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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 September 30, 2022.

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 October 26, 2022

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

224,574,686

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2022 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, 2022, 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 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.

2

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.

3

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, 2021 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;

5

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, 2021 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.

6

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CUBESMART AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

September 30, 

December 31,

 

    

2022

    

2021

 

(unaudited)

ASSETS

Storage properties

$

7,284,661

$

7,183,494

Less: Accumulated depreciation

 

(1,207,230)

 

(1,085,824)

Storage properties, net (including VIE assets of $163,299 and $149,467, respectively)

 

6,077,431

 

6,097,670

Cash and cash equivalents

 

5,183

 

11,140

Restricted cash

 

3,021

 

2,178

Loan procurement costs, net of amortization

 

1,719

 

2,322

Investment in real estate ventures, at equity

 

107,755

 

119,751

Assets held for sale

4,264

49,313

Other assets, net

 

171,797

 

265,705

Total assets

$

6,371,170

$

6,548,079

LIABILITIES AND EQUITY

Unsecured senior notes, net

$

2,771,315

$

2,768,209

Revolving credit facility

 

86,000

 

209,900

Mortgage loans and notes payable, net

 

164,116

 

167,676

Lease liabilities - finance leases

65,764

65,801

Accounts payable, accrued expenses and other liabilities

 

218,181

 

199,985

Distributions payable

 

97,492

 

97,417

Deferred revenue

 

40,777

 

37,144

Security deposits

 

1,035

 

1,065

Liabilities held for sale

2,227

2,502

Total liabilities

 

3,446,907

 

3,549,699

Noncontrolling interests in the Operating Partnership

 

58,508

 

108,220

Commitments and contingencies

Equity

Common shares $.01 par value, 400,000,000 shares authorized, 224,568,376 and

223,917,993 shares issued and outstanding at September 30, 2022 and December 31,

2021, respectively

 

2,246

 

2,239

Additional paid-in capital

 

4,121,824

 

4,088,392

Accumulated other comprehensive loss

 

(511)

 

(570)

Accumulated deficit

 

(1,271,905)

 

(1,218,498)

Total CubeSmart shareholders’ equity

 

2,851,654

 

2,871,563

Noncontrolling interests in subsidiaries

 

14,101

 

18,597

Total equity

 

2,865,755

 

2,890,160

Total liabilities and equity

$

6,371,170

$

6,548,079

See accompanying notes to the unaudited consolidated financial statements.

7

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

    

2021

    

2022

    

2021

REVENUES

Rental income

$

226,837

$

182,409

$

651,341

$

515,244

Other property related income

 

25,619

 

21,892

 

71,760

 

62,414

Property management fee income

 

8,952

 

8,263

 

25,536

 

22,994

Total revenues

 

261,408

 

212,564

 

748,637

 

600,652

OPERATING EXPENSES

Property operating expenses

 

76,728

64,065

220,767

 

189,044

Depreciation and amortization

 

79,574

55,871

241,177

 

163,820

General and administrative

 

13,390

12,095

41,640

 

34,571

Total operating expenses

 

169,692

 

132,031

 

503,584

 

387,435

OTHER (EXPENSE) INCOME

Interest:

Interest expense on loans

 

(23,850)

 

(19,122)

 

(69,729)

 

(57,468)

Loan procurement amortization expense

 

(969)

 

(1,012)

 

(2,885)

 

(3,059)

Equity in earnings of real estate ventures

 

46,558

 

816

 

47,532

 

1,152

Gains from sales of real estate, net

28,815

 

28,815

Other

 

(15)

 

539

 

(9,671)

 

1,593

Total other income (expense)

 

21,724

 

10,036

 

(34,753)

 

(28,967)

NET INCOME

 

113,440

 

90,569

 

210,300

 

184,250

NET (INCOME) LOSS ATTRIBUTABLE TO

NONCONTROLLING INTERESTS

Noncontrolling interests in the Operating Partnership

 

(733)

(3,149)

(1,404)

 

(6,466)

Noncontrolling interest in subsidiaries

 

181

230

505

 

350

NET INCOME ATTRIBUTABLE TO THE COMPANY’S

COMMON SHAREHOLDERS

$

112,888

$

87,650

$

209,401

$

178,134

Basic earnings per share attributable to common shareholders

$

0.50

$

0.43

$

0.93

$

0.89

Diluted earnings per share attributable to common shareholders

$

0.50

$

0.43

$

0.93

$

0.88

Weighted average basic shares outstanding

225,023

202,194

224,883

200,934

Weighted average diluted shares outstanding

225,966

203,797

225,881

202,291

See accompanying notes to the unaudited consolidated financial statements.

8

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

    

2021

    

2022

    

2021

NET INCOME

$

113,440

$

90,569

$

210,300

$

184,250

Other comprehensive income:

Reclassification of realized losses on interest rate

swaps

 

20

 

20

60

60

OTHER COMPREHENSIVE INCOME:

 

20

 

20

 

60

 

60

COMPREHENSIVE INCOME

 

113,460

 

90,589

 

210,360

 

184,310

Comprehensive income attributable to noncontrolling

interests in the Operating Partnership

 

(733)

 

(3,150)

 

(1,405)

 

(6,469)

Comprehensive loss attributable to noncontrolling

interest in subsidiaries

 

181

 

230

 

505

 

350

COMPREHENSIVE INCOME ATTRIBUTABLE TO

THE COMPANY

$

112,908

$

87,669

$

209,460

$

178,191

See accompanying notes to the unaudited consolidated financial statements.

9

CUBESMART AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY

(in thousands)

(unaudited)

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

Noncontrolling

 

Additional

Accumulated Other

Total

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

(2,033)

(2,033)

Issuance of common shares, net

 

(123)

 

(123)

 

(123)

Issuance of restricted shares

 

35

 

 

Conversion from units to shares

 

441

4

21,534

 

21,538

 

21,538

 

(21,538)

Exercise of stock options

 

40

1

1,225

 

1,226

 

1,226

Amortization of restricted shares

519

 

519

 

519

Share compensation expense

636

 

636

 

636

Adjustment for noncontrolling interests in the Operating Partnership

10,356

 

10,356

 

10,356

 

(10,356)

Net income (loss)

38,155

 

38,155

 

(181)

 

37,974

 

292

Other comprehensive income

19

19

19

1

Common share distributions ($0.43 per share)

(96,817)

 

(96,817)

 

(96,817)

 

(628)

Balance at March 31, 2022

 

224,434

$

2,244

$

4,112,183

$

(551)

$

(1,266,804)

$

2,847,072

$

16,383

$

2,863,455

$

75,991

Distributions paid to noncontrolling interests in subsidiaries

(61)

(61)

Issuance of common shares, net

 

(42)

 

(42)

 

(42)

Issuance of restricted shares

 

19

1

 

1

 

1

Amortization of restricted shares

1,373

 

1,373

 

1,373

Share compensation expense

635

 

635

 

635

Adjustment for noncontrolling interests in the Operating Partnership

13,349

 

13,349

 

13,349

 

(13,349)

Net income (loss)

58,358

 

58,358

 

(143)

 

58,215

 

379

Other comprehensive income

20

20

20

Common share distributions ($0.43 per share)

(96,819)

 

(96,819)

 

(96,819)

 

(628)

Balance at June 30, 2022

 

224,453

$

2,245

$

4,114,149

$

(531)

$

(1,291,916)

$

2,823,947

$

16,179

$

2,840,126

$

62,393

Contributions from noncontrolling interests in subsidiaries

3,340

 

3,340

Distributions paid to noncontrolling interests in subsidiaries

(5,237)

(5,237)

Issuance of common shares, net

 

102

1

5,054

 

5,055

 

5,055

Issuance of restricted shares

 

1

 

 

Exercise of stock options

 

12

364

 

364

 

364

Amortization of restricted shares

1,621

 

1,621

 

1,621

Share compensation expense

636

 

636

 

636

Adjustment for noncontrolling interests in the Operating Partnership

3,990

 

3,990

 

3,990

 

(3,990)

Net income (loss)

112,888

 

112,888

 

(181)

 

112,707

 

733

Other comprehensive income, net

20

20

20

Common share distributions ($0.43 per share)

(96,867)

 

(96,867)

 

(96,867)