Edgar Filing: CubeSmart

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended March 31, 2012.

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

For the transition period from to .

Commission file number:
001-32324 (CubeSmart)
000-54662 (CubeSmart, L.P.)

CUBESMART
CUBESMART, L.P.

(Exact Name of Registrant as Specified in its Charter)

Maryland (CubeSmart) Delaware (CubeSmart, L.P.)		20-1024732 34-1837021
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

460 East Swedesford Road
Wayne, Pennsylvania		19087
(Address of Principal Executive Offices)		(Zip Code)

(610) 293-5700

(Registrant’s Telephone Number, Including Area Code)

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

CubeSmart	Yes x No o
CubeSmart, L.P.	Yes x No o

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

CubeSmart	Yes x No o
CubeSmart, L.P.	Yes x No o

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

CubeSmart:
Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o

CubeSmart, L.P.:
Large accelerated filer o		Accelerated filer o

Non-accelerated filer x		Smaller reporting company o

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

CubeSmart	Yes o No x
CubeSmart, L.P.	Yes o No x

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

Class		Outstanding at April 30, 2012
common shares of CubeSmart, $.01 par value		123,176,560

Table of Contents

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2012 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, or the Operating Partnership.

The Parent Company is the sole general partner of the Operating Partnership and, as of March 31, 2012, owned a 96.3% interest in the Operating Partnership. The remaining 3.7% 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 few differences between the Parent Company and the Operating Partnership, which are reflected in the note disclosures in this report. The Company believes it is important to understand the differences between the Parent Company and the Operating Partnership in the context of how these entities operate as a consolidated enterprise. The Parent Company is a REIT, whose only material asset is its ownership of the partnership interests of the Operating Partnership. As a result, the Parent Company does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing the debt obligations of the Operating Partnership. The Operating Partnership holds substantially all the assets of the Company and, directly or indirectly, holds the ownership interests in the Company’s real estate ventures. The Operating Partnership conducts the operations of the Company’s business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s direct or indirect incurrence of indebtedness or through the issuance of partnership units of the Operating Partnership or equity interests in subsidiaries of the Operating Partnership.

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

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

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

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

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

To help investors understand the significant differences between the Parent Company and the Operating Partnership, this report presents Item 1 —Financial Statements as separate sections for each of the Parent Company and the Operating Partnership.

This report also includes separate Item 4—Controls and Procedures sections, signature pages and Exhibit 31 and 32 certifications for each of the Parent Company and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of the Parent Company and the Chief Executive Officer and the Chief Financial Officer of the Operating Partnership

Table of Contents

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 and 18 U.S.C. §1350.

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

As general partner with control of the Operating Partnership, the Parent Company consolidates the Operating Partnership for financial reporting purposes, and the Parent Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of the Parent Company and the Operating Partnership are the same on their respective financial statements. The separate discussions of the Parent Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company’s operations on a consolidated basis and how management operates the Company.

Table of Contents

TABLE OF CONTENTS

Part I. FINANCIAL INFORMATION
Item 1.	Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	41

Part II. OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 6.	Exhibits	43

Filing Format

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

Table of Contents

Forward-Looking Statements

This Quarterly Report on Form 10-Q, or “this Report”, together with other statements and information publicly disseminated by the Parent Company and the Operating Partnership, contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements include statements concerning the Company’s plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions and other information that is not historical information. In some cases, forward-looking statements can be identified by terminology such as “believes,” “expects,” “estimates,” “may,” “will,” “should,” “anticipates,” or “intends” or the negative of such terms or other comparable terminology, or by discussions of strategy. Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, future events and actual results, performance, transactions or achievements, financial and otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forward-looking statements. As a result, you should not rely on or construe any forward-looking statements in this Report, or which management may make orally or in writing from time to time, as predictions of future events or as guarantees of future performance. We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this Report or as of the dates otherwise indicated in the statements. All of our forward-looking statements, including those in this Report, are qualified in their entirety by this statement.

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this Report. Any forward-looking statements should be considered in light of the risks and uncertainties referred to in Item 1A. “Risk Factors” in the Parent Company’s and the Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2011 and in our other filings with the Securities and Exchange Commission (“SEC”). These risks include, but are not limited to, the following:

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

· the competitive environment in which we operate, including our ability to raise rental rates;

· the execution of our business plan;

· the availability of external sources of capital;

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

· increases in interest rates and operating costs;

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

· our ability to maintain our status as a real estate investment trust (“REIT”) for federal income tax purposes;

· acquisition and development risks;

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

· changes in real estate and zoning laws or regulations;

· risks related to natural disasters;

· potential environmental and other liabilities;

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

Table of Contents

· other risks identified in the Parent Company’s and the Operating Partnership’s Annual Report on Form 10-K, and, from time to time, in other reports that we file with the SEC or in other documents that we publicly disseminate.

Given these uncertainties and the other risks identified elsewhere in this Report, we caution readers not to place undue reliance on forward-looking statements. We undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise except as may be required by securities laws.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CUBESMART AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

	March 31,			December 31,
	2012			2011

ASSETS
Storage facilities	$	2,190,998		$	2,107,469
Less: Accumulated depreciation	(334,927		)	(318,749		)
Storage facilities, net	1,856,071			1,788,720
Cash and cash equivalents	7,465			9,069
Restricted cash	11,486			11,291
Loan procurement costs, net of amortization	7,643			8,073
Investment in real estate ventures, at equity	14,564			15,181
Other assets, net	40,684			43,645
Total assets	$	1,937,913		$	1,875,979

LIABILITIES AND EQUITY

Revolving credit facility	$	50,000		$	—
Unsecured term loans	400,000			400,000
Mortgage loans and notes payable	387,802			358,441
Accounts payable, accrued expenses and other liabilities	46,263			51,025
Distributions payable	11,710			11,401
Deferred revenue	10,630			9,568
Security deposits	506			490
Total liabilities	906,911			830,925

Noncontrolling interests in the Operating Partnership	55,622			49,732

Commitments and contingencies

Equity
7.75% Series A Preferred shares $.01 par value, 3,220,000 shares authorized, 3,100,000 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively	31			31
Common shares $.01 par value, 200,000,000 shares authorized, 122,390,764 and 122,058,919 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively	1,224			1,221
Additional paid in capital	1,310,755			1,309,505
Accumulated other comprehensive loss	(12,052		)	(12,831		)
Accumulated deficit	(363,576		)	(342,013		)
Total CubeSmart shareholders’ equity	936,382			955,913
Noncontrolling interest in subsidiaries	38,998			39,409
Total equity	975,380			995,322
Total liabilities and equity	$	1,937,913		$	1,875,979

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended March 31,
	2012			2011

REVENUES
Rental income	$	60,107		$	50,243
Other property related income	6,072			4,600
Property management fee income	1,020			909
Total revenues	67,199			55,752
OPERATING EXPENSES
Property operating expenses	27,285			24,745
Depreciation and amortization	25,763			15,211
General and administrative	6,444			6,033
Total operating expenses	59,492			45,989
OPERATING INCOME	7,707			9,763
OTHER INCOME (EXPENSE)
Interest:
Interest expense on loans	(9,321		)	(8,113		)
Loan procurement amortization expense	(771		)	(1,636		)
Acquisition related costs	(551		)	(109		)
Equity in losses of real estate ventures	(251		)	—
Other	(71		)	6
Total other expense	(10,965		)	(9,852		)

LOSS FROM CONTINUING OPERATIONS	(3,258		)	(89		)

DISCONTINUED OPERATIONS
Income from discontinued operations	—			565
Total discontinued operations	—			565
NET (LOSS) INCOME	(3,258		)	476
NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Noncontrolling interests in the Operating Partnership	149			5
Noncontrolling interest in subsidiaries	(734		)	(598		)
NET LOSS ATTRIBUTABLE TO THE COMPANY	(3,843		)	(117		)
Distribution to Preferred Shares	(1,502		)	—
NET LOSS ATTRIBUTABLE TO THE COMPANY’s COMMON SHAREHOLDERS	$	(5,345	)	$	(117	)

Basic and diluted loss per share from continuing operations attributable to common shareholders	$	(0.04	)	$	(0.01	)
Basic and diluted earnings per share from discontinued operations attributable to common shareholders	$	—		$	0.01
Basic and diluted loss per share attributable to common shareholders	$	(0.04	)	$	—

Weighted-average basic and diluted shares outstanding	122,266			98,769

AMOUNTS ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS:
Loss from continuing operations	$	(5,345	)	$	(656	)
Total discontinued operations	—			539
Net loss	$	(5,345	)	$	(117	)

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

For the Three-Month Periods Ended March 31, 2012 and 2011

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2012			2011

NET (LOSS) INCOME	$	(3,258)		$	476
Other comprehensive income:
Unrealized gain on interest rate swap	688			—
Unrealized gain on foreign currency translation	124			252
OTHER COMPREHENSIVE INCOME	812			252
COMPREHENSIVE (LOSS) INCOME	(2,446		)	728
Comprehensive loss (income) attributable to noncontrolling interests in the Operating Partnership	120			(6		)
Comprehensive income attributable to noncontrolling interests in subsidiaries	(738		)	(606		)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO THE COMPANY	$	(3,064	)	$	116

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

For the Three-Month Periods Ended March 31, 2012 and 2011

(in thousands)

(unaudited)

																								Noncontrolling
	Common Shares			Preferred Shares			Additional Paid in		Accumulated Other Comprehensive			Accumulated			Total Shareholders’			Noncontrolling Interest in			Total			Interests in the Operating
	Number	Amount		Number	Amount		Capital		(Loss) Income			Deficit			Equity			Subsidiaries			Equity			Partnership

Balance at December 31, 2011	122,059	$	1,221	3,100	$	31	$	1,309,505	$	(12,831	)	$	(342,013	)	$	955,913		$	39,409		$	995,322		$	49,732
Issuance of restricted shares	234	2													2						2
Exercise of stock options	98	1					767								768						768
Amortization of restricted shares							170								170						170
Share compensation expense							313								313						313
Net (loss) income												(3,843		)	(3,843		)	734			(3,109		)	(149		)
Adjustment for noncontrolling interest in the Operating Partnership												(6,384		)	(6,384		)				(6,384		)	6,384
Unrealized gain on interest rate swap									663						663						663			25
Unrealized gain on foreign currency translation									116						116			4			120			4
Preferred share distributions												(1,502		)	(1,502		)				(1,502		)
Common share distributions												(9,834		)	(9,834		)	(1,149		)	(10,983		)	(374		)
Balance at March 31, 2012	122,391	$	1,224	3,100	$	31	$	1,310,755	$	(12,052	)	$	(363,576	)	$	936,382		$	38,998		$	975,380		$	55,622

																								Noncontrolling
	Common Shares			Preferred Shares			Additional Paid in		Accumulated Other Comprehensive			Accumulated			Total Shareholders’			Noncontrolling Interest in			Total			Interests in the Operating
	Number	Amount		Number	Amount		Capital		(Loss) Income			Deficit			Equity			Subsidiaries			Equity			Partnership

Balance at December 31, 2010	98,597	$	986	—	$	—	$	1,026,952	$	(1,121	)	$	(302,601	)	$	724,216		$	41,192		$	765,408		$	45,145
Contributions from noncontrolling interests in subsidiaries															—			12			12
Issuance of restricted shares	218	2													2						2
Exercise of stock options	16						60								60						60
Amortization of restricted shares							149								149						149
Share compensation expense							433								433						433
Net (loss) income												(117		)	(117		)	598			481			(5		)
Adjustment for noncontrolling interest in the Operating Partnership												(5,015		)	(5,015		)				(5,015		)	5,015
Unrealized gain on foreign currency translation									233						233			8			241			11
Common share distributions												(6,960		)	(6,960		)	(1,145		)	(8,105		)	(331		)
Balance at March 31, 2011	98,831	$	988	—	$	—	$	1,027,594	$	(888	)	$	(314,693	)	$	713,001		$	40,665		$	753,666		$	49,835

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2012			2011

Operating Activities
Net (loss) income	$	(3,258	)	$	476
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Depreciation and amortization	27,486			17,208
Equity compensation expense	483			582
Accretion of fair market value adjustment of debt	(61		)	(19		)
Real estate venture income in excess of distributions	251			—
Changes in other operating accounts:
Other assets	(1,235		)	(91		)
Restricted cash	102			765
Accounts payable and accrued expenses	(3,789		)	(3,984		)
Other liabilities	774			310
Net cash provided by operating activities	$	20,753		$	15,247

Investing Activities
Acquisitions, additions and improvements to storage facilities	$	(53,307	)	$	(8,043	)
Cash distributions from real estate venture	366			—
Proceeds from sales of properties	144			—
Decrease (increase) in restricted cash	2			(127		)
Net cash used in investing activities	$	(52,795	)	$	(8,170	)

Financing Activities
Proceeds from:
Revolving credit facility	$	85,100		$	14,000
Mortgage loans and notes payable	—			3,537
Principal payments on:
Revolving credit facility	(35,100		)	(16,500		)
Mortgage loans and notes payable	(7,781		)	(1,588		)
Exercise of stock options	768			60
Contributions from noncontrolling interests in subsidiaries	—			12
Distributions paid to shareholders	(11,026		)	(6,940		)
Distributions paid to noncontrolling interests in Operating Partnership	(374		)	(332		)
Distributions paid to noncontrolling interests in subsidiaries	(1,149		)	(1,145		)
Loan procurement costs	—			17
Net cash provided by (used in) financing activities	$	30,438		$	(8,879	)

Decrease in cash and cash equivalents	(1,604		)	(1,802		)

Cash and cash equivalents at beginning of period	9,069			5,891
Cash and cash equivalents at end of period	$	7,465		$	4,089

Supplemental Cash Flow and Noncash Information
Cash paid for interest, net of interest capitalized	$	8,587		$	8,158
Supplemental disclosure of noncash activities:
Derivative valuation adjustment	$	688		$	—
Foreign currency translation adjustment	$	124		$	252
Mortgage loan assumption at fair value	$	36,961		$	8,021

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

	March 31,			December 31,
	2012			2011

ASSETS
Storage facilities	$	2,190,998		$	2,107,469
Less: Accumulated depreciation	(334,927		)	(318,749		)
Storage facilities, net	1,856,071			1,788,720
Cash and cash equivalents	7,465			9,069
Restricted cash	11,486			11,291
Loan procurement costs, net of amortization	7,643			8,073
Investment in real estate ventures, at equity	14,564			15,181
Other assets, net	40,684			43,645
Total assets	$	1,937,913		$	1,875,979

LIABILITIES AND CAPITAL

Revolving credit facility	$	50,000		$	—
Unsecured term loan	400,000			400,000
Mortgage loans and notes payable	387,802			358,441
Accounts payable, accrued expenses and other liabilities	46,263			51,025
Distributions payable	11,710			11,401
Deferred revenue	10,630			9,568
Security deposits	506			490
Total liabilities	906,911			830,925

Limited Partnership interest of third parties	55,622			49,732

Commitments and contingencies

Capital
Operating Partner	948,434			968,744
Accumulated other comprehensive loss	(12,052		)	(12,831		)
Total CubeSmart L.P. capital	936,382			955,913
Noncontrolling interests in subsidiaries	38,998			39,409
Total capital	975,380			995,322
Total liabilities and capital	$	1,937,913		$	1,875,979

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per common unit data)

(unaudited)

	Three Months Ended March 31,
	2012			2011

REVENUES
Rental income	$	60,107		$	50,243
Other property related income	6,072			4,600
Property management fee income	1,020			909
Total revenues	67,199			55,752
OPERATING EXPENSES
Property operating expenses	27,285			24,745
Depreciation and amortization	25,763			15,211
General and administrative	6,444			6,033
Total operating expenses	59,492			45,989
OPERATING INCOME	7,707			9,763
OTHER INCOME (EXPENSE)
Interest:
Interest expense on loans	(9,321		)	(8,113		)
Loan procurement amortization expense	(771		)	(1,636		)
Acquisition related costs	(551		)	(109		)
Equity in losses of real estate ventures	(251		)	—
Other	(71		)	6
Total other expense	(10,965		)	(9,852		)

LOSS FROM CONTINUING OPERATIONS	(3,258		)	(89		)

DISCONTINUED OPERATIONS
Income from discontinued operations	—			565
Total discontinued operations	—			565
NET (LOSS) INCOME	(3,258		)	476
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Noncontrolling interest in subsidiaries	(734		)	(598		)
NET LOSS ATTRIBUTABLE TO CUBESMART L.P.	(3,992		)	(122		)
Limited Partnership interest of third parties	149			5
NET LOSS ATTRIBUTABLE TO OPERATING PARTNER	(3,843		)	(117		)
Distribution to Preferred Units	(1,502		)	—
NET LOSS ATTRIBUTABLE TO COMMON UNITHOLDERS	$	(5,345	)	$	(117	)

Basic and diluted loss per unit from continuing operations attributable to common unitholders	$	(0.04	)	$	(0.01	)
Basic and diluted earnings per unit from discontinued operations attributable to common unitholders	$	—		$	0.01
Basic and diluted loss per unit attributable to common unitholders	$	(0.04	)	$	—

Weighted-average basic and diluted shares outstanding	122,266			98,769

AMOUNTS ATTRIBUTABLE TO THE OPERATING PARTNER
Loss from continuing operations	$	(5,345	)	$	(656	)
Total discontinued operations	—			539
Net loss	$	(5,345	)	$	(117	)

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

For the Three-Month Periods Ended March 31, 2012 and 2011

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2012			2011

NET (LOSS) INCOME	$	(3,258	)	$	476
Other comprehensive income:
Unrealized gain on interest rate swap	688			—
Unrealized gain on foreign currency translation	124			252
OTHER COMPREHENSIVE INCOME	812			252
COMPREHENSIVE (LOSS) INCOME	(2,446		)	728
Comprehensive loss (income) attributable to Limited Partnership interest of third parties	120			(6		)
Comprehensive income attributable to noncontrolling interests in subsidiaries	(738		)	(606		)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO OPERATING PARTNER	$	(3,064	)	$	116

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CAPITAL

For the Three-Month Periods Ended March 31, 2012 and 2011

(in thousands)

(unaudited)

																		Limited
	Number of OP Units Outstanding		Operating			Accumulated Other Comprehensive			CubeSmart L.P.			Noncontrolling Interest in			Total			Partnership Interest
	Common	Preferred	Partner			(Loss) Income			Capital			Subsidiaries			Capital			of Third Parties
Balance at December 31, 2011	122,059	3,100	$	968,744		$	(12,831	)	$	955,913		$	39,409		$	995,322		$	49,732
Issuance of restricted units	234		2						2						2
Exercise of unit options	98		768						768						768
Amortization of restricted units			170						170						170
Unit compensation expense			313						313						313
Net (loss) income			(3,843		)				(3,843		)	734			(3,109		)	(149		)
Adjustment for Limited Partnership interest of third parties			(6,384		)				(6,384		)				(6,384		)	6,384
Unrealized gain on interest rate swap						663			663						663			25
Unrealized gain on foreign currency translation						116			116			4			120			4
Preferred unit distributions			(1,502		)				(1,502		)				(1,502		)
Common unit distributions			(9,834		)				(9,834		)	(1,149		)	(10,983		)	(374		)
Balance at March 31, 2012	122,391	3,100	$	948,434		$	(12,052	)	$	936,382		$	38,998		$	975,380		$	55,622

	Number of OP Units Outstanding		Operating			Accumulated Other Comprehensive			CubeSmart L.P.			Noncontrolling Interest in			Total			Limited Partnership Interest
	Common	Preferred	Partner			(Loss) Income			Capital			Subsidiaries			Capital			of Third Parties

Balance at December 31, 2010	98,597	—	$	725,337		$	(1,121	)	$	724,216		$	41,192		$	765,408		$	45,145
Contributions from noncontrolling
interests in subsidiaries												12			12
Issuance of restricted units	218		2						2						2
Exercise of unit options	16		60						60						60
Amortization of restricted units			149						149						149
Unit compensation expense			433						433						433
Net (loss) income			(117		)				(117		)	598			481			(5		)
Adjustment for Limited Partnership
interest of third parties			(5,015		)				(5,015		)				(5,015		)	5,015
Unrealized gain on foreign currency translation						233			233			8			241			11
Common unit distributions			(6,960		)				(6,960		)	(1,145		)	(8,105		)	(331		)
Balance at March 31, 2011	98,831	—	$	713,889		$	(888	)	$	713,001		$	40,665		$	753,666		$	49,835

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2012			2011
Operating Activities
Net (loss) income	$	(3,258	)	$	476
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Depreciation and amortization	27,486			17,208
Equity compensation expense	483			582
Accretion of fair market value adjustment of debt	(61		)	(19		)
Real estate venture income in excess of distributions	251			—
Changes in other operating accounts:
Other assets	(1,235		)	(91		)
Restricted cash	102			765
Accounts payable and accrued expenses	(3,789		)	(3,984		)
Other liabilities	774			310
Net cash provided by operating activities	$	20,753		$	15,247

Investing Activities
Acquisitions, additions and improvements to storage facilities	$	(53,307	)	$	(8,043	)
Cash distributions from real estate venture	366			—
Proceeds from sales of properties	144			—
Decrease (increase) in restricted cash	2			(127		)
Net cash used in investing activities	$	(52,795	)	$	(8,170	)

Financing Activities
Proceeds from:
Revolving credit facility	$	85,100		$	14,000
Mortgage loans and notes payable	—			3,537
Principal payments on:
Revolving credit facility	(35,100		)	(16,500		)
Mortgage loans and notes payable	(7,781		)	(1,588		)
Exercise of unit options	768			60
Contributions from noncontrolling interests in subsidiaries	—			12
Distributions paid to unitholders	(11,400		)	(7,272		)
Distributions paid to noncontrolling interests in subsidiaries	(1,149		)	(1,145		)
Loan procurement costs	—			17
Net cash provided by (used in) financing activities	$	30,438		$	(8,879	)

Decrease in cash and cash equivalents	(1,604		)	(1,802		)

Cash and cash equivalents at beginning of period	9,069			5,891
Cash and cash equivalents at end of period	$	7,465		$	4,089

Supplemental Cash Flow and Noncash Information
Cash paid for interest, net of interest capitalized	$	8,587		$	8,158
Supplemental disclosure of noncash activities:
Derivative valuation adjustment	$	688		$	—
Foreign currency translation adjustment	$	124		$	252
Mortgage loan assumption at fair value	$	36,961		$	8,021

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUBESMART AND CUBESMART, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND NATURE OF OPERATIONS

CubeSmart (the “Parent Company”) operates as a self-managed and self-administered real estate investment trust (“REIT”) with its operations conducted solely through CubeSmart, L.P. and its subsidiaries. CubeSmart, L.P., a Delaware limited partnership (the “Operating Partnership”), operates through an umbrella partnership structure, with the Parent Company, a Maryland real estate investment trust, 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. The Company’s self-storage facilities (collectively, the “Properties”) are located in 26 states throughout the United States and the District of Columbia and are presented under one reportable segment: the Company owns, operates, develops, manages and acquires self-storage facilities.

As of March 31, 2012, the Parent Company owned approximately 96.3% of the partnership interests (“OP Units”) of the Operating Partnership. The remaining OP Units, consisting exclusively of limited partner interests, are held by persons who contributed their interests in properties to us in exchange for OP Units. Under the partnership agreement, these persons have the right to tender their OP Units for redemption to the Operating Partnership at any time 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

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC regarding interim financial reporting and, in the opinion of each of the Parent Company’s and Operating Company’s respective management, include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of financial position, results of operations and cash flows for each respective company for the interim periods presented in accordance with generally accepted accounting principles in the United States (“GAAP”). Accordingly, readers of this Quarterly Report on Form 10-Q should refer to the Parent Company’s and the Operating Partnership’s audited financial statements prepared in accordance with GAAP, and the related notes thereto, for the year ended December 31, 2011, which are included in the Parent Company’s and the Operating Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. The results of operations for three months ended March 31, 2012 and 2011 are not necessarily indicative of the results of operations to be expected for any future period or the full year.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (FASB) issued an amendment to the accounting standard for the presentation of comprehensive income. The amendment requires entities to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In addition, the amendment requires entities to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. This amendment became effective for fiscal years and interim periods beginning after December 15, 2011. The Company’s adoption of the new standard as of January 1, 2012 did not have a material impact on its consolidated financial position or results of operations as the amendment relates only to changes in financial statement presentation.

Table of Contents

In May 2011, the FASB issued an update to the accounting standard for measuring and disclosing fair value. The update modifies the wording used to describe the requirements for fair value measuring and for disclosing information about fair value measurements to improve consistency between U.S. GAAP and International Financial Reporting Standards (“IFRS”). This update is effective for the annual and interim periods beginning after December 15, 2011. The adoption of this guidance in 2012 did not have a material impact on the Company’s consolidated financial position or results of operations as its impact was limited to disclosure requirements.

3. STORAGE FACILITIES

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

	March 31,			December 31,
	2012			2011
	(in thousands)
Land	$	424,962		$	417,067
Buildings and improvements	1,640,431			1,574,769
Equipment	121,480			110,371
Construction in progress (a)	4,125			5,262
Total	2,190,998			2,107,469
Less accumulated depreciation	(334,927		)	(318,749		)
Storage facilities — net	$	1,856,071		$	1,788,720

(a) The March 31, 2012 construction in progress balance includes project costs of $0.3 million related to the rebranding initiative and $0.6 million related to the store upgrade initiative. The December 31, 2011 construction in progress balance includes project costs of $1.6 million related to the rebranding initiative and $0.7 million related to the store upgrade initiative.

As assets become fully depreciated, the carrying values are removed from their respective asset category and accumulated depreciation. During the three months ended March 31, 2012 and 2011, $2.6 million and $21.2 million of assets, respectively, became fully depreciated and were removed from storage facilities and accumulated depreciation.

Table of Contents

The following table summarizes the Company’s acquisition and disposition activity during the period beginning on January 1, 2011 and ended March 31, 2012:

Facility/Portfolio	Location	Transaction Date	Number of Facilities	Purchase / Sales Price (in thousands)

2012 Acquisitions:

Houston Asset	Houston, TX	February 2012	1	$	5,100
Dunwoody Asset	Dunwoody, GA	February 2012	1	6,900
Storage Deluxe Assets	Multiple locations in NY and CT	February 2012	4	74,406
			6	$	86,406

2011 Acquisitions:

Burke Lake Asset	Fairfax Station, VA	January 2011	1	$	14,000
West Dixie Asset	Miami, FL	April 2011	1	13,500
White Plains Asset	White Plains, NY	May 2011	1	23,000
Phoenix Asset	Phoenix, AZ	May 2011	1	612
Houston Asset	Houston, TX	June 2011	1	7,600
Duluth Asset	Duluth, GA	July 2011	1	2,500
Atlanta Assets	Atlanta, GA	July 2011	2	6,975
District Heights Asset	District Heights, MD	August 2011	1	10,400
Storage Deluxe Assets	Multiple locations in NY, CT, and PA	November 2011	16	357,310
Leesburg Asset	Leesburg, VA	November 2011	1	13,000
Washington, DC Asset	Washington, DC	December 2011	1	18,250
			27	$	467,147
2011 Dispositions:

Flagship Assets	Multiple locations in IN and OH	August 2011	18	$	43,500
Portage Asset	Portage, MI	November 2011	1	1,700
			19	$	45,200

4. ACQUISITIONS

Storage Deluxe Acquisition

During February 2012, as part of the $560 million Storage Deluxe transaction involving 22 Class A self-storage facilities located primarily in the greater New York City area, the Company acquired four properties with a purchase price of approximately $74.4 million. The four properties purchased are located in New York and Connecticut. In connection with the acquisitions, the Company allocated a portion of the purchase price to the intangible value of in-place leases which aggregated $4.7 million. The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during the three months ended March 31, 2012 was approximately $0.4 million. In connection with the four acquired facilities, the Company assumed mortgage debt, at fair value, with a net book value of $37.0 million, which includes an outstanding principal balance totaling $34.9 million and a net premium of $2.1 million in addition to the face value of the assumed debt to reflect the fair values of the debt at the time of assumption.

On November 3, 2011, the Company acquired 16 properties from Storage Deluxe for a purchase price of approximately $357.3 million. The 16 properties purchased are located in New York, Connecticut and Pennsylvania. In connection with this acquisition, the Company allocated a portion of the purchase price to the intangible value of in-place leases which aggregated $18.1 million. The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during the three months ended March 31, 2012 was approximately $4.5 million.

Table of Contents

Other 2012 Acquisitions

During the three months ended March 31, 2012, the Company acquired two self-storage facilities located in Texas and Georgia for an aggregate purchase price of approximately $12.0 million. In connection with these acquisitions, the Company allocated a portion of the purchase price to the intangible value of in-place leases which aggregated $1.2 million. The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during the three months ended March 31, 2012 was approximately $0.2 million.

Other 2011 Acquisitions

During 2011, the Company acquired 11 self-storage facilities located throughout the United States for an aggregate purchase price of approximately $109.8 million. In connection with these acquisitions, the Company allocated a portion of the purchase price to the intangible value of in-place leases which aggregated $7.0 million. The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during the three months ended March 31, 2012 was approximately $1.7 million. In connection with three of the acquisitions, the Company assumed mortgage debt, at fair value, with a net book value of $21.8 million, which includes an outstanding principal balance totaling $21.4 million and a net premium of $0.4 million in addition to the face value of the assumed debt to reflect the fair values of the debt at the time of assumption.

5. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES

On September 26, 2011, the Company contributed $15.4 million in cash to a limited partnership that owns nine storage facilities in Pennsylvania, Virginia, New York, New Jersey and Florida (the “HSRE Venture” or “HSREV”). In exchange for it contribution, the Company received a 50% interest in HSRE. An unaffiliated entity holds the remaining 50% interest in HSREV. Each of the Company and the other partner holds general partner interests and all significant decisions for HSREV require approval by both partners. Each of the partners has the right to initiate a “buy-sell” that would, if initiated, result in either the sale of all of the assets of HSREV to an unaffiliated third party or the acquisition by one partner of the entire interest of the other partner. Based on the Company’s analysis, HSREV is not consolidated and the Company accounts for its unconsolidated interest in HSREV using the equity method. The Company’s investment in HSREV is included in “Investment in real estate ventures, at equity” on the Company’s consolidated balance sheet and earnings attributable to HSREV are presented in “Equity in losses of real estate ventures” on the Company’s consolidated statements of operations.

The Company’s investment in real estate ventures at March 31, 2012 was $14.6 million, and the Company’s equity in losses of real estate ventures for the three months ended March 31, 2012 was approximately $0.3 million.

The amounts reflected in the following tables are based on the historical financial information of the HSRE Venture.

The following is a summary of the financial position of the HSRE Venture as of March 31, 2012 and December 31, 2011 (in thousands):

	March 31,		December 31,
	2012		2011

Assets
Net property	$	76,895	$	78,677
Other assets	2,256		2,242
Total Assets	$	79,151	$	80,919

Liabilities and equity
Other liabilities	$	1,015	$	867
Debt	59,873		60,083
Equity:
CubeSmart (a)	9,048		9,984
Joint venture partner	9,215		9,985
Total Liabilities and equity	$	79,151	$	80,919

(a) The difference between the Company’s share of the net assets of the unconsolidated real estate ventures and the Company’s investment in real estate ventures per the accompanying consolidated balance sheets relates primarily to inside/outside basis.

Table of Contents

The following is a summary of results of operations of the real estate venture for the three months ended March 31, 2012 (in thousands):

	March 31, 2012

Revenue	$	2,383
Operating expenses	958
Interest expense, net	906
Depreciation and amortization	897
Net loss	(378		)
Company’s share of loss	(251		)

6. UNSECURED CREDIT FACILITY AND UNSECURED TERM LOANS

On June 20, 2011, the Company entered into an unsecured Term Loan Agreement (the “Term Loan Facility”) which consisted of a $100 million term loan with a five-year maturity and a $100 million term loan with a seven-year maturity. The Term Loan Facility permits the Company to request additional advances of five-year or seven-year loans in minimum increments of $5 million provided that the aggregate of such additional advances does not exceed $50 million. We incurred costs of $2.1 million in connection with executing the agreement and capitalized such costs as a component of loan procurement costs, net of amortization on the consolidated balance sheet. Pricing on the Term Loan Facility ranges, depending on the Company’s leverage levels, from 1.90% to 2.75% over LIBOR for the five-year loan, and from 2.05% to 2.85% over LIBOR for the seven-year loan, and each loan has no LIBOR floor. As of December 31, 2011, the Company had received two investment grade ratings, and therefore pricing on the Term Loan Facility ranges from 1.45% to 2.10% over LIBOR for the five-year loan, and from 1.60% to 2.25% over LIBOR for the seven-year loan.

On December 9, 2011, the Company entered into a new credit facility comprised of a $100 million unsecured term loan maturing in December 2014; a $200 million unsecured term loan maturing in March 2017; and a $300 million unsecured revolving facility maturing in December 2015 (the “Credit Facility”). The Credit Facility replaces in its entirety our previous facility. In connection with obtaining the Credit Facility, the Company paid additional deferred financing costs of $3.4 million and wrote off deferred financing fees related to the previous facility of $6.1 million.

Pricing on the Credit Facility depends on the Company’s unsecured debt credit rating. At our current Baa3/BBB- level, amounts drawn under the revolving facility are priced at 1.80% over LIBOR, with no LIBOR floor. Amounts drawn under the term loan portion of the Credit Facility are priced at 1.75% over LIBOR, with no LIBOR floor.

As of March 31, 2012, $200 million of unsecured term loan borrowings were outstanding under the Term Loan Facility, $200 million of unsecured term loan borrowings were outstanding under the Credit Facility, $50 million of unsecured revolving credit facility borrowings were outstanding and $350 million was available for borrowing under the Credit Facility. The Company had interest rate swaps as of March 31, 2012, that fix LIBOR on $200 million of borrowings under the Credit Facility maturing in March 2017 at 1.34%. In addition, at March 31, 2012, the Company had interest rate swaps that fix LIBOR on both the five and seven-year term loans under the Term Loan Facility through their respective maturity dates. The interest rate swap agreements fix thirty day LIBOR over the terms of the five and seven-year term loans at 1.80% and 2.47%, respectively.

As of March 31, 2012, borrowings under the Credit Facility and Term Loan Facility had a weighted average interest rate of 3.37% and the effective interest rates on the five and seven-year term loans were 3.65% and 4.47%, respectively, after giving consideration to the interest rate swaps described in Note 8.

The Term Loan Facility was fully drawn at March 31, 2012 and no further borrowings may be made under that facility. The Company’s ability to borrow under the Credit Facility is subject to ongoing compliance with certain financial covenants which include:

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

Table of Contents

· Minimum fixed charge coverage ratio of 1.50:1.00; and

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

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

The Company is currently in compliance with all of its financial covenants and anticipates being in compliance with all of its financial covenants through the terms of the Credit Facility and Term Loan Facility.

Table of Contents

7. MORTGAGE LOANS AND NOTES PAYABLE

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

		Carrying Value as of:
		March 31,			December 31,			Effective