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Section 1: 10-Q (10-Q)

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sts

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


 

FORM 10-Q

 


 

 

(Mark one)

 

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

 

 

For the quarterly period ended March 31, 2019.

 

 

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

 

 

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, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

CubeSmart:

 

 

 

 

Large accelerated filer ☑

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

 

 

 

 

 

CubeSmart, L.P.:

 

 

 

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☑

Smaller reporting company ☐

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

 

 

CubeSmart

CubeSmart, L.P.

 

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

 

 

 

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 April 24, 2019

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

 

188,471,117

 

 

 

 


 

Table of Contents

EXPLANATORY NOTE

 

This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2019 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, 2019, owned a 99.0% interest in the Operating Partnership. The remaining 1.0% interest consists of common units of limited partnership interest issued by the Operating Partnership to third parties in exchange for contributions of properties to the Operating Partnership. As the sole general partner of the Operating Partnership, the Parent Company has full and complete authority over the Operating Partnership’s day-to-day operations and management.

 

Management operates the Parent Company and the Operating Partnership as one enterprise. The management teams of the Parent Company and the Operating Partnership are identical, and their constituents are officers of both the Parent Company and of the Operating Partnership.

 

There are a few differences between the Parent Company and the Operating Partnership, which are reflected in the note disclosures in this report. The Company believes it is important to understand the differences between the Parent Company and the Operating Partnership in the context of how these entities operate as a consolidated enterprise. The Parent Company is a REIT, whose only material asset is its ownership of the partnership interests of the Operating Partnership. As a result, the Parent Company does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing the debt obligations of the Operating Partnership. The Operating Partnership holds substantially all 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 

44

Item 4.     Controls and Procedures 

44

 

 

Part II. OTHER INFORMATION 

 

Item 1.     Legal Proceedings 

45

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

46

Item 6.     Exhibits 

47

 

Filing Format

 

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

4


 

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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 or persons acting on their behalf may make orally or in writing from time to time, as predictions of future events or as guarantees of future performance.  We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this Report or as of the dates otherwise indicated in such forward-looking statements.  All of our forward-looking statements, including those in this Report, are qualified in their entirety by this statement.

 

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this Report.  Any forward-looking statements should be considered in light of the risks and uncertainties referred to in Item 1A. “Risk Factors” in the Parent Company’s and the Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2018 and in our other filings with the Securities and Exchange Commission (“SEC”).  These risks include, but are not limited to, the following:

 

·

adverse changes in the national and local economic, business, real estate and other market conditions;

 

·

the effect of competition from existing and new self-storage properties on our ability to maintain or raise occupancy and rental rates;

 

·

the execution of our business plan;

 

·

reduced availability and increased costs 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;

 

·

risks related to our ability to maintain our Parent Company’s qualification as a REIT for federal income tax purposes;

 

·

the failure of acquisitions and developments to close on expected terms, or at all, or to perform as expected;

 

·

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

 

·

the failure of our joint venture partners to fulfill their obligations to us or their pursuit of actions that are inconsistent with our objectives;

 

·

reductions in asset valuations and related impairment charges;

 

·

cyber security breaches or a failure of our networks, systems or technology, which could adversely impact our business, customer and employee relationships;

 

·

changes in real estate and zoning laws or regulations;

 

·

risks related to natural disasters or acts of violence, terrorism, or war that affect the markets in which we operate;

 

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·

potential environmental and other liabilities;

 

·

uninsured losses and the ability to obtain insurance coverage against risks and losses;

 

·

the ability to attract and retain talent in the current labor market;

 

·

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 for the year ended December 31, 2018 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)

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

   

2019

   

2018

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Storage properties

 

$

4,489,732

 

$

4,463,455

 

Less: Accumulated depreciation

 

 

(884,941)

 

 

(862,487)

 

Storage properties, net (including VIE assets of $248,805 and $330,986, respectively)

 

 

3,604,791

 

 

3,600,968

 

Cash and cash equivalents

 

 

3,533

 

 

3,764

 

Restricted cash

 

 

3,008

 

 

2,718

 

Loan procurement costs, net of amortization

 

 

793

 

 

963

 

Investment in real estate ventures, at equity

 

 

94,092

 

 

95,796

 

Other assets, net

 

 

107,972

 

 

48,763

 

Total assets

 

$

3,814,189

 

$

3,752,972

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Unsecured senior notes, net

 

$

1,488,692

 

$

1,143,524

 

Revolving credit facility

 

 

96,145

 

 

195,525

 

Unsecured term loans, net

 

 

99,861

 

 

299,799

 

Mortgage loans and notes payable, net

 

 

107,414

 

 

108,246

 

Accounts payable, accrued expenses and other liabilities

 

 

168,174

 

 

149,914

 

Distributions payable

 

 

60,978

 

 

60,627

 

Deferred revenue

 

 

23,485

 

 

22,595

 

Security deposits

 

 

466

 

 

474

 

Total liabilities

 

 

2,045,215

 

 

1,980,704

 

 

 

 

 

 

 

 

 

Noncontrolling interests in the Operating Partnership

 

 

60,414

 

 

55,819

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

Common shares $.01 par value, 400,000,000 shares authorized, 188,137,137 and 187,145,103 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively

 

 

1,881

 

 

1,871

 

Additional paid-in capital

 

 

2,519,750

 

 

2,500,751

 

Accumulated other comprehensive loss

 

 

(789)

 

 

(1,029)

 

Accumulated deficit

 

 

(823,473)

 

 

(791,915)

 

Total CubeSmart shareholders’ equity

 

 

1,697,369

 

 

1,709,678

 

Noncontrolling interests in subsidiaries

 

 

11,191

 

 

6,771

 

Total equity

 

 

1,708,560

 

 

1,716,449

 

Total liabilities and equity

 

$

3,814,189

 

$

3,752,972

 

 

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 March 31, 

 

 

    

2019

    

2018

    

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

Rental income

 

$

131,592

 

$

124,161

 

Other property related income

 

 

15,675

 

 

14,247

 

Property management fee income

 

 

5,578

 

 

4,469

 

Total revenues

 

 

152,845

 

 

142,877

 

OPERATING EXPENSES

 

 

 

 

 

 

 

Property operating expenses

 

 

51,425

 

 

48,754

 

Depreciation and amortization

 

 

38,442

 

 

34,966

 

General and administrative

 

 

9,147

 

 

8,744

 

Total operating expenses

 

 

99,014

 

 

92,464

 

OTHER (EXPENSE) INCOME

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

Interest expense on loans

 

 

(17,517)

 

 

(15,155)

 

Loan procurement amortization expense

 

 

(624)

 

 

(579)

 

Equity in earnings (losses) of real estate ventures

 

 

261

 

 

(184)

 

Other

 

 

(165)

 

 

304

 

Total other expense

 

 

(18,045)

 

 

(15,614)

 

NET INCOME

 

 

35,786

 

 

34,799

 

NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

 

 

 

 

 

 

Noncontrolling interests in the Operating Partnership

 

 

(358)

 

 

(383)

 

Noncontrolling interest in subsidiaries

 

 

70

 

 

 7

 

NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS

 

$

35,498

 

$

34,423

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to common shareholders

 

$

0.19

 

$

0.19

 

Diluted earnings per share attributable to common shareholders

 

$

0.19

 

$

0.19

 

 

 

 

 

 

 

 

 

Weighted-average basic shares outstanding

 

 

187,253

 

 

182,274

 

Weighted-average diluted shares outstanding

 

 

187,984

 

 

183,222

 

 

 

 

 

 

 

 

 

 

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 March 31, 

 

 

    

2019

    

2018

    

 

 

 

 

 

 

 

 

NET INCOME

 

$

35,786

 

$

34,799

 

Other comprehensive income:

 

 

 

 

 

 

 

Unrealized gains on interest rate swaps

 

 

232

 

 

60

 

Reclassification of realized losses on interest rate swaps

 

 

10

 

 

219

 

OTHER COMPREHENSIVE INCOME

 

 

242

 

 

279

 

COMPREHENSIVE INCOME

 

 

36,028

 

 

35,078

 

Comprehensive income attributable to noncontrolling interests in the Operating Partnership

 

 

(360)

 

 

(383)

 

Comprehensive loss attributable to noncontrolling interest in subsidiaries

 

 

70

 

 

 7

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY

 

$

35,738

 

$

34,702

 

 

 

 

 

 

 

 

 

 

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

 

Paid in

 

Comprehensive

 

Accumulated

 

Shareholders’

 

Interest in

 

Total

 

Operating

 

 

 

Number

 

Amount

 

Capital

 

Income (Loss)

 

Deficit

 

Equity

 

Subsidiaries

 

Equity

 

Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

187,145

 

$

1,871

 

$

2,500,751

 

$

(1,029)

 

$

(791,915)

 

$

1,709,678

 

$

6,771

 

$

1,716,449

 

$

55,819

 

Contributions from noncontrolling interests in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,828

 

 

4,828

 

 

 

 

Distributions to noncontrolling interests in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(66)

 

 

(66)

 

 

 

 

Acquisition of noncontrolling interest in subsidiary

 

 

 

 

 

 

 

(9,728)

 

 

 

 

 

 

 

 

(9,728)

 

 

(272)

 

 

(10,000)

 

 

 

 

Issuance of common shares

 

773

 

 

 8

 

 

24,572

 

 

 

 

 

 

 

 

24,580

 

 

 

 

 

24,580

 

 

 

 

Issuance of restricted shares

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion from units to shares

 

60

 

 

 1

 

 

1,841

 

 

 

 

 

 

 

 

1,842

 

 

 

 

 

1,842

 

 

(1,842)

 

Exercise of stock options

 

140

 

 

 1

 

 

1,048

 

 

 

 

 

 

 

 

1,049

 

 

 

 

 

1,049

 

 

 

 

Amortization of restricted shares

 

 

 

 

 

 

 

798

 

 

 

 

 

 

 

 

798

 

 

 

 

 

798

 

 

 

 

Share compensation expense

 

 

 

 

 

 

 

468

 

 

 

 

 

 

 

 

468

 

 

 

 

 

468

 

 

 

 

Adjustment for noncontrolling interests in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,681)

 

 

(6,681)

 

 

 

 

 

(6,681)

 

 

6,681

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

35,498

 

 

35,498

 

 

(70)

 

 

35,428

 

 

358

 

Other comprehensive income, net

 

 

 

 

 

 

 

 

 

 

240

 

 

 

 

 

240

 

 

 

 

 

240

 

 

 2

 

Common share distributions ($0.32 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

(60,375)

 

 

(60,375)

 

 

 

 

 

(60,375)

 

 

(604)

 

Balance at March 31, 2019

 

188,137

 

$

1,881

 

$

2,519,750

 

$

(789)

 

$

(823,473)

 

$

1,697,369

 

$

11,191

 

$

1,708,560

 

$

60,414

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

Noncontrolling

 

 

 

 

 

 

 

 

Additional

 

Accumulated Other

 

 

 

 

Total

 

Noncontrolling

 

 

 

 

Interests in the

 

 

 

Common Shares

 

Paid in

 

Comprehensive

 

Accumulated

 

Shareholders’

 

Interest in

 

Total

 

Operating

 

 

 

Number

 

Amount

 

Capital

 

Income

 

Deficit

 

Equity

 

Subsidiaries

 

Equity

 

Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

    

182,216

 

$

1,822

 

$

2,356,620

 

$

 3

 

$

(729,311)

 

$

1,629,134

 

$

6,236

 

$

1,635,370

 

$

54,320

 

Contributions from noncontrolling interests in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

738

 

 

738

 

 

 

 

Issuance of common shares

 

 

 

 

 

 

 

(44)

 

 

 

 

 

 

 

 

(44)

 

 

 

 

 

(44)

 

 

 

 

Issuance of restricted shares

 

64

 

 

 1

 

 

 

 

 

 

 

 

 

 

 

 1

 

 

 

 

 

 1

 

 

 

 

Issuance of OP units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,782

 

Exercise of stock options

 

 

 

 

 

 

 

 2

 

 

 

 

 

 

 

 

 2

 

 

 

 

 

 2

 

 

 

 

Amortization of restricted shares

 

 

 

 

 

 

 

(242)

 

 

 

 

 

 

 

 

(242)

 

 

 

 

 

(242)

 

 

 

 

Share compensation expense

 

 

 

 

 

 

 

423

 

 

 

 

 

 

 

 

423

 

 

 

 

 

423

 

 

 

 

Adjustment for noncontrolling interest in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

1,169

 

 

1,169

 

 

 

 

 

1,169

 

 

(1,169)

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

34,423

 

 

34,423

 

 

(7)

 

 

34,416

 

 

383

 

Other comprehensive income, net

 

 

 

 

 

 

 

 

 

 

276

 

 

 

 

 

276

 

 

 

 

 

276

 

 

 3

 

Common share distributions ($0.30 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

(54,780)

 

 

(54,780)

 

 

 

 

 

(54,780)

 

 

(614)

 

Balance at March 31, 2018

 

182,280

 

$

1,823

 

$

2,356,759

 

$

279

 

$

(748,499)

 

$

1,610,362

 

$

6,967

 

$

1,617,329

 

$

57,705

 

 

 

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, 

 

 

    

2019

    

2018

 

Operating Activities

 

 

 

 

 

 

 

Net income

 

$

35,786

 

$

34,799

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

39,066

 

 

35,545

 

Equity in (earnings) losses of real estate ventures

 

 

(261)

 

 

184

 

Equity compensation expense

 

 

1,619

 

 

1,592

 

Accretion of fair market value adjustment of debt

 

 

(179)

 

 

(183)

 

Changes in other operating accounts:

 

 

 

 

 

 

 

Other assets

 

 

(3,212)

 

 

(1,352)

 

Accounts payable and accrued expenses

 

 

1,806

 

 

(5,558)

 

Other liabilities

 

 

833

 

 

1,105

 

Net cash provided by operating activities

 

$

75,458

 

$

66,132

 

Investing Activities

 

 

 

 

 

 

 

Acquisitions of storage properties

 

 

(25,097)

 

 

(4,034)

 

Additions and improvements to storage properties

 

 

(6,153)

 

 

(5,394)

 

Development costs

 

 

(49,748)

 

 

(39,663)

 

Investment in real estate ventures

 

 

(107)

 

 

(10,320)

 

Cash distributed from real estate ventures

 

 

2,072

 

 

2,257

 

Net cash used in investing activities

 

$

(79,033)

 

$

(57,154)

 

Financing Activities

 

 

 

 

 

 

 

Proceeds from:

 

 

 

 

 

 

 

Unsecured senior notes

 

 

347,746

 

 

 —

 

Revolving credit facility

 

 

279,020

 

 

156,700

 

Principal payments on:

 

 

 

 

 

 

 

Revolving credit facility

 

 

(378,400)

 

 

(102,000)

 

Unsecured term loans

 

 

(200,000)

 

 

 —

 

Mortgage loans and notes payable

 

 

(701)

 

 

(7,831)

 

Loan procurement costs

 

 

(2,634)

 

 

 —

 

Settlement of hedge transactions

 

 

(807)

 

 

 —

 

Acquisition of noncontrolling interest in subsidiary, net

 

 

(5,172)

 

 

 —

 

Proceeds from issuance of common shares, net

 

 

24,580

 

 

(43)

 

Cash paid upon vesting of restricted shares

 

 

(353)

 

 

(1,411)

 

Exercise of stock options

 

 

1,049

 

 

 2

 

Contributions from noncontrolling interests in subsidiaries

 

 

 —

 

 

738

 

Distributions paid to noncontrolling interests in subsidiaries

 

 

(66)

 

 

 —

 

Distributions paid to common shareholders

 

 

(60,005)

 

 

(54,746)

 

Distributions paid to noncontrolling interests in Operating Partnership

 

 

(623)

 

 

(563)

 

Net cash provided by (used in) financing activities

 

$

3,634

 

$

(9,154)

 

Change in cash, cash equivalents, and restricted cash

 

 

59

 

 

(176)

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

6,482

 

 

9,158

 

Cash, cash equivalents, and restricted cash at end of period

 

$

6,541

 

$

8,982

 

Supplemental Cash Flow and Noncash Information

 

 

 

 

 

 

 

Cash paid for interest, net of interest capitalized

 

$

15,918

 

$

15,298

 

Supplemental disclosure of noncash activities:

 

 

 

 

 

 

 

Accretion of liability

 

$

4,070

 

$

7,266

 

Derivative valuation adjustment

 

$

242

 

$

279

 

Discount on issuance of unsecured senior notes

 

$

2,254

 

$

 —

 

Mortgage loan assumptions

 

$

 —

 

$

7,166

 

Issuance of OP units

 

$

 —

 

$

4,782

 

Acquisition of noncontrolling interest in subsidiary

 

$

(4,828)

 

$

 —

 

Contributions from noncontrolling interests in subsidiaries

 

$

4,828

 

$

 —

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

11


 

Table of Contents

CUBESMART, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

    

2019

    

2018

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Storage properties

 

$

4,489,732

 

$

4,463,455

 

Less: Accumulated depreciation

 

 

(884,941)

 

 

(862,487)

 

Storage properties, net (including VIE assets of $248,805 and $330,986, respectively)

 

 

3,604,791

 

 

3,600,968

 

Cash and cash equivalents

 

 

3,533

 

 

3,764

 

Restricted cash

 

 

3,008

 

 

2,718

 

Loan procurement costs, net of amortization

 

 

793

 

 

963

 

Investment in real estate ventures, at equity

 

 

94,092

 

 

95,796

 

Other assets, net

 

 

107,972

 

 

48,763

 

Total assets

 

$

3,814,189

 

$

3,752,972

 

 

 

 

 

 

 

 

 

LIABILITIES AND CAPITAL

 

 

 

 

 

 

 

Unsecured senior notes, net

 

$

1,488,692

 

$

1,143,524

 

Revolving credit facility

 

 

96,145

 

 

195,525

 

Unsecured term loans, net

 

 

99,861

 

 

299,799

 

Mortgage loans and notes payable, net

 

 

107,414

 

 

108,246

 

Accounts payable, accrued expenses and other liabilities

 

 

168,174

 

 

149,914

 

Distributions payable

 

 

60,978

 

 

60,627

 

Deferred revenue

 

 

23,485

 

 

22,595

 

Security deposits

 

 

466

 

 

474

 

Total liabilities

 

 

2,045,215

 

 

1,980,704

 

 

 

 

 

 

 

 

 

Limited Partnership interests of third parties

 

 

60,414

 

 

55,819

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

 

 

 

 

 

Operating Partner

 

 

1,698,158

 

 

1,710,707

 

Accumulated other comprehensive loss

 

 

(789)

 

 

(1,029)

 

Total CubeSmart, L.P. capital

 

 

1,697,369

 

 

1,709,678

 

Noncontrolling interests in subsidiaries

 

 

11,191

 

 

6,771

 

Total capital

 

 

1,708,560