CubeSmart [CUBE] Filings

10-Q 1 cube-20240630x10q.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 June 30, 2024.

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 July 31, 2024
Common shares, $0.01 par value per share, of CubeSmart		225,198,729

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EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2024 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 June 30, 2024, owned a 99.5% interest in the Operating Partnership. The remaining 0.5% 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 consolidated 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 consolidated 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	29
Item 3. Quantitative and Qualitative Disclosures About Market Risk	40
Item 4. Controls and Procedures	40

Part II. OTHER INFORMATION
Item 1. Legal Proceedings	41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 5. Other Information	42
Item 6. Exhibits	43

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, 2023 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 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;

●

cybersecurity 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;

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●

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

●

risks related to or consequences of earthquakes, hurricanes, windstorms, floods, other natural disasters or acts of violence, pandemics, active shooters, terrorism, insurrection or war that impact the markets in which we operate;

●

potential environmental and other material liabilities;

●

governmental, administrative and executive orders, regulations 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, indemnity or recovery from insurance against risks and losses;

●

our 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, 2023 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,
	2024		2023
	(unaudited)

ASSETS
Storage properties	$	7,415,426	$	7,367,613
Less: Accumulated depreciation		(1,503,487)		(1,416,377)
Storage properties, net (includes VIE amounts of $189,262 and $180,615, respectively)		5,911,939		5,951,236
Cash and cash equivalents (includes VIE amounts of $2,355 and $3,002, respectively)		5,656		6,526
Restricted cash		1,614		1,691
Loan procurement costs, net of amortization		3,364		3,995
Investment in real estate ventures, at equity		94,053		98,288
Other assets, net		167,830		163,284
Total assets	$	6,184,456	$	6,225,020

LIABILITIES AND EQUITY
Unsecured senior notes, net	$	2,778,560	$	2,776,490
Revolving credit facility		10,600		18,100
Mortgage loans and notes payable, net		95,388		128,186
Lease liabilities - finance leases		65,685		65,714
Accounts payable, accrued expenses and other liabilities		230,287		201,419
Distributions payable		116,014		115,820
Deferred revenue		40,576		38,483
Total liabilities		3,337,110		3,344,212

Noncontrolling interests in the Operating Partnership		55,930		60,276

Commitments and contingencies

Equity
Common shares $.01 par value, 400,000,000 shares authorized, 225,196,862 and 224,921,053 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively		2,252		2,249
Additional paid-in capital		4,154,269		4,142,229
Accumulated other comprehensive loss		(371)		(411)
Accumulated deficit		(1,386,056)		(1,345,239)
Total CubeSmart shareholders’ equity		2,770,094		2,798,828
Noncontrolling interests in subsidiaries		21,322		21,704
Total equity		2,791,416		2,820,532
Total liabilities and equity	$	6,184,456	$	6,225,020

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,
	2024		2023		2024		2023

REVENUES
Rental income	$	226,791	$	225,910	$	451,981	$	449,494
Other property related income		28,958		25,760		55,274		50,144
Property management fee income		10,460		9,135		20,360		17,695
Total revenues		266,209		260,805		527,615		517,333
OPERATING EXPENSES
Property operating expenses		83,097		74,821		160,134		145,948
Depreciation and amortization		51,035		50,358		101,752		100,687
General and administrative		14,622		14,325		30,247		28,999
Total operating expenses		148,754		139,504		292,133		275,634
OTHER (EXPENSE) INCOME
Interest:
Interest expense on loans		(22,767)		(23,544)		(45,686)		(47,235)
Loan procurement amortization expense		(1,015)		(1,041)		(2,045)		(2,081)
Equity in earnings of real estate ventures		425		790		1,270		3,341
Other		88		777		23		501
Total other expense		(23,269)		(23,018)		(46,438)		(45,474)
NET INCOME		94,186		98,283		189,044		196,225
Net income attributable to noncontrolling interests in the Operating Partnership		(524)		(616)		(1,065)		(1,230)
Net loss attributable to noncontrolling interests in subsidiaries		302		212		512		450
NET INCOME ATTRIBUTABLE TO THE COMPANY	$	93,964	$	97,879	$	188,491	$	195,445

Basic earnings per share attributable to common shareholders	$	0.42	$	0.43	$	0.83	$	0.87
Diluted earnings per share attributable to common shareholders	$	0.41	$	0.43	$	0.83	$	0.86

Weighted average basic shares outstanding		225,886		225,388		225,827		225,342
Weighted average diluted shares outstanding		226,618		226,275		226,593		226,238

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,
	2024		2023		2024		2023

NET INCOME	$	94,186	$	98,283	$	189,044	$	196,225
Other comprehensive income:
Reclassification of realized losses on interest rate swaps		20		20		40		40
OTHER COMPREHENSIVE INCOME:		20		20		40		40
COMPREHENSIVE INCOME		94,206		98,303		189,084		196,265
Comprehensive income attributable to noncontrolling interests in the Operating Partnership		(524)		(616)		(1,065)		(1,230)
Comprehensive loss attributable to noncontrolling interests in subsidiaries		302		212		512		450
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY	$	93,984	$	97,899	$	188,531	$	195,485

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 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, 2023	224,921	$	2,249	$	4,142,229	$	(411)	$	(1,345,239)	$	2,798,828	$	21,704	$	2,820,532	$	60,276
Contributions from noncontrolling interests in subsidiaries													309		309
Distributions paid to noncontrolling interests in subsidiaries													(125)		(125)
Issuance of common shares, net					(10)						(10)				(10)
Issuance of restricted shares	24		1								1				1
Conversion from units to shares	12				561						561				561		(561)
Exercise of stock options	8				201						201				201
Amortization of restricted shares					1,189						1,189				1,189
Share compensation expense					802						802				802
Adjustment for noncontrolling interests in the Operating Partnership									1,346		1,346				1,346		(1,346)
Net income (loss)									94,527		94,527		(210)		94,317		541
Other comprehensive income, net							20				20				20
Common share distributions ($0.51 per share)									(115,357)		(115,357)				(115,357)		(657)
Balance at March 31, 2024	224,965	$	2,250	$	4,144,972	$	(391)	$	(1,364,723)	$	2,782,108	$	21,678	$	2,803,786	$	58,253
Distributions paid to noncontrolling interests in subsidiaries													(54)		(54)
Issuance of common shares, net					(39)						(39)				(39)
Issuance of restricted shares	28
Conversion from units to shares	50		1		2,122						2,123				2,123		(2,123)
Exercise of stock options	154		1		4,517						4,518				4,518
Amortization of restricted shares					1,897						1,897				1,897
Share compensation expense					800						800				800
Adjustment for noncontrolling interests in the Operating Partnership									93		93				93		(93)
Net income (loss)									93,964		93,964		(302)		93,662		524
Other comprehensive income							20				20				20
Common share distributions ($0.51 per share)									(115,390)		(115,390)				(115,390)		(631)
Balance at June 30, 2024	225,197	$	2,252	$	4,154,269	$	(371)	$	(1,386,056)	$	2,770,094	$	21,322	$	2,791,416	$	55,930


																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, net							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)
Acquisition of noncontrolling interest in subsidiary
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