cube_Current folio_10Q

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sts

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

December 30, 2016

 

(Mark one)

 

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

 

 

For the quarterly period ended June 30, 2016.

 

 

 

or

 

 

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

For the transition period from                                       to                                        .

 

Commission file number:
001-32324 (CubeSmart)
000-54462 (CubeSmart, L.P.)

 


 

CUBESMART

CUBESMART, L.P.

(Exact Name of Registrant as Specified in its Charter)

 


 

 

 

 

Maryland (CubeSmart)
Delaware (CubeSmart, L.P.)

 

20-1024732
34-1837021

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification No.)

 

 

 

5 Old Lancaster Road

 

 

Malvern, Pennsylvania

 

19355

(Address of Principal Executive Offices)

 

(Zip Code)

 

(610) 535-5000

(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 No

CubeSmart, L.P.

Yes No

 

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 No

CubeSmart, L.P.

Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer 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

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

 

 

CubeSmart, L.P.:

 

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

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

 

 

 

CubeSmart

Yes No

CubeSmart, L.P.

Yes No

 

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

 

 

 

 

Class

 

Outstanding at July 27, 2016

Common shares, $0.01 par value per share, of CubeSmart

 

179,292,330

 

 

 

 

 


 

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EXPLANATORY NOTE

 

This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2016 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 June 30, 2016, owned a 98.8% interest in the Operating Partnership. The remaining 1.2% interest consists of common units of limited partnership interest issued by the Operating Partnership to third parties in exchange for contributions of facilities 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 the Operating Partnership) section of the consolidated balance sheets and in the consolidated statements of equity (or capital). Apart from the different equity treatment, the consolidated financial statements of the Parent Company and the Operating Partnership are nearly identical.

 

The Company believes that combining the 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.

 

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

 

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

 

This report also includes separate Item 4 - Controls and Procedures sections, signature pages and 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 have made the requisite certifications and that the Parent Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350.

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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 

33

Item 3.     Quantitative and Qualitative Disclosures About Market Risk 

47

Item 4.     Controls and Procedures 

48

 

 

Part II. OTHER INFORMATION 

 

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

49

Item 6.     Exhibits 

50

 

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, 2015 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 occupancy 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 for federal income tax purposes;

 

·

acquisition and development risks;

 

·

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

 

·

risks of investing through joint ventures;

 

·

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

 

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·

other risks identified in the Parent Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2015 and, from time to time, in other reports that we file with the SEC or in other documents that we publicly disseminate.

 

Given these uncertainties and the other risks identified elsewhere in this Report, we caution readers not to place undue reliance on forward-looking statements.  We undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise except as may be required by securities laws.  Because of the factors referred to above, the future events discussed in or incorporated by reference in this Report may not occur and actual results, performance or achievement could differ materially from that anticipated or implied in the forward-looking statements.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

CUBESMART AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2016

    

2015

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Storage facilities

 

$

3,861,096

 

$

3,467,032

 

Less: Accumulated depreciation

 

 

(652,657)

 

 

(594,049)

 

Storage facilities, net (including VIE assets of $203,341 and $136,274, respectively)

 

 

3,208,439

 

 

2,872,983

 

Cash and cash equivalents

 

 

3,423

 

 

62,869

 

Restricted cash

 

 

9,017

 

 

24,600

 

Loan procurement costs, net of amortization

 

 

2,475

 

 

2,800

 

Investment in real estate ventures, at equity

 

 

99,915

 

 

97,281

 

Other assets, net

 

 

39,240

 

 

43,631

 

Total assets

 

$

3,362,509

 

$

3,104,164

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Unsecured senior notes, net

 

$

742,402

 

$

741,904

 

Revolving credit facility

 

 

150,000

 

 

 —

 

Unsecured term loans, net

 

 

398,466

 

 

398,183

 

Mortgage loans and notes payable, net

 

 

138,716

 

 

111,455

 

Accounts payable, accrued expenses and other liabilities

 

 

96,795

 

 

85,034

 

Distributions payable

 

 

39,449

 

 

38,685

 

Deferred revenue

 

 

19,868

 

 

17,519

 

Security deposits

 

 

402

 

 

403

 

Total liabilities

 

 

1,586,098

 

 

1,393,183

 

 

 

 

 

 

 

 

 

Noncontrolling interests in the Operating Partnership

 

 

68,581

 

 

66,128

 

 

 

 

 

 

 

 

 

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 June 30, 2016 and December 31, 2015, respectively

 

 

31

 

 

31

 

Common shares $.01 par value, 400,000,000 shares authorized, 178,249,897 and 174,667,870 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively

 

 

1,782

 

 

1,747

 

Additional paid-in capital

 

 

2,332,742

 

 

2,231,181

 

Accumulated other comprehensive loss

 

 

(4,623)

 

 

(4,978)

 

Accumulated deficit

 

 

(627,689)

 

 

(584,654)

 

Total CubeSmart shareholders’ equity

 

 

1,702,243

 

 

1,643,327

 

Noncontrolling interests in subsidiaries

 

 

5,587

 

 

1,526

 

Total equity

 

 

1,707,830

 

 

1,644,853

 

Total liabilities and equity

 

$

3,362,509

 

$

3,104,164

 

 

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 June 30, 

 

Six Months Ended June 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

111,538

 

$

96,803

 

$

216,535

 

$

188,359

 

Other property related income

 

 

12,643

 

 

11,385

 

 

24,406

 

 

21,928

 

Property management fee income

 

 

2,345

 

 

1,683

 

 

4,456

 

 

3,272

 

Total revenues

 

 

126,526

 

 

109,871

 

 

245,397

 

 

213,559

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

41,607

 

 

38,210

 

 

81,826

 

 

75,641

 

Depreciation and amortization

 

 

41,448

 

 

38,086

 

 

80,804

 

 

75,981

 

General and administrative

 

 

7,891

 

 

7,114

 

 

16,119

 

 

14,287

 

Acquisition related costs

 

 

2,563

 

 

753

 

 

4,905

 

 

1,263

 

Total operating expenses

 

 

93,509

 

 

84,163

 

 

183,654

 

 

167,172

 

OPERATING INCOME

 

 

33,017

 

 

25,708

 

 

61,743

 

 

46,387

 

OTHER (EXPENSE) INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense on loans

 

 

(12,200)

 

 

(10,868)

 

 

(24,284)

 

 

(21,925)

 

Loan procurement amortization expense

 

 

(611)

 

 

(659)

 

 

(1,216)

 

 

(1,205)

 

Equity in losses of real estate ventures

 

 

(724)

 

 

(100)

 

 

(1,236)

 

 

(338)

 

Other

 

 

901

 

 

(208)

 

 

1,231

 

 

(524)

 

Total other expense

 

 

(12,634)

 

 

(11,835)

 

 

(25,505)

 

 

(23,992)

 

NET INCOME

 

 

20,383

 

 

13,873

 

 

36,238

 

 

22,395

 

NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests in the Operating Partnership

 

 

(227)

 

 

(161)

 

 

(399)

 

 

(252)

 

Noncontrolling interest in subsidiaries

 

 

268

 

 

12

 

 

335

 

 

15

 

NET INCOME ATTRIBUTABLE TO THE COMPANY

 

 

20,424

 

 

13,724

 

 

36,174

 

 

22,158

 

Distribution to preferred shareholders

 

 

(1,502)

 

 

(1,502)

 

 

(3,004)

 

 

(3,004)

 

NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS

 

$

18,922

 

$

12,222

 

$

33,170

 

$

19,154

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to common shareholders

 

$

0.11

 

$

0.07

 

$

0.19

 

$

0.12

 

Diluted earnings per share attributable to common shareholders

 

$

0.11

 

$

0.07

 

$

0.19

 

$

0.11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average basic shares outstanding

 

 

177,880

 

 

166,683

 

 

176,838

 

 

166,096

 

Weighted-average diluted shares outstanding

 

 

179,221

 

 

168,224

 

 

178,172

 

 

167,655

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

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CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

20,383

 

$

13,873

 

$

36,238

 

$

22,395

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on interest rate swaps

 

 

(581)

 

 

(357)

 

 

(2,235)

 

 

(2,686)

 

Reclassification of realized losses on interest rate swaps

 

 

1,268

 

 

1,572

 

 

2,594

 

 

3,137

 

Unrealized gain (loss) on foreign currency translation

 

 

 —

 

 

268

 

 

 —

 

 

(69)

 

OTHER COMPREHENSIVE INCOME

 

 

687

 

 

1,483

 

 

359

 

 

382

 

COMPREHENSIVE INCOME

 

 

21,070

 

 

15,356

 

 

36,597

 

 

22,777

 

Comprehensive income attributable to noncontrolling interests in the Operating Partnership

 

 

(235)

 

 

(180)

 

 

(403)

 

 

(256)

 

Comprehensive loss attributable to noncontrolling interest in subsidiaries

 

 

268

 

 

5

 

 

335

 

 

18

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY

 

$

21,103

 

$

15,181

 

$

36,529

 

$

22,539

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

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CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

 

    

    

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

Noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Accumulated Other

 

 

 

 

Total

 

Noncontrolling

 

 

 

 

Interests in the

 

 

 

Common Shares

 

Preferred Shares

 

Paid in

 

Comprehensive

 

Accumulated

 

Shareholders’

 

Interest in

 

Total

 

Operating

 

 

 

Number

 

Amount

 

Number

 

Amount

 

Capital

 

(Loss) Income

 

Deficit

 

Equity

 

Subsidiaries

 

Equity

 

Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

174,668

 

$

1,747

 

3,100

 

$

31

 

$

2,231,181

 

$

(4,978)

 

$

(584,654)

 

$

1,643,327

 

$

1,526

 

$

1,644,853

 

$

66,128

 

Contributions from noncontrolling interests in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,396

 

 

4,396

 

 

 

 

Issuance of common shares

 

2,820

 

 

28

 

 

 

 

 

 

 

88,574

 

 

 

 

 

 

 

 

88,602

 

 

 

 

 

88,602

 

 

 

 

Issuance of restricted shares

 

121

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

1

 

 

 

 

Issuance of OP units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,500

 

Exercise of stock options

 

641

 

 

6

 

 

 

 

 

 

 

12,193

 

 

 

 

 

 

 

 

12,199

 

 

 

 

 

12,199

 

 

 

 

Amortization of restricted shares

 

 

 

 

 

 

 

 

 

 

 

 

171

 

 

 

 

 

 

 

 

171

 

 

 

 

 

171

 

 

 

 

Share compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

623

 

 

 

 

 

 

 

 

623

 

 

 

 

 

623

 

 

 

 

Adjustment for noncontrolling interest in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,469)

 

 

(1,469)

 

 

 

 

 

(1,469)

 

 

1,469

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36,174

 

 

36,174

 

 

(335)

 

 

35,839

 

 

399

 

Other comprehensive income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

355

 

 

 

 

 

355

 

 

 

 

 

355

 

 

4

 

Preferred share distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,004)

 

 

(3,004)

 

 

 

 

 

(3,004)

 

 

 

 

Common share distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(74,736)

 

 

(74,736)

 

 

 

 

 

(74,736)

 

 

(919)

 

Balance at June 30, 2016

 

178,250

 

$

1,782

 

3,100

 

$

31

 

$

2,332,742

 

$

(4,623)

 

$

(627,689)

 

$

1,702,243

 

$

5,587

 

$

1,707,830

 

$

68,581

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

 

    

    

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

Noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Accumulated Other

 

 

 

 

Total

 

Noncontrolling

 

 

 

 

Interests in the

 

 

 

Common Shares

 

Preferred Shares

 

Paid in

 

Comprehensive

 

Accumulated

 

Shareholders’

 

Interest in

 

Total

 

Operating

 

 

 

Number

 

Amount

 

Number

 

Amount

 

Capital

 

(Loss) Income

 

Deficit

 

Equity

 

Subsidiaries

 

Equity

 

Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

    

163,957

    

$

1,639

    

3,100

    

$

31

    

$

1,974,308

    

$

(8,759)

    

$

(519,193)

    

$

1,448,026

    

$

1,592

    

$

1,449,618

    

$

49,823

 

Contributions from noncontrolling interests in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

178

 

 

178

 

 

 

 

Issuance of common shares

 

2,339

 

 

24

 

 

 

 

 

 

 

56,453

 

 

 

 

 

 

 

 

56,477

 

 

 

 

 

56,477

 

 

 

 

Issuance of restricted shares

 

154

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

1

 

 

 

 

Issuance of OP units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

500

 

Conversion from units to shares

 

12

 

 

 

 

 

 

 

 

 

 

296

 

 

 

 

 

 

 

 

296

 

 

 

 

 

296

 

 

(296)

 

Exercise of stock options

 

976

 

 

10

 

 

 

 

 

 

 

9,349

 

 

 

 

 

 

 

 

9,359

 

 

 

 

 

9,359

 

 

 

 

Amortization of restricted shares

 

 

 

 

 

 

 

 

 

 

 

 

(36)

 

 

 

 

 

 

 

 

(36)

 

 

 

 

 

(36)

 

 

 

 

Share compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

491

 

 

 

 

 

 

 

 

491

 

 

 

 

 

491

 

 

 

 

Adjustment for noncontrolling interest in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,913)

 

 

(2,913)

 

 

 

 

 

(2,913)

 

 

2,913

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,158

 

 

22,158

 

 

(15)

 

 

22,143

 

 

252

 

Other comprehensive income (loss), net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

381

 

 

 

 

 

381

 

 

(3)

 

 

378

 

 

4

 

Preferred share distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,004)

 

 

(3,004)

 

 

 

 

 

(3,004)

 

 

 

 

Common share distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(53,433)

 

 

(53,433)

 

 

 

 

 

(53,433)

 

 

(724)

 

Balance at June 30, 2015

 

167,438

 

$

1,674

 

3,100

 

$

31

 

$

2,040,861

 

$

(8,378)

 

$

(556,385)

 

$

1,477,803

 

$

1,752

 

$

1,479,555

 

$

52,472

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

10


 

Table of Contents

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

    

2016

    

2015

Operating Activities

 

 

 

 

 

 

Net income

 

$

36,238

 

$

22,395

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

 

 

 

 

 

 

Depreciation and amortization

 

 

82,020

 

 

77,186

Equity in losses of real estate ventures

 

 

1,236

 

 

338

Equity compensation expense

 

 

794

 

 

455

Accretion of fair market value adjustment of debt

 

 

(504)

 

 

(803)

Changes in other operating accounts:

 

 

 

 

 

 

Restricted cash

 

 

272

 

 

190

Other assets

 

 

(3,630)

 

 

(3,896)

Accounts payable and accrued expenses

 

 

5,891

 

 

3,306

Other liabilities

 

 

1,660

 

 

1,517

Net cash provided by operating activities

 

$

123,977

 

$

100,688

Investing Activities

 

 

 

 

 

 

Acquisitions of storage facilities

 

 

(235,577)

 

 

(85,627)

Additions and improvements to storage facilities

 

 

(13,261)

 

 

(11,874)

Development costs

 

 

(94,496)

 

 

(37,026)

Investment in real estate ventures, at equity

 

 

(7,586)

 

 

 —

Cash distributed from real estate ventures

 

 

3,716

 

 

3,000

Fundings of notes receivable

 

 

 —

 

 

(4,100)

Change in restricted cash

 

 

137

 

 

(63)

Net cash used in investing activities

 

$

(347,067)

 

$

(135,690)

Financing Activities

 

 

 

 

 

 

Proceeds from:

 

 

 

 

 

 

Revolving credit facility

 

 

655,100

 

 

378,700

Principal payments on:

 

 

 

 

 

 

Revolving credit facility

 

 

(505,100)

 

 

(295,100)

Mortgage loans and notes payable

 

 

(13,659)

 

 

(55,451)

Loan procurement costs

 

 

 —

 

 

(2,283)

Proceeds from issuance of common shares, net

 

 

88,603

 

 

56,478

Exercise of stock options

 

 

12,199

 

 

9,359

Contributions from noncontrolling interests in subsidiaries

 

 

4,396

 

 

178

Distributions paid to common shareholders

 

 

(73,984)

 

 

(52,887)

Distributions paid to preferred shareholders

 

 

(3,004)

 

 

(3,004)

Distributions paid to noncontrolling interests in Operating Partnership

 

 

(907)

 

 

(722)

Net cash provided by financing activities

 

$

163,644

 

$

35,268

Change in cash and cash equivalents

 

 

(59,446)

 

 

266

Cash and cash equivalents at beginning of period

 

 

62,869

 

 

2,901

Cash and cash equivalents at end of period

 

$

3,423

 

$

3,167

Supplemental Cash Flow and Noncash Information

 

 

 

 

 

 

Cash paid for interest, net of interest capitalized

 

$

26,879

 

$

23,893

Supplemental disclosure of noncash activities:

 

 

 

 

 

 

Restricted cash - acquisition of storage facilities

 

$

(22,019)

 

$

 —

Accretion of liability, net

 

$

4,174

 

$

7,427

Derivative valuation adjustment

 

$

359

 

$

451

Foreign currency translation adjustment

 

$

 —

 

$

(69)

Mortgage loan assumptions

 

$

41,513

 

$

2,695

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

11


 

Table of Contents

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2016

    

2015

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Storage facilities

 

$

3,861,096

 

$

3,467,032

 

Less: Accumulated depreciation

 

 

(652,657)

 

 

(594,049)

 

Storage facilities, net (including VIE assets of $203,341 and $136,274, respectively)

 

 

3,208,439

 

 

2,872,983

 

Cash and cash equivalents

 

 

3,423

 

 

62,869

 

Restricted cash

 

 

9,017

 

 

24,600

 

Loan procurement costs, net of amortization

 

 

2,475

 

 

2,800

 

Investment in real estate ventures, at equity

 

 

99,915

 

 

97,281

 

Other assets, net

 

 

39,240

 

 

43,631

 

Total assets

 

$

3,362,509

 

$

3,104,164

 

 

 

 

 

 

 

 

 

LIABILITIES AND CAPITAL

 

 

 

 

 

 

 

Unsecured senior notes, net

 

$

742,402

 

$

741,904

 

Revolving credit facility

 

 

150,000

 

 

 —

 

Unsecured term loans, net

 

 

398,466

 

 

398,183

 

Mortgage loans and notes payable, net

 

 

138,716

 

 

111,455

 

Accounts payable, accrued expenses and other liabilities

 

 

96,795

 

 

85,034

 

Distributions payable

 

 

39,449

 

 

38,685

 

Deferred revenue

 

 

19,868