Table of Contents

 

 

 

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.

 

or

 

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

 

2



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.

 

3



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.

 

4



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

 

5



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.

 

6



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.

 

7


 


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.

 

8



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.

 

9



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.

 

10



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.

 

11



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.

 

12



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.

 

13



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.

 

14



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.

 

15



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.

 

16



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.

 

17



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.

 

18



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.

 

19



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.

 

20



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;

 

21



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.

 

22



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