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 September 30, 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 November 5, 2012

common shares of CubeSmart, $.01 par value

 

129,306,038

 

 

 



Table of Contents

 

EXPLANATORY NOTE

 

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 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 September 30, 2012, owned a 96.7% interest in the Operating Partnership. The remaining 3.3% 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

 

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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.

 

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TABLE OF CONTENTS

 

Part I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

7

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

32

Item 3. Quantitative and Qualitative Disclosures About Market Risk

45

Item 4. Controls and Procedures

46

 

 

Part II. OTHER INFORMATION

 

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

47

Item 6. Exhibits

48

 

Filing Format

 

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

 

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Forward-Looking Statements

 

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

 

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

 

·         other risks identified in the Parent Company’s and the Operating Partnership’s Annual Report on Form 10-K, as amended, 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.

 

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

CUBESMART AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

 

 

 

September 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Storage facilities

 

$

2,432,415

 

$

2,107,469

 

Less: Accumulated depreciation

 

(340,365

)

(318,749

)

Storage facilities, net

 

2,092,050

 

1,788,720

 

Cash and cash equivalents

 

2,707

 

9,069

 

Restricted cash

 

7,579

 

11,291

 

Loan procurement costs, net of amortization

 

8,943

 

8,073

 

Investment in real estate ventures, at equity

 

 

15,181

 

Assets held for sale

 

6,452

 

 

Other assets, net

 

49,982

 

43,645

 

Total assets

 

$

2,167,713

 

$

1,875,979

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

Unsecured senior notes

 

$

250,000

 

$

 

Revolving credit facility

 

65,500

 

 

Unsecured term loans

 

500,000

 

400,000

 

Mortgage loans and notes payable

 

258,849

 

358,441

 

Accounts payable, accrued expenses and other liabilities

 

63,033

 

51,025

 

Distributions payable

 

12,110

 

11,401

 

Deferred revenue

 

10,950

 

9,568

 

Security deposits

 

487

 

490

 

Total liabilities

 

1,160,929

 

830,925

 

 

 

 

 

 

 

Noncontrolling interests in the Operating Partnership

 

56,740

 

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 September 30, 2012 and December 31, 2011

 

31

 

31

 

Common shares $.01 par value, 200,000,000 shares authorized, 127,430,047 and 122,058,919 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively

 

1,274

 

1,221

 

Additional paid in capital

 

1,357,888

 

1,309,505

 

Accumulated other comprehensive loss

 

(21,203

)

(12,831

)

Accumulated deficit

 

(388,061

)

(342,013

)

Total CubeSmart shareholders’ equity

 

949,929

 

955,913

 

Noncontrolling interest in subsidiaries

 

115

 

39,409

 

Total equity

 

950,044

 

995,322

 

Total liabilities and equity

 

$

2,167,713

 

$

1,875,979

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

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CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

 

 

Rental income

 

$

65,363

 

$

51,932

 

$

184,355

 

$

150,168

 

Other property related income

 

7,677

 

5,679

 

20,493

 

15,370

 

Property management fee income

 

1,094

 

878

 

3,217

 

2,634

 

Total revenues

 

74,134

 

58,489

 

208,065

 

168,172

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

Property operating expenses

 

29,195

 

24,083

 

83,027

 

71,505

 

Depreciation and amortization

 

29,774

 

15,620

 

82,446

 

45,573

 

General and administrative

 

6,860

 

5,476

 

19,582

 

18,350

 

Total operating expenses

 

65,829

 

45,179

 

185,055

 

135,428

 

OPERATING INCOME

 

8,305

 

13,310

 

23,010

 

32,744

 

OTHER EXPENSE

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

Interest expense on loans

 

(11,092

)

(8,464

)

(29,692

)

(24,596

)

Loan procurement amortization expense

 

(699

)

(1,093

)

(2,585

)

(4,124

)

Loan procurement amortization expense - early repayment of debt

 

 

 

 

(2,085

)

Acquisition related costs

 

(1,527

)

(374

)

(2,390

)

(629

)

Equity in losses of real estate ventures

 

(284

)

(24

)

(745

)

(24

)

Gain from remeasurement of investment in real estate venture

 

7,023

 

 

7,023

 

 

Other

 

166

 

8

 

(12

)

(179

)

Total other expense

 

(6,413

)

(9,947

)

(28,401

)

(31,637

)

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) FROM CONTINUING OPERATIONS

 

1,892

 

3,363

 

(5,391

)

1,107

 

 

 

 

 

 

 

 

 

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

(Loss) income from discontinued operations

 

(38

)

1,038

 

1,136

 

5,358

 

Gain on disposition of discontinued operations

 

197

 

3,527

 

6,403

 

3,527

 

Total discontinued operations

 

159

 

4,565

 

7,539

 

8,885

 

NET INCOME

 

2,051

 

7,928

 

2,148

 

9,992

 

NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 

 

 

 

 

 

 

Noncontrolling interests in the Operating Partnership

 

(5

)

(329

)

106

 

(368

)

Noncontrolling interest in subsidiaries

 

(410

)

(771

)

(1,918

)

(2,011

)

NET INCOME ATTRIBUTABLE TO THE COMPANY

 

1,636

 

6,828

 

336

 

7,613

 

Distribution to Preferred Shareholders

 

(1,502

)

 

(4,506

)

 

NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS

 

$

134

 

$

6,828

 

$

(4,170

)

$

7,613

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share from continuing operations attributable to common shareholders

 

$

0.00

 

$

0.03

 

$

(0.09

)

$

(0.01

)

Basic earnings per share from discontinued operations attributable to common shareholders

 

$

0.00

 

$

0.04

 

$

0.06

 

$

0.09

 

Basic earnings (loss) per share attributable to common shareholders

 

$

0.00

 

$

0.07

 

$

(0.03

)

$

0.08

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share from continuing operations attributable to common shareholders

 

$

0.00

 

$

0.02

 

$

(0.09

)

$

(0.01

)

Diluted earnings per share from discontinued operations attributable to common shareholders

 

$

0.00

 

$

0.05

 

$

0.06

 

$

0.09

 

Diluted earnings (loss) per share attributable to common shareholders

 

$

0.00

 

$

0.07

 

$

(0.03

)

$

0.08

 

 

 

 

 

 

 

 

 

 

 

Weighted-average basic shares outstanding

 

124,169

 

98,895

 

123,016

 

98,836

 

Weighted-average diluted shares outstanding

 

125,976

 

100,284

 

123,016

 

100,264

 

 

 

 

 

 

 

 

 

 

 

AMOUNTS ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS:

 

 

 

 

 

 

 

 

 

(Loss) income from continuing operations

 

$

(20

)

$

2,473

 

$

(11,445

)

$

(863

)

Total discontinued operations

 

154

 

4,355

 

7,275

 

8,476

 

Net income (loss)

 

$

134

 

$

6,828

 

$

(4,170

)

$

7,613

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

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CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands)

(unaudited)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

2,051

 

$

7,928

 

$

2,148

 

$

9,992

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

Unrealized loss on interest rate swap

 

(2,708

)

(10,050

)

(8,811

)

(9,189

)

Unrealized gain (loss) on foreign currency translation

 

132

 

(76

)

151

 

152

 

OTHER COMPREHENSIVE LOSS

 

(2,576

)

(10,126

)

(8,660

)

(9,037

)

COMPREHENSIVE (LOSS) INCOME

 

(525

)

(2,198

)

(6,512

)

955

 

Comprehensive income attributable to noncontrolling interests in the Operating Partnership

 

83

 

123

 

400

 

35

 

Comprehensive loss attributable to noncontrolling interests in subsidiaries

 

(415

)

(468

)

(1,924

)

(1,740

)

COMPREHENSIVE LOSS ATTRIBUTABLE TO THE COMPANY

 

$

(857

)

$

(2,543

)

$

(8,036

)

$

(750

)

 

See accompanying notes to the unaudited consolidated financial statements.

 

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CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(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 common shares, net

 

4,691

 

47

 

 

 

 

 

59,096

 

 

 

 

 

59,143

 

 

 

59,143

 

 

 

Issuance of restricted shares

 

245

 

2

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

 

 

Exercise of stock options

 

170

 

1

 

 

 

 

 

1,360

 

 

 

 

 

1,361

 

 

 

1,361

 

 

 

Conversion from units to shares

 

265

 

3

 

 

 

 

 

3,310

 

 

 

 

 

3,313

 

 

 

3,313

 

(3,313

)

Amortization of restricted shares

 

 

 

 

 

 

 

 

 

2,169

 

 

 

 

 

2,169

 

 

 

2,169

 

 

 

Share compensation expense

 

 

 

 

 

 

 

 

 

900

 

 

 

 

 

900

 

 

 

900

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

336

 

336

 

1,918

 

2,254

 

(106

)

Adjustment for noncontrolling interest in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,930

)

 (11,930

)

 

 

 (11,930

)

11,930

 

Acquisition of noncontrolling interest

 

 

 

 

 

 

 

 

 

(18,452

)

 

 

 

 

(18,452

)

(38,532

)

(56,984

)

(132

)

Unrealized loss on interest rate swap

 

 

 

 

 

 

 

 

 

 

 

(8,513

)

 

 

(8,513

)

 

 

(8,513

)

(298

)

Unrealized gain on foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

141

 

 

 

141

 

6

 

147

 

4

 

Preferred distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,506

)

(4,506

)

 

 

(4,506

)

 

Common distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,948

)

(29,948

)

(2,686

)

(32,634

)

(1,077

)

Balance at September 30, 2012

 

127,430

 

$

1,274

 

3,100

 

$

31

 

$

1,357,888

 

$

(21,203

)

$

(388,061

)

$

949,929

 

$

115

 

$

950,044

 

$

56,740

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

3

 

 

 

Issuance of common shares, net

 

140

 

1

 

 

 

 

 

1,451

 

 

 

 

 

1,452

 

 

 

1,452

 

 

 

Issuance of restricted shares

 

233

 

3

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

3

 

 

 

Exercise of stock options

 

24

 

 

 

 

 

 

 

121

 

 

 

 

 

121

 

 

 

121

 

 

 

Conversion from units to shares

 

8

 

 

 

 

 

 

 

85

 

 

 

 

 

85

 

 

 

85

 

(85

)

Amortization of restricted shares

 

 

 

 

 

 

 

 

 

1,069

 

 

 

 

 

1,069

 

 

 

1,069

 

 

 

Share compensation expense

 

 

 

 

 

 

 

 

 

1,169

 

 

 

 

 

1,169

 

 

 

1,169

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

7,613

 

7,613

 

2,011

 

9,624

 

368

 

Adjustment for noncontrolling interest in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

1,509

 

1,509

 

 

 

1,509

 

(1,509

)

Unrealized loss on interest rate swap

 

 

 

 

 

 

 

 

 

 

 

(8,504

)

 

 

(8,504

)

(276

)

(8,780

)

(409

)

Unrealized gain on foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

141

 

 

 

141

 

5

 

146

 

6

 

Common distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,901

)

(20,901

)

(3,452

)

(24,353

)

(995

)

Balance at September 30, 2011

 

99,002

 

$

990

 

 

$

 

$

1,030,847

 

$

(9,484

)

$

(314,380

)

$

707,973

 

$

39,483

 

$

747,456

 

$

42,521

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

10



Table of Contents

 

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Operating Activities

 

 

 

 

 

Net income

 

$

2,148

 

$

9,992

 

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

 

 

 

 

 

Depreciation and amortization

 

85,912

 

51,391

 

Gain on disposition of discontinued operations

 

(6,403

)

(3,527

)

Gain on remeasurement of investment in real estate venture

 

(7,023

)

 

Equity compensation expense

 

3,069

 

2,238

 

Accretion of fair market value adjustment of debt

 

(461

)

(69

)

Loan procurement amortization expense- early repayment of debt

 

 

2,085

 

Equity in losses of real estate venture

 

745

 

(24

)

Changes in other operating accounts:

 

 

 

 

 

Other assets

 

8,422

 

(1,810

)

Restricted cash

 

3,307

 

(938

)

Accounts payable and accrued expenses

 

7,394

 

4,830

 

Other liabilities

 

55

 

207

 

Net cash provided by operating activities

 

$

97,165

 

$

64,375

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Acquisitions, additions and improvements to storage facilities

 

$

(220,764

)

$

(81,978

)

Cash paid for remaining interest in real estate ventures

 

(81,158

)

 

Investment in real estate venture, at equity

 

 

(15,414

)

Cash distributions from real estate venture

 

909

 

 

Proceeds from sales of properties

 

27,433

 

42,799

 

Decrease (increase) in restricted cash

 

1,825

 

(40

)

Net cash used in investing activities

 

$

(271,755

)

$

(54,633

)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Proceeds from:

 

 

 

 

 

Revolving credit facility

 

$

343,300

 

$

118,700

 

Unsecured senior notes

 

249,638

 

 

Unsecured term loans

 

100,000

 

200,000

 

Mortgage loans and notes payable

 

 

3,537

 

Principal payments on:

 

 

 

 

 

Revolving credit facility

 

(277,800

)

(161,700

)

Unsecured term loans

 

 

(100,000

)

Mortgage loans and notes payable

 

(206,452

)

(37,833

)

Settlement of hedge transaction

 

(195

)

 

Proceeds from issuance of common shares, net

 

59,143

 

1,452

 

Exercise of stock options

 

1,361

 

121

 

Contributions from noncontrolling interests in subsidiaries

 

 

3

 

Cash paid for acquisition of noncontrolling interests

 

(61,113

)

 

Distributions paid to common shareholders

 

(29,500

)

(20,873

)

Distributions paid to preferred shareholders

 

(4,222

)

 

Distributions paid to noncontrolling interests in Operating Partnership

 

(1,102

)

(1,001

)

Distributions paid to noncontrolling interests in subsidiaries

 

(2,685

)

(3,452

)

Loan procurement costs

 

(2,145

)

(2,096

)

Net cash provided by (used in) financing activities

 

$

168,228

 

$

(3,142

)

 

 

 

 

 

 

(Decrease) increase in cash and cash equivalents

 

(6,362

)

6,600

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

9,069

 

5,891

 

Cash and cash equivalents at end of period

 

$

2,707

 

$

12,491

 

 

 

 

 

 

 

Supplemental Cash Flow and Noncash Information

 

 

 

 

 

Cash paid for interest, net of interest capitalized

 

$

25,725

 

$

24,799

 

Supplemental disclosure of noncash activities:

 

 

 

 

 

Consolidation of real estate venture

 

$

13,527

 

$

 

Derivative valuation adjustment

 

$

(8,616

)

$

(9,189

)

Foreign currency translation adjustment

 

$

151

 

$

152

 

Mortgage loan assumption at fair value

 

$

107,111

 

$

7,905

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

11



Table of Contents

 

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 

 

 

September 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Storage facilities

 

$

2,432,415

 

$

2,107,469

 

Less: Accumulated depreciation

 

(340,365

)

(318,749

)

Storage facilities, net

 

2,092,050

 

1,788,720

 

Cash and cash equivalents

 

2,707

 

9,069

 

Restricted cash

 

7,579

 

11,291

 

Loan procurement costs, net of amortization

 

8,943

 

8,073

 

Investment in real estate ventures, at equity

 

 

15,181

 

Assets held for sale

 

6,452

 

 

Other assets, net

 

49,982

 

43,645

 

Total assets

 

$

2,167,713

 

$

1,875,979

 

 

 

 

 

 

 

LIABILITIES AND CAPITAL

 

 

 

 

 

 

 

 

 

 

 

Unsecured senior notes

 

$

250,000

 

$

 

Revolving credit facility

 

65,500

 

 

Unsecured term loan

 

500,000

 

400,000

 

Mortgage loans and notes payable

 

258,849

 

358,441

 

Accounts payable, accrued expenses and other liabilities

 

63,033

 

51,025

 

Distributions payable

 

12,110

 

11,401

 

Deferred revenue

 

10,950

 

9,568

 

Security deposits

 

487

 

490

 

Total liabilities

 

1,160,929

 

830,925

 

 

 

 

 

 

 

Limited Partnership interest of third parties

 

56,740

 

49,732

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

 

 

 

Operating Partner

 

971,132

 

968,744

 

Accumulated other comprehensive loss

 

(21,203

)

(12,831

)

Total CubeSmart L.P. capital

 

949,929

 

955,913

 

Noncontrolling interests in subsidiaries

 

115

 

39,409

 

Total capital

 

950,044

 

995,322

 

Total liabilities and capital

 

$

2,167,713

 

$

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 September 30,

 

Nine Months Ended September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

 

 

Rental income

 

$

65,363

 

$

51,932

 

$

184,355

 

$

150,168

 

Other property related income

 

7,677

 

5,679

 

20,493

 

15,370

 

Property management fee income

 

1,094

 

878

 

3,217

 

2,634

 

Total revenues

 

74,134

 

58,489

 

208,065

 

168,172

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

Property operating expenses

 

29,195

 

24,083

 

83,027

 

71,505

 

Depreciation and amortization

 

29,774

 

15,620

 

82,446

 

45,573

 

General and administrative

 

6,860

 

5,476

 

19,582

 

18,350

 

Total operating expenses

 

65,829

 

45,179

 

185,055

 

135,428

 

OPERATING INCOME

 

8,305

 

13,310

 

23,010

 

32,744

 

OTHER EXPENSE

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

Interest expense on loans

 

(11,092

)

(8,464

)

(29,692

)

(24,596

)

Loan procurement amortization expense

 

(699

)

(1,093

)

(2,585

)

(4,124

)

Loan procurement amortization expense - early repayment of debt

 

 

 

 

(2,085

)

Acquisition related costs

 

(1,527

)

(374

)

(2,390

)

(629

)

Equity in losses of real estate ventures

 

(284

)

(24

)

(745

)

(24

)

Gain from remeasurement of investment in real estate venture

 

7,023

 

 

7,023

 

 

Other

 

166

 

8

 

(12

)

(179

)

Total other expense

 

(6,413

)

(9,947

)

(28,401

)

(31,637

)

 

 

 

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

1,892

 

3,363

 

(5,391

)

1,107

 

 

 

 

 

 

 

 

 

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

Income from discontinued operations

 

(38

)

1,038

 

1,136

 

5,358

 

Gain on disposition of discontinued operations

 

197

 

3,527

 

6,403

 

3,527

 

Total discontinued operations

 

159

 

4,565

 

7,539

 

8,885

 

NET INCOME

 

2,051

 

7,928

 

2,148

 

9,992

 

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 

 

 

 

 

 

 

Noncontrolling interest in subsidiaries

 

(410

)

(771

)

(1,918

)

(2,011

)

NET INCOME ATTRIBUTABLE TO CUBESMART L.P.

 

1,641

 

7,157

 

230

 

7,981

 

Limited Partnership interest of third parties

 

(5

)

(329

)

106

 

(368

)

NET INCOME ATTRIBUTABLE TO OPERATING PARTNER

 

1,636

 

6,828

 

336

 

7,613

 

Distribution to Preferred Shareholders

 

(1,502

)

 

(4,506

)

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON UNITHOLDERS

 

$

134

 

$

6,828

 

$

(4,170

)

$

7,613

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per unit from continuing operations attributable to common unitholders

 

$

0.00

 

$

0.03

 

$

(0.09

)

$

(0.01

)

Basic earnings per unit from discontinued operations attributable to common unitholders

 

$

0.00

 

$

0.04

 

$

0.06

 

$

0.09

 

Basic earnings (loss) per unit attributable to common unitholders

 

$

0.00

 

$

0.07

 

$

(0.03

)

$

0.08

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per unit from continuing operations attributable to common unitholders

 

$

0.00

 

$

0.02

 

$

(0.09

)

$

(0.01

)

Diluted earnings per unit from discontinued operations attributable to common unitholders

 

$

0.00

 

$

0.05

 

$

0.06

 

$

0.09

 

Diluted earnings (loss) per unit attributable to common unitholders

 

$

0.00

 

$

0.07

 

$

(0.03

)

$

0.08

 

 

 

 

 

 

 

 

 

 

 

Weighted-average basic units outstanding

 

124,169

 

98,895

 

123,016

 

98,836

 

Weighted-average diluted units outstanding

 

125,976

 

100,284

 

123,016

 

100,264

 

 

 

 

 

 

 

 

 

 

 

AMOUNTS ATTRIBUTABLE TO COMMON UNITHOLDERS:

 

 

 

 

 

 

 

 

 

(Loss) income from continuing operations

 

$

(20

)

$

2,473

 

$

(11,445

)

$

(863

)

Total discontinued operations

 

154

 

4,355

 

7,275

 

8,476

 

Net income (loss)

 

$

134

 

$

6,828

 

$

(4,170

)

$

7,613

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

13



Table of Contents

 

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands)

(unaudited)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

2,051

 

$

7,928

 

$

2,148

 

$

9,992

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

Unrealized loss on interest rate swap

 

(2,708

)

(10,050

)

(8,811

)

(9,189

)

Unrealized gain (loss) on foreign currency translation

 

132

 

(76

)

151

 

152

 

OTHER COMPREHENSIVE LOSS

 

(2,576

)

(10,126

)

(8,660

)

(9,037

)

COMPREHENSIVE (LOSS) INCOME

 

(525

)

(2,198

)

(6,512

)

955

 

Comprehensive loss attributable to Limited Partnership interest of third parties

 

83

 

123

 

400

 

35

 

Comprehensive loss attributable to noncontrolling interests in subsidiaries

 

(415

)

(468

)

(1,924

)

(1,740

)

COMPREHENSIVE LOSS ATTRIBUTABLE TO OPERATING PARTNER

 

$

(857

)

$

(2,543

)

$

(8,036

)

$

(750

)

 

See accompanying notes to the unaudited consolidated financial statements.

 

14



Table of Contents

 

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CAPITAL

(in thousands)

(unaudited)

 

 

 

Number of OP Units
Outstanding

 

Operating

 

Accumulated Other
Comprehensive

 

Total
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, 2011

 

122,059

 

3,100

 

$

968,744

 

$

(12,831

)

$

955,913

 

$

39,409

 

$

995,322

 

$

49,732

 

Issuance of common units

 

4,691

 

 

 

59,143

 

 

 

59,143

 

 

 

59,143

 

 

 

Issuance of restricted units

 

245

 

 

 

2

 

 

 

2

 

 

 

2

 

 

 

Exercise of unit options

 

170

 

 

 

1,361

 

 

 

1,361

 

 

 

1,361

 

 

 

Conversion from units to shares

 

265

 

 

 

3,313

 

 

 

3,313

 

 

 

3,313

 

(3,313

)

Amortization of restricted units

 

 

 

 

 

2,169

 

 

 

2,169

 

 

 

2,169

 

 

 

Unit compensation expense

 

 

 

 

 

900

 

 

 

900

 

 

 

900

 

 

 

Net income (loss)

 

 

 

 

 

336

 

 

 

336

 

1,918

 

2,254

 

(106

)

Adjustment for Limited Partnership interest of third parties

 

 

 

 

 

(11,930

)

 

 

 (11,930

)

 

 

 (11,930

)

11,930

 

Acquisition of noncontrolling interests

 

 

 

 

 

(18,452

)

 

 

(18,452

)

(38,532

)

(56,984

)

(132

)

Unrealized loss on interest rate swap

 

 

 

 

 

 

 

(8,513

)

(8,513

)

 

 

(8,513

)

(298

)

Unrealized gain on foreign currency translation

 

 

 

 

 

 

 

141

 

141

 

6

 

147

 

4

 

Preferred distributions

 

 

 

 

 

(4,506

)

 

 

(4,506

)

 

 

(4,506

)

 

 

Common distributions

 

 

 

 

 

(29,948

)

 

 

(29,948

)

(2,686

)

(32,634

)

(1,077

)

Balance at September 30, 2012

 

127,430

 

3,100

 

$

971,132

 

$

(21,203

)

$

949,929

 

$

115

 

$

950,044

 

$

56,740

 

 

 

 

Number of OP Units
Outstanding

 

Operating

 

Accumulated Other
Comprehensive

 

Total
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

 

 

 

 

 

 

 

 

 

 

 

3

 

3

 

 

 

Issuance of common units

 

140

 

 

 

1,452

 

 

 

1,452

 

 

 

1,452

 

 

 

Issuance of restricted units

 

233

 

 

 

3

 

 

 

3

 

 

 

3

 

 

 

Exercise of unit options

 

24

 

 

 

121

 

 

 

121

 

 

 

121

 

 

 

Conversion from units to shares

 

8

 

 

 

85

 

 

 

85

 

 

 

85

 

(85

)

Amortization of restricted units

 

 

 

 

 

1,069

 

 

 

1,069

 

 

 

1,069

 

 

 

Unit compensation expense

 

 

 

 

 

1,169

 

 

 

1,169

 

 

 

1,169

 

 

 

Net income

 

 

 

 

 

7,613

 

 

 

7,613

 

2,011

 

9,624

 

368

 

Adjustment for Limited Partnership interest of third parties

 

 

 

 

 

1,509

 

 

 

1,509

 

 

 

1,509

 

(1,509

)

Unrealized loss on interest rate swap

 

 

 

 

 

 

 

(8,504

)

(8,504

)

(276

)

(8,780

)

(409

)

Unrealized gain on foreign currency translation

 

 

 

 

 

 

 

141

 

141

 

5

 

146

 

6

 

Common distributions

 

 

 

 

 

(20,901

)

 

 

(20,901

)

(3,452

)

(24,353

)

(995

)

Balance at September 30, 2011

 

99,002