/s/ Piero Bussani
Trustee
Piero Bussani
/s/ Dorothy Dowling
Dorothy Dowling
/s/ John W. Fain
John W. Fain
/s/ John F. Remondi
John F. Remondi
/s/ Jeffrey F. Rogatz
Jeffrey F. Rogatz
/s/ Deborah Ratner Salzberg
Deborah Ratner Salzberg
FINANCIAL STATEMENTSINDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Page No.
Consolidated Financial Statements of CUBESMART and CUBESMART, L.P. (the “Company”)
Management’s Report on CubeSmart Internal Control Over Financial Reporting
F-2
Management’s Report on CubeSmart, L.P. Internal Control Over Financial Reporting
F-3
Reports of Independent Registered Public Accounting Firm
F-4
CubeSmart and Subsidiaries Consolidated Balance Sheets as of December 31, 2020 and 2019
F-10
CubeSmart and Subsidiaries Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018
F-11
CubeSmart and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018
F-12
CubeSmart and Subsidiaries Consolidated Statements of Equity for the years ended December 31, 2020, 2019 and 2018
F-13
CubeSmart and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
F-14
CubeSmart, L.P. and Subsidiaries Consolidated Balance Sheets as of December 31, 2020 and 2019
F-15
CubeSmart, L.P. and Subsidiaries Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018
F-16
CubeSmart, L.P. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018
F-17
CubeSmart, L.P. and Subsidiaries Consolidated Statements of Capital for the years ended December 31, 2020, 2019 and 2018
F-18
CubeSmart, L.P. and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
F-19
Notes to Consolidated Financial Statements
F-20
F-1
MANAGEMENT’S REPORT ON CUBESMART INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of CubeSmart (the “REIT”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under Section 404 of the Sarbanes-Oxley Act of 2002, the REIT’s management is required to assess the effectiveness of the REIT’s internal control over financial reporting as of the end of each fiscal year, and report on the basis of that assessment whether the REIT’s internal control over financial reporting is effective.
The REIT’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The REIT’s internal control over financial reporting includes those policies and procedures that:
There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of an internal control system may vary over time.
Under the supervision, and with the participation, of the REIT’s management, including the principal executive officer and principal financial officer, management conducted a review, evaluation and assessment of the effectiveness of our internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In performing its assessment of the effectiveness of internal control over financial reporting, management has concluded that, as of December 31, 2020, the REIT’s internal control over financial reporting was effective based on the COSO framework.
The effectiveness of our internal control over financial reporting as of December 31, 2020, has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report that appears herein.
MANAGEMENT’S REPORT ON CUBESMART, L.P. INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of CubeSmart, L.P. (the “Partnership”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under Section 404 of the Sarbanes-Oxley Act of 2002, the Partnership’s management is required to assess the effectiveness of the Partnership’s internal control over financial reporting as of the end of each fiscal year, and report on the basis of that assessment whether the Partnership’s internal control over financial reporting is effective.
The Partnership’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Partnership’s internal control over financial reporting includes those policies and procedures that:
Under the supervision, and with the participation, of the Partnership’s management, including the principal executive officer and principal financial officer, management conducted a review, evaluation and assessment of the effectiveness of our internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In performing its assessment of the effectiveness of internal control over financial reporting, management has concluded that, as of December 31, 2020, the Partnership’s internal control over financial reporting was effective based on the COSO framework.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees CubeSmart:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of CubeSmart and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of storage properties for impairment
As discussed in notes 2 and 3 to the consolidated financial statements, the Company had $4.5 billion of storage properties, net of accumulated depreciation as of December 31, 2020. The Company performs an impairment assessment whenever events or changes in circumstances indicate that there may be an impairment. This involves comparing the undiscounted future net operating cash flows plus a terminal value to the carrying amount of the storage property.
We identified the evaluation of storage properties for impairment as a critical audit matter. The Company uses revenue and expense growth rates, and terminal value capitalization rate assumptions in determining estimated future cash flows as part of its impairment assessment. Changes to these assumptions could have a significant impact on the determination of recoverability of the carrying amount of a storage property and involved subjective auditor judgement.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s storage property impairment process, including controls related to the use of the revenue and expense growth rates, and terminal value capitalization rate. We assessed the Company’s forecasted growth rates against the Company’s historical growth rates and published reports of industry data. We evaluated the Company’s expected terminal value capitalization rates by comparing them to published reports of industry data and historical transactions of the Company. We also identified the threshold rates at which the revenue and expense growth rates and terminal value capitalization rate assumptions would indicate the storage property may be impaired and analyzed those threshold rates against the published industry data and historical results.
/s/ KPMG LLP
We have served as the Company’s auditor since 2009.
Philadelphia, Pennsylvania
F-5
To the Partners of CubeSmart, L.P. and the Board of Trustees of CubeSmart:
We have audited the accompanying consolidated balance sheets of CubeSmart, L.P. and subsidiaries (the Partnership) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), capital, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Partnership’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26, 2021 expressed an unqualified opinion on the effectiveness of the Partnership’s internal control over financial reporting.
As discussed in Note 2 to the consolidated financial statements, the Partnership has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.
These consolidated financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
As discussed in notes 2 and 3 to the consolidated financial statements, the Partnership had $4.5 billion of storage properties, net of accumulated depreciation as of December 31, 2020. The Partnership performs an impairment assessment whenever events or changes in circumstances indicate that there may be an impairment. This involves comparing the undiscounted future net operating cash flows plus a terminal value to the carrying amount of the storage property.
We identified the evaluation of storage properties for impairment as a critical audit matter. The Partnership uses revenue and expense growth rates, and terminal value capitalization rate assumptions in determining estimated future cash flows as part of its impairment assessment. Changes to these assumptions could have a significant impact on the determination of recoverability of the carrying amount of a storage property and involved subjective auditor judgement.
F-6
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Partnership’s storage property impairment process, including controls related to the use of the revenue and expense growth rates, and terminal value capitalization rate. We assessed the Partnership’s forecasted growth rates against the Partnership’s historical growth rates and published reports of industry data. We evaluated the Partnership’s expected terminal value capitalization rates by comparing them to published reports of industry data and historical transactions of the Partnership. We also identified the threshold rates at which the revenue and expense growth rates and terminal value capitalization rate assumptions would indicate the storage property may be impaired and analyzed those threshold rates against the published industry data and historical results.
We have served as the Partnership’s auditor since 2009.
F-7
To the Shareholders and Board of TrusteesCubeSmart:
Opinion on Internal Control Over Financial Reporting
We have audited CubeSmart and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report dated February 26, 2021 expressed an unqualified opinion on those consolidated financial statements.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on CubeSmart Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
F-8
We have audited CubeSmart, L.P. and subsidiaries’ (the Partnership) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Partnership as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), capital, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report dated February 26, 2021 expressed an unqualified opinion on those consolidated financial statements.
The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on CubeSmart L.P. Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Partnership’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
F-9
CUBESMART AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Storage properties
5,489,754
4,699,844
Less: Accumulated depreciation
(983,940)
(925,359)
Storage properties, net (including VIE assets of $119,345 and $92,612, respectively)
Cash and cash equivalents
3,592
54,857
Restricted cash
2,637
3,584
Loan procurement costs, net of amortization
3,275
4,059
Investment in real estate ventures, at equity
92,071
91,117
Total assets
4,778,142
4,029,545
LIABILITIES AND EQUITY
Accounts payable, accrued expenses and other liabilities
159,140
137,880
Distributions payable
68,301
64,688
Deferred revenue
29,087
25,313
Security deposits
1,077
Total liabilities
2,687,880
2,160,121
Commitments and contingencies
Equity
Common shares $.01 par value, 400,000,000 shares authorized, 197,405,989 and 193,557,024 shares issued and outstanding at December 31, 2020 and 2019, respectively
1,974
1,936
Additional paid-in capital
2,805,673
2,674,745
Accumulated other comprehensive loss
(632)
(729)
Accumulated deficit
(974,799)
(876,606)
Total CubeSmart shareholders’ equity
1,832,216
1,799,346
8,632
7,990
Total equity
1,840,848
1,807,336
Total liabilities and equity
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
REVENUES
517,535
60,156
20,253
597,944
OPERATING EXPENSES
196,866
143,350
37,712
Total operating expenses
421,630
411,846
377,928
(62,132)
(2,313)
Equity in earnings (losses) of real estate ventures
(865)
10,576
206
(54,528)
165,488
(1,820)
Noncontrolling interest in subsidiaries
221
163,889
Basic earnings per share attributable to common shareholders
0.85
0.89
Diluted earnings per share attributable to common shareholders
0.88
Weighted average basic shares outstanding
194,147
190,874
184,653
185,495
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss):
Unrealized gains (losses) on interest rate swaps
232
(979)
Reclassification of realized losses (gains) on interest rate swaps
81
70
(60)
OTHER COMPREHENSIVE INCOME (LOSS):
302
(1,039)
COMPREHENSIVE INCOME
167,692
171,073
164,449
Comprehensive income attributable to noncontrolling interests in the Operating Partnership
(1,809)
(1,710)
(1,814)
Comprehensive (income) loss attributable to noncontrolling interest in subsidiaries
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY
165,718
169,417
162,856
CONSOLIDATED STATEMENTS OF EQUITY
Noncontrolling
Interests
Common
Additional
Accumulated Other
in the
Shares
Paid-in
Comprehensive
Accumulated
Shareholders’
Interests in
Operating
Number
Amount
Capital
Income (Loss)
Deficit
Subsidiaries
Partnership
Balance at December 31, 2017
182,216
1,822
2,356,620
(729,311)
1,629,134
6,236
1,635,370
54,320
Contributions from noncontrolling interest in subsidiaries
925
Distributions paid to noncontrolling interest in subsidiaries
(169)
Issuance of common shares, net
131,786
131,829
Issuance of restricted shares
86
Issuance of OP units
6,242
Conversion from units to shares
147
4,403
4,404
(4,404)
Exercise of stock options
405
3,831
3,835
Amortization of restricted shares
2,570
Share compensation expense
1,541
Adjustment for noncontrolling interests in the Operating Partnership
(299)
299
Net income (loss)
(221)
163,668
1,820
Other comprehensive (loss) income, net
(1,032)
(627)
(6)
Common share distributions ($1.22 per share)
(226,599)
(2,452)
Balance at December 31, 2018
187,145
1,871
2,500,751
(1,029)
(791,915)
1,709,678
6,771
1,716,449
55,819
7,376
(188)
Acquisition of noncontrolling interest in subsidiary
(34,690)
(5,915)
(40,605)
60
196,244
3,576
80
2,485
2,486
(2,486)
381
3,682
3,686
4,487
1,786
(5,918)
5,918
(54)
169,063
Other comprehensive income, net
300
Common share distributions ($1.29 per share)
(247,890)
(2,449)
Balance at December 31, 2019
193,557
682
(205)
120,690
186,933
100
2,823
2,824
(2,824)
62
961
4,502
1,952
(4,230)
4,230
Net income
165
165,786
Other comprehensive income (loss), net
97
(16)
Common share distributions ($1.33 per share)
(259,584)
(2,822)
Balance at December 31, 2020
197,406
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating Activities
Adjustments to reconcile net income to cash provided by operating activities:
159,247
166,366
145,663
Equity in (earnings) losses of real estate ventures
(178)
(11,122)
865
(1,508)
(10,576)
Equity compensation expense
7,140
6,694
5,572
Accretion of fair market value adjustment of debt
(259)
(718)
(735)
Changes in other operating accounts:
Other assets
(9,674)
(6,578)
(4,937)
Accounts payable and accrued expenses
13,922
6,042
2,653
Other liabilities
1,914
1,821
342
Net cash provided by operating activities
304,335
Investing Activities
Acquisitions of storage properties
(417,988)
(117,998)
(214,510)
Additions and improvements to storage properties
(49,857)
(37,569)
(27,626)
Development costs
(55,286)
(102,826)
(86,002)
Cash paid for partner's interest in real estate venture, net of cash, cash equivalents and restricted cash acquired
(117,959)
Investment in real estate ventures
(7,022)
(10,264)
(19,216)
Cash distributed from real estate ventures
6,246
7,096
8,706
Proceeds from sale of real estate, net
12,466
3,856
16,389
Net cash used in investing activities
(322,259)
Financing Activities
Proceeds from:
Unsecured senior notes
445,833
696,426
429,085
859,313
679,535
Principal payments on:
(250,000)
(311,285)
(1,158,776)
(565,710)
Unsecured term loans
(200,000)
Mortgage loans and notes payable
(46,093)
(11,652)
(9,816)
Loan procurement costs
(3,764)
(6,023)
Debt prepayment costs
(17,584)
Settlement of hedge transactions
(807)
Acquisition of noncontrolling interest in subsidiary, net
(35,777)
Proceeds from issuance of common shares, net
131,830
Cash paid upon vesting of restricted shares
(686)
(421)
(1,461)
Contributions from noncontrolling interests in subsidiaries
Distributions paid to noncontrolling interests in subsidiaries
Distributions paid to common shareholders
(256,253)
(243,859)
(221,328)
Distributions paid to noncontrolling interests in Operating Partnership
(2,540)
(2,419)
(2,393)
Net cash provided by financing activities
15,248
Change in cash, cash equivalents and restricted cash
(52,212)
51,959
(2,676)
Cash, cash equivalents and restricted cash at beginning of year
58,441
6,482
9,158
Cash, cash equivalents and restricted cash at end of year
6,229
Supplemental Cash Flow and Noncash Information
Cash paid for interest, net of interest capitalized
80,792
69,283
66,829
Supplemental disclosure of noncash activities:
(2,623)
Proceeds held in escrow from real estate venture's sale of real estate (see note 4)
8,288
Noncash consideration for acquisition of partner's interest in real estate venture (see note 4)
(8,288)
Right-of-use assets obtained in exchange for lease liabilities
61,423
Discount on issuance of unsecured senior notes
4,167
3,574
Noncash drawdown on revolving credit facility
103,938
Mortgage loan assumptions
169,056
7,166
Repayment of unsecured term loan through noncash drawdown on revolving credit facility
(100,000)
Accretion of put liability
7,917
5,895
24,747
Derivative valuation adjustment
(633)
(3,770)
Issuance of OP units (see note 4)
(4,828)
7,328
CUBESMART, L.P. AND SUBSIDIARIES
LIABILITIES AND CAPITAL
Limited Partnership interests of third parties
Operating Partner
1,832,848
1,800,075
Total CubeSmart, L.P. capital
Total capital
Total liabilities and capital
(in thousands, except per common unit data)
NET INCOME ATTRIBUTABLE TO CUBESMART L.P.
167,446
170,825
165,709
Operating Partnership interests of third parties
NET INCOME ATTRIBUTABLE TO COMMON UNITHOLDERS
Basic earnings per unit attributable to common unitholders
Diluted earnings per unit attributable to common unitholders
Weighted average basic units outstanding
Comprehensive income attributable to Operating Partnership interests of third parties
COMPREHENSIVE INCOME ATTRIBUTABLE TO OPERATING PARTNER
CONSOLIDATED STATEMENTS OF CAPITAL
Number of Common OP
Operating Partnership
CubeSmart L.P.
Interest in
Outstanding
Partner
of Third Parties
1,629,131
Issuance of common OP units, net
Issuance of restricted OP units
Conversion from OP units to shares
Exercise of OP unit options
Amortization of restricted OP units
OP unit compensation expense
Adjustment for Operating Partnership interests of third parties
Common OP unit distributions ($1.22 per unit)
1,710,707
Common OP unit distributions ($1.29 per unit)
Common OP unit distributions ($1.33 per unit)
Proceeds from issuance of common OP units
Cash paid upon vesting of restricted OP units
Distributions paid to common OP unitholders
(258,793)
(246,278)
(223,721)
CUBESMART AND CUBESMART L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
CubeSmart (the “Parent Company”) operates as a self-managed and self-administered real estate investment trust (“REIT”) with its operations conducted solely through CubeSmart, L.P. and its subsidiaries. CubeSmart, L.P., a Delaware limited partnership (the “Operating Partnership”), operates through an umbrella partnership structure, with the Parent Company, a Maryland REIT, as its sole general partner. In the notes to the consolidated financial statements, we use the terms the “Company”, “we” or “our” to refer to the Parent Company and the Operating Partnership together, unless the context indicates otherwise. As of December 31, 2020, the Company owned self-storage properties located in the District of Columbia and 24 states throughout the United States which are presented under one reportable segment: the Company owns, operates, develops, manages and acquires self-storage properties.
As of December 31, 2020, the Parent Company owned approximately 96.4% 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”.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include all of the accounts of the Company and its majority-owned and/or controlled subsidiaries. The portion of these entities not owned by the Company is presented as noncontrolling interests as of and during the periods consolidated. All significant intercompany accounts and transactions have been eliminated in consolidation.
When the Company obtains an economic interest in an entity, the Company evaluates the entity to determine if the entity is deemed a variable interest entity (“VIE”) and if the Company is deemed to be the primary beneficiary in accordance with authoritative guidance issued on the consolidation of VIEs. 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. When an entity is not deemed to be a VIE, the Company considers the provisions of additional guidance to determine whether a general partner, or the general partners as a group, controls a limited partnership or similar entity when the limited partners have certain rights. The Company consolidates (i) entities that are VIEs and of which the Company is deemed to be the primary beneficiary, and (ii) entities that are non-VIEs which the Company controls and which the limited partners do not have the ability to dissolve or remove the Company without cause nor substantive participating rights.
The Operating Partnership meets the criteria as a VIE. The Parent Company’s sole significant asset is its investment in the Operating Partnership. As a result, substantially all of the Parent Company’s assets and liabilities represent those assets and liabilities of the Operating Partnership. All of the Parent Company’s debt is an obligation of the Operating Partnership.
Noncontrolling Interests
The Financial Accounting Standards Board (“FASB”) issued authoritative guidance regarding noncontrolling interests in consolidated financial statements which was effective on January 1, 2009. The guidance states that noncontrolling interests are the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. The ownership interests in the subsidiary that are held by owners other than the parent are noncontrolling interests. Under the guidance, such noncontrolling interests are reported on the consolidated balance sheets within equity, separately from the Company’s equity. On the consolidated statements of operations, revenues, expenses and net income or loss from controlled or consolidated entities that are less than wholly owned are reported at the consolidated
amounts, including both the amounts attributable to the Company and noncontrolling interests. Presentation of consolidated equity activity is included for both quarterly and annual financial statements, including beginning balances, activity for the period and ending balances for shareholders’ equity, noncontrolling interests and total equity.
However, per the FASB issued authoritative guidance on the classification and measurement of redeemable securities, securities that are redeemable for cash or other assets at the option of the holder, not solely within the control of the issuer, must be classified outside of permanent equity. This would result in certain outside ownership interests being included as redeemable noncontrolling interests outside of permanent equity in the consolidated balance sheets. The Company makes this determination based on terms in applicable agreements, specifically in relation to redemption provisions. Additionally, with respect to noncontrolling interests for which the Company has a choice to settle the contract by delivery of its own shares, the Company considered the FASB issued guidance on accounting for derivative financial instruments indexed to, and potentially settled in, a Company’s own stock to evaluate whether the Company controls the actions or events necessary to issue the maximum number of shares that could be required to be delivered under share settlement of the contract. The guidance also requires that noncontrolling interests are adjusted each period so that the carrying value equals the greater of its carrying value based on the accumulation of historical cost or its redemption fair value.
The consolidated results of the Company include results attributable to units of the Operating Partnership that are not owned by the Company. These interests were issued in the form of OP units and were a component of the consideration the Company paid to acquire certain self-storage properties. Limited partners who acquired OP units have the right to require the Operating Partnership to redeem part or all of their OP units for, at the Company’s option, an equivalent number of common shares of the Company or cash based upon the fair value of an equivalent number of common shares of the Company. However, the operating agreement contains certain circumstances that could result in a net cash settlement outside the control of the Company, as the Company does not have the ability to settle in unregistered shares. Accordingly, consistent with the guidance discussed above, the Company will continue to record these noncontrolling interests outside of permanent equity in the consolidated balance sheets. Net income or loss related to these noncontrolling interests is excluded from net income or loss in the consolidated statements of operations. The Company has adjusted the carrying value of its noncontrolling interests subject to redemption value to the extent applicable. Based on the Company’s evaluation of the redemption value of the redeemable noncontrolling interests, the Operating Partnership reflected these interests at their redemption value as of December 31, 2020, as the estimated redemption value exceeded their carrying value. The Operating Partnership recorded an increase to OP Units owned by third parties and a corresponding decrease to capital of $4.2 million as of December 31, 2020. Disclosure of such redemption provisions is provided in note 12.
Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Although management believes the assumptions and estimates made are reasonable and appropriate, as discussed in the applicable sections throughout these consolidated financial statements, different assumptions and estimates could materially impact the Company’s reported results. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions, and changes in market conditions could impact the Company’s future operating results.
Self-storage properties are carried at historical cost less accumulated depreciation and impairment losses. The cost of self-storage properties reflects their purchase price or development cost. Acquisition costs are accounted for in accordance with Accounting Standard Update (“ASU”) No. 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business, which was adopted on January 1, 2018, and are generally capitalized. Costs incurred for the renovation of a store are capitalized to the Company’s investment in that store. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. The costs to develop self-storage properties are capitalized to construction in progress while the projects are under development.
Purchase Price Allocation
When stores are acquired, the purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values. 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 is generally amortized to expense over the expected remaining term of the respective
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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 recorded for the value of customer relationships, because the Company does not have any concentrations of significant customers and the average customer turnover is fairly frequent.
Depreciation and Amortization
The costs of self-storage properties and improvements are depreciated using the straight-line method based on useful lives ranging from five to 39 years. Right-of-use assets associated with finance leases are amortized from the lease commencement date to the earlier of the useful life of the right-to-use asset or the end of the lease term. Fully depreciated or amortized assets and the associated accumulated depreciation or amortization are written off. The Company wrote off fully depreciated or amortized real estate assets and in-place lease intangible assets of $83.4 million and $20.5 million, respectively, for the year ended December 31, 2020, and $81.7 million and $11.3 million, respectively, for the year ended December 31, 2019.
Impairment of Long-Lived Assets
We evaluate long-lived assets for impairment when events and circumstances such as declines in occupancy and operating results indicate that there may be an impairment. The carrying value of these long-lived assets is compared to the undiscounted future net operating cash flows, plus a terminal value, attributable to the assets to determine if the store’s basis is recoverable. If a store’s basis is not considered recoverable, an impairment loss is recorded to the extent the net carrying value of the asset exceeds the fair value. The impairment loss recognized equals the excess of net carrying value over the related fair value of the asset. There were no impairment losses recognized during the years ended December 31, 2020, 2019 and 2018.
Long-Lived Assets Held for Sale
We consider long-lived assets to be “held for sale” upon satisfaction of the following criteria: (a) management commits to a plan to sell a store (or group of stores), (b) the store is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such stores, (c) an active program to locate a buyer and other actions required to complete the plan to sell the store have been initiated, (d) the sale of the store is probable and transfer of the asset is expected to be completed within one year, (e) the store is being actively marketed for sale at a price that is reasonable in relation to its current fair value and (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Typically these criteria are all met when the relevant asset is under contract, significant non-refundable deposits have been made by the potential buyer, the assets are immediately available for transfer, and there are no contingencies related to the sale that may prevent the transaction from closing. However, each potential transaction is evaluated based on its separate facts and circumstances. Stores classified as held for sale are reported at the lesser of carrying value or fair value less estimated costs to sell and are not depreciated. There were no stores classified as held for sale as of December 31, 2020.
Cash and Cash Equivalents
Cash and cash equivalents are highly-liquid investments with original maturities of three months or less. The Company may maintain cash equivalents in financial institutions in excess of insured limits, but believes this risk is mitigated by only investing in or through major financial institutions.
Restricted Cash
Restricted cash generally consists of cash deposits required for debt service, capital replacement and expense reserves in connection with the terms of our loan agreements.
Loan Procurement Costs
Loan procurement costs related to borrowings were $38.1 million and $31.5 million as of December 31, 2020 and 2019, respectively, and are reported net of accumulated amortization of $13.1 million and $12.9 million as of December 31, 2020 and 2019, respectively. In accordance with ASU No. 2015-03, Loan procurement costs, net are presented as a direct deduction from the carrying amount of the
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related debt liability. If there is not an associated debt liability recorded on the consolidated balance sheets, the costs are recorded as an asset net of accumulated amortization. Loan procurement costs associated with the Company’s revolving credit facility remain in Loan procurement costs, net of amortization on the Company’s consolidated balance sheets. The costs are amortized over the estimated life of the related debt using the effective interest method and are reported as Loan procurement amortization expense on the Company’s consolidated statements of operations.
Other Assets
Other assets are comprised of the following as of December 31, 2020 and 2019:
Intangible assets, net of accumulated amortization of $2,123 and $10,170
57,820
10,283
Accounts receivable, net
5,829
6,386
Prepaid property taxes
6,334
4,706
Prepaid insurance
2,626
2,191
Amounts due from affiliates (see note 14)
13,130
10,450
Assets held in trust related to deferred compensation arrangements
17,207
13,280
Right-of-use assets - operating leases (see note 13)
55,302
41,698
Equity investment recorded at cost (1)
5,000
7,505
7,449
Total other assets, net
Environmental Costs
Our practice is to conduct or obtain environmental assessments in connection with the acquisition or development of additional stores. Whenever the environmental assessment for one of the Company’s stores indicates that a store is impacted by soil or groundwater contamination from prior owners/operators or other sources, the Company will work with environmental consultants and where appropriate, state governmental agencies, to ensure that the store is either cleaned up, that no cleanup is necessary because the low level of contamination poses no significant risk to public health or the environment or that the responsibility for cleanup rests with a third party.
Revenue Recognition
Management has determined that all of the Company’s leases are operating leases. Rental income is recognized in accordance with the terms of the leases, which generally are month-to-month.
The Company recognizes gains from sale of real estate in accordance with the guidance on transfer of nonfinancial assets. Payments received from purchasers prior to closing are recorded as deposits. Profit on real estate sold is recognized when a valid contract exists, the collectability of the sales price is reasonably assured and the control of the property has transferred.
Advertising and Marketing Costs
The Company incurs advertising and marketing costs primarily attributable to internet marketing and other media advertisements. The Company incurred $16.9 million, $11.5 million and $10.3 million in advertising and marketing expenses for the years ended December 31, 2020, 2019 and 2018, respectively, which are included in Property operating expenses on the Company’s consolidated statements of operations.
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Equity Offering Costs
Underwriting discounts and commissions, financial advisory fees and offering costs are reflected as a reduction to additional paid-in capital. For the years ended December 31, 2020, 2019 and 2018, the Company recognized $1.5 million, $2.1 million and $1.6 million, respectively, of equity offering costs related to the issuance of common shares.
Other Property Related Income
Other property related income consists of late fees, administrative charges, customer storage protection plan fees, sales of storage supplies and other ancillary revenues and is recognized in the period that it is earned.
Capitalized Interest
The Company capitalizes interest incurred that is directly associated with construction activities until the asset is placed into service. Interest is capitalized to the related asset(s) using the weighted average rate of the Company’s outstanding debt. For the years ended December 31, 2020, 2019 and 2018, the Company capitalized $2.7 million, $3.0 million and $4.4 million, respectively, of interest incurred that is directly associated with construction activities.
Derivative Financial Instruments
The Company carries all derivatives on the balance sheet at fair value. The Company determines the fair value of derivatives by observable prices that are based on inputs not quoted on active markets, but corroborated by market data. The accounting for changes in the fair value of a derivative instrument depends on whether the derivative has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. The Company’s use of derivative instruments has been limited to cash flow hedges of certain interest rate risks. The Company had no outstanding derivatives as of December 31, 2020 or 2019.
Income Taxes
The Company has elected to be taxed as a real estate investment trust under Sections 856-860 of the Internal Revenue Code since the Company’s commencement of operations in 2004. In management’s opinion, the requirements to maintain these elections are being met. Accordingly, no provision for federal income taxes has been reflected in the consolidated financial statements other than for operations conducted through our taxable REIT subsidiaries.
Earnings and profits, which determine the taxability of distributions to shareholders, differ from net income reported for financial reporting purposes due to differences in cost basis, the estimated useful lives used to compute depreciation, and the allocation of net income and loss for financial versus tax reporting purposes. The net tax basis in the Company’s assets was approximately $4,384.1 million and $3,909.1 million as of December 31, 2020 and 2019.
Since the Company’s initial quarter as a publicly-traded REIT, it has made regular quarterly distributions to its shareholders. Distributions to shareholders are usually taxable as ordinary income, although a portion of the distribution may be designated as capital gain or may constitute a tax-free return of capital. Annually, the Company provides each of its shareholders a statement detailing the tax characterization of dividends paid during the preceding year as ordinary income, capital gain or return of capital. The characterization of the Company’s dividends for 2020 consisted of a 74.174% ordinary income distribution, a 2.138% capital gain distribution and a 23.688% return of capital distribution from earnings and profits.
The Company is subject to a 4% federal excise tax if sufficient taxable income is not distributed within prescribed time limits. The excise tax equals 4% of the annual amount, if any, by which the sum of (a) 85% of the Company’s ordinary income, (b) 95% of the Company’s net capital gains and (c) 100% of prior taxable income exceeds cash distributions and certain taxes paid by the Company. No excise tax was incurred in 2020, 2019 or 2018.
Taxable REIT subsidiaries are subject to federal and state income taxes. Our taxable REIT subsidiaries had a net deferred tax asset related to expenses which are deductible for tax purposes in future periods of $0.4 million and $0.7 million as of December 31, 2020 and 2019, respectively.
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Earnings per Share and Unit
Basic earnings per share and unit are calculated based on the weighted average number of common shares and restricted shares outstanding during the period. Diluted earnings per share and unit is calculated by further adjusting for the dilutive impact of share options, unvested restricted shares and contingently issuable shares outstanding during the period using the treasury stock method. Potentially dilutive securities calculated under the treasury stock method were 796,000, 702,000 and 842,000 for the years ended December 31, 2020, 2019 and 2018, respectively.
Share-Based Payments
We apply the fair value method of accounting for contingently issued shares and share options issued under our incentive award plan. Accordingly, share compensation expense is recorded ratably over the vesting period relating to such contingently issued shares and options. The Company has recognized compensation expense on a straight-line method over the requisite service period, which is included in general and administrative expense on the Company’s consolidated statement of operations. The Company recognizes forfeitures on share-based payments as they occur.
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 ventures, and subsequently adjusted for equity in earnings (losses), cash contributions, less distributions and impairments. On a periodic basis, management assesses whether there are any indicators that the value of the Company’s investments in unconsolidated real estate ventures may be other than temporarily impaired. An investment is impaired only if the fair value of the investment, as estimated by management, is less than the carrying value of the investment and the decline is other than temporary. To the extent impairment that is other than temporary has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the fair value of the investment, as estimated by management. The determination as to whether impairment exists requires significant management judgment about the fair value of the Company’s 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 years ended December 31, 2020 and 2019.
In August 2020, the FASB issued ASU No. 2020-06 – Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in an Entity’s Own Equity (Subtopic 815-40). The new guidance eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of certain settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted earnings per share computation. The standard is effective on January 1, 2022, with early adoption permitted, but only as of the beginning of an entity’s annual fiscal year. The Company is currently assessing the impact of the adoption of the new standard on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13 – Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new guidance changes how entities measure credit losses for most financial assets. This standard requires an entity to estimate its lifetime expected credit loss and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. In November 2018, the FASB issued ASU No. 2018-19 – Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which clarifies that receivables arising from operating leases are within the scope of the leasing standard (ASU No. 2016-02), and not within the scope of ASU No. 2016-13. The standard became effective on January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The standard became effective on January 1, 2020 and did not have a material impact on the Company’s consolidated financial statements.
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In February 2016, the FASB issued ASU No. 2016-02 - Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less are accounted for similar to previous guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to previous guidance for sales-type leases, direct financing leases and operating leases. The Company adopted the standard on January 1, 2019, the date it became effective for public companies, using the modified retrospective approach whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated. There was no net cumulative effect adjustment to retained earnings as of January 1, 2019 as a result of this adoption. Upon adoption, the Company elected the package of practical expedients permitted within the standard, which among other things, allows for the carryforward of historical lease classification. The Company also elected the practical expedient provided to lessors in a subsequent amendment to the standard that removed the requirement to separate lease and nonlease components, provided certain conditions were met. Refer to note 13 for the impact of the adoption of ASU No. 2016-02 – Leases (Topic 842) on the Company’s consolidated financial statements.
Concentration of Credit Risk
The Company’s stores are located in major metropolitan and rural areas and have numerous customers per store. No single customer represents a significant concentration of our revenues. The stores in New York, Florida, Texas and California provided approximately 16%, 15%, 9% and 8%, respectively, of the Company’s total revenues for the year ended December 31, 2020. The stores in Florida, New York, Texas and California provided approximately 16%, 16%, 10% and 8%, respectively, of the Company’s total revenues for the year ended December 31, 2019. The stores in Florida, New York, Texas and California provided approximately 17%, 16%, 10% and 8%, respectively, of the Company’s total revenues for the year ended December 31, 2018.
3. STORAGE PROPERTIES
The book value of the Company’s real estate assets is summarized as follows:
Land
1,093,503
858,541
Buildings and improvements
4,122,995
3,619,594
Equipment
123,044
128,111
Construction in progress
108,316
93,598
Right-of-use assets - finance leases
41,896
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The following table summarizes the Company’s acquisition and disposition activity for the years ended December 31, 2020, 2019 and 2018:
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4. INVESTMENT ACTIVITY
2020 Acquisitions
The Company acquired a portfolio of eight stores located in the outer boroughs of New York City (the “Storage Deluxe Assets”), in two separate tranches during December 2020, for an aggregate purchase price of $540.0 million. In connection with the acquisition of the Storage Deluxe Assets, the Company assumed six mortgage loans with an aggregate outstanding principal amount of $154.4 million at the time of acquisition, one of which had an outstanding principal balance of $33.2 million and was repaid immediately. The assumed mortgage debt was recorded at a fair value of $169.2 million, which includes an aggregate net premium of $14.8 million to reflect the estimated fair value of the debt at the time of assumption. The remainder of the purchase price was funded with $210.5 million of cash and $175.1 million through the issuance of 5,272,023 OP Units (see note 12). In connection with the acquisition of the Storage Deluxe Assets, which was accounted for as an asset acquisition, 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 $48.6 million at the time of the acquisition and prior to amortization of such amounts. The estimated life of these in-place leases was 12 months. Additionally, as part of the transaction, the Company assumed three existing ground leases as lessee, two of which have been classified as finance leases and one of which has been classified as an operating lease (see note 13).
During the year ended December 31, 2020, the Company acquired 13 additional stores located in Florida (5), Maryland (1), Nevada (1), New Jersey (1), New York (1), Texas (3) and Virginia (1) for an aggregate purchase price of approximately $195.9 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 $11.4 million at the time of the acquisitions and prior to amortization of such amounts. The estimated life of these in-place leases was 12 months and the amortization expense that was recognized during 2020 was approximately $2.1 million.
Additionally, on July 20, 2020, the Company acquired land underlying a wholly-owned store located in the Bronx, New York for $9.5 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 $5.1 million and $5.0 million, respectively, were removed from the Company’s consolidated balance sheets.
2020 Disposition
On December 22, 2020, the Company sold a self-storage property located in New York for a sales price of $12.8 million. The Company recorded a $6.7 million gain in connection with the sale.
Development Activity
As of December 31, 2020, the Company had invested in joint ventures to develop six self-storage properties located in Massachusetts (1), New York (2), Pennsylvania (1) and Virginia (2). Construction for all projects is expected to be completed by the second quarter of 2022 (see note 12). As of December 31, 2020, development costs incurred to date for these projects totaled $94.0 million. Total construction costs for these projects are expected to be $150.1 million. These costs are capitalized to construction in progress while the projects are under development and are reflected in Storage properties on the Company’s consolidated balance sheets.
The Company has completed the construction and opened for operation the following stores since January 1, 2018. 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.
Ownership
Store Location
Date Opened
Interest
Construction Costs
Brooklyn, NY (1)
Q2 2020
100%
45,900
Waltham, MA (2)
Q3 2019
18,000
Queens, NY (1)
Q2 2019
47,500
Bayonne, NJ (1) (3)
25,100
Bronx, NY (1)
Q3 2018
92,100
228,600
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During the fourth quarter of 2015 and the third quarter of 2017, the Company, through two separate joint ventures in which it owned a 90% interest in each and that were previously consolidated, completed the construction and opened for operation a store located in Queens, NY and a store located in New York, NY, respectively. On June 25, 2019, the Company acquired the noncontrolling member’s 10% interest in the venture that owned the New York, NY store for $18.5 million, and on June 28, 2019, the Company acquired the noncontrolling member’s 10% interest in the venture that owned the Queens, NY store, for $9.0 million. Prior to these transactions, the noncontrolling member’s interest in each venture was reported in Noncontrolling interests in subsidiaries on the consolidated balance sheets. Since the Company retained its controlling interest in each venture and the stores are now wholly owned, these transactions were accounted for as equity transactions. In each case, the carrying amount of the noncontrolling interest was reduced to zero to reflect the purchase and the difference between the purchase price paid by the Company and the carrying amount of the noncontrolling interest which aggregated to $22.6 million, was recorded as an adjustment to equity attributable to the Company, with no gain or loss recorded. The $12.4 million related party loan extended by the Company to the venture that owned the Queens, NY store was repaid in conjunction with the Company’s acquisition of the noncontrolling member’s ownership interest.
2019 Acquisitions
During the year ended December 31, 2019, the Company acquired 11 stores located in Arizona (1), California (1), Florida (5), Georgia (1), Maryland (1), South Carolina (1) and Texas (1) for an aggregate purchase price of approximately $118.3 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 $6.2 million at the time of the acquisitions and prior to amortization of such amounts. The estimated life of these in-place leases was 12 months and the amortization expense that was recognized during the years ended December 31, 2020 and 2019 was approximately $4.3 million and $1.9 million, respectively. In connection with one of the acquisitions, the Company paid $14.9 million of cash and issued OP Units that were valued at approximately $3.6 million as consideration for the purchase price (see note 12).
Additionally, on June 6, 2019, the Company acquired its partner’s 90% ownership interest in HVP III, an unconsolidated real estate venture in which the Company previously owned a 10% noncontrolling interest and that was accounted for under the equity method of accounting. As of the date of acquisition, HVP III owned 18 stores located in Georgia (1), Massachusetts (7), North Carolina (1), South Carolina (7) and Tennessee (2) (the “HVP III Assets”). The purchase price for the 90% ownership interest was $128.3 million, which was comprised of cash consideration of $120.0 million and $8.3 million of the Company’s escrowed proceeds from HVP III’s sale of 50 properties to an unaffiliated buyer on June 5, 2019 (see note 5). The HVP III Assets were recorded by the Company at $137.5 million, which consisted of the $128.3 million purchase price plus the Company’s $10.6 million carryover basis of its previously held equity interest in HVP III, offset by $1.4 million of acquired cash. As a result of the transaction, which was accounted for as an asset
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acquisition, the HVP III Assets became wholly-owned by the Company and are now consolidated within its financial statements. No gain or loss was recognized as a result of the transaction. In connection with the transaction, the Company allocated the value of the HVP III Assets 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 $14.3 million at the time of the acquisition and prior to amortization of such amounts. The estimated life of these in-place leases was 12 months and the amortization expense that was recognized during the years ended December 31, 2020 and 2019 was approximately $6.0 million and $8.3 million, respectively.
2019 Disposition
On October 7, 2019, the Company sold a self-storage property located in Texas for a sales price of $4.1 million. The Company recorded a $1.5 million gain in connection with the sale.
2018 Acquisitions
During the year ended December 31, 2018, the Company acquired ten stores located in California (2), Illinois (1), Nevada (1), New York (1), North Carolina (1), Texas (3) and the District of Columbia (1), including one store upon completion of construction and the issuance of a certificate of occupancy, for an aggregate purchase price of approximately $227.5 million. In connection with these transactions, which were accounted for as asset acquisitions, the Company allocated a portion of the purchase price and acquisition related costs to the tangible and intangible assets acquired based on fair value. Intangible assets consist of in-place leases, which aggregated $11.3 million at the time of the acquisitions and prior to any amortization of such amounts. The estimated life of these in-place leases was 12 months, and the amortization expense that was recognized during the years ended December 31, 2019 and 2018 was approximately $8.2 million and $3.1 million, respectively. In connection with one of the acquired stores, the Company assumed a $7.2 million mortgage loan that was immediately repaid by the Company. The remainder of the purchase price was funded with $0.2 million of cash and $4.8 million through the issuance of 168,011 OP Units (see note 12).
2018 Dispositions
On November 28, 2018, the Company sold two stores in Arizona for an aggregate sales price of approximately $17.5 million. In connection with these sales, the Company recorded gains that totaled approximately $10.6 million.
5. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES
The Company’s investments in real estate ventures, in which it holds a common ownership interest, are summarized as follows (dollars in thousands):
Number of Stores as of
Carrying Value of Investment as of
191 IV CUBE Southeast LLC ("HVPSE") (1)
10%
5,015
191 IV CUBE LLC ("HVP IV") (2)
20%
21,760
23,112
CUBE HHF Northeast Venture LLC ("HHFNE") (3)
1,628
1,998
CUBE HHF Limited Partnership ("HHF") (4)
50%
63,668
66,007
83
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On June 5, 2019, HVP III sold 50 stores located in Florida (3), Georgia (4), Michigan (17), North Carolina (3), South Carolina (15) and Tennessee (8), to an unaffiliated third-party buyer for an aggregate sales price of $293.5 million. As of the transaction date, HVP III had five mortgage loans with an aggregate outstanding balance of $22.9 million, as well as $179.5 million outstanding on its $185.5 million loan facility, all of which were defeased or repaid in full at the time of the sale. Net proceeds to the venture from the transaction totaled $82.9 million. The venture recorded gains which aggregated to approximately $106.7 million in connection with the sale. Subsequent to the sale, the Company acquired its partner’s 90% ownership interest in HVP III, which at the time of the acquisition, owned the remaining 18 storage properties (see note 4).
Based upon the facts and circumstances at formation of HVPSE, HVP IV, HHFNE, and HHF (the “Ventures”), the Company determined that the Ventures are not VIEs in accordance with the accounting standard for the consolidation of VIEs. As a result, the Company used the voting interest model under the accounting standard for consolidation in order to determine whether to consolidate the Ventures. Based upon each member's substantive participating rights over the activities of each entity as stipulated in the operating agreements, the Ventures are not consolidated by the Company and are accounted for under the equity method of accounting (except for HVP III, which was consolidated as of June 6, 2019). The Company’s investments in the Ventures are included in Investment in real estate ventures, at equity on the Company’s consolidated balance sheets and the Company’s earnings from its investments in the Ventures are presented in Equity in earnings (losses) of real estate ventures on the Company’s consolidated statements of operations.
The amounts reflected in the following table are based on the historical financial information of the Ventures. The following is a summary of the financial position of the Ventures as of December 31, 2020 and 2019:
2019 (1)
Assets
662,833
552,791
18,112
11,997
680,945
564,788
Liabilities and equity
11,588
10,064
Debt
359,985
280,392
Joint venture partners
217,301
183,215
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The following is a summary of results of operations of the Ventures for the years ended December 31, 2020, 2019 and 2018:
67,239
72,582
90,111
Operating expenses
(30,755)
(32,134)
(37,899)
Other expenses
(430)
(3,227)
(938)
Interest expense, net
(11,585)
(14,927)
(13,311)
(33,086)
(30,107)
(41,972)
106,667
Net (loss) income
(8,617)
98,854
(4,009)
Company’s share of net income (loss)
The results of operations above include the periods from January 1, 2018 through June 6, 2019 (date of consolidation) for HVP III and March 19, 2020 (date of initial store acquisition) through December 31, 2020 for HVPSE.
6. UNSECURED SENIOR NOTES
The Company’s unsecured senior notes are summarized as follows (collectively referred to as the “Senior Notes”):
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
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secured debt leverage ratio not to exceed 40% after giving effect to the incurrence of the debt. The indenture also contains other financial and customary covenants, including a covenant not to own unencumbered assets with a value less than 150% of the unsecured indebtedness of the Operating Partnership and its consolidated subsidiaries. As of and for the year ended December 31, 2020, the Operating Partnership was in compliance with all of the financial covenants under the Senior Notes.
7. REVOLVING CREDIT FACILITY AND UNSECURED TERM LOANS
On December 9, 2011, the Company entered into a credit agreement (the “Credit Facility”), which was subsequently amended on April 5, 2012, June 18, 2013 and April 22, 2015 to provide for, among other things, a $500.0 million unsecured revolving facility with a maturity date of April 22, 2020. On June 19, 2019, the Company amended and restated, in its entirety, the Credit Facility (the “Amended and Restated Credit Facility”) which, subsequent to the amendment and restatement, is comprised of a $750.0 million unsecured revolving credit facility (the “Revolver”) maturing on June 19, 2024. Under the Amended and Restated Credit Facility, pricing on the Revolver is dependent upon the Company’s unsecured debt credit ratings. At the Company’s current Baa2/BBB level, amounts drawn under the Revolver are priced at 1.10% over LIBOR, inclusive of a facility fee of 0.15%. The Company incurred costs of $3.9 million in 2019 in connection with amending and restating the Credit Facility and capitalized such costs as a component of Loan procurement costs, net of amortization on the consolidated balance sheets.
On January 31, 2019, the Company used a portion of the net proceeds from the issuance of $350.0 million of 4.375% Senior Notes due 2029 (the “2029 Notes”) to repay all of the outstanding indebtedness under the $200.0 million unsecured term loan portion of the Credit Facility.
Under the 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 and for the year ended December 31, 2020, the Operating Partnership was in compliance with all of its financial covenants.
On June 20, 2011, the Company entered into an unsecured term loan agreement (the “Term Loan Facility”), which was subsequently amended on June 18, 2013 and August 5, 2014, consisting of, among other things, a $100.0 million unsecured term loan that was scheduled to mature in January 2020. On June 19, 2019, the Company used an initial advance at closing of the Amended and Restated Credit Facility to repay all of the outstanding indebtedness under the unsecured term loan portion of the Term Loan Facility. Unamortized loan procurement costs of $0.1 million were written off in conjunction with the repayment.
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8. MORTGAGE LOANS AND NOTES PAYABLE
The Company’s mortgage loans and notes payable are summarized as follows:
Carrying Value as of
Mortgage Loans and Notes Payable
Bronx VII, NY (1)
7,805
4.56
Nov-20
Bronx VIII, NY (1)
2,740
4.61
Bronx IX, NY
21,030
21,547
4.85
Jun-21
Bronx X, NY
23,148
24,042
4.64
Nashville V, TN
2,261
2,313
3.85
Jun-23
New York, NY
29,981
30,588
3.51
Annapolis I, MD
5,283
5,459
3.78
May-24
Brooklyn XV, NY
15,713
2.15
Long Island City IV, NY
12,852
Long Island City II, NY
19,094
2.25
Jul-26
Long Island City III, NY
19,106
Aug-26
Flushing II, NY
54,300
Jul-29
202,768
94,494
Plus: Unamortized fair value adjustment
15,879
1,833
(2,143)
(287)
Total mortgage loans and notes payable, net
As of December 31, 2020 and 2019, the Company’s mortgage loans and notes payable were secured by certain of its self-storage properties with net book values of approximately $539.2 million and $206.3 million, respectively. The following table represents the future principal payment requirements on the outstanding mortgage loans and notes payable as of December 31, 2020 (in thousands):
2021
46,383
2022
2,426
2023
32,591
2024
32,329
2025
979
2026 and thereafter
88,060
Total mortgage payments
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9. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss represents unrealized losses on interest rate swaps (see note 10 for details). The following table summarizes the changes in accumulated other comprehensive loss for the years ended December 31, 2020 and 2019.
Beginning balance
(737)
Unrealized gains on interest rate swaps
-
Reclassification of realized losses on interest rate swaps (1)
Ending balance
(656)
Less: portion included in noncontrolling interests in the Operating Partnership
Total accumulated other comprehensive loss included in equity
10. RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS
The Company’s use of derivative instruments is limited to the utilization of interest rate swap agreements or other instruments to manage interest rate risk exposures and not for speculative purposes. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure, as well as to hedge specific transactions. The counterparties to these arrangements are major financial institutions with which the Company and its subsidiaries may also have other financial relationships. The Company is potentially exposed to credit loss in the event of non-performance by these counterparties. However, because of the high credit ratings of the counterparties, the Company does not anticipate that any of the counterparties will fail to meet these obligations as they come due. The Company does not hedge credit or property value market risks.
The Company 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 consolidated statement of operations realized and unrealized gains and losses with respect to the derivative. As of December 31, 2020 and 2019, 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 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 $0.1 million of unrealized losses from accumulated other comprehensive loss as an increase to interest expense during 2020. The Company estimates that $0.1 million will be reclassified as an increase to interest expense in 2021.
11. FAIR VALUE MEASUREMENTS
The Company applies the methods of determining fair value, as described in authoritative guidance, to value its financial assets and liabilities. As defined in the guidance, fair value is based on the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
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Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible, as well as considering counterparty credit risk in its assessment of fair value.
There were no financial assets or liabilities carried at fair value as of December 31, 2020 and 2019.
The fair values of financial instruments, including cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate their respective carrying values as of December 31, 2020 and 2019. The aggregate carrying value of the Company’s debt was $2,364.7 million and $1,931.8 million as of December 31, 2020 and 2019, respectively. The estimated fair value of the Company’s debt was $2,571.3 million and $2,037.6 million as of December 31, 2020 and 2019, respectively. The fair value of debt estimates were based on a discounted cash flow analysis assuming market interest rates for comparable obligations as of December 31, 2020 and 2019. The Company estimates the fair value of its fixed-rate debt and the credit spreads over variable market rates on its variable-rate debt by discounting the future cash flows of each instrument at estimated market rates or credit spreads consistent with the maturity of the debt obligation with similar credit policies, which is classified within level 2 of the fair value hierarchy. Rates and credit spreads take into consideration general market conditions and maturity.
12. NONCONTROLLING INTERESTS
Interests in Consolidated Joint Ventures
Noncontrolling interests in subsidiaries represent the ownership interests of third parties in the Company’s consolidated joint ventures. The Company has determined that these ventures are variable interest entities, and that the Company is the primary beneficiary. Accordingly, the Company consolidates the assets, liabilities and results of operations of the joint ventures in the table below:
Date Opened /
Estimated
December 31, 2020
Consolidated Joint Ventures
of Stores
Location
Opening
Total Assets
Total Liabilities
CS Vienna, LLC ("Vienna") (1)
Vienna, VA
Q2 2022 (est.)
72%
16,424
4,981
CS 750 W Merrick Rd, LLC ("Merrick") (2)
Valley Stream, NY
Q1 2022 (est.)
51%
12,090
5,269
CS Valley Forge Village Storage, LLC ("VFV") (3)
King of Prussia, PA
Q2 2021 (est.)
70%
18,129
9,806
Shirlington Rd II, LLC ("SH2") (4)
Arlington, VA
Q1 2021 (est.)
90%
18,821
1,046
CS 2087 Hempstead Tpk, LLC ("Hempstead") (2)
East Meadow, NY
22,079
7,576
CS SDP Newtonville, LLC ("Newton") (3)
Newton, MA
17,808
11,289
Shirlington Rd, LLC ("SH1") (4)
Q2 2015
14,511
171
119,862
40,138
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On May 30, 2019, the Company sold its 90% ownership interest in CS SJM E 92nd Street, LLC, a previously consolidated development joint venture, for $3.7 million. In conjunction with the sale, $0.7 million of the $1.7 million related party loan extended by the Company to the venture was repaid. The remaining $1.0 million was recorded as a note receivable and was repaid during the third quarter of 2019. Additionally, as a result of the transaction, the Company was released from its obligations under the venture’s ground lease, and right-of-use assets and lease liabilities totaling $13.4 million and $14.6 million, respectively, were removed from the Company’s consolidated balance sheets.
Operating Partnership Ownership
The Company follows guidance regarding the classification and measurement of redeemable securities. Under this guidance, securities that are redeemable for cash or other assets, at the option of the holder and not solely within the control of the issuer, must be classified outside of permanent equity/capital. This classification results in certain outside ownership interests being included as redeemable noncontrolling interests outside of permanent equity/capital in the consolidated balance sheets. The Company makes this determination based on terms in applicable agreements, specifically in relation to redemption provisions.
Additionally, with respect to redeemable ownership interests in the Operating Partnership held by third parties for which CubeSmart has a choice to settle the redemption by delivery of its own shares, the Operating Partnership considered the guidance regarding accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own shares, to evaluate whether CubeSmart controls the actions or events necessary to presume share settlement. The guidance also requires that noncontrolling interests classified outside of permanent capital be adjusted each period to the greater of the carrying value based on the accumulation of historical cost or the redemption value.
Approximately 3.6% and 1.0% of the outstanding OP Units as of December 31, 2020 and 2019, respectively, were not owned by CubeSmart, the sole general partner. The interests in the Operating Partnership represented by these OP Units were a component of the consideration that the Operating Partnership paid to acquire certain self-storage properties. The holders of the OP Units are limited partners in the Operating Partnership and have the right to require CubeSmart to redeem all or part of their OP Units for, at the general partner’s option, an equivalent number of common shares of CubeSmart or cash based upon the fair value of an equivalent number of common shares of CubeSmart. However, the partnership agreement contains certain provisions that could result in a cash settlement outside the control of CubeSmart and the Operating Partnership, as CubeSmart does not have the ability to settle in unregistered shares. Accordingly, consistent with the guidance, the Operating Partnership records the OP Units owned by third parties outside of permanent capital in the consolidated balance sheets. Net income or loss related to the OP Units owned by third parties is excluded from net income or loss attributable to Operating Partner in the consolidated statements of operations.
In two separate tranches during December 2020, the Company acquired the Storage Deluxe Assets for an aggregate purchase price of $540.0 million. In connection with the acquisition of the Storage Deluxe Assets, the Company issued 5,272,023 OP Units valued at approximately $175.1 million to fund a portion of the purchase price.
On September 29, 2020, the Company acquired the noncontrolling interest in a previously consolidated joint venture that owned a store in New York for $10.0 million. In conjunction with the closing, the Company paid $1.0 million in cash and issued 276,497 OP Units, valued at approximately $9.0 million, to pay the remaining consideration.
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On December 16, 2019, the Company acquired a store in California for $18.5 million. In conjunction with the closing, the Company paid $14.9 million and issued 106,738 OP Units, valued at approximately $3.6 million, to pay the remaining consideration.
On January 31, 2018, the Company acquired a store in Texas for $12.2 million and assumed an existing mortgage loan with an outstanding balance of approximately $7.2 million and immediately repaid the loan. In conjunction with the closing, the Company paid $0.2 million in cash and issued 168,011 OP Units, valued at approximately $4.8 million, to pay the remaining consideration.
On April 12, 2017, the Company acquired a store in Illinois for $11.2 million. In conjunction with the closing, the Company paid $9.7 million and issued 58,400 Class C OP Units to pay the remaining consideration. On July 23, 2018, all of the 58,400 Class C OP Units were exchanged for an aggregate of 46,322 common units of the Operating Partnership.
As of December 31, 2020 and 2019, 7,420,828 and 1,972,308 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 year. Based on the Company’s evaluation of the redemption value of the redeemable noncontrolling interests, 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 December 31, 2020 and 2019. As of December 31, 2020 and 2019, the Operating Partnership recorded an increase to OP Units owned by third parties and a corresponding decrease to capital of $4.2 million and $5.9 million, respectively.
13. LEASES
CubeSmart as Lessor
The Company derives revenue primarily from rents received from customers who rent cubes at its self-storage properties under month-to-month leases for personal or business use. The self-storage lease agreements utilized by the Company vary slightly to comply with state-specific laws and regulations, but generally provide for automatic monthly renewals, flexibility to increase rental rates over time as market conditions permit and the collection of contingent fees such as administrative and late fees. None of the self-storage lease agreements contain options that allow the customer to purchase the leased space at any time during, or at the expiration of, the lease term. All self-storage leases in which the Company serves as lessor have been classified as operating leases. Accordingly, storage cubes are carried at historical cost less accumulated depreciation and impairment, if any, and are included in Storage properties on the Company’s consolidated balance sheets. Operating lease income for amounts received under the Company’s self-storage lease agreements is recognized on a straight-line basis which, due to the month-to-month nature of the leases, results in the recognition of income during the initial term and each subsequent monthly renewal using the then-in-place rent amount. Operating lease income is included in Rental income within the Company’s consolidated statements of operations. Variable lease income related to the Company’s self-storage lease agreements consists of administrative and late fees charged to customers. For the years ended December 31, 2020 and 2019, administrative and late fees totaled $20.0 million and $22.6 million, respectively, and are included in Other property related income within the Company’s consolidated statements of operations.
CubeSmart as Lessee
The Company serves as lessee in lease agreements for land, office space, automobiles and certain equipment, which have remaining lease terms of up to 44 years. Certain of the Company’s leases contain provisions that (1) provide for one or more options to renew, with renewal options that can extend the lease term up to 69 years, (2) allow for early termination at certain points during the lease term and/or (3) give the Company the option to purchase the leased property. In all cases, the exercise of the lease renewal, termination and purchase options, if provided for in the lease, are at the Company’s sole discretion. Certain of the Company’s lease agreements, particularly its land leases, require rental payments that are periodically adjusted for inflation using a defined index. None of the Company’s lease agreements contain any material residual value guarantees or material restrictive covenants. Lease expense for payments related to the Company’s finance leases is recognized as interest expense using the interest method over the related lease term. Lease expense for payments related to the Company’s operating leases is recognized on a straight-line basis over the related lease term, which includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments as specified in the lease. Right-of-use assets and lease liabilities related to the Company’s leases are recognized at the lease commencement date based on the present value of the remaining lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available surrounding the Company’s unsecured borrowing rates and implied secured spread at the lease commencement date in determining the
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present value of lease payments. The right-of-use asset also includes any lease payments made at or before lease commencement less any lease incentives.
For the years ended December 31, 2020 and 2019, the Company’s lease cost consists of the following components:
Year Ended December 31,
Finance lease cost:
Amortization of finance lease right-of-use assets
Interest expense related to finance lease liabilities
64
Operating lease cost
2,856
3,304
Short-term lease cost (1)
1,114
1,227
Total lease cost
4,083
4,531
The following table represents supplemental balance sheet information related to leases as of December 31, 2020 and 2019:
(dollars in thousands)
Finance Leases
Right-of-use assets included in Storage properties, net
Lease liabilities included in Lease liabilities - finance leases
Operating Leases
Right-of-use assets included in Other assets, net
Lease liabilities included in Accounts payable, accrued expenses and other liabilities
53,595
46,391
Weighted Average Lease Term (in years)
Finance leases
43.5
Operating leases
34.8
35.9
Weighted Average Discount Rate
3.25
4.74
The following table represents the future lease liability maturities as of December 31, 2020 (in thousands):
Finance
2,511
2,183
2,639
2,690
2,540
2,224
2,539
122,932
99,290
Total lease payments
133,641
112,209
Less: Imputed interest
(68,042)
(58,614)
Present value of lease liabilities
As of December 31, 2020, the Company has not entered into any lease agreements that are set to commence in the future.
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14. 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 for the years ending December 31, 2020, 2019 and 2018 were $3.8 million, $4.0 million and $4.5 million, respectively.
The management agreements for certain joint ventures, other related parties and third-party stores provide for the reimbursement to the Company for certain expenses incurred to manage the stores. These reimbursements consist of amounts due for management fees, payroll and other store expenses. The amounts due to the Company were $13.1 million and $10.5 million as of December 31, 2020 and 2019, respectively, and are included in Other Assets, net on the Company’s consolidated balance sheets. Additionally, as discussed in note 12, the Company had outstanding mortgage loans receivable from consolidated joint ventures of $21.4 million and $3.1 million as of December 31, 2020 and 2019, respectively, which are eliminated for consolidation purposes. The Company believes that all of these related-party receivables are fully collectible.
The HVPSE, HVP IV and HHFNE operating agreements provide for acquisition, disposition and other fees payable from HVPSE, HVP IV and HHFNE to the Company upon the closing of a property transaction by HVPSE, HVP IV and HHFNE, or any of their subsidiaries and completion of certain measures as defined in the operating agreements. During the years ended December 31, 2020, 2019 and 2018, the Company recognized $0.7 million, $2.1 million and $0.6 million, respectively, in fees associated with property transactions (including fees associated with HVP III). Property transaction fees are included in Other income on the consolidated statements of operations.
15. COMMITMENTS AND CONTINGENCIES
Development Commitments
The Company has agreements with developers for the construction of six new self-storage properties (see note 4), which will require payments of approximately $48.4 million, due in installments upon completion of certain construction milestones, during 2021 and 2022.
Litigation
The Company is involved in claims from time to time, which arise in the ordinary course of business. In accordance with applicable accounting guidance, management establishes an accrued liability for claim expenses, insurance retention and litigation costs when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be exposure to loss in excess of those amounts accrued. The estimated loss, if any, is based upon currently available information and is subject to significant judgment, a variety of assumptions and known and unknown uncertainties. In the opinion of management, the Company has made adequate provisions for potential liabilities, arising from any such matters, which are included in Accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets.
16. SHARE-BASED COMPENSATION PLANS
On June 1, 2016 the Company’s shareholders approved an amendment and restatement of the Company’s 2007 Equity Incentive Plan, a share-based employee compensation plan originally approved by shareholders on May 8, 2007 and subsequently amended with shareholder approval on June 2, 2010 (as amended and restated, the “2007 Plan”). The purpose of the 2007 Plan is to attract and retain highly qualified executive officers, Trustees and key employees and other persons and to motivate such officers, Trustees, key employees and other persons to serve the Company and its affiliates to expend maximum effort to improve the business results and earnings of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. To this end, the 2007 Plan provides for the grant of share options, share appreciation rights, restricted shares, restricted share units, performance awards, which may be denominated in cash or shares, included restricted shares and restricted share units, and other share-based awards, including unrestricted common shares or awards denominated or payable in, or valued in whole or part by reference to, common shares. Any of these awards may, but need not, be made as performance incentives to reward attainment of annual or long-term performance goals. Share options granted under the 2007 Plan may be non-qualified share options or incentive share options.
Upon shareholder approval of the amendment and restatement of the 2007 Plan on June 1, 2016, 4,500,000 additional common shares were made available for award under the 2007 Plan. As a result, these 4,500,000 additional shares, together with the 991,117 shares that remained available for future awards under the 2007 Plan at the time of the shareholder approval, plus any common shares that are restored to availability upon expiration or forfeiture of outstanding options or restricted share awards, would constitute the “Aggregate Share
F-40
Reserve”. As of December 31, 2020: (i) 3,233,009 common shares remained available for future awards under the 2007 Plan; (ii) 664,364 unvested restricted share awards were outstanding under the 2007 Plan; and (iii) 2,118,090 common shares were subject to outstanding options under the 2007 Plan (with the outstanding options having a weighted average exercise price of $26.37 per share and a weighted average term to maturity of 6.39 years).
Prior to the June 1, 2016 amendment, the 2007 Plan used a “Fungible Units” methodology for computing the maximum number of common shares available for issuance under the 2007 Plan. The Fungible Units methodology assigned weighted values to different types of awards under the 2007 Plan without assigning specific numerical limits for different types of awards. As amended on June 1, 2016, the 2007 Plan provides that any common shares made the subject of awards under the 2007 Plan will count against the Aggregate Share Reserve as one (1) unit. The Aggregate Share Reserve and the computation of the number of common shares available for issuance is subject to adjustment upon certain corporate transactions or events, including share splits, reverse share splits and recapitalizations. The number of shares counted against the Aggregate Share Reserve includes the full number of shares subject to the award, and is not reduced in the event shares are withheld to fund withholding tax obligations, or, in the case of options and share appreciation rights, where shares are applied to pay the exercise price. If an option or other award granted under the 2007 Plan expires, is forfeited or otherwise terminates, the common shares subject to any portion of the award that expires, is forfeited or that otherwise terminates, as the case may be, again becomes available for issuance under the 2007 Plan.
The 2007 Plan is administered by the Compensation Committee of the Company’s Board of Trustees (the “Compensation Committee”), which is appointed by the Board of Trustees. The Compensation Committee interprets the 2007 Plan and, subject to its right to delegate authority to grant awards, determines the terms and provisions of option grants and share awards.
Subject to adjustment upon certain corporate transactions or events, a participant (other than a non-employee trustee) may not receive awards under the 2007 Plan in any one calendar year covering more than 1,000,000 shares. Subject to adjustment upon certain corporate transactions or events, a non-employee trustee may not receive awards under the 2007 Plan in any one calendar year covering more than 250,000 shares.
Under the 2007 Plan, the Compensation Committee determines the vesting schedule of each share award and option, subject to a one-year minimum vesting requirement, but with permitted acceleration of vesting in the event of a participant’s death or disability, or in the event of a change in control or certain changes in our capital structure. Notwithstanding the foregoing one-year minimum vesting limitation, up to five percent of the shares subject to the Aggregate Share Reserve may be subject to awards that are not subject to such limitation. The exercise price for options is equivalent to the fair value of the underlying common shares at the grant date. The Compensation Committee also determines the term of each option, which shall not exceed 10 years from the grant date.
On October 19, 2004, the Company’s sole shareholder approved a share-based employee compensation plan, the 2004 Equity Incentive Plan (the “2004 Plan”). The 2004 Plan expired in October 2014. Prior to its expiration, a total of 3.0 million common shares were reserved for issuance under the 2004 Plan. Subsequent to its expiration, no new equity awards may be granted under the 2004 Plan, and to the extent that options expire unexercised or are terminated, surrendered or canceled, the options and share awards no longer become available for future grants under the 2004 Plan.
Share Options
The fair values for options granted in 2020, 2019 and 2018 were estimated at the time the options were granted using the Black-Scholes option-pricing model applying the following weighted average assumptions:
Assumptions:
Risk-free interest rate
2.7
2.5
Expected dividend yield
3.7
Volatility (1)
20.00
32.00
Weighted average expected life of the options (2)
6.0
years
Weighted average grant date fair value of options granted per share
3.66
6.35
6.24
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The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options. In addition, option-pricing models require the input of highly subjective assumptions, including the expected share price volatility. Volatility for the 2020, 2019 and 2018 grants was based on the trading history of the Company’s shares.
In 2020, 2019 and 2018, the Company recognized compensation expense related to options issued to employees and executives of approximately $2.0 million, $1.8 million and $1.5 million, respectively, which is included in General and administrative expense on the Company’s consolidated statements of operations. During 2020, 607,010 share options were issued for which the fair value of the options at their respective grant dates was approximately $2.2 million. The share options vest over three years. As of December 31, 2020, the Company had approximately $2.1 million of unrecognized option compensation cost related to all grants that will be recorded over the next two years.
The table below summarizes the option activity under the 2004 Plan and the 2007 Plan for the years ended December 31, 2020, 2019 and 2018:
Number of Shares Upon Option
Weighted Average Strike Price
Weighted Average Remaining Contractual Term (years)
1,833,173
16.55
5.26
Options granted
305,805
27.85
9.08
Options canceled
(74,748)
26.95
Options exercised
(405,227)
9.47
1.98
1,659,003
19.89
5.52
324,409
28.69
9.01
(381,059)
9.67
1.00
1,602,353
24.10
6.26
607,010
31.48
(29,814)
30.46
(61,459)
15.65
2.55
6.39
Vested or expected to vest at December 31, 2020
Exercisable at December 31, 2020
1,235,816
23.46
4.78
As of December 31, 2020, the aggregate intrinsic value of options outstanding, of options that vested or are expected to vest, and of options that were exercisable was approximately $15.3 million. The aggregate intrinsic value of options exercised was approximately $0.9 million, $9.1 million and $8.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Restricted Shares
The Company applies the fair value method of accounting for contingently issued shares. As such, each grant is recognized ratably over the related vesting period. There were 188,371 restricted shares and share units issued during the year ended December 31, 2020, which vest over three to five years. The fair value of the restricted shares and share units issued during the year ended December 31, 2020 was approximately $6.1 million at their respective grant dates. There were 180,607 restricted shares and share units issued during the year ended December 31, 2019 for which the fair value of the restricted shares and share units at their respective grant dates was approximately $5.8 million. As of December 31, 2020 the Company had approximately $6.0 million of remaining unrecognized restricted share and share unit compensation costs that will be recognized over the next five years. Restricted share awards are considered to be performance awards and are valued using the share price on the grant date. The compensation expense recognized related to these awards and remaining unrecognized compensation costs are included in the amounts disclosed above.
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During the years ended December 31, 2020, 2019 and 2018, the Company recognized compensation expense related to restricted shares and share units issued to employees and Trustees of approximately $5.2 million, $4.9 million and $4.0 million, respectively; these amounts were recorded in general and administrative expense. The following table presents non-vested restricted share and share unit activity during 2020:
Number of Non-
Vested Restricted
Shares and Share Units
Non-Vested at January 1, 2020
489,964
Granted
188,371
Vested
(74,860)
Forfeited
(20,072)
Non-Vested at December 31, 2020
583,403
On January 1, 2020, 54,978 restricted share units were granted to certain executives. The restricted share units were granted in the form of deferred share units with a market condition, entitling the holders thereof to receive common shares at a future date. The deferred share units will be awarded based on the Company’s total return to shareholders with respect to a specified peer group consisting of publicly traded REITs over a three-year period. The fair value of the restricted share units on the grant date was approximately $2.2 million. The Company used a Monte Carlo simulation analysis to estimate the fair value of the awards. The restricted share units will cliff vest upon the third anniversary of the effective date, or December 31, 2022. The compensation expense recognized related to these awards and remaining unrecognized compensation costs are included in the amounts disclosed above.
On January 1, 2019, 55,168 restricted share units were granted to certain executives. The restricted share units were granted in the form of deferred share units with a market condition, entitling the holders thereof to receive common shares at a future date. The deferred share units will be awarded based on the Company’s total return to shareholders with respect to a specified peer group consisting of publicly traded REITs over a three-year period. The fair value of the restricted share units on the grant date was approximately $2.1 million. The Company used a Monte Carlo simulation analysis to estimate the fair value of the awards. The restricted share units will cliff vest upon the third anniversary of the effective date, or December 31, 2021. The compensation expense recognized related to these awards and remaining unrecognized compensation costs are included in the amounts disclosed above.
On January 23, 2018, 66,872 restricted share units were granted to certain executives. The restricted share units were granted in the form of deferred share units with a market condition, entitling the holders thereof to receive common shares at a future date. The deferred share units will be awarded based on the Company’s total return to shareholders with respect to a specified peer group consisting of publicly traded REITs over a three-year period. The fair value of the restricted share units on the grant date was approximately $1.9 million. The Company used a Monte Carlo simulation analysis to estimate the fair value of the awards. The restricted share units will cliff vest upon the third anniversary of the effective date, or December 31, 2020. The compensation expense recognized related to these awards and remaining unrecognized compensation costs are included in the amounts disclosed above.
17. 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:
Share options and restricted share units
796
702
842
Weighted average diluted shares outstanding (1)
Diluted earnings per share attributable to common shareholders (2)
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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:
(dollars and units in thousands, except per unit amounts)
Net income attributable to common unitholders
Unit options and restricted share units
Weighted average diluted units outstanding (1)
Diluted earnings per unit attributable to common unitholders (2)
The OP units and common units have essentially the same economic characteristics as they share equally in the total net income or loss and distributions of the Operating Partnership. An Operating Partnership unit may be redeemed for cash, or at the Company’s option, common units on a one-for-one basis. Outstanding noncontrolling interest units in the Operating Partnership were 7,420,828; 1,972,308 and 1,945,570 as of December 31, 2020, 2019 and 2018, respectively. There were 197,405,989; 193,557,024 and 187,145,103 common units outstanding as of December 31, 2020, 2019 and 2018, respectively.
Common Shares
The Company maintains an at-the-market equity program that enables it to offer and sell up to 60.0 million common shares through sales agents pursuant to equity distribution agreements (the “Equity Distribution Agreements”). The Company’s sales activity under the program for the years ended December 31, 2020, 2019 and 2018 is summarized below:
The proceeds from the sales of common shares under the program during the years ended December 31, 2020, 2019 and 2018 were used to fund acquisitions of storage properties and for general corporate purposes. As of December 31, 2020, 2019 and 2018, 10.9 million common shares, 4.6 million common shares and 10.5 million common shares, respectively, remained available for issuance under the Equity Distribution Agreements.
18. INCOME TAXES
Deferred income taxes are established for temporary differences between the financial reporting basis and tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance for deferred tax assets is provided if the Company believes that it is more likely than not that all or some portion of the deferred tax asset will not be realized. No valuation allowance was recorded as of December 31, 2020 or 2019. As of December 31, 2020 and 2019, the Company had
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net deferred tax assets of $0.4 million and $0.8 million, respectively, which are included in Other assets, net on the Company’s consolidated balance sheets. The Company believes it is more likely than not the deferred tax assets will be realized.
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SCHEDULE III
REAL ESTATE AND RELATED DEPRECIATION
Gross Carrying Amount at
Initial Cost
Costs
Buildings
Subsequent
Year
Square
&
to
Depreciation
Acquired/
Description
Footage
Encumbrances
Improvements
Acquisition
(A)
Developed
Chandler I, AZ
47,880
327
1,257
642
1,868
598
2005
Chandler II, AZ
82,905
1,518
7,485
239
7,721
9,239
1,795
2013
Gilbert I, AZ
57,075
951
4,688
212
4,895
5,846
1,206
Gilbert II, AZ
114,530
1,199
11,846
180
12,026
13,225
1,456
Glendale, AZ
56,807
201
2,265
1,393
418
3,070
3,488
1,636
1998
Green Valley, AZ
25,050
298
1,153
286
1,080
1,378
413
Mesa I, AZ
52,575
920
2,739
463
921
2,756
3,677
1,348
2006
Mesa II, AZ
45,511
731
2,176
420
2,267
2,998
1,112
Mesa III, AZ
59,209
706
2,101
510
2,228
2,934
1,072
Peoria, AZ
110,780
1,436
7,082
263
7,344
8,780
1,333
Phoenix III, AZ
121,855
2,115
10,429
458
10,886
13,001
2,361
2014
Phoenix IV, AZ
69,710
930
12,277
119
12,396
13,326
1,486
Queen Creek, AZ
94,442
1,159
5,716
107
5,824
6,983
1,083
Scottsdale, AZ
108,240
443
4,879
6,283
883
10,044
10,927
3,170
Surprise , AZ
72,575
584
3,761
192
3,953
4,537
641
Tempe I, AZ
77,543
941
3,283
850
3,615
4,556
996
2005 / 2019
Tempe II, AZ
68,409
588
2,898
2,167
5,065
5,653
1,475
Tucson I, AZ
59,800
188
2,078
1,167
384
2,741
3,125
1,525
Tucson II, AZ
43,950
1,166
391
2,759
3,150
1,502
Tucson III, AZ
49,820
532
2,048
397
533
1,811
2,344
712
Tucson IV, AZ
48,040
674
2,595
455
675
2,286
2,961
910
Tucson V, AZ
45,184
515
1,980
424
1,787
2,302
743
Tucson VI, AZ
40,766
440
336
430
1,506
599
Tucson VII, AZ
52,663
670
2,576
2,266
2,936
923
Tucson VIII, AZ
46,650
589
483
2,068
2,657
820
Tucson IX, AZ
67,496
724
2,786
521
725
2,424
3,149
998
Tucson X, AZ
46,350
1,633
425
1,507
1,932
606
Tucson XI, AZ
42,700
439
1,689
451
1,618
2,057
746
Tucson XII, AZ
42,275
671
2,582
672
2,231
2,903
886
Tucson XIII, AZ
45,800
587
2,258
376
1,942
2,529
811
Tucson XIV, AZ
48,995
707
2,721
538
708
2,360
3,068
990
Benicia, CA
74,770
2,392
7,028
5,517
7,909
2,083
Citrus Heights, CA
75,620
4,793
328
1,634
3,667
5,301
1,460
Corona, CA
95,474
2,107
10,385
421
10,805
12,912
2,084
Diamond Bar, CA
103,488
2,522
7,404
395
2,524
5,647
8,171
Escondido, CA
143,645
3,040
11,804
344
9,788
12,828
4,082
2007
Fallbrook, CA
45,926
133
1,492
1,975
432
2,921
3,353
1,606
1997
Fremont, CA
51,189
1,158
5,711
199
5,911
7,069
1,331
Lancaster, CA
60,475
2,247
1,146
556
3,213
1,273
2001
Long Beach I, CA
124,541
3,138
14,368
1,151
13,583
16,721
6,388
Long Beach II, CA
71,130
3,424
13,987
250
14,237
17,661
394
Los Angeles, CA
77,023
23,289
25,867
146
26,013
49,302
1,566
Murrieta, CA
49,775
1,883
5,532
341
1,903
4,228
6,131
1,648
North Highlands, CA
57,094
868
2,546
692
2,418
3,286
957
Ontario, CA
93,490
1,705
8,401
8,884
10,589
Orangevale, CA
50,542
1,423
4,175
3,341
4,764
1,350
Pleasanton, CA
83,600
2,799
8,222
623
6,424
9,223
2,363
Rancho Cordova, CA
53,978
1,094
3,212
513
1,095
2,728
3,823
1,073
Rialto I, CA
57,391
899
4,118
375
3,918
4,817
Rialto II, CA
99,783
277
3,098
1,894
4,192
4,864
2,405
Riverside I, CA
67,320
1,351
6,183
6,026
7,377
2,869
Riverside II, CA
85,101
1,170
5,359
574
5,128
6,298
2,411
Roseville, CA
59,944
1,284
3,767
3,152
4,436
1,312
Sacramento I, CA
50,764
1,152
3,380
2,865
4,017
1,126
Sacramento II, CA
111,831
2,085
709
2,086
6,211
8,297
1,640
2005/2017
San Bernardino I, CA
31,070
572
1,219
182
1,458
793
San Bernardino II, CA
41,426
112
1,251
1,439
306
2,135
2,441
San Bernardino III, CA
35,416
98
1,093
1,371
242
1,963
2,205
1,103
San Bernardino IV, CA
83,352
1,872
5,391
482
4,654
6,526
1,817
San Bernardino V, CA
56,803
783
3,583
752
3,803
4,586
1,798
San Bernardino VII, CA
78,695
6,753
522
1,290
6,524
7,814
3,115
San Bernardino VIII, CA
111,833
1,691
7,741
766
6,554
8,246
3,183
San Diego, CA
87,287
1,185
16,740
301
1,186
17,040
18,226
San Marcos, CA
37,425
775
2,288
274
776
1,869
2,645
727
Santa Ana, CA
63,931
1,223
5,600
542
6,571
South Sacramento, CA
52,390
790
488
791
2,060
2,851
818
Spring Valley, CA
55,085
1,178
5,394
1,028
5,678
6,856
2,695
Temecula I, CA
81,340
660
4,735
1,310
5,190
6,089
2,467
Temecula II, CA
84,520
3,080
5,839
1,254
6,157
9,237
2,368
Vista I, CA
74,238
711
4,076
2,508
1,118
5,245
6,363
2,482
Vista II, CA
147,723
4,629
13,599
511
10,133
14,762
3,838
Walnut, CA
50,664
1,578
4,635
529
1,595
3,771
5,366
1,461
West Sacramento, CA
39,765
1,222
3,590
275
2,792
4,014
Westminster, CA
68,293
1,740
5,142
401
1,743
3,932
5,675
1,623
Aurora, CO
75,717
1,343
2,986
2,726
4,069
1,075
Centennial, CO
62,400
1,281
8,958
9,077
10,358
1,243
Colorado Springs I, CO
47,975
771
1,717
554
1,751
Colorado Springs II, CO
657
2,674
291
656
2,457
3,113
1,198
Denver I, CO
59,200
673
617
646
2,880
3,526
1,314
Denver II, CO
74,420
1,430
7,053
190
7,211
8,641
2012
Denver III, CO
76,025
1,828
12,109
99
12,208
14,036
1,621
Federal Heights, CO
54,848
878
1,953
359
879
1,730
2,609
714
Golden, CO
87,800
1,683
3,744
633
1,684
3,335
5,019
1,375
Littleton, CO
53,490
1,268
2,820
435
2,483
3,751
991
Northglenn, CO
43,102
862
1,917
609
662
2,118
2,780
823
F-46
Bloomfield, CT
48,700
880
2,439
360
3,055
1,413
Branford, CT
50,629
217
2,433
1,731
504
3,451
3,955
1,964
1995
Bristol, CT
53,425
1,819
3,161
445
2,608
4,427
978
East Windsor, CT
45,816
744
1,294
1,381
2,125
648
Enfield, CT
52,875
512
473
2,154
2,627
1,074
Gales Ferry, CT
54,905
240
2,697
1,690
489
3,660
4,149
2,178
Manchester I, CT
46,925
540
3,096
569
563
2,666
3,229
1,253
2002
Manchester II, CT
52,725
1,579
2,575
Manchester III, CT
60,103
3,308
200
3,508
4,179
795
Milford, CT
44,885
87
1,050
1,368
2,188
1,032
1996
Monroe, CT
63,700
2,004
3,483
946
3,089
5,093
1,296
Mystic, CT
50,850
136
1,645
2,198
410
3,478
1,701
Newington I, CT
42,270
1,059
1,840
315
1,547
2,606
Newington II, CT
35,640
911
1,584
372
1,412
2,323
593
Norwalk I, CT
30,166
3,187
3,241
3,887
872
Norwalk II, CT
82,225
1,171
15,422
467
15,889
17,060
2,104
Old Saybrook I, CT
86,975
3,092
5,374
7,320
1,753
Old Saybrook II, CT
26,425
1,135
1,973
2,714
678
Shelton, CT
78,405
1,613
9,032
571
8,519
10,132
2,464
2011
South Windsor, CT
72,075
90
1,127
1,560
272
2,281
2,553
1,264
Stamford, CT
28,907
1,941
3,374
207
2,471
4,412
993
Wilton, CT
84,526
2,409
12,261
816
2,421
13,137
15,558
3,664
Washington I, DC
62,685
871
12,759
1,045
894
11,079
11,973
4,432
2008
Washington II, DC
82,452
13,612
469
3,154
12,305
15,459
3,501
Washington III, DC
78,215
4,469
15,438
121
15,559
20,028
2,248
Washington IV, DC
71,948
6,359
20,417
6,369
20,681
27,050
1,754
Washington V, DC
114,200
13,908
18,770
177
13,917
18,938
32,855
1,408
Boca Raton, FL
37,968
3,054
1,677
813
3,621
4,434
1,770
Boynton Beach I, FL
61,765
667
3,796
2,017
958
4,472
5,430
2,187
Boynton Beach II, FL
61,484
1,030
2,968
621
2,864
3,894
Boynton Beach III, FL
67,368
1,225
6,037
320
6,358
7,583
1,356
Boynton Beach IV, FL
76,564
1,455
7,171
179
7,351
8,806
1,287
Bradenton I, FL
68,389
1,180
3,324
2,962
4,132
1,196
2004
Bradenton II, FL
88,063
1,931
5,561
1,212
5,094
7,025
2,189
Cape Coral I, FL
76,857
472
2,769
2,650
830
4,079
4,909
2,366
2000
Cape Coral II, FL
67,955
5,387
115
5,502
6,595
1,086
Coconut Creek I, FL
78,846
1,189
5,863
205
6,031
7,220
1,597
Coconut Creek II, FL
90,137
1,937
9,549
214
9,764
11,701
2,173
Dania Beach, FL
180,776
10,324
1,827
9,589
13,173
4,123
Dania, FL
58,315
1,775
481
3,143
3,624
1,758
Davie, FL
80,985
7,183
1,372
1,373
6,263
7,636
2,905
Deerfield Beach, FL
57,280
2,999
2,047
1,311
4,529
5,840
2,453
Delray Beach I, FL
67,545
798
4,539
855
4,105
4,988
Delray Beach II, FL
75,788
4,718
284
4,996
5,953
1,242
Delray Beach III, FL
94,210
10,286
10,477
12,563
Delray Beach IV, FL
97,208
2,208
14,384
14,421
16,629
1,346
Edgewater, FL
98,375
1,362
12,251
12,252
13,614
Ft. Lauderdale I, FL
70,343
937
3,646
2,641
1,384
5,597
6,981
2,964
1999
Ft. Lauderdale II, FL
49,662
4,364
5,226
985
Ft. Myers I, FL
67,504
303
3,329
1,012
3,338
3,666
Ft. Myers II, FL
83,325
5,080
189
6,299
1,117
Ft. Myers III, FL
81,554
1,148
5,658
241
7,047
1,238
Ft. Myers IV, FL
70,051
992
8,287
168
8,455
9,447
Ft. Myers V, FL
62,370
950
7,763
129
7,892
8,842
366
Jacksonville I, FL
79,735
1,862
5,362
216
4,399
6,261
1,698
Jacksonville II, FL
65,129
7,004
228
6,625
2,372
Jacksonville III, FL
65,780
860
7,409
1,081
1,670
6,078
7,748
2,538
Jacksonville IV, FL
95,605
870
8,049
1,651
7,204
8,855
2,995
Jacksonville V, FL
82,593
1,220
8,210
6,958
8,178
2,904
Jacksonville VI, FL
70,795
755
3,725
170
4,649
777
Kendall, FL
75,495
2,350
8,106
497
6,830
9,180
Lake Worth I, FL
158,754
183
6,597
7,838
354
11,180
11,534
5,963
Lake Worth II, FL
86,884
1,552
7,654
210
7,863
9,415
1,693
Lake Worth III, FL
92,510
4,716
249
4,966
5,923
Lakeland, FL
53,629
896
1,542
256
1,846
2,102
922
1994
Leisure City, FL
56,185
409
2,018
2,283
2,692
Lutz I, FL
71,595
901
2,478
3,224
939
Lutz II, FL
69,232
2,868
3,538
Margate I, FL
53,660
161
1,763
2,385
399
3,466
3,865
1,995
Margate II, FL
65,380
132
1,473
2,215
383
3,052
3,435
1,569
Merritt Island, FL
66,996
2,450
4,762
722
4,522
7,097
2002/2020
Miami I, FL
46,500
1,999
1,934
2,918
3,402
1,631
Miami II, FL
66,860
253
2,544
1,965
561
3,670
4,231
2,002
Miami III, FL
151,420
4,577
13,185
1,017
11,155
15,732
4,485
Miami IV, FL
76,695
1,852
10,494
1,051
9,983
11,946
3,100
Miramar, FL
80,080
5,944
6,132
7,338
Naples I, FL
48,100
1,010
2,788
270
3,252
3,522
1,778
Naples II, FL
65,850
148
1,652
4,425
558
5,377
5,935
3,006
Naples III, FL
80,205
139
1,561
4,319
4,233
4,831
2,387
Naples IV, FL
40,725
262
2,980
701
407
3,084
3,491
1,750
New Smyrna Beach I, FL
87,504
1,261
6,215
350
6,564
7,825
New Smyrna Beach II, FL
109,355
1,514
11,869
11,870
13,384
North Palm Beach, FL
1,374
7,649
63
7,712
9,086
1,011
Oakland Park, FL
63,706
3,007
10,145
59
10,204
13,211
900
Ocoee, FL
76,150
1,286
3,705
3,188
4,474
1,256
Orange City, FL
59,580
1,191
3,209
3,977
1,168
Orlando II, FL
63,184
1,589
4,576
3,776
5,365
1,521
Orlando III, FL
101,190
1,209
7,768
975
7,355
8,564
3,130
Orlando IV, FL
76,801
3,587
3,290
3,923
1,064
2010
Orlando V, FL
75,377
4,685
149
4,780
5,730
1,234
Orlando VI, FL
67,275
640
176
3,330
3,970
Orlando VII, FL
78,610
9,142
211
9,353
10,249
287
Orlando VIII, FL
126,225
12,685
12,686
14,894
F-47
Oviedo, FL
49,236
2,814
3,254
Palm Coast I, FL
47,400
555
2,735
2,871
3,426
659
Palm Coast II, FL
128,690
1,511
7,450
7,906
9,417
1,797
Palm Harbor, FL
82,685
16,178
16,668
19,055
2,143
Pembroke Pines, FL
67,321
337
3,772
3,019
953
5,615
6,568
3,111
Royal Palm Beach II, FL
81,178
8,607
349
7,294
8,934
3,074
Sanford I, FL
61,810
453
2,911
245
2,588
3,041
1,092
Sanford II, FL
69,875
1,003
4,944
255
5,198
6,201
1,054
Sarasota, FL
71,142
333
3,656
1,527
3,964
4,493
St. Augustine, FL
59,720
135
1,515
3,564
4,852
2,532
St. Petersburg, FL
66,025
10,173
10,640
13,361
1,418
Stuart, FL
87,456
324
3,625
3,317
685
5,943
6,628
3,364
SW Ranches, FL
65,042
1,390
7,598
309
6,043
7,433
Tampa I, FL
83,938
2,670
6,249
311
5,207
7,877
Tampa II, FL
74,790
2,291
10,262
290
10,552
12,843
1,363
Tampa III, FL
40,125
989
7,997
988
7,998
8,986
West Palm Beach I, FL
66,831
719
3,420
1,905
835
4,904
1,954
West Palm Beach II, FL
94,113
2,129
8,671
7,121
9,250
3,014
West Palm Beach III, FL
77,410
804
3,962
4,106
4,910
West Palm Beach IV, FL
102,722
1,499
7,392
362
7,753
9,252
1,663
Winter Park I, FL
54,416
866
4,268
4,459
5,325
888
Winter Park II, FL
95,938
1,897
9,286
9,462
11,359
Winter Springs, FL
61,965
1,248
7,259
163
7,422
8,670
231
Alpharetta, GA
90,501
806
4,720
917
4,126
5,043
1,956
Atlanta I, GA
66,600
822
4,053
4,182
5,004
Atlanta II, GA
81,565
1,890
11,579
11,589
13,479
492
Austell, GA
83,655
1,635
4,711
476
1,643
6,174
1,943
Decatur, GA
145,320
616
6,776
586
6,347
6,963
3,699
Duluth, GA
70,885
373
2,044
652
2,370
2,743
607
Lawrenceville, GA
73,890
546
552
3,024
3,570
912
Lithia Springs, GA
73,200
748
5,552
6,049
6,768
970
Norcross I, GA
85,320
514
2,930
1,108
632
3,104
3,736
1,448
Norcross II, GA
52,595
2,025
1,989
2,355
Norcross III, GA
46,955
938
4,625
109
4,733
5,671
1,335
Norcross IV, GA
57,475
576
2,839
2,979
3,555
Norcross V, GA
50,030
881
3,083
4,024
152
Peachtree City I, GA
49,875
826
2,572
3,101
1,233
Peachtree City II, GA
59,950
398
184
2,144
2,542
575
Smyrna, GA
57,015
750
4,271
3,520
4,270
1,700
Snellville, GA
80,050
1,660
4,781
437
4,554
6,214
1,923
Suwanee I, GA
85,125
1,737
5,010
385
4,677
6,414
1,971
Suwanee II, GA
79,590
800
6,942
5,888
6,510
Villa Rica, GA
65,281
757
5,616
185
5,801
6,558
Addison, IL
31,575
428
3,531
626
3,326
3,754
1,388
Aurora, IL
73,985
644
3,652
308
3,745
1,280
Bartlett, IL
51,395
931
2,493
2,303
3,234
943
Bellwood, IL
86,500
5,768
1,197
5,219
6,231
2,469
Blue Island, IL
55,125
3,120
3,267
602
Bolingbrook, IL
83,315
1,675
8,254
219
8,473
10,148
1,695
Chicago I, IL
95,942
2,667
13,118
1,079
14,197
16,864
2,923
Chicago II, IL
79,815
833
4,035
4,145
4,978
Chicago III, IL
84,825
2,427
11,962
12,823
15,250
2,647
Chicago IV, IL
60,420
6,385
160
6,545
7,841
1,203
Chicago V, IL
51,775
1,044
5,144
5,290
967
Chicago VI, IL
71,748
1,596
9,535
9,615
11,211
1,361
Chicago VII, IL
89,904
11,191
11,545
Countryside, IL
97,648
2,607
12,684
643
13,328
15,935
2,583
Des Plaines, IL
69,450
1,564
4,327
893
5,743
1,761
Downers Grove, IL
71,625
1,498
13,153
347
13,500
14,998
1,909
Elk Grove Village, IL
64,104
1,446
3,535
332
2,926
4,372
1,235
Evanston, IL
57,740
5,440
537
5,976
7,079
Glenview I, IL
100,085
3,740
10,367
8,560
12,300
3,582
Glenview II, IL
30,844
3,144
3,251
3,976
223
Gurnee, IL
80,300
4,548
6,069
1,878
Hanover, IL
41,190
2,197
2,038
3,164
Harvey, IL
60,090
869
3,635
3,348
4,217
1,318
Joliet, IL
72,865
547
4,704
329
3,937
4,484
1,649
Kildeer, IL
74,438
4,607
1,997
6,374
8,371
1,465
Lombard, IL
58,728
1,305
3,938
1,078
3,891
5,196
1,602
Maywood, IL
60,225
749
3,689
84
3,773
691
Mount Prospect, IL
65,000
3,114
679
3,047
4,748
1,299
Mundelein, IL
44,700
2,782
551
2,658
4,156
North Chicago, IL
53,500
3,107
4,180
Plainfield I, IL
53,900
1,715
377
1,638
3,378
Plainfield II, IL
52,100
694
2,000
1,832
2,526
713
Riverwoods, IL
73,883
1,585
7,826
7,923
9,508
1,021
Schaumburg, IL
31,160
645
1,321
Streamwood, IL
64,305
1,447
1,662
629
3,269
759
Warrenville, IL
48,326
1,066
3,072
567
2,922
3,988
Waukegan, IL
79,500
4,363
690
5,186
1,686
West Chicago, IL
48,175
1,071
2,249
597
2,242
3,313
916
Westmont, IL
53,400
1,155
3,873
345
3,319
Wheeling I, IL
54,210
857
2,977
3,834
Wheeling II, IL
67,825
3,816
655
3,476
4,269
1,440
Woodridge, IL
50,252
3,397
422
3,027
Schererville, IN
1,134
5,589
85
5,674
6,808
1,193
Boston I, MA
33,286
3,048
2,912
3,450
947
Boston II, MA
59,920
1,516
8,628
952
7,118
8,634
3,214
Boston III, MA
108,205
3,211
15,829
16,664
19,875
3,346
Brockton I, MA
59,993
577
4,394
1,270
5,664
6,241
940
Brockton II, MA
69,375
1,900
3,546
5,446
East Bridgewater, MA
35,905
1,039
4,763
5,802
Fall River, MA
75,900
1,794
11,684
102
11,786
13,580
506
F-48
Franklin, MA
63,405
2,034
5,704
5,722
7,756
271
Haverhill, MA
60,589
669
6,610
244
6,854
7,523
1,113
Holbrook, MA
56,100
1,688
8,033
77
8,110
9,798
374
Lawrence, MA
34,672
585
4,737
5,023
5,608
843
Leominster, MA
54,048
1,519
2,701
338
3,572
3,910
1,893
Medford, MA
58,705
1,330
7,165
6,032
7,362
2,379
Milford, MA
44,950
6,638
6,645
7,867
296
New Bedford, MA
69,775
1,653
9,950
9,997
11,650
Stoneham, MA
62,200
1,558
7,679
8,003
9,561
Tewksbury, MA
62,402
1,537
7,579
289
9,404
Walpole, MA
75,040
634
13,069
583
13,652
14,286
Waltham, MA
87,840
2,683
14,491
14,495
17,178
92,302
2,643
13,938
14,070
16,713
1,504
Annapolis II, MD
78,331
2,425
17,890
55
17,945
20,370
942
Baltimore, MD
96,550
5,997
1,173
5,576
6,749
2,591
Beltsville, MD
63,657
1,277
6,295
6,471
7,739
1,551
California, MD
77,840
4,280
389
3,659
5,145
Capitol Heights, MD
79,600
2,704
13,332
72
13,405
16,109
2,311
Clinton, MD
84,225
2,182
10,757
172
10,925
13,107
2,473
District Heights, MD
80,365
8,313
7,802
9,329
2,306
Elkridge, MD
63,475
5,695
1,120
5,986
7,106
1,395
Gaithersburg I, MD
87,045
3,124
9,000
7,533
10,657
3,109
Gaithersburg II, MD
74,050
2,383
11,750
11,848
14,231
Hyattsville, MD
52,830
5,485
159
5,621
6,734
Jessup, MD
83,908
2,399
13,541
66
13,607
16,006
273
Laurel, MD
162,896
1,409
8,035
4456
1,928
9,516
11,444
4,348
Temple Hills I, MD
97,270
8,788
2759
1,800
8,990
10,790
4,294
Temple Hills II, MD
84,325
2,229
10,988
11,089
13,318
2,442
Timonium, MD
66,717
2,269
11,184
11,458
13,727
Upper Marlboro, MD
62,240
1,309
6,455
6,598
7,907
Bloomington, MN
1,598
12,298
12,672
14,270
1,526
Belmont, NC
81,850
2,196
2,461
1,176
Burlington I, NC
109,170
498
2,837
959
2,978
Burlington II, NC
42,165
1,829
600
340
1,882
2,222
Cary, NC
111,650
3,097
3,394
Charlotte I, NC
69,000
782
4,429
1,788
1,068
4,761
2,130
Charlotte II, NC
53,683
821
8,764
9,663
1,018
Charlotte III, NC
69,037
8,211
8,309
596
Charlotte IV, NC
37,700
721
1,425
1,431
2,152
Cornelius, NC
59,546
4,991
1,133
6,124
8,548
1,008
Pineville, NC
77,747
2,490
9,169
9,380
1,538
Raleigh, NC
48,675
209
2,398
2,402
2,698
1,329
Bayonne, NJ
96,938
23,007
23,018
Bordentown, NJ
50,550
457
2,255
204
2,445
2,902
639
Brick, NJ
54,910
234
2,762
1,769
3,681
4,166
2,062
Cherry Hill I, NJ
51,700
222
1,260
254
1,291
1,513
402
Cherry Hill II, NJ
65,450
471
351
3,108
Clifton, NJ
105,550
4,346
12,520
14,834
4,050
Cranford, NJ
90,656
3,493
3,004
779
6,080
East Hanover, NJ
107,704
5,763
4,790
1,315
8,568
9,883
Egg Harbor I, NJ
36,025
700
Egg Harbor II, NJ
70,400
1,608
1,865
2,149
601
Elizabeth, NJ
38,684
751
2,164
761
Fairview, NJ
27,896
246
840
Freehold, NJ
81,470
5,355
415
5,731
6,817
1,478
Hamilton, NJ
70,550
1,885
5,231
7,124
2,232
Hoboken I, NJ
38,584
1,370
3,947
1,002
3,808
5,178
1,575
Hoboken II, NJ
85,178
19,854
26,529
19,867
26,550
46,417
499
Linden, NJ
100,425
517
6,008
1,043
8,337
4,063
Lumberton, NJ
96,025
987
5,152
6,139
1,364
Morris Township, NJ
77,226
500
5,602
3,529
7,468
8,540
Parsippany, NJ
84,705
5,322
6,293
844
10,258
11,102
4,100
Rahway, NJ
83,121
7,326
8,079
9,565
1,968
Randolph, NJ
52,565
4,872
4,835
2,217
Ridgefield, NJ
67,803
1,810
8,925
460
9,385
11,195
1,639
Roseland, NJ
53,569
1,844
9,759
462
10,221
12,065
1,667
Sewell, NJ
59,226
2,766
1,480
3,168
3,874
1,557
Somerset, NJ
57,335
6,129
624
6,751
7,994
1,755
Whippany, NJ
92,070
2,153
10,615
680
11,295
13,448
Albuquerque I, NM
65,927
3,395
474
3,782
Albuquerque II, NM
58,798
1,163
3,801
447
3,020
4,183
1,194
Albuquerque III, NM
57,536
664
2,171
1,860
Henderson, NV
75,150
1,246
6,143
144
6,286
7,532
1,250
Las Vegas I, NV
48,732
1,851
614
5,034
Las Vegas II, NV
71,425
3,354
5,411
2,955
3,355
7,783
11,138
2,981
Las Vegas III, NV
84,400
10,034
140
10,174
11,345
Las Vegas IV, NV
90,527
1,116
8,575
8,973
10,089
Las Vegas V, NV
107,226
9,560
198
9,758
11,218
1,164
Las Vegas VI, NV
92,732
1,386
12,299
12,481
13,867
1,382
Las Vegas VII, NV
94,525
11,483
11,699
13,274
Las Vegas VIII, NV
59,565
2,186
13,334
13,335
15,521
Baldwin, NY
61,355
1,559
7,685
8,376
9,935
Brightwaters, NY
22,502
2,216
4,029
4,031
6,247
Bronx I, NY
67,864
2,014
11,411
1,443
11,260
3,697
Bronx II, NY
99,028
28,289
11,802
10,019
29,537
39,556
8,650
Bronx III, NY
105,835
6,459
36,180
6,460
32,119
38,579
9,342
Bronx IV, NY
77,015
22,074
19,597
Bronx V, NY
54,704
17,556
279
15,724
4,595
Bronx VI, NY
45,970
16,803
400
15,171
4,441
Bronx VII, NY
78,700
22,512
22,866
6,426
Bronx VIII, NY
30,550
1,245
6,137
406
6,572
7,823
1,830
147,810
7,967
39,279
1,647
40,921
48,888
11,413
159,805
9,090
44,816
637
45,422
54,512
12,196
F-49
Bronx XI, NY
46,425
17,130
17,523
3,181
Bronx XII, NY
100,945
31,603
114
31,717
Bronx XIII, NY
199,459
19,622
68,378
19,684
69,509
89,193
6,184
Bronx XIV, NY
110,630
49,649
49,650
Brooklyn I, NY
64,631
10,172
9,226
11,021
Brooklyn II, NY
60,845
1,601
9,073
578
8,331
9,932
2,750
Brooklyn III, NY
41,610
2,772
13,570
208
13,860
16,632
Brooklyn IV, NY
37,560
282
2,284
11,529
13,813
Brooklyn V, NY
47,070
2,374
11,636
164
11,853
14,227
3,446
Brooklyn VI, NY
74,180
4,210
20,638
4,211
20,925
25,136
6,081
Brooklyn VII, NY
72,725
5,604
27,452
28,090
33,694
8,151
Brooklyn VIII, NY
61,525
4,982
24,561
24,834
29,816
5,257
Brooklyn IX, NY
46,950
2,966
14,620
314
14,935
17,901
3,158
Brooklyn X, NY
55,913
3,739
7,703
4,885
9,710
14,595
Brooklyn XI, NY
110,025
10,093
35,385
35,641
45,734
5,212
Brooklyn XII, NY
131,813
7,249
40,230
7,250
40,272
47,522
Brooklyn XIII, NY
89,580
16,159
27,974
27,976
44,135
Brooklyn XIV, NY
77,496
22,671
22,691
70,025
31,031
28,476
28,497
59,528
College Point, NY
131,382
39,273
49,781
49,802
89,075
Flushing I, NY
64,995
17,177
17,356
123
17,479
34,656
168,069
54,458
98,876
98,897
153,355
Holbrook, NY
60,372
2,029
10,737
10,834
12,863
Jamaica I, NY
91,483
2,043
11,658
12,015
14,058
5,543
Jamaica II, NY
92,780
26,413
27,018
32,409
7,884
Long Island City I, NY
88,800
5,700
28,101
28,385
34,085
5,465
66,069
23,927
30,005
23,928
30,025
53,953
81,430
42,044
42,064
67,855
21,389
26,622
26,643
48,032
New Rochelle I, NY
44,076
1,673
4,827
4,958
6,631
2,026
New Rochelle II, NY
63,385
3,167
2,713
3,762
18,953
22,715
5,311
95,050
42,022
38,753
414
39,167
81,189
North Babylon, NY
78,350
225
2,514
568
5,632
6,200
3,102
Queens I, NY
82,875
5,158
12,339
5,160
13,549
18,709
2,419
Queens II, NY
90,548
6,208
25,815
26,347
32,555
4,478
Queens III, NY
87,168
13,663
32,025
32,295
45,958
2,347
Riverhead, NY
38,690
1,149
876
1,944
Southold, NY
59,945
2,079
2,238
363
3,832
738
Staten Island, NY
96,573
1,919
9,463
960
10,423
12,342
2,520
Tuckahoe, NY
51,248
17,411
12,014
14,377
3,496
West Hempstead, NY
83,395
2,237
11,030
283
11,276
13,513
2,959
White Plains, NY
85,894
3,295
18,049
1,303
16,854
20,149
Woodhaven, NY
50,435
2,015
11,219
10,235
12,250
2,943
Wyckoff, NY
60,440
1,961
11,113
10,081
12,042
3,208
Yorktown, NY
78,909
2,382
11,720
11,979
14,361
3,504
Cleveland I, OH
46,000
525
2,592
2,773
Cleveland II, OH
58,325
1,427
Columbus I, OH
71,905
3,151
191
1,239
2,867
1,396
Columbus II, OH
36,809
769
3,788
433
4,221
4,990
845
Columbus III, OH
51,200
326
1,607
142
2,076
Columbus IV, OH
61,150
2,346
2,789
Columbus V, OH
73,325
838
4,128
4,296
5,134
Columbus VI, OH
63,525
3,454
280
3,734
4,435
726
Grove City, OH
89,290
1,756
386
6,011
1,996
Hilliard, OH
1,366
4,730
1,592
Lakewood, OH
39,332
854
1989
Lewis Center, OH
76,224
1,056
5,206
5,369
6,425
1,076
Middleburg Heights, OH
93,200
704
2,481
2,510
2,842
1,337
1980
North Olmsted I, OH
48,672
1,665
1,861
2,075
1979
North Olmsted II, OH
47,850
1,129
1,019
1,488
1988
North Randall, OH
80,297
3,333
898
4,036
4,934
Reynoldsburg, OH
67,245
452
1,295
4,581
Strongsville, OH
43,683
570
3,486
Warrensville Heights, OH
90,281
3,325
935
3,468
1,845
Westlake, OH
62,700
509
358
508
2,081
2,589
828
Conshohocken, PA
81,285
1,726
8,508
8,832
10,558
2,301
Exton, PA
57,750
541
2,668
2,919
3,438
Langhorne, PA
64,838
619
5,641
6,660
1,479
Levittown, PA
77,815
926
5,296
1,407
4,983
5,909
Malvern, PA
18,820
18,198
1,976
20,115
23,074
3,855
Montgomeryville, PA
84,145
4,809
5,233
Norristown, PA
74,560
3,142
638
5,750
Philadelphia I, PA
96,864
8,334
3,028
8,011
9,472
Philadelphia II, PA
68,279
5,323
6,335
1,174
Exeter, RI
41,275
380
3,077
Johnston, RI
77,275
1,061
5,229
166
5,395
6,456
1,067
Wakefield, RI
47,895
4,058
4,278
5,101
Charleston I, SC
58,840
181
2,550
Charleston II, SC
40,950
1,986
95
2,651
Goose Creek I, SC
52,475
5,307
5,384
6,155
233
Goose Creek II, SC
41,419
3,189
111
Mount Pleasant, SC
72,671
1,434
9,826
11,317
North Charleston I, SC
54,955
5,349
6,142
North Charleston II, SC
56,895
809
2,170
North Charleston III, SC
54,184
763
94
2,132
2,895
Woonsocket, RI
79,100
1,049
5,172
5,734
6,783
Antioch, TN
75,985
4,906
464
3,935
4,523
1,534
Nashville I, TN
108,490
3,379
1,237
3,569
3,974
1,359
Nashville II, TN
83,174
4,950
379
4,555
1,556
Nashville III, TN
101,525
416
3,469
611
4,160
Nashville IV, TN
102,450
8,274
7,603
8,595
3,617
895
4,311
5,238
6,133
Nashville VI, TN
72,416
2,749
7,702
276
7,978
10,727
1,304
F-50
Nashville VII, TN
65,681
8,592
8,612
9,728
378
Nashville VIII, TN
71,234
8,820
8,841
Allen, TX
62,330
3,519
4,370
Austin I, TX
59,645
2,239
4,026
Austin II, TX
64,310
734
580
4,648
1,703
Austin III, TX
70,585
5,468
1,035
5,139
Austin IV, TX
65,258
536
4,786
5,648
Austin V, TX
67,850
5,175
5,539
6,589
1,137
Austin VI, TX
63,150
1,150
5,669
353
6,023
7,173
Austin VII, TX
71,023
1,429
6,642
8,071
1,085
Austin VIII, TX
61,038
2,935
7,007
7,109
1,205
Austin IX, TX
78,505
9,643
9,706
11,027
Austin X, TX
85,225
1,365
8,310
8,311
9,677
Carrollton, TX
77,430
661
3,261
174
3,423
4,084
Cedar Park, TX
86,725
3,350
7,950
8,393
11,743
College Station, TX
812
740
252
1,522
Cypress, TX
58,201
1,773
2,328
531
Dallas I, TX
58,582
2,475
2,253
4,509
Dallas II, TX
76,673
4,899
Dallas III, TX
82,920
12,857
13,518
16,126
2,590
Dallas IV, TX
116,513
2,369
11,850
12,068
14,437
2,230
Dallas V, TX
54,400
11,604
11,717
2,045
Denton, TX
64,446
553
3,720
Fort Worth I, TX
50,066
1,141
382
459
Fort Worth II, TX
72,900
874
4,393
5,267
Fort Worth III, TX
82,395
1,000
4,928
5,279
6,279
Fort Worth IV, TX
77,329
1,274
7,693
9,013
1,190
Fort Worth V, TX
78,675
1,271
88
5,573
6,844
Frisco I, TX
52,894
3,148
267
3,759
1,062
Frisco II, TX
71,011
4,507
292
3,765
5,329
1,500
Frisco III, TX
76,281
1,147
6,088
1,154
6,053
7,207
2,659
Frisco IV, TX
74,875
4,072
427
3,903
4,622
1,249
Frisco V, TX
74,165
5,714
5,897
7,056
Frisco VI, TX
69,176
5,247
5,429
6,493
Garland I, TX
70,100
3,984
780
767
4,169
4,936
1,831
Garland II, TX
68,425
4,578
4,338
5,200
Grapevine, TX
77,094
1,211
8,559
8,708
9,919
Houston III, TX
61,590
545
884
Houston IV, TX
43,750
875
1,342
535
Houston V, TX
121,189
6,122
2,055
7,427
8,418
Houston VI, TX
54,690
5,867
983
5,067
6,050
1,549
Houston VII, TX
46,981
681
3,554
4,235
1,024
Houston VIII, TX
54,078
6,377
507
6,860
8,154
1,837
Houston IX, TX
51,208
1,459
215
1,657
449
Houston X, TX
95,529
12,667
12,695
17,962
Houston XI, TX
80,930
15,330
122
15,452
21,068
954
Humble, TX
70,700
5,727
5,871
6,577
965
Katy, TX
71,118
6,552
103
6,656
7,985
1,505
Keller, TX
89,035
7,960
9,034
2,329
2006/2017
Lewisville I, TX
67,265
2,525
2,638
Lewisville II, TX
128,241
1,464
7,217
7,780
9,244
1,849
Lewisville III, TX
93,855
1,307
15,025
15,311
16,618
Little Elm I, TX
60,165
892
5,529
6,567
Little Elm II, TX
96,236
9,864
10,032
11,251
1,411
Mansfield I, TX
71,832
837
4,443
618
4,477
5,320
1,899
Mansfield II, TX
57,375
3,425
4,087
945
Mansfield III, TX
71,000
4,703
4,956
5,903
647
McKinney I, TX
46,770
1,632
539
McKinney II, TX
70,050
5,076
4,853
5,710
2,141
McKinney III, TX
53,650
92
3,956
North Richland Hills, TX
57,200
2,252
2,049
1,704
Pearland, TX
72,050
450
635
2,838
3,288
729
Richmond, TX
102,275
1,437
7,083
7,354
8,791
1,656
Roanoke, TX
59,240
1,217
1,142
2,479
San Antonio I, TX
73,315
2,635
591
2,375
5,270
San Antonio II, TX
73,005
1,047
5,558
573
1,052
5,438
6,490
2,241
San Antonio III, TX
71,555
5,286
5,136
San Antonio IV, TX
61,500
829
4,073
4,902
San Antonio V, TX
74,645
7,411
7,463
8,529
Spring, TX
78,686
3,081
3,175
3,755
Westworth Village, TX
79,955
7,643
7,651
8,736
Murray I, UT
60,280
3,847
Murray II, UT
70,796
2,147
742
1,048
3,195
Salt Lake City I, UT
56,446
2,696
3,733
Salt Lake City II, UT
51,676
2,074
548
774
2,711
Alexandria, VA
114,100
2,812
13,865
14,060
16,872
95,993
6,836
9,843
9,946
16,782
Burke Lake, VA
91,267
2,093
10,940
1,266
10,606
12,699
3,340
Dumfries, VA
13,774
15,584
Fairfax, VA
73,265
2,276
11,220
348
11,538
13,814
3,056
Fredericksburg I, VA
69,475
1,680
4,840
479
4,198
5,878
1,583
Fredericksburg II, VA
61,057
1,757
5,062
4,410
6,168
1,699
Leesburg, VA
85,503
1,746
9,894
218
8,821
10,567
2,560
Manassas, VA
72,745
4,566
5,426
McLearen, VA
68,960
1,482
8,400
7,515
8,997
2,395
55,260
2,300
11,340
11,574
13,874
3,022
Divisional Offices
1,062,283
4,041,739
379,964
5,216,498
930,371
F-51
Activity in storage properties during the period from January 1, 2018 through December 31, 2020 was as follows (in thousands):
Storage properties*
Balance at beginning of year
4,463,455
4,161,715
Acquisitions & improvements
825,247
364,324
381,182
Fully depreciated assets
(83,418)
(81,717)
(26,125)
Dispositions and other
(8,533)
(3,033)
(8,735)
Construction in progress, net
14,718
(43,185)
(44,582)
Balance at end of year
Accumulated depreciation*
925,359
862,487
752,925
Depreciation expense
143,952
145,233
138,510
(1,953)
(644)
(2,823)
983,940
3,600,968
*These amounts include equipment that is housed at the Company’s stores which is excluded from Schedule III above.
As of December 31, 2020, the aggregate cost of Storage properties for federal income tax purposes was approximately $5,555.3 million.
F-52