CubeSmart [CUBE] Filings

10-Q 1 cube-20230930x10q.htm 10-Q

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 September 30, 2023.

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 Incorporation or Organization)		(I.R.S. Employer Identification No.)

5 Old Lancaster Rd. Malvern, Pennsylvania		19355
(Address of Principal Executive Offices)		(Zip Code)

(610) 535-5000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Shares, $0.01 par value per share, of CubeSmart	CUBE	New York Stock Exchange

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 November 1, 2023
Common shares, $0.01 par value per share, of CubeSmart		224,860,966

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EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2023 of CubeSmart (the “Parent Company” or “CubeSmart”) and CubeSmart, L.P. (the “Operating Partnership”). The Parent Company is a Maryland real estate investment trust (“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, 2023, owned a 99.4% interest in the Operating Partnership. The remaining 0.6% 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 of 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 unaudited 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 Exhibits 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	31
Item 3. Quantitative and Qualitative Disclosures About Market Risk	43
Item 4. Controls and Procedures	43

Part II. OTHER INFORMATION
Item 1. Legal Proceedings	44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 5. Other Information	45
Item 6. Exhibits	47

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 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, 2022 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 economic conditions in the real estate industry and in the markets in which we own and operate self-storage properties;

●

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

●

the failure to execute our business plan;

●

adverse impacts from the COVID-19 pandemic, other pandemics, quarantines and stay at home orders, including the impact on our ability to operate our self-storage properties, the demand for self-storage, rental rates and fees and rent collection levels;

●

reduced availability and increased costs of external sources of capital;

●

increases in interest rates and operating costs;

●

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 or future debt;

●

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;

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●

cyber security breaches, cyber or ransomware attacks or a failure of our networks, systems or technology, which could adversely impact our business, customer and employee relationships or result in fraudulent payments;

●

changes in real estate, zoning, use and occupancy laws or regulations;

●

risks related to or a consequence of natural disasters or acts of violence, pandemics, active shooters, terrorism, insurrection or war that affect the markets in which we operate;

●

potential environmental and other liabilities;

●

governmental, administrative and executive orders and laws, which could adversely impact our business operations and customer and employee relationships;

●

uninsured or uninsurable losses and the ability to obtain insurance coverage or recovery from insurance 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 combined Annual Report on Form 10-K for the year ended December 31, 2022 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)


	September 30,		December 31,
	2023		2022
	(unaudited)

ASSETS
Storage properties	$	7,332,817	$	7,295,778
Less: Accumulated depreciation		(1,375,321)		(1,247,775)
Storage properties, net (including VIE assets of $150,067 and $167,180, respectively)		5,957,496		6,048,003
Cash and cash equivalents		8,028		6,064
Restricted cash		1,872		2,861
Loan procurement costs, net of amortization		4,278		5,182
Investment in real estate ventures, at equity		99,670		105,993
Assets held for sale		—		3,745
Other assets, net		161,881		153,982
Total assets	$	6,233,225	$	6,325,830

LIABILITIES AND EQUITY
Unsecured senior notes, net	$	2,775,455	$	2,772,350
Revolving credit facility		15,200		60,900
Mortgage loans and notes payable, net		129,130		162,918
Lease liabilities - finance leases		65,720		65,758
Accounts payable, accrued expenses and other liabilities		222,052		213,297
Distributions payable		111,279		111,190
Deferred revenue		40,169		38,757
Security deposits		1,077		1,087
Liabilities held for sale		—		1,773
Total liabilities		3,360,082		3,428,030

Noncontrolling interests in the Operating Partnership		51,877		57,419

Commitments and contingencies

Equity
Common shares $.01 par value, 400,000,000 shares authorized, 224,859,021 and 224,603,462 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		2,249		2,246
Additional paid-in capital		4,137,466		4,125,478
Accumulated other comprehensive loss		(431)		(491)
Accumulated deficit		(1,332,081)		(1,301,030)
Total CubeSmart shareholders’ equity		2,807,203		2,826,203
Noncontrolling interests in subsidiaries		14,063		14,178
Total equity		2,821,266		2,840,381
Total liabilities and equity	$	6,233,225	$	6,325,830

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,
	2023		2022		2023		2022

REVENUES
Rental income	$	232,468	$	226,837	$	681,962	$	651,341
Other property related income		25,857		25,619		76,001		71,760
Property management fee income		9,551		8,952		27,246		25,536
Total revenues		267,876		261,408		785,209		748,637
OPERATING EXPENSES
Property operating expenses		77,546		76,728		223,494		220,767
Depreciation and amortization		49,985		79,574		150,672		241,177
General and administrative		14,060		13,390		43,059		41,640
Total operating expenses		141,591		169,692		417,225		503,584
OTHER (EXPENSE) INCOME
Interest:
Interest expense on loans		(23,204)		(23,850)		(70,439)		(69,729)
Loan procurement amortization expense		(1,030)		(969)		(3,111)		(2,885)
Equity in earnings of real estate ventures		1,141		46,558		4,482		47,532
Other		(119)		(15)		382		(9,671)
Total other (expense) income		(23,212)		21,724		(68,686)		(34,753)
NET INCOME		103,073		113,440		299,298		210,300
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Noncontrolling interests in the Operating Partnership		(640)		(733)		(1,870)		(1,404)
Noncontrolling interest in subsidiaries		212		181		662		505
NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS	$	102,645	$	112,888	$	298,090	$	209,401

Basic earnings per share attributable to common shareholders	$	0.46	$	0.50	$	1.32	$	0.93
Diluted earnings per share attributable to common shareholders	$	0.45	$	0.50	$	1.32	$	0.93

Weighted average basic shares outstanding		225,467		225,023		225,380		224,883
Weighted average diluted shares outstanding		226,210		225,966		226,206		225,881

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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

NET INCOME	$	103,073	$	113,440	$	299,298	$	210,300
Other comprehensive income:
Reclassification of realized losses on interest rate swaps		20		20		60		60
OTHER COMPREHENSIVE INCOME:		20		20		60		60
COMPREHENSIVE INCOME		103,093		113,460		299,358		210,360
Comprehensive income attributable to noncontrolling interests in the Operating Partnership		(640)		(733)		(1,870)		(1,405)
Comprehensive loss attributable to noncontrolling interest in subsidiaries		212		181		662		505
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY	$	102,665	$	112,908	$	298,150	$	209,460

See accompanying notes to the unaudited consolidated financial statements.

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CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY

(in thousands)

(unaudited)



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

Balance at December 31, 2022	224,603	$	2,246	$	4,125,478	$	(491)	$	(1,301,030)	$	2,826,203	$	14,178	$	2,840,381	$	57,419
Distributions paid to noncontrolling interests in subsidiaries													(107)		(107)
Issuance of common shares, net					(91)						(91)				(91)
Issuance of restricted shares	22
Conversion from units to shares	8				361						361				361		(361)
Exercise of stock options	39		1		914						915				915
Amortization of restricted shares					1,171						1,171				1,171
Share compensation expense					730						730				730
Adjustment for noncontrolling interests in the Operating Partnership									(8,588)		(8,588)				(8,588)		8,588
Net income (loss)									97,566		97,566		(238)		97,328		614
Other comprehensive income							20				20				20
Common share distributions ($0.49 per share)									(110,524)		(110,524)				(110,524)		(695)
Balance at March 31, 2023	224,672	$	2,247	$	4,128,563	$	(471)	$	(1,322,576)	$	2,807,763	$	13,833	$	2,821,596	$	65,565
Contributions from noncontrolling interests in subsidiaries													797		797
Distributions paid to noncontrolling interests in subsidiaries													(54)		(54)
Issuance of common shares, net					(55)						(55)				(55)
Issuance of restricted shares	20
Exercise of stock options	105		1		1,800						1,801				1,801
Amortization of restricted shares					1,621						1,621				1,621
Share compensation expense					692						692				692
Adjustment for noncontrolling interests in the Operating Partnership									2,134		2,134				2,134		(2,134)
Net income (loss)									97,879		97,879		(212)		97,667		616
Other comprehensive income							20				20				20
Common share distributions ($0.49 per share)									(110,585)		(110,585)				(110,585)		(695)
Balance at June 30, 2023	224,797	$	2,248	$	4,132,621	$	(451)	$	(1,333,148)	$	2,801,270	$	14,364	$	2,815,634	$	63,352
Distributions paid to noncontrolling interests in subsidiaries													(89)		(89)
Issuance of common shares, net					(79)						(79)				(79)
Issuance of restricted shares	4
Conversion from units to shares	58		1		2,412						2,413				2,413		(2,413)
Amortization of restricted shares					1,811						1,811				1,811
Share compensation expense					701						701				701
Adjustment for noncontrolling interests in the Operating Partnership									9,035		9,035				9,035		(9,035)
Net income (loss)									102,645		102,645		(212)		102,433		640
Other comprehensive income							20				20				20
Common share distributions ($0.49 per share)									(110,613)		(110,613)				(110,613)		(667)
Balance at September 30, 2023	224,859	$	2,249	$	4,137,466	$	(431)	$	(1,332,081)	$	2,807,203	$	14,063	$	2,821,266	$	51,877

See accompanying notes to the unaudited consolidated financial statements.

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CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY

(in thousands)

(unaudited)


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

Balance at December 31, 2021	223,918	$	2,239	$	4,088,392	$	(570)	$	(1,218,498)	$	2,871,563	$	18,597	$	2,890,160	$	108,220
Distributions paid to noncontrolling interests in subsidiaries