Annual report
Page 1
Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2024OR☐ 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)Commission file number 000-54462 (CubeSmart, L.P.) CUBESMARTCUBESMART, L.P.(Exact Name of Registrant as Specified in Its Charter) Maryland (CubeSmart) 20-1024732 (CubeSmart)Delaware (CubeSmart, L.P.) 34-1837021 (CubeSmart, L.P.)(State or Other Jurisdiction of (IRS EmployerIncorporation or Organization) Identification No.) 5 Old Lancaster Road 19355Malvern, Pennsylvania (Zip Code)(Address of Principal Executive Offices) Registrant’s telephone number, including area code (610) 535-5000 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Trading Symbol(s) Name of Each Exchange on Which RegisteredCommon Shares, $0.01 par value per share, of CubeSmart CUBE New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: Units of General Partnership Interest of CubeSmart, L.P. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.CubeSmart Yes ☒ No☐CubeSmart, L.P. Yes ☒ No☐ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.CubeSmart Yes ◻ No⌧CubeSmart, L.P. Yes ◻ No⌧ 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 tosuch 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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerginggrowth 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firmthat prepared or issued its audit report. CubeSmart ☒CubeSmart, L.P. ☒ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.CubeSmart ☐CubeSmart, L.P. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). 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☒As of June 28, 2024, the last business day of CubeSmart’s most recently completed second fiscal quarter, the aggregate market value of common shares held by non-affiliates of CubeSmart was $10,135,574,115. As of February 26, 2025, the number of common shares of CubeSmartoutstanding was 227,880,222.As of June 28, 2024 the last business day of CubeSmart, L.P.’s most recently completed second fiscal quarter, the aggregate market value of the 1,238,205 units of limited partnership (the “OP Units”) held by non-affiliates of CubeSmart, L.P. was $55,929,720 based upon the last reportedsale price of $45.17 per share on the New York Stock Exchange on June 28, 2024 of the common shares of CubeSmart, the sole general partner of CubeSmart, L.P. (For this computation, the market value of all OP Units beneficially owned by CubeSmart has been excluded.)Documents incorporated by reference: Portions of the Proxy Statement for the 2025 Annual Meeting of Shareholders of CubeSmart to be filed subsequently with the SEC are incorporated by reference into Part III of this report.
Page 2
Table of Contents 2 EXPLANATORY NOTE This report combines the annual reports on Form 10-K for the year ended December 31, 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 OperatingPartnership, a Delaware limited partnership, and subsidiaries of the Operating Partnership. The Parent Company, the Operating Partnership and their consolidated subsidiariesare 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 Companyand/or the Operating Partnership. The Parent Company is the sole general partner of the Operating Partnership and, as of December 31, 2024, owned a 99.5% interest in the Operating Partnership. Theremaining 0.5% interest consists of OP Units issued by the Operating Partnership to third parties in exchange for contributions of properties to the Operating Partnership. As thesole 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 areidentical, 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 isimportant to understand the differences between the Parent Company and the Operating Partnership in the context of how these entities operate as a consolidated enterprise. TheParent 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 conductbusiness 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 theOperating Partnership. The Operating Partnership holds substantially all of the assets of the Company and, directly or indirectly, holds the ownership interests in the Company’sreal 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 fornet proceeds from equity issuances by the Parent Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnershipgenerates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s direct or indirect incurrence ofindebtedness 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 theOperating Partnership is a partnership with no publicly traded equity. In the consolidated financial statements, this difference is primarily reflected in the equity (or capital forthe Operating Partnership) section of the consolidated balance sheets and in the consolidated statements of equity (or capital). Apart from the different equity treatment, theconsolidated financial statements of the Parent Company and the Operating Partnership are nearly identical. The Company believes that combining the annual reports on Form 10-K 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 thesame 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 theParent Company and the Operating Partnership; and● create time and cost efficiencies through the preparation of one combined report instead of two separate reports. 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 theOperating Partnership specifically refer to the Parent Company and the Operating Partnership. In the sections that combine disclosures of the Parent Company and the OperatingPartnership, this report refers to such disclosures as those of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters intocontracts 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 thebusiness 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 ParentCompany does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of the Parent Company and the OperatingPartnership 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 inconjunction
Page 3
Table of Contents 3 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 9A - Controls and Procedures sections, signature pages and Exhibits 31 and 32 certifications for each of the Parent Company and theOperating 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 theChief Financial Officer of the Operating Partnership have made the requisite certifications and that the Parent Company and the Operating Partnership are compliant withRule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and 18 U.S.C. §1350.
Page 4
Table of Contents 4 TABLE OF CONTENTS PART I 5 Item 1. Business 6 Item 1A. Risk Factors 14 Item 1B. Unresolved Staff Comments 27 Item 1C. Cybersecurity 28 Item 2. Properties 30 Item 3. Legal Proceedings 32 Item 4. Mining Safety Disclosures 32 PART II 32 Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities 32 Item 6. Selected Financial Data 34 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 34 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 45 Item 8. Financial Statements and Supplementary Data 45 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 45 Item 9A. Controls and Procedures 45 Item 9B. Other Information 46 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 46 PART III 47 Item 10. Trustees, Executive Officers, and Corporate Governance 47 Item 11. Executive Compensation 47 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters 47 Item 13. Certain Relationships and Related Transactions, and Trustee Independence 47 Item 14. Principal Accountant Fees and Services 47 PART IV 48 Item 15. Exhibits and Financial Statement Schedules 48 Item 16. Form 10-K Summary 53
Page 5
Table of Contents 5 PART I Forward-Looking Statements This Annual Report on Form 10-K, or this Report, together with other statements and information publicly disseminated by the Parent Company and the OperatingPartnership, contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act.Forward-looking statements include statements concerning the Company’s plans, objectives, goals, strategies, future events, future revenues or performance, capitalexpenditures, financing needs, plans or intentions relating to acquisitions and other information that is not historical information. In some cases, forward-looking statements canbe identified by terminology such as “believes”, “expects”, “estimates”, “may”, “will”, “should”, “anticipates” or “intends” or the negative of such terms or other comparableterminology, or by discussions of strategy. Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertaintiesand 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 theseforward-looking statements are based on reasonable assumptions, future events and actual results, performance, transactions or achievements, financial and otherwise, may differmaterially from the results, performance, transactions or achievements expressed or implied by the forward-looking statements. As a result, you should not rely on or construeany 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 futureevents 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 ofthe 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 thisstatement. 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 thisReport. Any forward-looking statements should be considered in light of the risks and uncertainties referred to in Item 1A. “Risk Factors” in this Report and in our other filingswith 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 consumer impacts and declines in general economic conditions from inflation, rising interest rates and wage stagnation including the impact on the demand forself-storage, rental rates and fees and rent collection levels; ● reduced availability and increased costs of external sources of capital; ● financing risks, including rising interest rates, the risk of over-leverage and the corresponding risk of default on our mortgage and other debt and potential inability torefinance 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; ● negative publicity relating to our business or industry, which could adversely affect our reputation;
Page 6
Table of Contents 6 ● increases in operating costs, including, without limitation, insurance, utility and other general expenses, which could adversely affect our financial results; ● cybersecurity breaches, cyber or ransomware attacks or a failure of our networks, systems or technology, which could adversely impact our business, customer andemployee relationships or result in fraudulent payments; ● risks associated with generative artificial intelligence tools and large language models and the conclusions that these tools and models may draw about our business andprospects in connection with the dissemination of negative opinions, characterizations or disinformation; ● changes in real estate, zoning, use and occupancy laws or regulations; ● risks related to or consequences of earthquakes, hurricanes, windstorms, floods, wildfires, 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 employeerelationships; ● uninsured or uninsurable losses and the ability to obtain insurance coverage, indemnity or recovery from insurance against risks and losses; ● changes in the availability of and the cost of labor; ● other factors affecting the real estate industry generally or the self-storage industry in particular; and ● other risks identified in this Report 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 undertakeno 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 bysecurities 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, performanceor achievement could differ materially from that anticipated or implied in the forward-looking statements. ITEM 1. BUSINESS Overview We are a self-administered and self-managed real estate company focused primarily on the ownership, operation, development, management and acquisition of self-storageproperties in the United States. As of December 31, 2024, we owned (or partially owned and consolidated) 631 self-storage properties located in 25 states and in the District of Columbia containing anaggregate of approximately 45.8 million rentable square feet. As of December 31, 2024, approximately 88.8% of the rentable square footage at our owned stores was leased toapproximately 385,000 customers, and no single customer represented a significant concentration of our revenues. As of December 31, 2024, we owned stores in the District ofColumbia and the following 25 states: Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Maryland, Massachusetts, Minnesota, Nevada, New Jersey,New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah and Virginia. In addition, as of December 31,2024, we managed 902 stores for third parties (including 77 stores containing an aggregate of approximately 5.6 million net rentable square feet as part of six separateunconsolidated real estate ventures) bringing the total number of stores we owned and/or managed to 1,533. As of December 31, 2024, we managed stores for third parties in thefollowing 40 states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine,Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio,Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, Washington and Wisconsin.
Page 7
Table of Contents 7 Our self-storage properties are designed to offer affordable and easily-accessible storage space to residential and commercial customers, with features such as wide aisles andload-bearing capabilities for large truck access. Customers rent storage cubes for their exclusive use, typically on a month-to-month basis. We offer climate-controlled cubes at529, or approximately 83.8%, of our owned stores, and some of our stores offer outside storage areas for vehicles and boats. All of our stores have a storage associate orautomated kiosk available to assist our customers during business hours, and many of our owned stores have a manager who resides in an apartment at the store. Our customerscan access their storage cubes during business hours, and some of our stores provide customers with 24-hour access through computer-controlled access systems. Our goal is toprovide customers with the highest standard of physical attributes and service in the industry. The Parent Company was formed in July 2004 as a Maryland REIT. The Parent Company owns its assets and conducts its business through the Operating Partnership, and itssubsidiaries. The Parent Company controls the Operating Partnership as its sole general partner and, as of December 31, 2024, owned a 99.5% interest in the OperatingPartnership. The Operating Partnership was formed in July 2004 as a Delaware limited partnership and has been engaged in virtually all aspects of the self-storage business,including the ownership, operation, development, management, and acquisition of self-storage properties. Acquisition and Disposition Activity As of December 31, 2024 and 2023, we owned (or partially owned and consolidated) 631 and 611 stores, respectively, that contained an aggregate of 45.8 million and 44.1million rentable square feet with occupancy levels of 88.8% and 89.8%, respectively. Additional information about our stores is included in Item 2 of this Report. The followingis a summary of our 2024, 2023 and 2022 acquisition and disposition activity: Number of Transaction Price Asset/Portfolio Metropolitan Statistical Area Transaction Date Stores (in thousands) 2024 Acquisitions: Connecticut Assets Hartford-West Hartford-East Hartford, CT January 2024 2 $ 20,200Oregon Asset Portland-Vancouver-Beaverton, OR-WA November 2024 1 10,450Pennsylvania Asset Philadelphia-Camden-Wilmington, PA-NJ-DE-MD November 2024 1 11,500Hines Portfolio (1) Dallas-Fort Worth-Arlington, TX December 2024 14 157,25018 $ 199,400 2023 Acquisition: New Jersey Asset New York-Northern New Jersey-Long Island, NY-NJ-PA December 2023 1 $ 22,0001 $ 22,000 2023 Disposition: Illinois Asset (2) Chicago-Naperville-Joliet, IL-IN-WI December 2023 1 $ 8,0001 $ 8,000 2022 Acquisitions: Maryland Asset Washington-Arlington-Alexandria, DC-VA-MD-WV February 2022 1 $ 32,000Texas Asset San Antonio, TX June 2022 1 23,000Georgia Asset Atlanta, GA July 2022 1 20,7003 $ 75,700 (1) These stores are owned by consolidated joint ventures in which we acquired an 85% ownership interest. Transaction price represents the acquisition of this ownershipinterest. (2) This store was subject to an involuntary conversion by the Department of Transportation of the State of Illinois.
Page 8
Table of Contents 8 The comparability of our results of operations is affected by the timing of acquisition and disposition activities during the periods reported. As of December 31, 2024, 2023and 2022, we owned (or partially owned and consolidated) 631, 611, and 611 self-storage properties and related assets, respectively. The following table summarizes the changein number of owned stores from January 1, 2022 through December 31, 2024: 2024 2023 2022 Balance - January 1 611 611 607Stores acquired 2 — 1Balance - March 31 613 611 608Stores acquired — — 1Stores developed 2 — 1Stores combined (1) — — (1)Balance - June 30 615 611 609Stores acquired — — 1Stores developed — — 1Balance - September 30 615 611 611Stores acquired (2) 16 1 —Stores sold (3) — (1) —Balance - December 31 631 611 611 (1) During the quarter ended June 30, 2022, we completed development of a new store located in Vienna, VA for approximately $21.8 million. The developed store islocated adjacent to an existing consolidated joint venture store. Given this proximity, the developed store has been combined with the adjacent existing store in ourstore count upon opening, as well as for operational and reporting purposes. (2) For the quarter ended December 31, 2024, includes 14 stores owned by consolidated joint ventures in which we acquired an 85% ownership interest. (3) For the quarter ended December 31, 2023, relates to one store that was subject to an involuntary conversion by the Department of Transportation of the State of Illinois. Financing and Investing Activities The following summarizes certain financing and investing activities during the year ended December 31, 2024: ● Acquisition Activity. We acquired an 85% ownership interest in seven consolidated joint ventures that collectively own 14 stores located in Texas (the “Hines Portfolio”)for a purchase price of $157.3 million. We also acquired four additional stores located in Connecticut (2), Oregon (1) and Pennsylvania (1) for an aggregate purchase price of approximately $42.2 million. ● Development Activity. We completed construction of and opened for operation two joint venture development properties located in New Jersey (1) and New York (1) for atotal cost of $61.8 million. As of December 31, 2024, we had two joint venture development properties under construction, both located in New York, which are expectedto be completed by the third quarter of 2025. As of December 31, 2024, we had invested $12.7 million of an expected $36.9 million related to these two projects. ● Mortgage Loan Activity. We repaid three mortgage loans with an aggregate outstanding principal balance of $31.1 million. Additionally, the Hines Portfolio isencumbered by two mortgage loans with aggregate outstanding principal amounts totaling $115.4 million at the time of acquisition. ● At-The-Market Equity Program Activity. Under our at-the-market equity program, we sold a total of 2.3 million common shares at an average sales price of $51.25 pershare, resulting in net proceeds of $118.3 million for the year, after deducting offering costs. As of December 31, 2024, 3.5 million common shares remained available forsale under the program. We used the proceeds from the 2024 sales under the program to fund the acquisition and development of self-storage properties and for generalcorporate purposes.
Page 9
Table of Contents 9 Business Strategy Our business strategy consists of several elements: ● Maximize cash flow from our stores — We utilize our operating systems and experienced personnel to manage the balance between rental rates, discounts and physicaloccupancy with an objective of maximizing our rental revenue. ● Acquire stores within targeted markets — During 2025, we intend to pursue selective acquisitions in markets that we believe have high barriers to entry, strongdemographic and market fundamentals and demand for storage in excess of storage capacity. We believe the self-storage industry will continue to afford us opportunitiesfor growth through acquisitions due to the highly fragmented composition of the industry. In the past, we have formed joint ventures with unaffiliated third parties, and inthe future we may form additional joint ventures, to facilitate the funding of future developments or acquisitions. ● Dispose of stores — During 2025, we intend to continue to evaluate opportunities to dispose of assets that have unattractive risk-adjusted returns. We intend to useproceeds from these transactions to fund self-storage property acquisitions within targeted markets and for general corporate purposes. ● Grow our third-party management business — We intend to pursue additional third-party management opportunities and leverage our current platform to takeadvantage of consolidation in the industry. We plan to utilize our relationships with third-party owners to help source future acquisitions and other investmentopportunities. Investment and Market Selection Process We maintain a disciplined and focused process in the acquisition and development of self-storage properties. Our investment committee is comprised of four executiveofficers who oversee our investment process. Our investment process involves six stages — identification, initial due diligence, economic assessment, investment committeeapproval (and when required, the approval of our Board of Trustees (the “Board”)), final due diligence and documentation. Through our investment committee, we intend tofocus on the following criteria: ● Targeted markets — Our targeted markets include areas where we currently maintain management resources that can be extended to additional stores, or where webelieve that we can acquire a significant number of stores over time. We evaluate both the broader market and the immediate trade area, typically three miles around thestore, for its ability to support above-average demographic growth. We seek to increase our presence primarily in areas with strong demographics and growth, including,but not exclusively limited to, major metropolitan regions within the United States. ● Quality of store — We focus on self-storage properties that have good visibility, ease of access, quality construction, and are located near retail centers, which typicallyprovide high traffic corridors and are generally located near residential communities and commercial customers. ● Growth potential — We target acquisitions that offer growth potential through increased operating efficiencies and, in some cases, through additional leasing efforts,renovations or expansions. In addition to acquiring single stores, we seek to invest in portfolio acquisitions, including those offering significant potential for increasedoperating efficiency and economies of scale. Segment We have one operating segment: we own, operate, develop, manage and acquire self-storage properties. Concentration Our self-storage properties are located in major metropolitan areas as well as suburban areas and have numerous customers per store. No single customer represented asignificant concentration of our 2024 revenues. Our stores in New York, Florida, California and Texas provided approximately 18%, 14%, 11% and 9%, respectively, of our totalrevenues for the year ended December 31, 2024. Our stores in New York, Florida, California and Texas provided approximately 17%, 15%, 11% and 9%, respectively, of ourtotal revenues for the year ended December 31, 2023. Our stores in New York, Florida, California and Texas provided approximately 16%, 15%, 11% and 9%, respectively, ofour total revenues for the year ended December 31, 2022.
Page 10
Table of Contents 10 Seasonality We typically experience seasonal fluctuations in occupancy levels at our stores, which are generally slightly higher during the summer months due to increased movingactivity. Financing Strategy We maintain a capital structure that we believe is reasonable and prudent and that will enable us to have ample cash flow to cover debt service and make distributions to ourshareholders. As of December 31, 2024, our debt to total enterprise value ratio (determined by dividing the carrying value of our total indebtedness by the sum of (a) the marketvalue of the Parent Company’s outstanding common shares and units of the Operating Partnership held by third parties and (b) the carrying value of our total indebtedness) wasapproximately 23.3% compared to approximately 21.8% as of December 31, 2023. Our ratio of debt to the undepreciated cost of our total assets as of December 31, 2024 wasapproximately 37.4% compared to approximately 38.2% as of December 31, 2023. We expect to finance additional investments in self-storage properties through the mostattractive sources of capital available at the time of the transaction, in a manner consistent with maintaining a strong financial position and future financial flexibility, subject tolimitations on incurrence of indebtedness under our unsecured credit facilities and the indenture that governs our unsecured notes. These capital sources may include existingcash, borrowings under our revolving credit facility, additional secured or unsecured financings, sales of common or preferred shares of the Parent Company in public offeringsor private placements, additional issuances of debt securities, issuances of common or preferred units in our Operating Partnership in exchange for contributed properties andformations of joint ventures. We also may sell stores that have unattractive risk-adjusted returns and use the sales proceeds to fund other acquisitions. Competition Self-storage properties compete based on a number of factors, including location, rental rates, occupancy, security, suitability of the store’s design to prospective customers’needs and the manner in which the store is maintained, operated and marketed. In particular, the number of competing self-storage properties in a market could have a materialeffect on our occupancy levels, rental rates and on the overall operating performance of our stores. We believe that the primary competition for potential customers of any of ourself-storage properties comes from other self-storage providers within a three-mile radius of that store. We emphasize customer service, convenience, security, professionalism,and cleanliness and, therefore, we believe our stores are well-positioned within their respective markets. Our key competitors include local and regional operators as well as other public self-storage REITs, including, but not limited to, Public Storage, Extra Space Storage Inc.,and National Storage Affiliates Trust. These companies, some of which operate significantly more stores than we do and have greater resources than we have, and other entitiesmay be able to accept more risk than we determine is prudent for us, including risks with respect to the geographic proximity of investments and the payment of higheracquisition prices. This competition may reduce the number of suitable acquisition opportunities available to us, increase the price required to acquire stores and reduce thedemand for self-storage space at our stores. Nevertheless, we believe that our experience in owning, operating, developing, managing, acquiring, and obtaining financing forself-storage properties should enable us to compete effectively. Government Regulation We are subject to various laws, ordinances and regulations, including regulations relating to lien sale rights and procedures, consumer protection measures and variousfederal, state and local regulations that apply generally to the ownership of real property and the operation of self-storage properties. Under the Americans with Disabilities Act of 1990 and applicable state accessibility act laws (collectively, the “ADA”), all places of public accommodation are required tomeet federal requirements related to physical access and use by disabled persons. A number of other federal, state and local laws may also impose access and other similarrequirements at our stores. A failure to comply with the ADA or similar state or local requirements could result in the governmental imposition of fines or the award of damagesto private litigants affected by the noncompliance. Although we believe that our stores comply in all material respects with these requirements (or would be eligible forapplicable exemptions from material requirements because of adaptive assistance provided), a determination that one or more of our stores or websites is not in compliance withthe ADA or similar state or local requirements would result in the incurrence of additional costs associated with bringing them into compliance. Under various federal, state and local laws, ordinances and regulations, an owner or operator of real property may become liable for the costs of removal or remediation ofhazardous substances released on or in its property. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, therelease of such hazardous substances. The presence of hazardous substances, or the failure to properly remediate such substances, when released, may adversely affect theproperty owner’s ability to sell
Page 11
Table of Contents 11 the real estate or to borrow using the real estate as collateral, and may cause the property owner to incur substantial remediation costs. In addition to claims for cleanup costs, thepresence of hazardous substances on a property could result in a claim by a private party for personal injury or a claim by an adjacent property owner or user for propertydamage. We may also become liable for the costs of removal or remediation of hazardous substances stored at our properties by a customer even though storage of hazardoussubstances would be without our knowledge or approval and in violation of the customer’s storage lease agreement with us. Our practice is to conduct or obtain environmental assessments in connection with the acquisition or development of properties. Whenever the environmental assessment forone of our stores indicates that a store is impacted by soil or groundwater contamination from prior owners/operators or other sources, we work with our environmentalconsultants and, where appropriate, state governmental agencies, to ensure that the store is either cleaned up, that no cleanup is necessary because the low level of contaminationposes no significant risk to public health or the environment, or that the responsibility for cleanup rests with a third party. In certain cases, we have purchased environmentalliability insurance coverage to indemnify us against claims for existing or suspected contamination or other adverse environmental conditions that may affect a property. We are not aware of any environmental cleanup liability that we believe will have a material adverse effect on us. We cannot provide assurance, however, that theseenvironmental assessments and investigations have revealed or will reveal all potential environmental liabilities, that no prior owner created any material environmentalcondition not known to us or the independent consultant or that future events or changes in environmental laws will not result in the imposition of environmental liability on us. We have not received notice from any governmental authority of any material noncompliance, claim or liability in connection with any of our stores, nor have we beennotified of a claim for personal injury or property damage by a private party in connection with any of our stores relating to environmental conditions. We are not aware of any environmental condition with respect to any of our stores that could reasonably be expected to have a material adverse effect on our financialcondition or results of operations, and we do not expect that the cost of compliance with environmental regulations will have a material adverse effect on our financial conditionor results of operations. We cannot provide assurance, however, that this will continue to be the case. Insurance We carry comprehensive liability, fire, casualty, extended coverage and rental loss insurance covering all of the properties in our portfolio. We also carry environmentalinsurance coverage on certain stores in our portfolio. We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the costof the coverage and industry practice. We do not carry insurance for losses such as loss from civil unrest, riots, war or acts of God, pandemics, and, in some cases, flood andenvironmental hazards, because such coverage is either not available or not available at commercially reasonable rates. Some of our policies, such as those covering losses dueto terrorism, hurricanes, floods, earthquakes and windstorms, are insured subject to limitations involving large deductibles or co-payments and policy limits that may not besufficient to cover losses. Additionally, we use a combination of insurance products, some of which include deductibles and self-insured retention amounts, to provide riskmitigation for potential liabilities associated with automobiles, workers’ compensation, employment practices, workplace violence, general contractors, cyber risks, crime,directors and officers, employee health-care benefits, fiduciary obligations, managerial errors and omissions, and personal injuries that might be sustained at our stores. Offices Our principal executive offices are located at 5 Old Lancaster Road, Malvern, PA 19355. Our telephone number is (610) 535-5000. Human Capital At CubeSmart, we refer to our employees as teammates because collaboration towards shared goals defines our workplace. We care deeply about the experience ourteammates have working with us. The CubeSmart work experience takes a holistic approach to our teammates’ total wellbeing. Our teammate value proposition includespromoting a sense of belonging to a team; providing opportunities to make a meaningful difference at work and in our communities; supporting ongoing personal andprofessional development; and offering competitive pay and rewards. As of December 31, 2024, we employed 3,104 teammates, all within the United States. Of our total teammate population, approximately 88% were hourly and approximately12% were salaried. We have no union presence or collective bargaining agreements. Our average teammate tenure as of December 31, 2024 was 3.7 years.
Page 12
Table of Contents 12 Company Culture and Teammate Experience We measure our teammates’ experience each year through our Teammate Engagement Survey. In 2024, our annual engagement survey participation rate was 91%. Results arecommunicated within individual teams to share what we learned and discuss both the positive aspects about working at CubeSmart and where we have opportunities to improve.Leaders with team engagement below a certain threshold are provided with coaching and set goals for improvement. In addition to the survey and our focused support for teamswho need it, we have ongoing conversations and commit to continuous improvement. Teammate Development and Wellbeing As part of our culture, we seek to help teammates grow with us and leverage their development both at CubeSmart and beyond. We believe in providing all teammates withtraining and development opportunities to succeed in their role. We plan, design, and deliver training programs for all levels of the organization, from orientation and general jobskills to enhancing leadership capabilities through skills training and mentoring. In 2024, we provided an average of 15 hours of training per teammate. When recruiting new teammates, our talent acquisition team engages with our store management teams and corporate leaders to identify a pool of potential candidates to serve our customers and deliver best-in-class customer service. We recruited, hired and trained 1,460 teammates during the year ended December 31, 2024. Teammate referrals were a significant source of the candidates we hired, accounting for 18% of our new teammates. Additionally, 352 teammates were promoted and/or transitioned into new roles to further their career development. We believe that career growth and personal development is an important part of our teammates’ personal and professional success. To further support our teammates’ success,we offer a number of benefits aimed at supporting the wellbeing of our teammates and their families. Those benefits include: medical, dental, vision, disability and life insurancecoverage. We also offer a variety of programs designed to provide teammates with the ability to rest, rejuvenate and take care of their families such as paid holidays, vacationand sick time, and parental leave. Our Employee Assistance Program is available to all teammates, providing extra support as they and their families experience life changes andchallenges. Another important part of our teammates’ wellbeing is their connection to a larger sense of purpose. We empower our teammates to find this with us and provide programsand opportunities for them. Our Idea Center provides a forum where teammates can submit ideas to enhance the workplace, streamline systems and processes and identifysolutions and best practices. We encourage our teammates to participate in community service and philanthropy, and provide paid time off for teammates who participate inthese activities. Also, through our matching gifts program, we match qualified charitable contributions made by teammates up to $100 per teammate each year. Teammate Composition As of December 31, 2024, of our total teammate population, 54% were female and 46% were male. Approximately 45% have self-identified as Black or African American,Hispanic or Latino, Asian, American Indian, or of two or more races. The average teammate age was 43. At CubeSmart, we respect, value and celebrate the unique attributes, characteristics and perspectives that make each teammate who they are. Our goal for CubeSmart is to bea place where people feel supported, listened to, and able to do their personal best. Our Philosophy Regarding Respect in the Workplace defines our approach to creating acollaborative work environment. Our Policy on Inclusion can be found in the Corporate Responsibility section of our internet website (www.cubesmart.com). Nothing on ourwebsite, including our polices or sections thereof, shall be deemed incorporated by reference into this Annual Report. Sustainability We are focused on building the company for the long term to generate sustainable growth. To that end, we have established a cross-functional Environmental, Social, &Governance (“ESG”) committee responsible for establishing our sustainability priorities and objectives. Management regularly evaluates sustainability risks faced by ourportfolio and believe the low obsolescence, geographic diversification, and low emissions of our portfolio help to mitigate those risks. Our senior management team reportsannually to the Board on the status of our ESG program, our progress against the goals we’ve set, and provides updates on the various initiatives we’ve undertaken to improveour sustainability. Our efforts to enact change are highlighted by our sustainability targets which look to track improvements across key ESG metrics and are aligned to theUnited Nations Sustainable Development Goals.
Page 13
Table of Contents 13 A key area of focus from a sustainability perspective is minimizing the impact we make on the environment. Self-storage remains a low-environmental impact business as itconsumes less energy and water while emitting fewer greenhouse gases than other real estate property types. We continue to look for ways to further reduce our low impactthrough a variety of initiatives including solar panel installations, HVAC upgrades, high-efficiency lighting retrofits, green roofs, energy management systems, and paperreduction through our electronic rental platform. We encourage you to review our Sustainability Report, which can be found in the Corporate Responsibility section of our website, for more detailed information regardingour sustainability programs and initiatives. Nothing on our website, including our Sustainability Report or sections thereof, shall be deemed incorporated by reference into thisAnnual Report. Available Information We file registration statements, proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to thosereports with the SEC. You may obtain copies of these documents by accessing the SEC’s website at www.sec.gov. Our website address is www.cubesmart.com. You also canobtain on our website, free of charge, copies of our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments tothose reports, after we electronically file such reports or amendments with, or furnish them to, the SEC. Our website and the information contained therein or connected theretoare not intended to be incorporated by reference into this Report. Also available on our website, free of charge, are copies of our Code of Business Conduct and Ethics, our Corporate Governance Guidelines and the charters for each of thecommittees of our Board — the Audit Committee, the Corporate Governance and Nominating Committee and the Compensation Committee. Copies of each of these documentsare also available in print free of charge, upon request by any shareholder. You can obtain copies of these documents by contacting Investor Relations at 5 Old Lancaster Road,Malvern, PA 19355 or by telephoning 610-535-5000.
Page 14
Table of Contents 14 ITEM 1A. RISK FACTORS Overview An investment in our securities involves various risks. Investors should carefully consider the risks set forth below together with other information contained in this Report.These risks are not the only ones that we may face. Additional risks not presently known to us, or that we currently consider immaterial, may also impair our business, financialcondition, operating results and ability to make distributions to our shareholders. Risks Related to our Business and Operations Adverse macroeconomic and business conditions may significantly and negatively affect our rental rates, occupancy levels and therefore our results of operations. We are susceptible to the effects of adverse macro-economic events that can result in higher unemployment, shrinking demand for products, large-scale business failures andtight credit markets. Our results of operations are sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending, as wellas to increased bad debts due to recessionary pressures. Adverse economic conditions affecting disposable consumer income, such as employment levels, business conditions,inflation, deflation, interest rates, tax rates and fuel and energy costs, could reduce consumer spending or cause consumers to shift their spending to other products and services.A general reduction in the level of discretionary spending or shifts in consumer discretionary spending could adversely affect our growth and profitability. Our results ofoperations are also sensitive to changes in the residential housing market, as adverse changes in this market could reduce consumer demand. It is difficult to determine the breadth and duration of economic and financial market disruptions (including those in international markets) and the many ways in which theymay affect our customers and our business in general. Nonetheless, financial and macroeconomic disruptions could have a significant adverse effect on our sales, profitabilityand results of operations. Our financial performance is dependent upon economic and other conditions of the markets in which our stores are located. We are susceptible to adverse developments in the markets in which we operate, such as business layoffs or downsizing, industry slowdowns, relocations of businesses,changing demographics and other factors. Our stores in New York, Florida, California and Texas accounted for approximately 18%, 14%, 11% and 9%, respectively, of our total2024 revenues. As a result of this geographic concentration of our stores, we are particularly susceptible to adverse market conditions in these areas. Any adverse economic orreal estate developments in these markets, or in any of the other markets in which we operate, or any decrease in demand for self-storage space resulting from the local businessclimate, could adversely affect our rental revenues, which could impair our ability to satisfy our debt service obligations and pay distributions to our shareholders. We face risks associated with property acquisitions. We intend to continue to acquire individual and portfolios of self-storage properties. The purchase agreements that we enter into in connection with acquisitions typicallycontain closing conditions that need to be satisfied before the acquisitions can be consummated. The satisfaction of many of these conditions is outside of our control, and wetherefore cannot assure that any of our pending or future acquisitions will be consummated. These conditions include, among other things, satisfactory examination of the title,zoning and entitlements to the properties, the ability to obtain title insurance and customary closing deliverables and conditions. Moreover, in the event we are unable tocomplete pending or future acquisitions, we may have incurred significant legal, accounting, due diligence and other transaction costs in connection with such acquisitionswithout realizing the expected benefits. Those acquisitions that we do consummate would increase our size and may potentially alter our capital structure. Although we believe that future acquisitions that wecomplete will enhance our financial performance, the success of acquisitions is subject to the risks that: ● acquisitions may fail to perform as expected; ● the actual costs of repositioning or redeveloping acquired properties may be higher than our estimates; ● we may be unable to obtain acquisition financing on favorable terms; ● acquisitions may be located in new markets where we may have limited knowledge and understanding of the local economy, an absence of business relationships in thearea or an unfamiliarity with local governmental and permitting procedures; and
Page 15
Table of Contents 15 ● there is only limited recourse, or no recourse, to the former owners of newly acquired properties for unknown or undisclosed liabilities such as the clean-up ofundisclosed environmental contamination; claims by customers, vendors or other persons arising on account of actions or omissions of the former owners of theproperties; and claims by local governments, adjoining property owners, property owner associations and easement holders for fees, assessments or taxes on otherproperty-related changes. As a result, if a liability were asserted against us based upon ownership of an acquired property, we might be required to pay significant sumsto settle it, which could adversely affect our financial results and cash flow. In addition, we often do not obtain third-party appraisals of acquired properties and instead rely on internal value determinations. We will incur costs and will face integration challenges when we acquire or develop additional stores. As we acquire or develop additional self-storage properties and bring additional self-storage properties onto our third-party management platform, we will be subject to risksassociated with integrating and managing new stores, including customer retention and mortgage default risks. In the case of a large portfolio purchase, we could experiencestrains in our existing systems and management capacities. In addition, acquisitions or developments may cause disruptions in our operations and divert management’s attentionaway from day-to-day operations. Furthermore, our net income may decline because we will be required to depreciate/amortize in future periods costs for acquired real propertyand intangible assets. Our failure to successfully integrate any future acquisitions into our portfolio could have an adverse effect on our operating costs and our ability to makedistributions to our shareholders. The acquisition of new stores that lack operating history with us will make it more difficult to predict financial performance. We intend to continue to acquire individual and portfolios of self-storage properties. These acquisitions could fail to perform in accordance with expectations. If we fail toaccurately estimate occupancy levels, rental rates, operating costs or costs of improvements to bring an acquired store up to the standards established for our intended marketposition, the performance of the store may be below expectations. Acquired stores may have characteristics or deficiencies affecting their valuation or revenue potential that wehave not yet discovered. We cannot assure that the performance of stores acquired by us will increase or be maintained under our management. Our development activities may be more costly or difficult to complete than we anticipate. We intend to continue to develop self-storage properties where market conditions warrant such investment. Once made, these investments may not produce results inaccordance with our expectations. Risks associated with development and construction activities include: ● the unavailability of favorable financing sources in the debt and equity markets; ● construction cost overruns, including on account of rising interest rates, diminished availability of materials and labor, and increases in the costs of materials and labor; ● construction delays and failure to achieve target occupancy levels and rental rates, resulting in a lower than projected return on our investment; ● complications (including building moratoriums and anti-growth legislation) in obtaining necessary zoning, occupancy and other governmental permits; and ● unexpected, competitive development that is proposed or announced after our development activities have begun. We depend on external sources of capital that are outside of our control; the unavailability of capital from external sources could adversely affect our ability to acquire ordevelop stores, satisfy our debt obligations and/or make distributions to shareholders. We depend on external sources of capital to fund acquisitions and development, to satisfy our debt obligations and to make distributions to our shareholders required tomaintain our status as a REIT, and these sources of capital may not be available on favorable terms, if at all. Our access to external sources of capital depends on a number offactors, including general market conditions, the market’s perception of our growth potential, our current and potential future earnings, our cash flow and our ability to continueto qualify as a REIT for federal income tax purposes. If we are unable to obtain external sources of capital, we may not be able to acquire or develop properties when strategicopportunities exist, satisfy our debt obligations, make distributions to shareholders that would permit us to qualify as a REIT or avoid paying tax on our REIT taxable income.
Page 16
Table of Contents 16 If we are unable to promptly re-lease our cubes or if the rates upon such re-letting are significantly lower than expected, our business and results of operations would beadversely affected. We derive revenues principally from rents received from customers who rent cubes at our self-storage properties under month-to-month leases and fees earned from managingstores. Any delay in re-leasing cubes as vacancies arise would reduce our revenues and harm our operating results. In addition, lower than expected rental rates upon re-leasingcould adversely affect our revenues and impede our growth. Store ownership through joint ventures may limit our ability to act exclusively in our interest. We co-invest with, and we may continue to co-invest with, third parties through joint ventures. In any such joint venture, we may not be in a position to exercise sole decision-making authority regarding the stores owned through joint ventures. Investments in joint ventures may, under certain circumstances, involve risks not present when a third partyis not involved, including the possibility that joint venture partners might become bankrupt or fail to fund their share of required capital contributions. Joint venture partners mayhave business interests or goals that are inconsistent with our business interests or goals and may be in a position to take actions contrary to our policies or objectives. Suchinvestments also have the potential risk of impasse on strategic decisions, such as a sale, in cases where neither we nor the joint venture partner would have full control over thejoint venture. In other circumstances, joint venture partners may have the ability without our agreement to make certain major decisions, including decisions about sales, capitalexpenditures, and/or financing. Any disputes that may arise between us and our joint venture partners could result in litigation or arbitration that could increase our expenses anddistract our officers and/or Trustees from focusing their time and effort on our business. In addition, we might in certain circumstances be liable for the actions of our jointventure partners, and the activities of a joint venture could adversely affect our ability to qualify as a REIT, even though we do not control the joint venture. We face significant competition for customers and acquisition and development opportunities. Actions by our competitors may decrease or prevent increases of the occupancy and rental rates of our stores. We compete with numerous developers, owners and operators ofself-storage properties, including other REITs, some of which own or may in the future own stores similar to ours in the same submarkets in which our stores are located andsome of which may have greater capital resources. In addition, due to the relatively low cost of each individual self-storage property, other developers, owners and operatorshave the capability to build additional stores that may compete with our stores. If our competitors build new stores that compete with our stores or offer self-storage space at rental rates near or below the rental rates we currently charge our customers, wemay lose potential customers, and we may be pressured to reduce our rental rates below those we currently charge in order to retain customers when our customers’ leasesexpire. As a result, our financial condition, cash flow, cash available for distribution, market price of our shares and ability to satisfy our debt service obligations could bematerially adversely affected. In addition, increased competition for customers may require us to make capital improvements to our stores that we would not have otherwisemade. Any unbudgeted capital improvements we undertake may reduce cash available for distributions to our shareholders or for satisfaction of our debt service obligations. We also face significant competition for acquisitions and development opportunities. Some of our competitors have greater financial resources than we do and a greater abilityto borrow funds to acquire stores. These competitors may also be willing to accept more risk than we can prudently manage, including risks with respect to the geographicproximity of investments and the payment of higher acquisition prices. This competition for investments may reduce the number of suitable investment opportunities available tous, may increase acquisition costs and may reduce demand for self-storage space in certain areas where our stores are located and, as a result, adversely affect our operatingresults. Potential losses may not be covered by insurance. We carry comprehensive liability, fire, casualty, extended coverage and rental loss insurance covering all of the properties in our portfolio. We also carry environmentalinsurance coverage on certain stores in our portfolio. We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the costof the coverage and industry practice. We do not carry insurance for losses such as loss from civil unrest, riots, war or acts of God, pandemics, and, in some cases, flood andenvironmental hazards, because such coverage is either not available or not available at commercially reasonable rates. Some of our policies, such as those covering losses dueto terrorism, hurricanes, floods, earthquakes and windstorms, are insured subject to limitations involving large deductibles or co-payments and policy limits that may not besufficient to cover losses. In particular, certain of our stores are located in areas that are prone to or at risk of flooding, including coastal flooding, and some of our stores havebeen previously damaged or otherwise impacted by hurricanes and other flooding events. If we experience a loss at a store that is uninsured or that exceeds policy limits, wecould lose the capital invested in that store as well as the anticipated future cash flows from that store. Inflation, changes in building codes
Page 17
Table of Contents 17 and ordinances, environmental considerations and other factors also might make it impractical or undesirable to use insurance proceeds to replace a store after it has beendamaged or destroyed. In addition, if the damaged stores are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these stores wereirreparably damaged. Additionally, we use a combination of insurance products, some of which include deductibles and self-insured retention amounts, to provide risk mitigation for potentialliabilities associated with automobiles, workers’ compensation, employment practices, workplace violence, general contractors, cyber risks, crime, directors and officers,employee health-care benefits, fiduciary obligations, managerial errors and omissions, and personal injuries that might be sustained at our stores. Liabilities associated with therisks that are retained by us are estimated, in part, by considering historical claims experience and actuarial assumptions. Our results of operations could be materially impactedby claims and other expenses related to such insurance plans if future occurrences and claims differ from these assumptions and historical trends. Our insurance coverage may not comply with certain loan requirements. Certain of our stores serve as collateral for our mortgage-backed debt, some of which we assumed in connection with our acquisition of stores and requires us to maintaininsurance, deductibles, retentions and other policy terms at levels that may not be commercially reasonable in the current insurance environment. We may be unable to obtainrequired insurance coverage if the cost and/or availability make it impractical or impossible to comply with debt covenants. If we cannot comply with a lender’s requirements,the lender could declare a default, which could affect our ability to obtain future financing and have a material adverse effect on our results of operations and cash flows and ourability to obtain future financing. In addition, we may be required to self-insure against certain losses or our insurance costs may increase. We are subject to risks from the consequences of climate change, including severe weather events, as well as the transition to a low-carbon economy and other steps taken toprevent or mitigate climate change. Our self-storage properties are located in areas that may be subject to the direct impacts of climate change, such as increased destructive weather events like floods, sea levelrise, fires, and drought, which could result in significant damage to our stores, increased capital expenditures, increased expenses, reduced revenues, or reduced demand for ourself-storage space. Indirect impacts of climate change could also adversely impact our business, including through increased costs, such as insurance costs or regulatorycompliance costs. Potential governmental, political and social pressure related to climate change and actions to mitigate climate change could in the future result in (i) costlychanges to newly developed stores or retrofits of our existing stores to reduce carbon emissions through multiple avenues, including changes to insulation, space configuration,lighting, heating, and air conditioning, (ii) increased energy costs as a result of transitioning to less carbon-intensive, but more expensive, sources of energy to operate our stores,and (iii) consumers reducing their individual carbon footprints by owning fewer durable material consumer goods, collectibles, and other such items requiring storage, resultingin a reduced demand for our self-storage space. In addition, our reputation and investor relationships could be damaged as a result of our involvement with activities perceived tobe causing or exacerbating climate change, as well as any decisions we make to continue to conduct or change our activities in response to considerations relating to climatechange. Potential liability for environmental contamination could result in substantial costs. We are subject to federal, state and local environmental laws, ordinances and regulations that apply generally to the ownership of real property and the operation of self-storage properties. If we fail to comply with those laws, ordinances and regulations, we could be subject to significant fines or other governmental sanctions. Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate may be required to investigate and clean up hazardous or toxicsubstances or petroleum product releases at a property and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-upcosts incurred by such parties in connection with contamination. Such liability may be imposed whether or not the owner or operator knew of, or was responsible for, thepresence of these hazardous or toxic substances. The cost of investigation, remediation or removal of such substances may be substantial, and the presence of such substances, orthe failure to properly remediate such substances, may adversely affect our ability to sell or rent such property or to borrow using such property as collateral. In addition, inconnection with the ownership, operation and management of properties, we are potentially liable for property damage or injuries to persons and property. Our practice is to conduct or obtain environmental assessments in connection with the acquisition or development of additional stores. We carry environmental insurancecoverage on certain stores in our portfolio. We obtain or examine environmental assessments from qualified and reputable environmental consulting firms (and intend to conductsuch assessments prior to the acquisition or development of additional stores). The environmental assessments received to date have not revealed, nor do we have actualknowledge of, any
Page 18
Table of Contents 18 environmental liability that we believe will have a material adverse effect on us. However, we cannot assure that our environmental assessments have identified or will identifyall material environmental conditions, that any prior owner of any property did not create a material environmental condition not actually known to or discoverable by us, thatenvironmental conditions on neighboring properties will not have an impact on any of our properties, or that a material environmental condition does not otherwise exist withrespect to any of our properties. Americans with Disabilities Act and applicable state accessibility act compliance may require unanticipated expenditures. Under the ADA, all places of public accommodation are required to meet federal requirements related to access and use by disabled persons. A number of other federal, stateand local laws may also impose access and other similar requirements at our properties or websites. A failure to comply with the ADA or similar state or local requirementscould result in the governmental imposition of fines or the award of damages to private litigants affected by the noncompliance. Although we believe that our properties andwebsites comply in all material respects with these requirements (or would be eligible for applicable exemptions from material requirements because of adaptive assistanceprovided), a determination that one or more of our properties or websites is not in compliance with the ADA or similar state or local requirements would result in the incurrenceof additional costs associated with bringing the properties or websites into compliance. If we are required to make substantial modifications to comply with the ADA or similarstate or local requirements, we may be required to incur significant unanticipated expenditures, which could have an adverse effect on our operating costs and our ability to makedistributions to our shareholders. We face system security risks as we depend upon automated processes and the internet, and breaches of, or failures in the performance of, our information technologysystems could damage our reputation, cause us to incur substantial additional costs and subject us to litigation. We are increasingly dependent upon automated information technology processes, including artificial intelligence, and internet commerce, and many of our new customerscome from the telephone or over the internet. Moreover, the nature of our business involves the receipt and retention of personal information about our customers. We also relyextensively on third-party vendors to retain data, host software, process transactions and provide other systems and services. These systems, and our systems, are subject todamage or interruption from power outages, computer and telecommunications failures, computer viruses, malware, ransomware and other destructive or disruptive securitybreaches and catastrophic events, such as a natural disaster or a terrorist event or cyber-attack. In addition, experienced computer programmers and hackers may be able topenetrate our security systems and misappropriate or make unavailable to us our confidential information, create system disruptions or cause shutdowns, whether due tomalfeasance or human error. Such data security breaches as well as system disruptions and shutdowns could result in additional costs to repair or replace such networks orinformation systems and possible legal liability, including government enforcement actions and private litigation. In addition, our customers could lose confidence in our abilityto protect their personal information, which could cause them to discontinue leasing at our stores. Even if we are not targeted directly, cyberattacks on the U.S. government,financial markets, financial institutions, or other businesses, including our tenants, vendors, software creators, cloud providers, cybersecurity service providers, and other thirdparties with whom we work, may occur, and such events could disrupt our normal business operations and networks in the future. In addition to experiencing a security incident, third parties may gather, collect, or infer sensitive information about us from public sources, data brokers, or other means thatreveals competitively sensitive details about our organization and could be used to undermine our competitive advantage or market position. Additionally, proprietary,confidential, and/or sensitive information of us or our tenants could be leaked, disclosed, or revealed as a result of or in connection with the use of generative artificialintelligence technologies. We currently incorporate artificial intelligence solutions into our business, and applications of artificial intelligence may become more important in our operations over time.Our competitors or other third parties may incorporate artificial intelligence into their businesses more quickly or more successfully than us, which could impair our ability tocompete effectively and adversely affect our results of operations. Additionally, if the types of information that artificial intelligence applications assist in producing are or arealleged to be deficient, inaccurate, or biased, our business, financial condition, and results of operations may be adversely affected. If we are unable to attract and retain team members or contract with third parties having the specialized skills or technologies needed to support our systems, implementimprovements to our customer-facing technology in a timely manner, allow accurate visibility to product availability when customers are ready to rent, quickly and efficientlyfulfill our customers rental and payment methods they demand or provide a convenient and consistent experience for our customers regardless of the ultimate sales channel, ourability to compete and our results of operations could be adversely affected.
Page 19
Table of Contents 19 Risks Related to the Real Estate Industry Our performance and the value of our self-storage properties are subject to risks associated with our properties and with the real estate industry. Our rental revenues, operating costs and the value of our real estate assets, and consequently the value of our securities, are subject to the risk that if our stores do not generaterevenues sufficient to meet our operating expenses, including debt service and capital expenditures, our cash flow and ability to pay distributions to our shareholders will beadversely affected. Events or conditions beyond our control that may adversely affect our operations or the value of our properties include but are not limited to: ● downturns in the national, regional and local economic climate; ● local or regional oversupply, increased competition or reduction in demand for self-storage space; ● vacancies or changes in market rents for self-storage space; ● inability to collect or delay in collecting rent from customers; ● increased operating costs, including maintenance, personnel, insurance premiums, customer acquisition costs and real estate taxes; ● changes in interest rates and availability of financing; ● hurricanes, earthquakes and other natural disasters, civil disturbances, terrorist acts or acts of war that may result in uninsured or underinsured losses; ● significant expenditures associated with acquisitions and development projects, such as debt service payments, real estate taxes, insurance and maintenance costs whichare generally not reduced when circumstances cause a reduction in revenues from a property; ● costs of complying with changes in laws and governmental regulations, including those governing usage, zoning, the environment and taxes; and ● the relative illiquidity of real estate investments. In addition, prolonged periods of economic slowdown or recession, rising interest rates, declining demand for self-storage, geopolitical tensions, military conflicts, pandemicsor the fear or public perception that any of these events may occur, could result in a general decline in rental revenues, which could impair our ability to satisfy our debt serviceobligations and to make distributions to our shareholders. Rental revenues are significantly influenced by demand for self-storage space generally, and a decrease in such demand would likely have a greater adverse effect on ourrental revenues than if we owned a more diversified real estate portfolio. Because our real estate portfolio consists primarily of self-storage properties, we are subject to risks inherent in investments in a single industry. A decrease in the demand forself-storage space would have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio. Demand for self-storage space could beadversely affected by weakness in the national, regional and local economies, changes in supply of, or demand for, similar or competing self-storage properties in an area and theexcess amount of self-storage space in a particular market. To the extent that any of these conditions occur, they are likely to affect market rents for self-storage space, whichcould cause a decrease in our rental and management fee revenue. Any such decrease could impair our ability to satisfy debt service obligations and make distributions to ourshareholders. Because real estate is illiquid, we may not be able to sell properties when appropriate. Real estate property investments generally cannot be sold quickly. Also, the tax laws applicable to REITs require that we hold our properties for investment, rather than forsale in the ordinary course of business, which may cause us to forgo or defer sales of properties that may otherwise be in our best interest. Therefore, we may not be able todispose of properties promptly, or on favorable terms, in response to economic or other market conditions, which may adversely affect our financial position.
Page 20
Table of Contents 20 Risks Related to our Qualification and Operation as a REIT Failure to qualify as a REIT would subject us to U.S. federal income tax which would reduce the cash available for distribution to our shareholders. We operate our business to qualify to be taxed as a REIT for federal income tax purposes. We have not requested and do not plan to request a ruling from the Internal RevenueService (“IRS”) that we qualify as a REIT, and the statements in this Report are not binding on the IRS or any court. As a REIT, we generally will not be subject to federalincome tax on the income that we distribute currently to our shareholders. Many of the REIT requirements, however, are highly technical and complex. The determination thatwe are a REIT requires an analysis of various factual matters and circumstances that may not be totally within our control. For example, to qualify as a REIT, at least 95% of ourgross income must come from specific passive sources, such as rent, that are itemized in the REIT tax laws. In addition, to qualify as a REIT, we cannot own specified amountsof debt and equity securities of some issuers. We also are required to distribute to our shareholders with respect to each year at least 90% of our REIT taxable income, excludingnet capital gains. The fact that we hold substantially all of our assets through the Operating Partnership and its subsidiaries and joint ventures further complicates the applicationof the REIT requirements for us. Even a technical or inadvertent mistake could jeopardize our REIT status, and, given the highly complex nature of the rules governing REITsand the ongoing importance of factual determinations, we cannot provide any assurance that we will continue to qualify as a REIT. Congress and the IRS may make changes tothe tax laws and regulations, and the courts might issue new rulings that make it more difficult, or impossible, for us to remain qualified as a REIT. If we fail to qualify as aREIT for federal income tax purposes and are able to avail ourselves of one or more of the statutory savings provisions in order to maintain our REIT status, we wouldnevertheless be required to pay penalty taxes of $50,000 or more for each such failure. If we fail to qualify as a REIT for federal income tax purposes, and are unable to avail ourselves of certain savings provisions set forth in the Internal Revenue Code of 1986,as amended (the “Code”), we would be subject to federal income tax at regular corporate rates on all of our income. As a taxable corporation, we would not be allowed to take adeduction for distributions to shareholders in computing our taxable income or pass through long-term capital gains to individual shareholders at favorable rates. We also couldbe subject to increased state and local taxes. We would not be able to elect to be taxed as a REIT until the fifth taxable year that begins after the taxable year we first failed toqualify unless the IRS were to grant us relief under certain statutory provisions. Further, for tax years beginning after December 31, 2022, we may also be subject to certain taxesenacted by the Inflation Reduction Act of 2022 that are applicable to non-REIT corporations, including a corporate alternative minimum tax and a nondeductible one percentexcise tax on certain stock repurchases. If we failed to qualify as a REIT, we would have to pay significant income taxes, which would reduce our net earnings available forinvestment or distribution to our shareholders. This likely would have a significant adverse effect on our earnings and likely would adversely affect the value of our securities. Inaddition, we would no longer be required to pay any distributions to shareholders. Failure of the Operating Partnership (or a subsidiary partnership or joint venture) to be treated as a partnership would have serious adverse consequences to ourshareholders. If the IRS were to successfully challenge the tax status of the Operating Partnership or any of its subsidiary partnerships or joint ventures for federal income tax purposes, theOperating Partnership or the affected subsidiary partnership or joint venture would be taxable as a corporation. In such event, we likely would cease to qualify as a REIT and theimposition of a corporate tax on the Operating Partnership, a subsidiary partnership or joint venture would reduce the amount of cash available for distribution from theOperating Partnership to us and ultimately to our shareholders. To maintain our REIT status, we may be forced to borrow funds on a short-term basis during unfavorable market conditions. As a REIT, we are subject to certain distribution requirements, including the requirement to distribute 90% of our REIT taxable income, excluding net capital gains, whichmay result in our having to make distributions at a disadvantageous time or to borrow funds at unfavorable rates. Compliance with this requirement may hinder our ability tooperate solely on the basis of maximizing profits. We will pay some taxes even if we qualify as a REIT, which will reduce the cash available for distribution to our shareholders. Even if we qualify as a REIT for federal income tax purposes, we will be required to pay certain federal, state and local taxes on our income and property. For example, wewill be subject to income tax to the extent we distribute less than 100% of our REIT taxable income, including capital gains. Additionally, we will be subject to a 4%nondeductible excise tax on the amount, if any, by which dividends paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gainnet income and 100% of our undistributed income from prior years. Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100%penalty tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. Thedetermination as to whether a particular sale is a prohibited transaction depends on the
Page 21
Table of Contents 21 facts and circumstances related to that sale. We cannot guarantee that sales of our properties would not be prohibited transactions unless we comply with certain statutory safe-harbor provisions. In addition, any net taxable income earned directly by our taxable REIT subsidiaries, or through entities that are disregarded for federal income tax purposes as entitiesseparate from our taxable REIT subsidiaries, will be subject to federal and possibly state corporate income tax. We have elected to treat some of our subsidiaries as taxable REITsubsidiaries, and we may elect to treat other subsidiaries as taxable REIT subsidiaries in the future. In this regard, several provisions of the laws applicable to REITs and theirsubsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation. For example, a taxable REIT subsidiary is limited in itsability to deduct certain interest payments made to an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on somedeductions taken by a taxable REIT subsidiary if the economic arrangements between the REIT, the REIT’s customers, and the taxable REIT subsidiary are not comparable tosimilar arrangements between unrelated parties. Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to federalincome tax on that income because not all states and localities follow the federal income tax treatment of REITs. To the extent that we and our affiliates are required to payfederal, state and local taxes, we will have less cash available for distributions to our shareholders. We face possible federal, state and local tax audits. Because we are organized and qualify as a REIT, we are generally not subject to federal income taxes, but are subject to certain state and local taxes. Certain entities throughwhich we own real estate either have undergone, or are currently undergoing, tax audits. Although we believe that we have substantial arguments in favor of our positions inthese audits, in some instances there may be no controlling precedent or interpretive guidance on the specific point at issue. Collectively, tax deficiency notices received to datefrom the jurisdictions conducting the ongoing audits have not been material. However, there can be no assurance that future audits will not occur with increased frequency orthat the ultimate result of such audits will not have a material adverse effect on our results of operations. Legislative or regulatory tax changes related to REITs could materially and adversely affect our business. At any time, the federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be changed, possibly withretroactive effect. We cannot predict if or when any new federal income tax law, regulation or administrative interpretation, or any amendment to any existing federal income taxlaw, regulation or administrative interpretation, will be adopted, promulgated or become effective or whether any such law, regulation or interpretation may take effectretroactively. We and our shareholders could be adversely affected by any such change in, or any new, federal income tax law, regulation or administrative interpretation. Shareholders are urged to consult with their tax advisors with respect to the status of any regulatory or administrative developments and proposals and their potential effect oninvestment in our equity securities. Dividends paid by REITs do not qualify for the reduced tax rates provided under current law. Dividends paid by REITs are generally not eligible for the reduced 15% maximum tax rate for dividends paid to individuals (20% for those with taxable income above certainthresholds that are adjusted annually under current law). The more favorable tax rates applicable to regular corporate dividends could cause shareholders who are individuals toperceive investments in REITs to be relatively less attractive than investments in the stock of non-REIT corporations that pay dividends to which more favorable tax rates apply,which could reduce the value of REIT stocks. Partnership tax audit rules could have a material adverse effect on us. Under the rules applicable to U.S. federal income tax audits of partnerships, subject to certain exceptions, any audit adjustment to items of income, gain, loss, deduction, orcredit of a partnership (and any partner’s distributive share thereof) is determined, and taxes, interest, or penalties attributable thereto could be assessed and collected, at thepartnership level. Absent available elections, it is possible that the Operating Partnership, and any other partnership in which we directly or indirectly invest, could be required topay additional taxes, interest and penalties as a result of an audit adjustment, and we, as a direct or indirect partner of a partnership, could be required to bear the economicburden of those taxes, interest, and penalties even though we may not otherwise have been required to pay additional taxes had we owned the assets of these partnershipsdirectly. There can be no assurance that these rules will not have a material adverse effect on us.
Page 22
Table of Contents 22 Risks Related to our Debt Financings We face risks related to current debt maturities, including refinancing risk. Certain of our mortgages, bank loans and unsecured debt (including our senior notes) will have significant outstanding balances on their maturity dates, commonly known as“balloon payments.” We may not have the cash resources available to repay those amounts, and we may have to raise funds for such repayment either through the issuance ofequity or debt securities, additional bank borrowings (which may include extension of maturity dates), joint ventures or asset sales. Furthermore, we are restricted from incurringcertain additional indebtedness and making certain other changes to our capital and debt structure under the terms of the Credit Facility (defined below) and senior notes and theindentures governing the Credit Facility and senior notes. There can be no assurance that we will be able to refinance our debt on favorable terms or at all. To the extent we cannot refinance debt on favorable terms or at all, we may beforced to dispose of properties on disadvantageous terms or pay higher interest rates, either of which would have an adverse impact on our financial performance and ability topay dividends to our shareholders. As a result of our interest rate hedges, swap agreements and other, similar arrangements, we face counterparty risks. We may be exposed to the potential risk of counterparty default or non-payment with respect to interest rate hedges, swap agreements, floors, caps and other interest ratehedging contracts that we may enter into from time to time, in which event we could suffer a material loss on the value of those agreements. Although these agreements maylessen the impact of rising interest rates on us, they also expose us to the risk that other parties to the agreements will not perform or that we cannot enforce the agreements.There is no assurance that our potential counterparties on these agreements will perform their obligations under such agreements. Financing our future growth plan or refinancing existing debt maturities could be impacted by negative capital market conditions. From time to time, domestic financial markets experience volatility and uncertainty. At times in recent years liquidity has tightened in the domestic financial markets,including the investment grade debt and equity capital markets from which we historically sought financing. Consequently, there is greater uncertainty regarding our ability toaccess the credit markets in order to attract financing on reasonable terms, and there can be no assurance that we will be able to continue to issue common or preferred equitysecurities at a reasonable price. Our ability to finance new acquisitions and development and refinance future debt maturities could be adversely impacted by our inability tosecure financing on reasonable terms, if at all. The terms and covenants relating to our indebtedness could adversely impact our financial performance. Like other real estate companies that incur debt, we are subject to risks associated with debt financing, such as the insufficiency of cash flow to meet required debt servicepayment obligations and the inability to refinance outstanding indebtedness at maturity. If our debt cannot be paid, refinanced or extended at maturity, we may not be able tomake distributions to shareholders at expected levels or at all and may not be able to acquire or develop new stores. Failure to make distributions to our shareholders could resultin our failure to qualify as a REIT for federal income tax purposes. Furthermore, an increase in our interest expense could adversely affect our cash flow and ability to makedistributions to shareholders. If we do not meet our debt service obligations, any stores securing such indebtedness could be foreclosed on, which would have a material adverseeffect on our cash flow and ability to make distributions and, depending on the number of stores foreclosed on, could threaten our continued viability. Our Credit Facility (defined below) contains (and any new or amended facility we may enter into from time to time will likely contain) customary affirmative and negativecovenants, including financial covenants that, among other things, require us to comply with certain liquidity and other tests. Our ability to borrow under the Credit Facility is(and any new or amended facility we may enter into from time to time will be) subject to compliance with such financial and other covenants. In the event that we fail to satisfythese covenants, we would be in default under the Credit Facility and may be required to repay such debt with capital from other sources. Under such circumstances, othersources of debt or equity capital may not be available to us, or may be available only on unattractive terms. Moreover, the presence of such covenants in our credit agreementscould cause us to operate our business with a view toward compliance with such covenants, which might not produce optimal returns for shareholders. Similarly, the indentureunder which we have issued unsecured senior notes contains customary financial covenants, including limitations on incurrence of additional indebtedness. Increases in interest rates on variable-rate indebtedness would increase our interest expense, which could adversely affect our cash flow and ability to make distributions toshareholders. Rising interest rates could also restrict our ability to refinance existing debt when it matures. In addition, an increase in interest rates could decrease the amountsthat third parties are willing to pay for our assets, thereby limiting our ability to alter our portfolio promptly in relation to economic or other conditions.
Page 23
Table of Contents 23 Our organizational documents contain no limitation on the amount of debt we may incur. As a result, we may become highly leveraged in the future. Our organizational documents do not limit the amount of indebtedness that we may incur. We could alter the balance between our total outstanding indebtedness and the valueof our assets at any time. If we become more highly leveraged, then the resulting increase in debt service could adversely affect our ability to make payments on our outstandingindebtedness and to pay our anticipated distributions and/or the distributions required to maintain our REIT status, and could harm our financial condition. Risks Related to our Organization and Structure We are dependent upon our senior management team whose continued service is not guaranteed. Our executive team, including our named executive officers, has extensive self-storage, real estate and public company experience. As previously announced, our ChiefOperating Officer is scheduled to retire in 2025. Our Chief Executive Officer, Chief Financial Officer, Chief Legal Officer and Chief Human Resources Officer are parties to theCompany’s executive severance plan, however, we cannot provide assurance that any of them will remain in our employment. The loss of services of one or more members ofour senior management team could adversely affect our operations and our future growth. The loss of key personnel, including our on-site personnel, or difficulties we encounter in hiring, training and retaining personnel, including skilled field personnel, mayadversely affect our rental revenues. Our performance depends on our ability to recruit and retain high-quality employees in our stores, in our sales center and in our corporate headquarters. Our ability to attractand retain corporate, sales, store and other personnel is also acutely impacted in markets where the competition for a relatively small number of qualified employees is intense.Furthermore, we have experienced, and could continue to experience, a shortage of labor for certain positions due to certain market trends and conditions which could furtherdecrease the pool of available talent for key functions. As of December 31, 2024, we had 2,604 property-level personnel involved in the management and operation of our stores. The customer service, marketing skills andknowledge of local market demand and competitive dynamics of our store managers are contributing factors to our ability to maximize our income and to achieve the highestsustainable rent levels at each of our stores. Competitive pressures and the impact of inflation may require that we enhance our pay and benefits package to compete effectively for such personnel. If there is an increasein these costs or if we fail to attract and retain qualified and skilled personnel, our business and operating results could be adversely affected. Certain provisions of Maryland law could inhibit changes in control, which may discourage third parties from conducting a tender offer or seeking other change of controltransactions that could involve a premium price for our shares or otherwise benefit our shareholders. Certain provisions of Maryland law may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control undercircumstances that otherwise could provide the holders of our common shares with the opportunity to realize a premium over the then-prevailing market price of those shares,including: ● “business combination moratorium/fair price” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested shareholder”(defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the most recent dateon which the shareholder becomes an interested shareholder, and thereafter imposes stringent fair price and super-majority shareholder voting requirements on thesecombinations; and ● “control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by theshareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in electing Trustees) acquired in a “control share acquisition” (defined asthe direct or indirect acquisition of ownership or control of “control shares” from a party other than the issuer) have no voting rights except to the extent approved byour shareholders by the affirmative vote of at least two thirds of all the votes entitled to be cast on the matter, excluding all interested shares, and are subject toredemption in certain circumstances.
Page 24
Table of Contents 24 We have opted out of these provisions of Maryland law. However, our Board may opt to make these provisions applicable to us at any time without shareholder notice orapproval. Our Trustees also have the discretion, granted in our bylaws and Maryland law, without shareholder approval to, among other things (1) create a staggered Board, (2) amendour bylaws or repeal individual bylaws in a manner that provides the Board with greater authority, and (3) issue additional equity securities. Any such action could inhibit orimpede a third party from making a proposal to acquire us at a price that could be beneficial to our shareholders. Our shareholders have limited control to prevent us from making any changes to our investment and financing policies. Our Board has adopted policies with respect to certain activities. These policies may be amended or revised from time to time at the discretion of our Board without a vote ofour shareholders. This means that our shareholders have limited control over changes in our policies. Such changes in our policies intended to improve, expand or diversify ourbusiness may not have the anticipated effects and consequently may adversely affect our business and prospects, results of operations and share price. Our rights and the rights of our shareholders to take action against our Trustees and officers are limited. Maryland law provides that a trustee or officer has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believesto be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our declaration of trust and bylaws requireus to indemnify our Trustees and officers for actions taken by them in those capacities on our behalf, to the extent permitted by Maryland law. Accordingly, in the event thatactions taken in good faith by any Trustee or officer impede our performance, our shareholders’ ability to recover damages from that Trustee or officer will be limited. Our declaration of trust permits our Board to issue preferred shares with terms that may discourage third parties from conducting a tender offer or seeking other change ofcontrol transactions that could involve a premium price for our shares or otherwise benefit our shareholders. Our declaration of trust permits our Board to issue up to 40,000,000 preferred shares, having those preferences, conversion or other rights, voting powers, restrictions,limitations as to distributions, qualifications or terms or conditions of redemption as determined by our Board. In addition, our Board may reclassify any unissued commonshares into one or more classes or series of preferred shares. Thus, our Board could authorize, without shareholder approval, the issuance of preferred shares with terms andconditions that could have the effect of discouraging a takeover or other transaction in which holders of some or a majority of our shares might receive a premium for theirshares over the then-prevailing market price of our shares. We currently do not expect that the Board would require shareholder approval prior to such a preferred issuance. Inaddition, any preferred shares that we issue would rank senior to our common shares with respect to the payment of distributions, in which case we could not pay anydistributions on our common shares until full distributions have been paid with respect to such preferred shares. Risks Related to our Securities Additional issuances of equity securities may be dilutive to shareholders. The interests of our shareholders could be diluted if we issue additional equity securities to finance future acquisitions or developments or to repay indebtedness. Our Boardmay authorize the issuance of additional equity securities, including preferred shares, without shareholder approval. Our ability to execute our business strategy depends uponour access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing, including commonand preferred equity. Many factors could have an adverse effect on the market value of our securities. A number of factors might adversely affect the price of our securities, many of which are beyond our control. These factors include: ● increases in market interest rates, relative to the dividend yield on our shares. If market interest rates go up, prospective purchasers of our securities may require ahigher yield. Higher market interest rates would not, however, result in more funds for us to distribute and, to the contrary, would likely increase our borrowing costsand potentially decrease funds available for distribution. Thus, higher market interest rates could cause the market price of our equity securities to go down;
Page 25
Table of Contents 25 ● anticipated benefit of an investment in our securities as compared to investment in securities of companies in other industries (including benefits associated with taxtreatment of dividends and distributions); ● perception by market professionals of REITs generally and REITs comparable to us in particular; ● level of institutional investor interest in our securities; ● trading volumes in securities of REITs; ● our results of operations and financial condition; ● investor confidence in the stock market generally; and ● additions and departures of key personnel. The market value of our equity securities is based primarily upon the market’s perception of our growth potential and our current and potential future earnings and cashdistributions. In light of the recent proliferation of generative artificial intelligence tools and large language models, there is also a risk that the dissemination of negativeopinions or characterizations or disinformation may negatively impact the conclusions that these tools and models draw about our business, prospects and share price.Consequently, our equity securities may trade at prices that are higher or lower than our net asset value per equity security. If our future earnings or cash distributions are lessthan expected, it is likely that the market price of our equity securities will diminish. The market price of our common shares has been, and may continue to be, particularly volatile, and our shareholders may be unable to resell their shares at a profit. The market price of our common shares has been subject to fluctuation and may continue to fluctuate or decline. Between January 1, 2022 and December 31, 2024, the closingprice per share of our common shares has ranged from a high of $54.82 (on January 3, 2022) to a low of $33.28 (on October 25, 2023). In the past, following periods ofvolatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. If our share price is volatile, we maybecome the target of securities litigation, which could result in substantial costs and divert our management’s attention and resources from our business. General Risk Factors Many states and local jurisdictions are facing severe budgetary problems which may have an adverse impact on our business and financial results. Many states and jurisdictions are facing severe budgetary problems. Action that may be taken in response to these problems, such as increases in property taxes on commercialproperties, changes to sales taxes or other governmental efforts, including mandating medical insurance, paid time off and severance payments for employees, could adverselyimpact our business and results of operations. We may incur impairment charges. We evaluate on a quarterly basis our real estate portfolio for indicators of impairment. Impairment charges reflect management’s judgment of the probability and severity ofthe decline in the value of real estate assets we own. These charges and provisions may be required in the future as a result of factors beyond our control, including, among otherthings, changes in the economic environment and market conditions affecting the value of real property assets or natural or man-made disasters. If we are required to takeimpairment charges, our results of operations will be adversely impacted. Inflation, responses to high inflation and rising operating expenses could reduce our cash flow and funds available for future distributions. Our stores and any other stores we acquire or develop in the future are, and will be, subject to operating risks common to real estate in general, any or all of which maynegatively affect us. Our stores are subject to increases in operating expenses such as real estate, sales and other taxes, personnel costs including mandated minimum hourlywage rates and the cost of providing specific medical coverage and governmental mandated benefits to our employees, utilities, customer acquisition costs, insurance,administrative expenses and costs for repairs and maintenance. If operating expenses continue to increase without a corresponding increase in revenues, our profitability coulddiminish and limit our ability to make distributions to our shareholders.
Page 26
Table of Contents 26 The United States Federal Reserve Board and similar international bodies have increased interest rates in recent years to control and decrease the level of inflation. Suchincreases in interest rates could have a material effect on our financial performance, as further described under the heading “The terms and covenants relating to ourindebtedness could adversely impact our financial performance.” We cannot assure our ability to pay dividends in the future. Historically, we have paid quarterly distributions to our shareholders, and we intend to continue to pay quarterly dividends and to make distributions to our shareholders inamounts such that all or substantially all of our taxable income in each year, subject to certain adjustments, is distributed. This, along with other factors, should enable us tocontinue to qualify for the tax benefits accorded to a REIT under the Code. We have not established a minimum dividends payment level, and all future distributions will bemade at the discretion of our Board. Our ability to pay dividends will depend upon, among other factors: ● the operational and financial performance of our stores; ● capital expenditures with respect to existing and newly acquired stores; ● general and administrative costs associated with our operation as a publicly-held REIT; ● maintenance of our REIT status; ● the amount of, and the interest rates on, our debt; ● the absence of significant expenditures relating to environmental and other regulatory matters; and ● other risk factors described in this Report. Certain of these matters are beyond our control and any significant difference between our expectations and actual results could have a material adverse effect on our cashflow and our ability to make distributions to shareholders. We may become subject to litigation or threatened litigation which may divert management’s time and attention, require us to pay damages and expenses or restrict theoperation of our business. We may become subject to disputes with commercial parties with whom we maintain relationships, customers or potential customers, or other parties with whom we dobusiness. Any such dispute could result in litigation between us and the other parties. Whether or not any dispute actually proceeds to litigation, we may be required to devotesignificant management time and attention to its successful resolution (through litigation, settlement or otherwise), which would detract from our management’s ability to focuson our business. Any such resolution could involve the payment of damages or expenses by us, which may be significant. In addition, any such resolution could involve ouragreement with terms that restrict the operation of our business. There are other commercial parties, at a local, national and global level, that may assert that our use of our brand names and other intellectual property conflict with theirrights to use brand names, internet domains and other intellectual property that they consider to be similar to ours. Any such commercial dispute and related resolution wouldinvolve all of the risks described above, including, in particular, our agreement to restrict the use or application of our brand name or other intellectual property. We also could be sued for personal injuries and/or property damage occurring on our properties. We maintain liability insurance with limits that we believe are adequate toprovide for the defense and/or payment of any damages arising from such lawsuits. There can be no assurance that such coverage will cover all costs and expenses from suchsuits. Legislative actions and changes may cause our general and administrative costs and compliance costs to increase. In order to comply with laws adopted by federal, state or local government or regulatory bodies, we may be required to increase our expenditures and hire additional personneland additional outside legal, accounting and advisory services, all of which may cause our general and administrative and compliance costs to increase. Significant workforce-related legislative changes could increase our expenses and adversely affect our operations. Examples of possible workforce-related legislative changes include changes to anemployer's obligation to recognize collective bargaining units, the process by which collective bargaining agreements are negotiated or imposed, minimum wage requirementsand health care and medical and family leave mandates. In addition, changes in the regulatory environment affecting health care reimbursements, and increased compliance costsrelated to enforcement of federal and state wage and hour statutes and common law related to overtime, among others, could cause our expenses to increase without an ability torecoup any increased expenses through higher prices.
Page 27
Table of Contents 27 Privacy concerns could result in regulatory changes that may harm our business. Personal privacy has become a significant issue in the jurisdictions in which we operate. Many jurisdictions in which we operate, including California and New York, haveimposed restrictions and requirements on the use of personal information by those collecting such information. The regulatory framework for privacy issues is rapidly evolvingand future enactment of more restrictive laws, rules or regulations and/or future enforcement actions or investigations could have a materially adverse impact on us throughincreased costs or restrictions on our business. Failure to comply with such laws and regulations could result in consent orders or regulatory penalties and significant legalliability, including fines, which could damage our reputation and have an adverse effect on our results of operations or financial condition. Terrorist attacks, active shooter incidents and other acts of violence or war may adversely impact our performance and may affect the markets on which our securities aretraded. Terrorist attacks at or against our stores, our interests or the United States, may negatively impact our operations and the value of our securities. Attacks, armed conflicts oractive-shooter situations could negatively impact the demand for self-storage and increase the cost of insurance coverage for our stores, which could reduce our profitability andcash flow. Furthermore, any terrorist attacks, armed conflicts or active-shooter situations could result in increased volatility in or damage to the United States and worldwidefinancial markets and economy. ESG issues may have an adverse effect on our business, financial condition and results of operations and damage our reputation. Companies across all industries are facing increasing scrutiny relating to their ESG policies. Increased regulatory requirements related to environmental causes, and relatedESG disclosure rules, including the SEC’s disclosure proposal on climate change, may result in increased compliance costs or increased energy and other costs. In addition toenvironmental issues, these constituencies are also focused on social and other governance issues, including matters such as human capital and social issues. Further, different stakeholder groups have divergent views on ESG matters, and anti-ESG sentiment exists. This divergence of views increases the risk that any action or lackthereof with respect to ESG matters will be perceived negatively by at least some stakeholders. Any failure to achieve stakeholder expectations regarding ESG matters, any perception (whether or not valid) of our failure to act responsibly with respect to theenvironmental, social, or governance issues, or to effectively respond to new, or changes in, legal or regulatory requirements concerning ESG matters, or increased operatingcosts due to increased regulation or environmental causes could adversely affect our business, financial condition, results of operations, access to capital and reputation andincrease our risk of litigation. Failure to maintain effective internal control over financial reporting could have a material adverse effect on our business, results of operations, financial condition, andshare price. Pursuant to the Sarbanes-Oxley Act of 2002, we are required to provide a report from management on internal control over financial reporting, including management’sassessment of the effectiveness of internal control. Changes to our business will necessitate ongoing changes to our internal control systems and processes. Internal control overfinancial reporting may not prevent or detect misstatement because of its inherent limitations, including the possibility of human error, the circumvention or overriding ofcontrols, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of the consolidatedfinancial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experiencedifficulties in their design or implementation, our business, results of operations, and financial condition could be materially harmed, we could fail to meet our reportingobligations, and there could be a material adverse effect on the market price of our common shares. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Page 28
Table of Contents 28 ITEM 1C. CYBERSECURITY Risk Management and Strategy We recognize the importance of developing, implementing and maintaining robust measures to safeguard our electronic information systems and we have establishedprocesses, described below, to assess, identify, manage and mitigate risks from cybersecurity threats and cybersecurity incidents. We believe our processes are reasonable for realestate companies of our size, complexity, and risk profile. We have integrated cybersecurity risk management into our broader risk management framework to promote a company-wide culture of cybersecurity risk management. Thisintegration ensures that cybersecurity considerations are an integral part of our decision-making processes at every level. Under the direction of our Senior Vice President,Information Technology and our Senior Director, Information Security (together, the “Cybersecurity Leadership Team”) our Information Technology department regularlymonitors cybersecurity threats and leads the prevention, detection, mitigation and remediation of cybersecurity incidents, with regular reporting to senior management and to theBoard on these topics. The Critical Security Controls, a prescriptive, prioritized, and standardized set of globally recognized best practices, guide our information security strategy. The CriticalSecurity Controls are developed and maintained by the Center for Internet Security, Inc., a nonprofit organization with over 20 years of experience in helping individuals,businesses and governments protect themselves against cyber threats. We also consider best practices from third-party vendors and payment processors and from the CloudSecurity Alliance, a nonprofit organization that leverages global expertise to offer research and education programs related to cloud security. Recognizing the complexity and evolving nature of cybersecurity threats, we also retain a range of external experts, including cybersecurity assessors, consultants andauditors in evaluating and testing our information security processes and systems. These engagements enable us to access specialized knowledge and insights, ensuring ourcybersecurity strategies and processes remain at the forefront of industry best practices. Our engagements with these third parties include regular audits, threat assessments andconsultation on security enhancements. We also regularly conduct information security training to ensure that all employees, including those who may come into possession ofconfidential financial or personally identifiable information, are aware of information security risks and are equipped to take steps to mitigate such risks. The results of suchtests, assessments, reviews and trainings are evaluated by senior management and our cybersecurity policies, processes and practices are refined as necessary based on theinformation provided. We routinely conduct thorough security assessments of our third-party service providers that have access to our electronic information (including data centers operated bythird parties and cloud computing platforms) and we maintain policies and procedures to oversee and identify cybersecurity risks associated with our use of third-party serviceproviders. Our policies and procedures also include technical controls and processes, as well as contractual mechanisms to mitigate risk. Assessments are performed biannuallyby the Cybersecurity Leadership Team and on a regular basis by their staff. Since January 1, 2022, we have not experienced any cybersecurity incidents that have resulted in material financial loss. We are not aware of any cybersecurity threats orcybersecurity incidents that have materially affected or are reasonably likely to materially affect us or our business strategy, results of operations or financial condition. Management Oversight Primary responsibility for the oversight of the assessment, identification and management of our cybersecurity risks rests with our Senior Vice President, Information Technology. Under her direction, these risk mitigation efforts are designed, tested, and implemented by our Senior Director, Information Security. Collectively, the CybersecurityLeadership Team has over 50 years of experience in the field of Information Technology, holding relevant academic degrees and industry certifications, including the CertifiedCloud Security Professional and Certified Information Systems Security Professional designations. The Cybersecurity Leadership Team oversees our information technologygovernance programs, tests our compliance with standards, remediates known risks, and leads our employee cybersecurity training program. The Cybersecurity Leadership Team continually assesses and discusses the latest developments in cybersecurity, including potential threats and innovative risk managementtechniques. This ongoing knowledge acquisition enhances our processes that are used to identify, prevent, mitigate and remediate cybersecurity threats and cybersecurityincidents. The Cybersecurity Leadership Team’s responsibilities include the deployment of advanced security measures and regular system audits to identify potentialvulnerabilities. In the event of a cybersecurity incident, the Cybersecurity Leadership Team is equipped with a well-defined incident response plan. This plan includes immediateactions to mitigate the impact of the incident, reporting such events to senior management, and developing strategies for remediation and prevention of future incidents.
Page 29
Table of Contents 29 The Cybersecurity Leadership Team maintains an ongoing dialogue with senior management regarding emerging or potential cybersecurity risks. Together, they discussupdates on any significant developments in the cybersecurity domain, ensuring that management’s oversight is proactive. In addition, a cross-organizational cyber task force,which includes the Cybersecurity Leadership Team and several members of senior management, meets regularly to consider and address cybersecurity risks, including risksrelated to our use of third-party service providers. This task force reports regularly to senior management, who actively participates in strategic decisions related to cybersecurity,offering guidance and approval for major initiatives. The involvement of senior management in our cybersecurity strategy ensures that cybersecurity considerations arecollaborative and integrated into our broader strategic objectives. The Cybersecurity Leadership Team regularly informs the cyber task force of all aspects related to cybersecurity risks and incidents. This ensures that the highest levels ofmanagement are kept abreast of the cybersecurity posture and potential risks facing us. Furthermore, as noted below, significant cybersecurity matters, and strategic riskmanagement decisions are escalated to the Audit Committee and, as appropriate, the Board, ensuring that such bodies maintain comprehensive oversight and can provideguidance on critical cybersecurity issues. Board of Trustees Oversight The Board acknowledges the importance of managing risks associated with cybersecurity threats and cybersecurity incidents and has established oversight mechanisms tomanage such risks. The Audit Committee is central to the Board’s oversight of cybersecurity risks and bears the primary responsibility for this domain. The Audit Committee iscomposed of five independent Trustees, two of whom have considerable information technology experience. The Audit Committee receives comprehensive briefings from the Cybersecurity Leadership Team on an annual basis. These briefings help identify areas for improvement andensure the alignment of cybersecurity efforts with our overall risk management framework. The broad range of topics encompassed in these briefings includes: ● The current cybersecurity landscape and emerging threats; ● Our cybersecurity posture and the effectiveness of our risk management strategies; ● The status of ongoing cybersecurity initiatives and strategies; and ● Our compliance with regulatory requirements and industry standards. Our established system of internal controls also provides for the Audit Committee to receive prompt information regarding any cybersecurity incident that meets establishedreporting thresholds, as well as for updates regarding any such incident until it has been fully remediated. The Audit Committee provides updates to the Board regarding suchmatters, as appropriate.
Page 30
Table of Contents 30 ITEM 2. PROPERTIES As of December 31, 2024, we owned (or partially owned and consolidated) 631 self-storage properties that contained an aggregate of approximately 45.8 million rentablesquare feet and are located in 25 states and the District of Columbia. The following table sets forth summary information regarding our stores by state as of December 31, 2024. Total % of Total Number of Number of Rentable Rentable Ending State Stores Units Square Feet Square Feet Occupancy Florida 90 65,111 6,792,732 14.8% 91.1% Texas 90 56,555 6,684,450 14.6% 88.0% New York 60 85,917 4,813,803 10.5% 89.4% California 63 45,366 4,785,454 10.4% 88.6% Arizona 48 27,864 3,096,841 6.8% 87.3% Illinois 42 25,540 2,710,231 5.9% 91.8% New Jersey 30 22,628 2,160,765 4.7% 86.9% Nevada 22 14,606 1,706,904 3.7% 90.4% Maryland 20 17,315 1,686,207 3.7% 87.2% Georgia 22 14,074 1,662,605 3.6% 86.8% Connecticut 24 11,926 1,341,702 2.9% 87.8% Ohio 20 11,139 1,294,528 2.8% 87.7% Massachusetts 20 13,122 1,256,140 2.8% 87.1% Virginia 11 11,065 1,060,160 2.3% 88.9% Pennsylvania 13 9,599 950,718 2.1% 88.3% Tennessee 9 5,725 756,220 1.7% 88.3% Colorado 10 5,537 654,192 1.4% 88.7% North Carolina 9 5,369 611,773 1.3% 90.6% South Carolina 8 3,884 432,324 1.0% 84.4% Washington D.C. 5 5,322 410,676 0.9% 88.6% Rhode Island 4 2,040 247,305 0.5% 89.4% Utah 4 2,497 235,763 0.5% 78.1% New Mexico 3 1,698 182,261 0.4% 84.7% Minnesota 2 1,823 175,816 0.4% 89.8% Indiana 1 586 70,386 0.2% 90.0% Oregon 1 564 59,863 0.1% 79.6% Total/Weighted average 631 466,872 45,839,819 100.0% 88.8% We have grown by adding stores to our portfolio through acquisitions and development. The tables set forth below show the ending occupancy, annual rent per occupiedsquare foot and total revenues related to our stores owned as of December 31, 2024, and for each of the previous three years, grouped by the year during which we first owned oroperated the store. Stores by Year Acquired/Developed– Ending Occupancy Rentable Ending Occupancy Year Acquired/Developed (1) # of Stores Square Feet 2024 2023 2022 2021 and earlier 605 43,562,385 89.2% 90.0% 90.7% 2022 5 523,309 87.1% 77.3% 55.5% 2023 1 74,465 89.3% 87.6% —2024 20 1,679,660 78.8% — —All stores owned as of December 31, 2024 631 45,839,819 88.8% 89.8% 90.3%
Page 31
Table of Contents 31 Stores by Year Acquired/Developed - Annual Rent Per Occupied Square Foot (2) Annual Rent per Square Foot Year Acquired/Developed (1) # of Stores 2024 2023 2022 2021 and earlier 605 $ 23.64 $ 23.43 $ 22.362022 5 21.61 22.43 19.712023 1 26.41 28.01 —2024 20 16.33 — —All stores owned as of December 31, 2024 631 $ 23.46 $ 23.54 $ 22.45 Stores by Year Acquired/Developed - Total Revenues (dollars in thousands) Total Revenues Year Acquired/Developed (1) # of Stores 2024 2023 2022 2021 and earlier 605 $ 985,719 $ 987,507 $ 953,2582022 5 10,386 8,668 4,4362023 1 1,873 114 —2024 20 3,741 — —All stores owned as of December 31, 2024 631 $ 1,001,719 $ 996,289 $ 957,694 (1) Represents the year acquired/developed for those stores we acquired from a third party or the year placed in service for those stores we developed. Tables do notinclude 2023 results for one development property that was partially completed during the year ended December 31, 2023. This development property was fullycompleted during the year ended December 31, 2024. (2) Determined by dividing the aggregate rental revenue for each twelve-month period by the average of the month-end occupied square feet for the period. Rental revenueincludes the impact of promotional discounts, which reduce rental income over the promotional period, of $22.7 million, $19.4 million and $19.2 million for theperiods ended December 31, 2024, 2023 and 2022, respectively. Unconsolidated Real Estate Ventures As of December 31, 2024, we held ownership interests ranging from 10% to 50% in seven unconsolidated real estate ventures for an aggregate investment carrying value of$92.0 million. We hold interests in these real estate ventures with unaffiliated third parties to own, operate, and acquire self-storage properties in select markets. As of December31, 2024, one of these unconsolidated joint ventures did not own any self-storage properties, while the other six unconsolidated real estate ventures owned a total of 77 self-storage properties that contained an aggregate of approximately 5.6 million net rentable square feet. The self-storage properties owned by these real estate ventures are managedby us and are located in Arizona (2), California (2), Connecticut (6), Florida (6), Georgia (2), Illinois (5), Maryland (2), Massachusetts (6), Minnesota (1), New Jersey (3), NewYork (1), North Carolina (1), Pennsylvania (1), Rhode Island (2), Texas (35) and Vermont (2). Each of the real estate ventures has assets and liabilities that we do not consolidate in our financial statements. We account for our investments in real estate ventures using the equity method of accounting when it is determined that we have the ability to exercise significant influenceover the venture. See note 5 to our consolidated financial statements for further disclosure regarding the assets, liabilities and operating results of our unconsolidated real estateventures which we account for using the equity method of accounting. Capital Expenditures We have a capital improvement program that covers office upgrades, climate-control enhancements, solar panel installations and other store upgrades. In 2025, we anticipate spending approximately $12.5 million to $17.5 million associated with these capital expenditures. In 2025, we also anticipate spending approximately $14.0 million to $19.0 million on recurring capital expenditures and approximately $22.0 million to $27.0 million on the development of new self-storage properties.
Page 32
Table of Contents 32 ITEM 3. LEGAL PROCEEDINGS To our knowledge, no legal proceedings are pending against us, other than routine actions and administrative proceedings, and other actions not deemed material, and which,in the aggregate, are not expected to have a material adverse effect on our financial condition, results of operations or cash flows. ITEM 4. MINING SAFETY DISCLOSURES Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Repurchase of Parent Company Common Shares The following table provides information about repurchases of the Parent Company’s common shares during the three months ended December 31, 2024: TotalNumber ofSharesPurchased (1) AveragePrice PaidPer Share TotalNumber ofSharesPurchasedas Part ofPubliclyAnnouncedPlans orPrograms MaximumNumber ofShares thatMay Yet BePurchasedUnder thePlans orPrograms October 1 - October 31 316 $ 53.03 N/A 3,000,000November 1 - November 30 — $ — N/A 3,000,000December 1 - December 31 — $ — N/A 3,000,000Total 316 $ 53.03 N/A 3,000,000 (1) Represents common shares withheld by the Parent Company upon the vesting of restricted shares to cover employee tax obligations. On June 26, 2007, the Board of Trustees of the Parent Company (the “Board”) approved a share repurchase program for up to 3.0 million of the Parent Company’soutstanding common shares. Unless terminated earlier by resolution of the Board, the program will expire when the number of authorized shares has been repurchased. TheParent Company has made no repurchases under this program to date. Unregistered Sales of Equity Securities During the three months ended December 31, 2024, the Parent Company issued 37,500 common shares upon redemption of an equal number of OP Units in the OperatingPartnership held by a limited partner. The issuance of such common shares was effected in reliance upon an exemption from registration provided by Section 4(a)(2) of theSecurities Act of 1933, as amended, and the rules and regulations promulgated thereunder. Market Information for and Holders of Record of Common Shares As of December 31, 2024, there were 174 registered record holders of the Parent Company’s common shares and 19 holders (other than the Parent Company) of the Operating Partnership’s OP Units. These amounts do not include common shares held by brokers and other institutions on behalf of shareholders. The Parent Company’s common shares are traded on the New York Stock Exchange (“NYSE”) under the symbol CUBE. There is no established trading market for units of the Operating Partnership.
Page 33
Table of Contents 33 Tax Characterization of Distributions Since our initial quarter as a publicly-traded REIT, we have made regular quarterly distributions to our shareholders. Distributions to shareholders are usually taxable asordinary income, although a portion of the distribution may be designated as a capital gain or may constitute a tax-free return of capital. Annually, we provide each of the ParentCompany’s common shareholders a statement detailing the tax characterization of distributions paid during the preceding year as ordinary income, capital gain or return ofcapital. The characterization of the Parent Company’s distributions for 2024 consisted of a 95.2443% ordinary income distribution and a 4.7557% non-dividend distribution. We intend to continue to declare quarterly distributions. However, we cannot provide any assurance as to the amount or timing of future distributions. To the extent that we make distributions in excess of our earnings and profits, as computed for federal income tax purposes, these distributions will represent a return ofcapital, rather than a dividend, for federal income tax purposes. Distributions that are treated as a return of capital for federal income tax purposes generally will not be taxableas a dividend to a U.S. shareholder, but will reduce the shareholder’s basis in its shares (but not below zero) and therefore can result in the shareholder having a higher gain upona subsequent sale of such shares. Return of capital distributions in excess of a shareholder’s basis generally will be treated as gain from the sale of such shares for federal incometax purposes. Recent Sales of Unregistered Equity Securities and Use of Proceeds Recent Sales of Operating Partnership Unregistered Equity Securities None. Share Performance Graph The SEC requires us to present a chart comparing the cumulative total shareholder return, assuming reinvestment of dividends, on our common shares with the cumulativetotal shareholder return of (i) a broad equity index and (ii) a published industry or peer group index. The following chart and table compare the cumulative total shareholderreturn for our common shares with the cumulative shareholder return of companies on (i) the S&P 500 Index, (ii) the Russell 2000 Index and (iii) the FTSE NAREIT All EquityREIT Index as provided by NAREIT for the period beginning December 31, 2019 and ending December 31, 2024.
Page 34
Table of Contents 34 For the period ended December 31, Index 2019 2020 2021 2022 2023 2024 CubeSmart 100.00 111.67 194.96 143.66 173.12 165.28S&P 500 Index 100.00 118.40 152.39 124.79 157.59 197.02Russell 2000 Index 100.00 119.96 137.74 109.59 128.14 142.93FTSE NAREIT All Equity REIT Index 100.00 94.88 134.06 100.62 112.04 117.56 ITEM 6. [Reserved] ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Report. Some of the statements we make in this section are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this Report entitled “Forward-Looking Statements”. Certain risk factors may cause actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see the section in this Report entitled “Risk Factors”. Overview We are an integrated self-storage real estate company, and as such we have in-house capabilities in the design, development, acquisition, operation, leasing, and management of self-storage properties. The Parent Company’s operations are conducted solely through the Operating Partnership and its subsidiaries. The Parent Company has elected to be taxed as a REIT for U.S. federal income tax purposes. As of December 31, 2024 and 2023, we owned (or partially owned and consolidated) 631 self-storage properties containing an aggregate of approximately 45.8 million rentable square feet and 611 self-storage properties containing an aggregate of approximately 44.1 million rentable square feet, respectively. As of December 31, 2024, we owned stores in the District of Columbia and the following 25 states: Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah and Virginia. In addition, as of December 31, 2024, we managed 902 stores for third parties (including 77 stores containing an aggregate of approximately 5.6 million net rentable square feet as part of six separate unconsolidated real estate ventures), bringing the total number of stores we owned and/or managed to 1,533. As of December 31, 2024, we managed stores for third parties in the following 40 states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, Washington and Wisconsin. We derive substantially all of our revenue from customers who lease self-storage space at our stores and fees earned from managing stores. Therefore, our operating resultsdepend materially on our ability to retain our existing customers and lease our available self-storage cubes to new customers while maintaining and, where possible, increasingour pricing levels. In addition, our operating results depend on the ability of our customers to make required rental payments to us. Our approach to the management andoperation of our stores combines centralized marketing, revenue management and other operational support with local operations teams that provide market-level oversight andmanagement. We believe this approach allows us to respond quickly and effectively to changes in local market conditions and maximize revenues by managing rental rates andoccupancy levels. We typically experience seasonal fluctuations in the occupancy levels of our stores, which are generally slightly higher during the summer months due to increased movingactivity. Our results of operations may be sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending and moving trends, aswell as to increased bad debts due to recessionary pressures. Adverse economic conditions affecting disposable consumer income, such as employment levels, businessconditions, interest rates, tax rates, fuel and energy costs, and other matters could reduce consumer spending or cause consumers to shift their spending to other products andservices. A general reduction in the level of discretionary spending or shifts in consumer discretionary spending could adversely affect our growth and profitability. We continue our focus on maximizing internal growth opportunities and selectively pursuing targeted acquisitions and developments of self-storage properties.
Page 35
Table of Contents 35 We have one operating segment: we own, operate, develop, manage and acquire self-storage properties. Our self-storage properties are located in major metropolitan and suburban areas and have numerous customers per store. No single customer represents a significantconcentration of our 2024 revenues. Our stores in New York, Florida, California and Texas provided approximately 18%, 14%, 11% and 9%, respectively, of total revenues forthe year ended December 31, 2024. Summary of Critical Accounting Policies and Estimates Set forth below is a summary of the accounting policies and estimates that management believes are critical to the preparation of the consolidated financial statementsincluded in this Report. Certain of the accounting policies used in the preparation of these consolidated financial statements are particularly important for an understanding of thefinancial position and results of operations presented in the historical consolidated financial statements included in this Report. A summary of significant accounting policies isalso provided in note 2 to our consolidated financial statements. These policies require the application of judgment and assumptions by management and, as a result, are subjectto a degree of uncertainty. Due to this uncertainty, actual results could differ materially from estimates calculated and utilized by management. Basis of Presentation The accompanying consolidated financial statements include all of the accounts of the Company, and its majority-owned and/or controlled subsidiaries. The portion of theseentities not owned by the Company is presented as noncontrolling interests as of and during the periods presented. All significant intercompany accounts and transactions havebeen eliminated in consolidation. When the Company obtains an economic interest in an entity, the Company evaluates the entity to determine if the entity is deemed a variable interest entity (“VIE”), and ifthe Company is deemed to be the primary beneficiary, in accordance with authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) on theconsolidation of VIEs. To the extent that the Company (i) has the power to direct the activities of the VIE that most significantly impact the economic performance of the VIEand (ii) has the obligation or rights to absorb the VIE's losses or receive its benefits, then the Company is considered the primary beneficiary. The Company may also consideradditional factors included in the authoritative guidance, such as whether or not it is the partner in the VIE that is most closely associated with the VIE. When an entity is notdeemed to be a VIE, the Company considers the provisions of additional FASB guidance to determine whether a general partner, or the general partners as a group, controls alimited partnership or similar entity when the limited partners have certain rights. The Company consolidates (i) entities that are VIEs and of which the Company is deemed tobe the primary beneficiary and (ii) entities that are non-VIEs which the Company controls and in which the limited partners do not have substantive participating rights, or theability to dissolve the entity or remove the Company without cause nor substantive participating rights. Self-Storage Properties The Company records self-storage properties at cost less accumulated depreciation. Depreciation on the buildings, improvements and equipment is recorded on a straight-linebasis over their estimated useful lives, which range from five to 39 years. Expenditures for significant renovations or improvements that extend the useful life of assets arecapitalized. Repair and maintenance costs are expensed as incurred. When stores are acquired, the purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on estimated relative fair values. Allocations to land, building and improvements and equipment are recorded based upon their respective relative fair values as estimated by management. If appropriate, the Company allocates a portion of the purchase price to an intangible asset attributed to the value of in-place leases. This intangible asset is generally amortized to expense over the expected remaining term of the respective leases. Substantially all of the storage leases in place at acquired stores are at market rates, as the majority of the leases are month-to-month contracts. Accordingly, to date, no portion of the purchase price has been allocated to above- or below-market lease intangibles associated with storage leases assumed at acquisition. Above- or below- market lease intangibles associated with assumed leases in which the Company serves as lessee are recorded as an adjustment to the right-of-use asset and reflect the difference between the contractual amounts to be paid pursuant to each in-place lease and management’s estimate of fair market lease rates. These amounts are amortized over the term of the lease. To date, no intangible asset has been recorded for the value of customer relationships, because the Company does not have any concentrations of significant customers and the average customer turnover is fairly frequent. Long-lived assets classified as “held for use” are reviewed for impairment when events or circumstances such as declines in occupancy and operating results indicate thatthere may be an impairment. The carrying value of these long-lived assets is compared to the
Page 36
Table of Contents 36 undiscounted future net operating cash flows, plus a terminal value, attributable to the assets to determine if the store’s basis is recoverable. If a store’s basis is not considered recoverable, an impairment loss is recorded to the extent the net carrying value of the asset exceeds the fair value. The impairment loss recognized equals the excess of net carrying value over the related fair value of the asset. There were no impairment losses recognized in accordance with these procedures during the years ended December 31, 2024, 2023 and 2022. The Company considers long-lived assets to be “held for sale” upon satisfaction of the following criteria: (a) management commits to a plan to sell an asset (or group ofassets), (b) the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets, (c) an active program tolocate a buyer and other actions required to complete the plan to sell the asset have been initiated, (d) the sale of the asset is probable and transfer of the asset is expected to becompleted within one year, (e) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value and (f) actions required to complete theplan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Typically these criteria are all met when the relevant asset is under contract, significant non-refundable deposits have been made by the potential buyer, the assets areimmediately available for transfer and there are no contingencies related to the sale that may prevent the transaction from closing. However, each potential transaction isevaluated based on its separate facts and circumstances. Assets classified as held for sale are reported at the lesser of carrying value or fair value less estimated costs to sell andare not depreciated. There were no stores classified as held for sale as of December 31, 2024. Investments in Unconsolidated Real Estate Ventures The Company accounts for its investments in unconsolidated real estate ventures under the equity method of accounting when it is determined that the Company has theability to exercise significant influence over the venture. Under the equity method, investments in unconsolidated real estate ventures are recorded initially at cost, asinvestments in real estate entities, and subsequently adjusted for equity in earnings (losses), cash contributions, cash distributions and impairments. On a periodic basis,management also assesses whether there are any indicators that the carrying value of the Company’s investments in unconsolidated real estate entities may be other thantemporarily impaired. An investment is impaired only if the fair value of the investment, as estimated by management, is less than the carrying value of the investment and thedecline is other than temporary. To the extent impairment that is other than temporary has occurred, the loss shall be measured as the excess of the carrying amount of theinvestment over the fair value of the investment, as estimated by management. Fair value is determined through various valuation techniques, including but not limited to,discounted cash flow models, quoted market values and third-party appraisals. There were no impairment losses related to the Company’s investments in unconsolidated realestate ventures recognized during the years ended December 31, 2024, 2023 and 2022. Differences between the Company's net investment in unconsolidated real estate ventures and its underlying equity in the net assets of the ventures are primarily a result of theCompany acquiring interests in existing unconsolidated real estate ventures. As of December 31, 2024 and 2023, the Company’s net investment in unconsolidated real estateventures was greater than its underlying equity in the net assets of the unconsolidated real estate ventures by an aggregate of $31.0 million and $31.8 million, respectively. Thesedifferences are amortized over the estimated useful lives of the self-storage properties owned by the real estate ventures. This amortization is included in equity in earnings ofreal estate ventures within the Company’s consolidated statements of operations. Results of Operations The following discussion of our results of operations should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes thereto.Historical results set forth in the Company’s consolidated statements of operations reflect only the existing stores for each period presented and should not be taken as indicativeof future operations. We consider our same-store portfolio to consist of only those stores owned and operated on a stabilized basis at the beginning and at the end of theapplicable years presented. We consider a store to be stabilized once it has achieved an occupancy rate that we believe, based on our assessment of market-specific data, isrepresentative of similar self-storage assets in the applicable market for a full year measured as of the most recent January 1 and has not been significantly damaged by naturaldisaster or undergone significant renovation. We believe that same-store results are useful to investors in evaluating our performance because they provide information relatingto changes in store-level operating performance without taking into account the effects of acquisitions, developments or dispositions. As of December 31, 2024, we owned 598same-store properties and 33 non same-store properties. The non same-store property portfolio results include 2023 and 2024 acquisitions, dispositions, newly developed stores,stores with a significant portion of net rentable square footage taken out of service or stores that have not yet reached stabilization as defined above. For analytical presentation,all percentages are calculated using the numbers presented in the Company’s consolidated financial statements contained in this Report.
Page 37
Table of Contents 37 The comparability of our results of operations is affected by the timing of acquisition and disposition activities during the periods reported. As of December 31, 2024, 2023 and 2022, we owned (or partially owned and consolidated) 631, 611 and 611 self-storage properties and related assets, respectively. The following table summarizes the change in number of owned stores from January 1, 2022 through December 31, 2024: 2024 2023 2022 Balance - January 1 611 611 607Stores acquired 2 — 1Balance - March 31 613 611 608Stores acquired — — 1Stores developed 2 — 1Stores combined (1) — — (1)Balance - June 30 615 611 609Stores acquired — — 1Stores developed — — 1Balance - September 30 615 611 611Stores acquired (2) 16 1 —Stores sold (3) — (1) —Balance - December 31 631 611 611 (1) During the quarter ended June 30, 2022, we completed development of a new store located in Vienna, VA for approximately $21.8 million. The developed store islocated adjacent to an existing consolidated joint venture store. Given this proximity, the developed store has been combined with the adjacent existing store in ourstore count upon opening, as well as for operational and reporting purposes. (2) For the quarter ended December 31, 2024, includes 14 stores owned by consolidated joint ventures in which we acquired an 85% ownership interest. (3) For the quarter ended December 31, 2023, relates to one store that was subject to an involuntary conversion by the Department of Transportation of the State of Illinois.
Page 38
Table of Contents 38 Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023 (dollars and square feet in thousands) Non Same-Store Other/Same-Store Property Portfolio Property Portfolio Eliminations Total Portfolio % % 2024 2023 ChangeChange 2024 2023 2024 2023 2024 2023 ChangeChangeREVENUES:Rental income $ 886,464$ 894,926$ (8,462) (0.9)% $ 24,697$ 17,073$ — $ — $ 911,161$ 911,999$ (838) (0.1)% Other property related income 42,614 38,988 3,626 9.3% 2,082 1,254 68,950 61,551 113,646 101,793 11,853 11.6% Property management fee income — — — 0.0% — — 41,424 36,542 41,424 36,542 4,882 13.4% Total revenues 929,078 933,914 (4,836) (0.5)% 26,779 18,327 110,374 98,093 1,066,231 1,050,334 15,897 1.5% OPERATING EXPENSES:Property operating expenses 262,082 250,030 12,052 4.8% 9,514 6,778 46,154 37,972 317,750 294,780 22,970 7.8% NET OPERATING INCOME: 666,996 683,884 (16,888) (2.5)% 17,265 11,549 64,220 60,121 748,481 755,554 (7,073) (0.9)% Store count 598 598 33 13 631 611Total square footage 43,029 43,029 2,811 1,103 45,840 44,132Period end occupancy 89.3% 90.3% 79.8% 73.3% 88.8% 89.8% Period average occupancy 90.6% 91.7% Realized annual rent per occupied sq. ft. (1) $ 22.75$ 22.69 Depreciation and amortization 205,703 201,238 4,465 2.2% General and administrative 59,663 57,041 2,622 4.6% Subtotal 265,366 258,279 7,087 2.7% OTHER (EXPENSE) INCOMEInterest:Interest expense on loans (90,820) (93,065) 2,245 2.4% Loan procurement amortization expense (4,067) (4,141) 74 1.8% Equity in earnings of real estate ventures 2,499 6,085 (3,586) (58.9)% Other 1,158 6,281 (5,123) (81.6)% Total other expense (91,230) (84,840) (6,390) (7.5)% NET INCOME 391,885 412,435 (20,550) (5.0)% Net income attributable to noncontrolling interests in the Operating Partnership (2,159) (2,535) 376 14.8% Net loss attributable to noncontrolling interests in subsidiaries 1,454 857 597 69.7% NET INCOME ATTRIBUTABLE TO THE COMPANY'S COMMON SHAREHOLDERS $ 391,180$ 410,757$ (19,577) (4.8)% (1)Realized annual rent per occupied square foot is computed by dividing rental income by the weighted average occupied square feet for the period. Revenues Revenues increased from $1.050 billion for the year ended December 31, 2023 to $1.066 billion for the year ended December 31, 2024, an increase of $15.9 million, or 1.5%.This increase was primarily attributable to additional revenues from stores acquired or opened in 2023 and 2024 included in our non same-store portfolio, an increase in feeincome, increased customer storage protection plan participation at our owned and managed stores, and an increase in property management fee income due to an increase in thenumber of stores under management. Operating Expenses Property operating expenses increased from $294.8 million for the year ended December 31, 2023 to $317.8 million for the year ended December 31, 2024, an increase of$23.0 million, or 7.8%. This increase was primarily attributable to an increase in costs related to employee medical coverage, additional expenses from stores acquired or openedin 2023 and 2024 included in our non same-store portfolio, and increases in expenses within our same-store portfolio related to property taxes, insurance, and personnel. General and administrative expenses increased from $57.0 million for the year ended December 31, 2023 to $59.7 million for the year ended December 31, 2024, an increaseof $2.6 million, or 4.6%. This increase was primarily attributable to increased personnel expenses. Other (expense) income Interest expense on loans decreased from $93.1 million for the year ended December 31, 2023 to $90.8 million for the year ended December 31, 2024, a decrease of $2.2million, or 2.4%. This decrease was attributable to a decrease in the average outstanding debt balance and lower interest rates during the 2024 period compared to the 2023period. The average outstanding debt balance decreased from $3.02 billion during the year ended December 31, 2023 to $2.96 billion during the year ended December 31, 2024.The weighted average effective interest rate on our outstanding debt decreased from 3.04% during the year ended December 31, 2023 to 3.00% for the year ended December 31,2024. Equity in earnings of real estate ventures decreased from $6.1 million for the year ended December 31, 2023 to $2.5 million for the year ended December 31, 2024, a decreaseof $3.6 million, or 58.9%. The decrease was primarily due to distributions in excess of our equity investment in 191 IV CUBE Southeast LLC (“HVPSE”) during the year endedDecember 31, 2023. There were no such distributions during the 2024 period. The decrease was also due to higher interest expense at certain of our unconsolidated real estateventures.
Page 39
Table of Contents 39 The component of other (expense) income designated as Other decreased from $6.3 million of income in 2023 to $1.2 million of income in 2024, a decrease of $5.1 million,or 81.6%. This decrease was primarily due to a $4.8 million gain during the 2023 period relating to a store that was subject to an involuntary conversion by the Department ofTransportation of the State of Illinois. There were no such gains during the 2024 period. Comparison of the Year Ended December 31, 2023 to the Year Ended December 31, 2022 Refer to the section entitled “Results of Operations” within Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our AnnualReport on Form 10-K for the year ended December 31, 2023 for a comparison of the year ended December 31, 2023 to the year ended December 31, 2022. Non-GAAP Financial Measures NOI We define net operating income, which we refer to as “NOI”, as total continuing revenues less continuing property operating expenses. NOI also can be calculated by addingback to net income (loss): interest expense on loans, loan procurement amortization expense, loss on early extinguishment of debt, equity in losses of real estate ventures, otherexpense, depreciation and amortization expense, general and administrative expense, and deducting from net income (loss): equity in earnings of real estate ventures, gains fromsales of real estate, net, other income, gains from remeasurement of investments in real estate ventures and interest income. NOI is not a measure of performance calculated inaccordance with GAAP. We use NOI as a measure of operating performance at each of our stores, and for all of our stores in the aggregate. NOI should not be considered as a substitute for operatingincome, net income, cash flows provided by operating, investing and financing activities, or other income statement or cash flow statement data prepared in accordance withGAAP. We believe NOI is useful to investors in evaluating our operating performance because: ● it is one of the primary measures used by our management to evaluate the economic productivity of our stores, including our ability to lease our stores, increase pricingand occupancy and control our property operating expenses; ● it is widely used in the real estate industry and the self-storage industry to measure the performance and value of real estate assets without regard to various itemsincluded in net income that do not relate to or are not indicative of operating performance, such as depreciation and amortization, which can vary depending uponaccounting methods and the book value of assets; and ● it helps our investors to meaningfully compare the results of our operating performance from period to period by removing the impact of our capital structure (primarilyinterest expense on our outstanding indebtedness) and depreciation of our basis in our assets from our operating results. There are material limitations to using a measure such as NOI, including the difficulty associated with comparing results among more than one company and the inability toanalyze certain significant items, including depreciation and interest expense, that directly affect our net income. We compensate for these limitations by considering theeconomic effect of the excluded expense items independently as well as in connection with our analysis of net income. NOI should be considered in addition to, but not as asubstitute for, other measures of financial performance reported in accordance with GAAP, such as total revenues, operating income and net income. FFO Funds from operations (“FFO”) is a widely-used performance measure for real estate companies and is provided here as a supplemental measure of operating performance.The April 2002 National Policy Bulletin of the National Association of Real Estate Investment Trusts, as amended and restated, defines FFO as net income (computed inaccordance with GAAP), excluding gains (or losses) from sales of real estate and related impairment charges, plus real estate depreciation and amortization and afteradjustments for unconsolidated partnerships and joint ventures. Management uses FFO as a key performance indicator in evaluating the operations of our stores. Given the nature of our business as a real estate owner and operator, weconsider FFO a key measure of our operating performance that is not specifically defined by accounting principles generally accepted in the United States. We believe that FFOis useful to management and investors as a starting point in measuring our operational performance because FFO excludes various items included in net income that do not relateto or are not
Page 40
Table of Contents 40 indicative of our operating performance such as gains (or losses) from sales of real estate, gains from remeasurement of investments in real estate ventures, impairments ofdepreciable assets and depreciation, which can make periodic and peer analyses of operating performance more difficult. Our computation of FFO may not be comparable toFFO reported by other REITs or real estate companies. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance. FFO does not represent cashgenerated from operating activities determined in accordance with GAAP and is not a measure of liquidity or an indicator of our ability to make cash distributions. We believethat to further understand our performance, FFO should be compared with our reported net income and considered in addition to cash flows computed in accordance with GAAP,as presented in our consolidated financial statements. FFO, as adjusted FFO, as adjusted represents FFO as defined above, excluding the effects of acquisition related costs, gains or losses from early extinguishment of debt, and non-recurringitems, which we believe are not indicative of the Company’s operating results. We present FFO, as adjusted because we believe it is a helpful measure in understanding ourresults of operations insofar as we believe that the items noted above that are included in FFO, but excluded from FFO, as adjusted are not indicative of our ongoing operatingresults. We also believe that investors, analysts and other stakeholders consider our FFO, as adjusted (or similar measures using different terminology) when evaluating us.Because other REITs or real estate companies may not compute FFO, as adjusted in the same manner as we do, and may use different terminology, our computation of FFO, asadjusted may not be comparable to FFO, as adjusted reported by other REITs or real estate companies. The following table presents a reconciliation of net income to FFO and FFO, as adjusted, for the years ended December 31, 2024 and 2023 (in thousands):Year Ended December 31, 2024 2023 Net income attributable to the Company’s common shareholders $ 391,180 $ 410,757 Add (deduct): Real estate depreciation and amortization:Real property 199,250 194,845Company’s share of unconsolidated real estate ventures 8,170 8,446Gain from sales of real estate, net (1) — (1,477) Net income attributable to noncontrolling interests in the Operating Partnership 2,159 2,535FFO attributable to the Company's common shareholders and third-party OP unitholders $ 600,759 $ 615,106 Deduct: Gain on involuntary conversion (2) — (4,827) Property damage related to hurricane, net of expected insurance proceeds — (844)FFO, as adjusted, attributable to the Company's common shareholders and third-party OP unitholders $ 600,759 $ 609,435 Weighted average diluted shares outstanding 227,150 226,241Weighted average diluted units outstanding owned by third parties 1,250 1,393Weighted average diluted shares and units outstanding 228,400 227,634 (1) For the year ended December 31, 2023, $1.7 million represents distributions in excess of our investment in 191 IV CUBE Southeast LLC ("HVPSE") from theproceeds that were held back from the sale by HVPSE of all 14 of its self-storage properties in 2022. This amount is included in equity in earnings of real estateventures within our consolidated statements of operations. In addition, the year ended December 31, 2023 includes a $0.2 million loss related to the sale of theCalifornia Yacht Club, which was acquired in 2021 as part of the Company's acquisition of LAACO, Ltd. This amount is included in the component of other (expense)income designated as Other within our consolidated statements of operations. (2) Relates to a store that was subject to an involuntary conversion by the Department of Transportation of the State of Illinois on December 19, 2023. This amount isincluded in the component of other (expense) income designated as Other within our consolidated statements of operations.
Page 41
Table of Contents 41 Cash Flows Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023 A comparison of cash flows related to operating, investing and financing activities for the years ended December 31, 2024 and 2023 is as follows: Year Ended December 31, Net cash provided by (used in): 2024 2023 Change (in thousands) Operating activities $ 631,074 $ 611,136 $ 19,938Investing activities $ (173,959) $ (93,818) $ (80,141)Financing activities $ (387,669) $ (518,026) $ 130,357 Cash provided by operating activities increased from $611.1 million for the year ended December 31, 2023 to $631.1 million for the year ended December 31, 2024, anincrease of $19.9 million. The increased cash flow from operating activities was primarily attributable to the timing and amounts of the payments of certain expenses, primarilyinsurance and property taxes. Cash used in investing activities increased from $93.8 million for the year ended December 31, 2023 to $174.0 million for the year ended December 31, 2024, an increase of$80.1 million. The change was primarily the result of the acquisition of a controlling interest in seven consolidated joint ventures that collectively own 14 stores. There were nosuch transactions during the 2023 period. The change was also due to a $20.0 million increase in acquisitions of storage properties. We acquired four stores during the yearended December 31, 2024 compared to one store during the year ended December 31, 2023. These increases were partially offset by a $17.6 million decrease in developmentcosts, primarily due to the payment during the 2023 period of a put liability associated with a previously consolidated joint venture. Cash used in financing activities was $518.0 million for the year ended December 31, 2023 compared to $387.7 million for the year ended December 31, 2024, a decrease of$130.4 million. The change was primarily the result of a $118.5 million increase in proceeds received from the issuance of common shares through our at-the-market equityprogram during the 2024 period. There were no such transactions during the 2023 period. The change was also due to a $24.7 million reduction in net repayments on ourrevolving credit facility during the 2024 period as compared to the corresponding 2023 period. These changes were partially offset by a $19.4 million increase in cashdistributions paid to common shareholders and noncontrolling interests in the Operating Partnership due to an increase in the common dividend per share/unit. Comparison of the Year Ended December 31, 2023 to the Year Ended December 31, 2022 Refer to the section entitled “Cash Flows” within Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report onForm 10-K for the year ended December 31, 2023 for a comparison of the year ended December 31, 2023 to the year ended December 31, 2022.
Page 42
Table of Contents 42 Liquidity and Capital Resources Liquidity Overview Our cash flow from operations has historically been one of our primary sources of liquidity used to fund debt service, distributions and capital expenditures. We derivesubstantially all of our revenue from customers who lease self-storage space at our stores and fees earned from managing stores. Therefore, our ability to generate cash fromoperations is dependent on the rents that we are able to charge and collect from our customers. We believe that the properties in which we invest, self-storage properties, are lesssensitive than other real estate product types to near-term economic downturns. However, prolonged economic downturns will adversely affect our cash flows from operations. In order to qualify as a REIT for federal income tax purposes, the Parent Company is required to distribute at least 90% of its REIT taxable income, excluding capital gains, toits shareholders on an annual basis and must pay federal income tax on undistributed income to the extent it distributes less than 100% of its REIT taxable income. The nature ofour business, coupled with the requirement that we distribute a substantial portion of our income on an annual basis, will cause us to have substantial liquidity needs over boththe short and long term. Our short-term liquidity needs consist primarily of funds necessary to pay operating expenses associated with our stores, repayment of certain indebtedness, interest expenseand scheduled principal payments on debt, expected distributions to limited partners and shareholders, capital expenditures and the acquisition and development of new stores.These funding requirements will vary from year to year, in some cases significantly. In the 2025 fiscal year, we expect recurring capital expenditures to be approximately $14.0million to $19.0 million, planned capital improvements and store upgrades to be approximately $12.5 million to $17.5 million and costs associated with the development of newstores to be approximately $22.0 million to $27.0 million. Our currently scheduled principal payments on debt, including the repayment of unsecured senior notes, areapproximately $301.2 million in 2025. Our most restrictive financial covenants limit the amount of additional leverage we can add; however, we believe cash flows from operations, access to equity financing,including through our at-the-market equity program and available borrowings under our Revolver (defined below), provide adequate sources of liquidity to enable us to executeour current business plan and remain in compliance with our covenants. Our liquidity needs beyond 2025 consist primarily of contractual obligations which include repayments of indebtedness at maturity, as well as potential discretionaryexpenditures such as (i) non-recurring capital expenditures; (ii) redevelopment of operating stores; (iii) acquisitions of additional stores; and (iv) development of new stores. Wewill have to satisfy the portion of our needs not covered by cash flow from operations through additional borrowings, including borrowings under our Revolver, sales ofcommon or preferred shares of the Parent Company and common or preferred units of the Operating Partnership and/or cash generated through store dispositions and jointventure transactions. We believe that, as a publicly traded REIT, we will have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence ofadditional debt and the issuance of additional equity. However, we cannot provide any assurance that this will be the case. Our ability to incur additional debt will be dependenton a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. In addition,dislocation in the United States debt markets may significantly reduce the availability and increase the cost of long-term debt capital, including conventional mortgage financingand commercial mortgage-backed securities financing. There can be no assurance that such capital will be readily available in the future. Our ability to access the equity capitalmarkets will be dependent on a number of factors, including general market conditions for REITs and market perceptions about us. As of December 31, 2024, we had approximately $71.6 million in available cash and cash equivalents. In addition, we had approximately $849.4 million of availability forborrowings under our Revolver.
Page 43
Table of Contents 43 Unsecured Senior Notes Our unsecured senior notes are summarized as follows (collectively referred to as the “Senior Notes”): December 31, Effective Issuance MaturityUnsecured Senior Notes 2024 2023 Interest Rate Date Date(in thousands)$300M 4.000% Guaranteed Notes due 2025 (1) $ 300,000 $ 300,000 3.99% Various (1) Nov-25$300M 3.125% Guaranteed Notes due 2026 300,000 300,000 3.18% Aug-16 Sep-26$550M 2.250% Guaranteed Notes due 2028 550,000 550,000 2.33% Nov-21 Dec-28$350M 4.375% Guaranteed Notes due 2029 350,000 350,000 4.46% Jan-19 Feb-29$350M 3.000% Guaranteed Notes due 2030 350,000 350,000 3.04% Oct-19 Feb-30$450M 2.000% Guaranteed Notes due 2031 450,000 450,000 2.10% Oct-20 Feb-31$500M 2.500% Guaranteed Notes due 2032 500,000 500,000 2.59% Nov-21 Feb-32Principal balance outstanding 2,800,000 2,800,000Less: Discount on issuance of unsecured senior notes, net (8,495) (10,148)Less: Loan procurement costs, net (10,874) (13,362)Total unsecured senior notes, net $ 2,780,631 $ 2,776,490 (1) On April 4, 2017, the Operating Partnership issued $50.0 million of its 4.000% senior notes due 2025, which are part of the same series as the $250.0 million principal amount of the Operating Partnership’s 4.000% senior notes due November 15, 2025 issued on October 26, 2015. The $50.0 million and $250.0 million tranches were priced at 101.343% and 99.735%, respectively, of the principal amount to yield 3.811% and 4.032%, respectively, to maturity. The combined weighted average effective interest rate of the 2025 notes is 3.994%. The indenture under which the Senior Notes were issued restricts the ability of the Operating Partnership and its subsidiaries to incur debt unless the Operating Partnershipand its consolidated subsidiaries comply with a leverage ratio not to exceed 60% and an interest coverage ratio of more than 1.5:1.0 after giving effect to the incurrence of thedebt. The indenture also restricts the ability of the Operating Partnership and its subsidiaries to incur secured debt unless the Operating Partnership and its consolidatedsubsidiaries comply with a secured debt leverage ratio not to exceed 40% after giving effect to the incurrence of the debt. The indenture also contains other financial andcustomary covenants, including a covenant not to own unencumbered assets with a value less than 150% of the unsecured indebtedness of the Operating Partnership and itsconsolidated subsidiaries. As of and for the year ended December 31, 2024, the Operating Partnership was in compliance with all of the financial covenants under the SeniorNotes. Revolving Credit Facility On October 26, 2022, we amended and restated, in its entirety, our unsecured revolving credit agreement (the “Second Amended and Restated Credit Facility”) which,subsequent to the amendment and restatement, is comprised of an $850.0 million unsecured revolving credit facility (the “Revolver”) maturing on February 15, 2027. Under theSecond Amended and Restated Credit Facility, pricing on the Revolver is dependent upon our unsecured debt credit ratings and leverage levels. At our current unsecured debtcredit ratings and leverage levels, amounts drawn under the Revolver are priced using a margin of 0.775% plus a facility fee of 0.15% over the Secured Overnight FinancingRate ("SOFR") plus a 0.10% SOFR adjustment. As of December 31, 2024, the Revolver had an effective interest rate of 5.52%. Additionally, as of December 31, 2024, $849.4 million was available for borrowing under theRevolver. The available balance under the Revolver is reduced by an outstanding letter of credit of $0.6 million. Under the Second Amended and Restated Credit Facility, our ability to borrow under the Revolver is subject to ongoing compliance with certain financial covenants whichinclude, among other things, (1) a maximum total indebtedness to total asset value of 60.0%, and (2) a minimum fixed charge coverage ratio of 1.5:1.0. As of and for the yearended December 31, 2024, the Operating Partnership was in compliance with all financial covenants of the Second Amended and Restated Credit Facility.
Page 44
Table of Contents 44 Issuance of Common Shares We maintain an at-the-market equity program that enables us to offer and sell up to 60.0 million common shares through sales agents pursuant to equity distributionagreements (the “Equity Distribution Agreements”). Our sales activity under the program for the years ended December 31, 2024, 2023 and 2022 is summarized below: For the year ended December 31,2024 2023 2022(dollars and shares in thousands, except per share amounts)Number of shares sold 2,336 — 102Average sales price per share $ 51.25 $ — $ 50.64Net proceeds after deducting offering costs $ 118,269 $ — $ 4,936 We used proceeds from sales of common shares under the program during the years ended December 31, 2024 and 2022 to fund the acquisition and development of self-storage properties and for general corporate purposes. As of December 31, 2024, 2023 and 2022, 3.5 million common shares, 5.8 million common shares and 5.8 millioncommon shares, respectively, remained available for issuance under the Equity Distribution Agreements. Recent Developments Subsequent to December 31, 2024, we acquired the remaining 80% interest in 191 IV CUBE LLC ("HVP IV"), an unconsolidated real estate venture in which we previouslyowned a 20% noncontrolling interest, for $452.8 million, which included $44.4 million to repay our portion of the venture’s existing indebtedness. As of the date of acquisition,HVP IV owned 28 stores in Arizona (2), Connecticut (3), Florida (4), Georgia (2), Illinois (5), Maryland (2), Minnesota (1), Pennsylvania (1) and Texas (8). Other Material Changes in Financial Position December 31, 2024 2023 Change (in thousands) Selected AssetsStorage properties, net $ 6,038,186 $ 5,951,236 $ 86,950Other assets, net 183,628 163,284 20,344 Selected LiabilitiesRevolving credit facility — 18,100 (18,100)Mortgage loans and notes payable, net 205,915 128,186 77,729Accounts payable, accrued expenses and other liabilities 229,581 201,419 28,162 Storage properties, net increased $87.0 million from December 31, 2023 to December 31, 2024 primarily due to the acquisition of a controlling interest in seven consolidatedjoint ventures that collectively own 14 storage properties, the acquisition of four wholly-owned storage properties, additions and improvements to existing storage properties,and development activity throughout the year. Other assets, net increased $20.3 million from December 31, 2023 to December 31, 2024 primarily due to the value assigned to the in-place leases resulting from theacquisition of a controlling interest in seven consolidated joint ventures that collectively own 14 storage properties, the acquisition of four wholly-owned storage properties, anda $5.0 million note receivable from a third-party entity that owns self-storage properties that we manage. Revolving credit facility decreased $18.1 million from December 31, 2023 to December 31, 2024 primarily due to available cash that we used to repay the outstandingbalance of the revolving credit facility. Mortgage loans and notes payable, net increased $77.7 million from December 31, 2023 to December 31, 2024 primarily due to the acquisition of a controlling interest inconsolidated joint ventures that own 14 storage properties which were encumbered by two mortgage loans totaling $115.4 million as of December 31, 2024. This increase waspartially offset by the repayment in May 2024 of three mortgage loans totaling $31.1 million. Accounts payable, accrued expenses and other liabilities increased $28.2 million from December 31, 2023 to December 31, 2024 primarily due to the timing of payments forreal estate taxes and other payables.
Page 45
Table of Contents 45 Off-Balance Sheet Arrangements We do not have off-balance sheet arrangements, financings or other relationships with other unconsolidated entities (other than our co-investment partnerships) or otherpersons, also known as variable interest entities, not previously discussed. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our future income, cash flows and fair values relevant to financial instruments depend upon prevailing market interest rates. Market Risk Our investment policy relating to cash and cash equivalents is to preserve principal and liquidity while maximizing returns through the investment of available funds. Effect of Changes in Interest Rates on our Outstanding Debt Our interest rate risk objectives are to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve theseobjectives, we may choose to manage our exposure to fluctuations in market interest rates for a portion of our borrowings through the use of derivative financial instrumentssuch as interest rate swaps or caps to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of our variable-ratedebt. The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates. The range of changes chosenreflects our view of changes which are reasonably possible over a one-year period. Market values are the present value of projected future cash flows based on the marketinterest rates chosen. As of December 31, 2024 our consolidated debt consisted of $3.00 billion of outstanding mortgage loans and notes payable and unsecured senior notes that are subject tofixed rates. Borrowings under our unsecured credit facility are subject to floating rates. Changes in market interest rates have different impacts on the fixed- and variable-rateportions of our debt portfolio. A change in market interest rates on the fixed portion of the debt portfolio impacts the net financial instrument position, but has no impact oninterest incurred or cash flows. A change in market interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows, but does not impact thenet financial instrument position. If market interest rates increase by 100 basis points, the fair value of our outstanding fixed-rate mortgage debt and unsecured senior notes would decrease by approximately$105.7 million. If market interest rates decrease by 100 basis points, the fair value of our outstanding fixed-rate mortgage debt and unsecured senior notes would increase byapproximately $109.4 million. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements required by this item appear with an Index to the Consolidated Financial Statements, starting on page F-1 of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Controls and Procedures (Parent Company) Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this Report, the Parent Company carried out an evaluation, under the supervision and with the participation of its management,including its chief executive officer and chief financial officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act). Based on that evaluation, the Parent Company’s chief executive officer and chief financial officer have concluded that the Parent Company’s disclosure controls andprocedures are designed at a reasonable assurance level and are effective to provide reasonable
Page 46
Table of Contents 46 assurance that information required to be disclosed by the Parent Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Parent Company’s management, includingits chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Changes in Internal Control Over Financial Reporting There has been no change in the Parent Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during its most recent fiscalquarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting. Management’s Report on Internal Control Over Financial Reporting Management’s report on internal control over financial reporting of the Parent Company is set forth on page F-2 of this Report, and is incorporated herein by reference. Theeffectiveness of the Parent Company’s internal control over financial reporting as of December 31, 2024 has been audited by KPMG LLP, an independent registered publicaccounting firm, as stated in its report which is included herein. Controls and Procedures (Operating Partnership) Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this Report, the Operating Partnership carried out an evaluation, under the supervision and with the participation of its management,including the Operating Partnership’s chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Operating Partnership’s disclosurecontrols and procedures (as defined in Rules 13a-15(e) under the Exchange Act). Based on that evaluation, the Operating Partnership’s chief executive officer and chief financial officer have concluded that the Operating Partnership’s disclosure controls andprocedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information required to be disclosed by the Operating Partnershipin reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and thatsuch information is accumulated and communicated to the Operating Partnership’s management, including the Operating Partnership’s chief executive officer and chief financialofficer, as appropriate, to allow timely decisions regarding required disclosure. Changes in Internal Control Over Financial Reporting There has been no change in the Operating Partnership’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during our most recentfiscal quarter that has materially affected, or is reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting. Management’s Report on Internal Control Over Financial Reporting Management’s report on internal control over financial reporting of the Operating Partnership is set forth on page F-3 of this Report, and is incorporated herein by reference.The effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2024 has been audited by KPMG LLP, an independent registeredpublic accounting firm, as stated in its report which is included herein. ITEM 9B. OTHER INFORMATION Trading Arrangements During the three months ended December 31, 2024, none of our Trustees or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) adoptedor terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of1933, as amended). ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable.
Page 47
Table of Contents 47 PART III ITEM 10. TRUSTEES, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE We have adopted a Code of Ethics for all of our employees, officers and Trustees, including our principal executive officer and principal financial officer, which is availableon our website at www.cubesmart.com. We intend to disclose any amendment to, or a waiver from, a provision of our Code of Ethics on our website within four business daysfollowing the date of the amendment or waiver. We have adopted insider trading policies and procedures governing the purchase, sale, and/or other dispositions of the Company’s securities, including purchases, sales,and/or dispositions by employees, officers, and Trustees of the Company that are reasonably designed to promote compliance with insider trading laws, rules and regulations,and the listing standards applicable to the Company (the “Insider Trading Compliance Policy”). The Company’s Insider Trading Compliance Policy is filed as Exhibit 19.1 tothis Annual Report. The remaining information required by this item regarding Trustees, executive officers and corporate governance is hereby incorporated by reference to the material appearingin the Parent Company’s Proxy Statement for the Annual Shareholders Meeting to be held in 2025 (the “Proxy Statement”) under the captions “Proposal 1: Election of Trustees,”“Trustee Nominees,” “Named Executive Officers,” “Board Committee Membership and Meetings,” and “Shareholder Proposals and Nominations for the 2026 Annual Meeting.”The information required by this item regarding compliance with Section 16(a) of the Exchange Act, if any, is hereby incorporated by reference to the material appearing in theParent Company’s Proxy Statement under the caption “Delinquent Section 16(a) Reports,” if applicable. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement under the captions“Compensation Committee,” “Board Committee Membership and Meetings,” “Compensation Discussion and Analysis,” “Named Executive Officer Compensation,” “SeverancePlan and Potential Payments Upon Termination or Change in Control,” and “Trustee Compensation.” ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS The following table sets forth certain information regarding our equity compensation plans as of December 31, 2024. Number of securities remaining Number of securities to Weighted average available for future issuance under be issued upon exercise exercise price of equity compensation plans of outstanding options, outstanding options, (excluding securities Plan Category warrants and rights warrants and rights reflected in column(a)) (a) (b) (c)Equity compensation plans approved by shareholders 2,816,466 $ 37.16 (1) 687,537Equity compensation plans not approved by shareholders — — —Total 2,816,466 $ 37.16 687,537 (1) This number reflects the weighted average exercise price of outstanding options and has been calculated exclusive of outstanding restricted unit awards. The information regarding security ownership of certain beneficial owners and management required by this item is hereby incorporated by reference to the materialappearing in the Parent Company’s Proxy Statement under the caption “Security Ownership of Management” and “Security Ownership of Beneficial Owners.” ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND TRUSTEE INDEPENDENCE The information required by this item is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement under the captions “CorporateGovernance – Trustee Independence,” and “Policies Regarding Transactions with Related Persons.” ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Page 48
Table of Contents 48 The information required by this item is hereby incorporated by reference to the material appearing in the Parent Company’s Proxy Statement under the captions “AuditCommittee - Fees Paid to Our Independent Registered Public Accounting Firm” and “Audit Committee - Pre-Approval Policies and Procedures.” PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Documents filed as part of this report: 1. Financial Statements. The response to this portion of Item 15 is submitted as a separate section of this report. 2. Financial Statement Schedules. The response to this portion of Item 15 is submitted as a separate section of this report. 3. Exhibits. The list of exhibits filed with this Report is set forth in response to Item 15(b). The required exhibit index has been filed with the exhibits. (b) Exhibits. The following documents are filed as exhibits to this report: 3.1* Articles of Amendment to the Declaration of Trust of CubeSmart, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K,filed on May 28, 2015. 3.2* Articles of Restatement of the Declaration of Trust of CubeSmart, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K,filed on May 28, 2015. 3.3* Articles Supplementary to Declaration of Trust of CubeSmart classifying and designating CubeSmart’s 7.75% Series A Cumulative Redeemable PreferredShares of Beneficial Interest, incorporated by reference to Exhibit 3.3 to CubeSmart’s Form 8-A, filed on October 31, 2011. 3.4* Articles of Amendment to the Declaration of Trust of CubeSmart, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filedon November 3, 2016. 3.5* Certificate of Limited Partnership of U-Store-It, L.P., incorporated by reference to Exhibit 3.1 to CubeSmart, L.P.’s Registration Statement on Form 10, filed onJuly 15, 2011. 3.6* Amendment No. 1 to Certificate of Limited Partnership of CubeSmart, L.P., dated September 14, 2011, incorporated by reference to Exhibit 3.3 to theCompany’s Current Report on Form 8-K, filed on September 16, 2011. 3.7* Second Amended and Restated Agreement of Limited Partnership of U-Store-It, L.P. dated as of October 27, 2004, incorporated by reference to Exhibit 10.1 tothe Company’s Current Report on Form 8-K, filed on November 2, 2004. 3.8* Amendment No. 1 to Second Amended and Restated Agreement of Limited Partnership of CubeSmart, L.P. dated as of September 14, 2011, incorporated byreference to Exhibit 3.4 to the Company’s Current Report on Form 8-K, filed on September 16, 2011. 3.9* Amendment No. 2 to Second Amended and Restated Agreement of Limited Partnership of CubeSmart, L.P. dated as of November 2, 2011, incorporated byreference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on November 2, 2011.
Page 49
Table of Contents 49 3.10* Class C Unit Supplement No. 1 to Second Amended and Restated Agreement of Limited Partnership of CubeSmart, L.P. dates as of April 12, 2017,incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on April 18, 2017. 3.11* Articles of Amendment to the Declaration of Trust of CubeSmart, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filedon June 2, 2017. 3.12* Fifth Amended and Restated Bylaws of CubeSmart, effective February 22, 2023, incorporated by reference to Exhibit 3.12 to the Company’s Annual Report onForm 10-K, filed on February 24, 2023. 4.1* Form of Common Share Certificate, incorporated by reference to Exhibit 4.1 to Amendment No. 3 to the Company’s Registration Statement on Form S-11,filed on October 20, 2004, File No. 333-117848. 4.2* Form of Certificate for CubeSmart’s 7.75% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, incorporated by reference to Exhibit 4.1to CubeSmart’s Form 8-A, filed on October 31, 2011. 4.3* Indenture, dated as of September 16, 2011, among CubeSmart, L.P., CubeSmart and U.S. Bank National Association, incorporated by reference to Exhibit 4.5to the Company’s Registration Statement on Form S-3, filed on September 16, 2011. 4.4* First Supplemental Indenture, dated as of June 26, 2012, among the Company, the Operating Partnership and U.S. Bank National Association, incorporatedherein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on June 26, 2012. 4.5* Second Supplemental Indenture, dated as of December 17, 2013, among the Company, the Operating Partnership and U.S. Bank National Association,incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on December 17, 2013. 4.6* Third Supplemental Indenture, dated as of October 26, 2015, among CubeSmart, CubeSmart, L.P. and U.S. Bank National Association, incorporated byreference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on October 26, 2015. 4.7* Form of $250 million aggregate principal amount of 4.000% senior note due November 15, 2025, incorporated by reference to Exhibit 4.2 to the Company’sCurrent Report on Form 8-K, filed on October 26, 2015. 4.8* Fourth Supplemental Indenture, dated as of August 15, 2016, among CubeSmart, CubeSmart, L.P. and U.S. Bank National Association, incorporated herein byreference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on August 15, 2016. 4.9* Form of $300 million aggregate principal amount of 3.125% senior notes due September 1, 2026, incorporated herein by reference to Exhibit 4.2 to theCompany’s Current Report on Form 8-K, filed on August 15, 2016. 4.10* Form of CubeSmart Notation of Guarantee, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on August 15,2016. 4.11* Form of $50 million aggregate principal amount of 4.000% senior notes due November 15, 2025, incorporated herein by reference to Exhibit 4.3 to theCompany’s Current Report on Form 8-K, filed on April 5, 2017. 4.12* Fifth Supplemental Indenture, dated as of April 4, 2017, among CubeSmart, CubeSmart, L.P. and U.S. Bank National Association, incorporated herein byreference to Exhibit 4.5 to the Company’s Current Report on Form 8-K, filed on April 5, 2017. 4.13* Form of $350 million aggregate principal amount of 4.375% senior notes due February 15, 2029, incorporated herein by reference to Exhibit 4.1 to theCompany’s Current Report on Form 8-K, filed on January 30, 2019. 4.14* Sixth Supplemental Indenture, dated as of January 30, 2019, among CubeSmart, CubeSmart, L.P. and U.S. Bank National Association, incorporated herein byreference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on January 30, 2019.
Page 50
Table of Contents 50 4.15* Form of $350 million aggregate principal amount of 3.000% senior notes due February 15, 2030, incorporated herein by reference to Exhibit 4.1 to theCompany’s Current Report on Form 8-K, filed on October 11, 2019. 4.16* Form of CubeSmart Notation of Guarantee, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on October 11,2019. 4.17* Seventh Supplemental Indenture, dated of as October 11, 2019, among CubeSmart, CubeSmart, L.P. and U.S. Bank National Association, incorporated hereinby reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on October 11, 2019. 4.18* Form of $450 million aggregate principal amount of 2.000% senior notes due February 15, 2031, incorporated herein by reference to Exhibit 4.1 to theCompany’s Current Report on Form 8-K, filed on October 6, 2020. 4.19* Form of CubeSmart Guarantee, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on October 6, 2020. 4.20* Eighth Supplemental Indenture, dated of as October 6, 2020, among CubeSmart, CubeSmart, L.P. and U.S. Bank National Association, incorporated herein byreference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on October 6, 2020. 4.21* Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, incorporated herein by reference to Exhibit4.23 to the Company’s Annual Report on Form 10-K, filed on February 21, 2020. 4.22* Ninth Supplemental Indenture, dated of as November 30, 2021, among CubeSmart, CubeSmart, L.P. and U.S. Bank National Association, incorporated hereinby reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K, filed on November 30, 2021. 4.23* Form of $550 million aggregate principal amount of 2.25% senior notes due December 15, 2028, incorporated herein by reference to Exhibit 4.1 to theCompany’s Current Report on Form 8-K, filed on November 30, 2021. 4.24* Form of CubeSmart Guarantee, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on November 30, 2021. 4.25* Form of $500 million aggregate principal amount of 2.50% senior notes due February 15, 2032, incorporated herein by reference to Exhibit 4.2 to theCompany’s Current Report on Form 8-K, filed on November 30, 2021. 4.26* Form of CubeSmart Guarantee, incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on November 30, 2021. 4.27* Tenth Supplemental Indenture, dated of as November 30, 2021, among CubeSmart, CubeSmart, L.P. and U.S. Bank National Association, incorporated hereinby reference to Exhibit 4.6 to the Company’s Current Report on Form 8-K, filed on November 30, 2021. 10.1*† Form of Indemnification Agreement for Trustees and Executive Officers, incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K, filed on May 17, 2022. 10.2*† U-Store-It Trust Trustees Deferred Compensation Plan, amended and restated effective January 1, 2009, incorporated by reference to Exhibit 10.78 to theCompany’s Annual Report on Form 10-K for the year ended December 31, 2008, filed on March 2, 2009. 10.3*† CubeSmart Executive Deferred Compensation Plan, amended and restated effective August 1, 2023, incorporated by reference to Exhibit 10.1 to theCompany’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023, filed on August 4, 2023. 10.4 * Waiver of Ownership Limitation, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,2013, filed on May 6, 2013.
Page 51
Table of Contents 51 10.5 *† Amended and Restated CubeSmart 2007 Equity Incentive Plan, effective August 1, 2023, incorporated by reference to Exhibit 10.3 to the Company’s QuarterlyReport on Form 10-Q for the fiscal quarter ended June 30, 2023, filed on August 4, 2023. 10.6 *† CubeSmart Executive Severance Plan, effective November 1, 2023, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, for the fiscal quarter ended September 30, 2023, filed on November 3, 2023. 10.7*† Form of Restricted Share Agreement under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016, incorporated byreference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed on January 3, 2019. 10.8*† Form of Non-Qualified Share Option Agreement under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016,incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed on January 3, 2019. 10.9*† Form of Performance-Vested Restricted Share Agreement under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective June 1, 2016,incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K, filed on January 3, 2019. 10.10* Second Amended and Restated Credit Agreement, dated as of October 26, 2022, by and among CubeSmart, L.P., CubeSmart, the lenders referred to therein, andWells Fargo Bank, National Association, as administrative agent for the Lenders, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Reporton Form 10-Q, filed on October 28, 2022. 10.11* Second Amended and Restated Equity Distribution Agreement, dated March 4, 2020, by and among CubeSmart, CubeSmart, L.P. and Wells Fargo Securities,LLC, incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed on March 4, 2020. 10.12* Second Amended and Restated Equity Distribution Agreement, dated March 4, 2020, by and among CubeSmart, CubeSmart, L.P. and BofA Securities, Inc.,incorporated by reference to Exhibit 1.2 to the Company’s Current Report on Form 8-K, filed on March 4, 2020. 10.13* Second Amended and Restated Equity Distribution Agreement, dated March 4, 2020, by and among CubeSmart, CubeSmart, L.P. and BMO Capital MarketsCorp., incorporated by reference to Exhibit 1.3 to the Company’s Current Report on Form 8-K, filed on March 4, 2020. 10.14* Second Amended and Restated Equity Distribution Agreement, dated March 4, 2020, by and among CubeSmart, CubeSmart, L.P. and Jefferies LLC,incorporated by reference to Exhibit 1.4 to the Company’s Current Report on Form 8-K, filed on March 4, 2020. 10.15* Second Amended and Restated Equity Distribution Agreement, dated March 4, 2020, by and among CubeSmart, CubeSmart, L.P. and Barclays Capital Inc.,incorporated by reference to Exhibit 1.5 to the Company’s Current Report on Form 8-K, filed on March 4, 2020. 10.16* Agreement and Plan of Merger, by and among LAACO, Ltd., CubeSmart, L.P., CS West Merger Sub, L.P. and Stability LLC, dated as of November 15, 2021,incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on November 15, 2021. 10.17*† Form of Non-Qualified Share Option Agreement under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective August 1, 2023,incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023, filed on August 4, 2023. 10.18*† Form of Performance-Vested Restricted Share Grant Agreement under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective August 1,2023, incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023, filed on August 4,2023.
Page 52
Table of Contents 52 10.19*† Form of Performance-Vested Restricted Share Unit Grant Agreement under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effectiveAugust 1, 2023, incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023, filed onAugust 4, 2023. 10.20*† Form of Restricted Share Grant Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective August 1,2023, incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023, filed on August 4,2023. 10.21*† Form of Restricted Share Unit Grant Agreement (3-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective August1, 2023, incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023, filed on August4, 2023. 10.22*† Form of Restricted Share Grant Agreement (5-Year Vesting) under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effective August 1,2023, incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023, filed on August 4,2023. 10.23*† Form of Restricted Share Grant Agreement for Non-Employee Trustees under the CubeSmart 2007 Equity Incentive Plan, as amended and restated, effectiveAugust 1, 2023, incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023, filedon August 4, 2023. 10.24*† Form of Restricted Share Unit Grant Agreement for Non-Employee Trustees under the CubeSmart 2007 Equity Incentive Plan, as amended and restated,effective August 1, 2023, incorporated by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,2023, filed on August 4, 2023. 10.25† Advisory Agreement between Joel Keaton and CubeSmart, L.P. 19.1 CubeSmart Insider Trading Policy and Share Ownership Guidelines. 21.1 List of Subsidiaries. 23.1 Consent of KPMG LLP relating to the consolidated financial statements of CubeSmart and CubeSmart, L.P. 31.1 Certification of Chief Executive Officer of CubeSmart required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer of CubeSmart required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002. 31.3 Certification of Chief Executive Officer of CubeSmart, L.P. required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to Section 302of the Sarbanes-Oxley Act of 2002. 31.4 Certification of Chief Financial Officer of CubeSmart, L.P. required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to Section 302of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer and Chief Financial Officer of CubeSmart pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Executive Officer and Chief Financial Officer of CubeSmart, L.P. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002. 97.1* Clawback Policy, effective December 1, 2023, incorporated by reference to Exhibit 97.1 to the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2023, filed on February 29, 2024. 99.1 Material United States Federal Income Tax Considerations. 101 The following CubeSmart and CubeSmart, L.P. financial information for the year ended December 31, 2024, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated
Page 53
Table of Contents 53 Statements of Operations, (iii) the Consolidated Statement of Equity, (iv) the Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements, detailed tagged and filed herewith. 104 Cover Page Interactive Data File – embedded within the Inline XBRL document (included as Exhibit 101). * Incorporated herein by reference as above indicated. † Denotes a management contract or compensatory plan, contract or arrangement. ITEM 16. FORM 10-K SUMMARY None.
Page 54
Table of Contents 54 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf bythe undersigned, thereunto duly authorized. CUBESMART By: /s/ Timothy M. MartinTimothy M. MartinChief Financial Officer Date: February 28, 2025 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and inthe capacities and on the dates indicated: Signature Title Date /s/ Deborah Ratner Salzberg Chair of the Board of Trustees February 28, 2025Deborah Ratner Salzberg /s/ Christopher P. Marr Chief Executive Officer and Trustee February 28, 2025Christopher P. Marr (Principal Executive Officer) /s/ Timothy M. Martin Chief Financial Officer February 28, 2025Timothy M. Martin (Principal Financial Officer) /s/ Matthew D. DeNarie Chief Accounting Officer February 28, 2025Matthew D. DeNarie (Principal Accounting Officer) /s/ Piero Bussani Trustee February 28, 2025Piero Bussani /s/ Jit Kee Chin Trustee February 28, 2025Jit Kee Chin /s/ Dorothy Dowling Trustee February 28, 2025Dorothy Dowling /s/ John W. Fain Trustee February 28, 2025John W. Fain /s/ Jair K. Lynch Trustee February 28, 2025Jair K. Lynch /s/ John F. Remondi Trustee February 28, 2025John F. Remondi /s/ Jeffrey F. Rogatz Trustee February 28, 2025Jeffrey F. Rogatz
Page 55
Table of Contents 55 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf bythe undersigned, thereunto duly authorized. CUBESMART, L.P. By: /s/ Timothy M. MartinTimothy M. MartinChief Financial Officer Date: February 28, 2025 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and inthe capacities and on the dates indicated: Signature Title Date /s/ Deborah Ratner Salzberg Chair of the Board of Trustees February 28, 2025Deborah Ratner Salzberg /s/ Christopher P. Marr Chief Executive Officer and Trustee February 28, 2025Christopher P. Marr (Principal Executive Officer) /s/ Timothy M. Martin Chief Financial Officer February 28, 2025Timothy M. Martin (Principal Financial Officer) /s/ Matthew D. DeNarie Chief Accounting Officer February 28, 2025Matthew D. DeNarie (Principal Accounting Officer) /s/ Piero Bussani Trustee February 28, 2025Piero Bussani /s/ Jit Kee Chin Trustee February 28, 2025Jit Kee Chin /s/ Dorothy Dowling Trustee February 28, 2025Dorothy Dowling /s/ John W. Fain Trustee February 28, 2025John W. Fain /s/ Jair K. Lynch Trustee February 28, 2025Jair K. Lynch /s/ John F. Remondi Trustee February 28, 2025John F. Remondi /s/ Jeffrey F. Rogatz Trustee February 28, 2025Jeffrey F. Rogatz
Page 56
F-1 FINANCIAL STATEMENTSINDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS Page No.Consolidated Financial Statements of CUBESMART and CUBESMART, L.P. (the “Company”) Management’s Report on CubeSmart Internal Control Over Financial Reporting F-2 Management’s Report on CubeSmart, L.P. Internal Control Over Financial Reporting F-3 Reports of Independent Registered Public Accounting Firm (PCAOB ID 185) F-4 CubeSmart and Subsidiaries Consolidated Balance Sheets as of December 31, 2024 and 2023 F-10 CubeSmart and Subsidiaries Consolidated Statements of Operations for the years ended December 31, 2024, 2023 and 2022 F-11 CubeSmart and Subsidiaries Consolidated Statements of Comprehensive Income for the years ended December 31, 2024, 2023 and 2022 F-12 CubeSmart and Subsidiaries Consolidated Statements of Equity for the years ended December 31, 2024, 2023 and 2022 F-13 CubeSmart and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023 and 2022 F-14 CubeSmart, L.P. and Subsidiaries Consolidated Balance Sheets as of December 31, 2024 and 2023 F-15 CubeSmart, L.P. and Subsidiaries Consolidated Statements of Operations for the years ended December 31, 2024, 2023 and 2022 F-16 CubeSmart, L.P. and Subsidiaries Consolidated Statements of Comprehensive Income for the years ended December 31, 2024, 2023 and 2022 F-17 CubeSmart, L.P. and Subsidiaries Consolidated Statements of Capital for the years ended December 31, 2024, 2023 and 2022 F-18 CubeSmart, L.P. and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023 and 2022 F-19 CubeSmart and CubeSmart L.P. Notes to Consolidated Financial Statements F-20
Page 57
F-2 MANAGEMENT’S REPORT ON CUBESMART INTERNAL CONTROL OVER FINANCIAL REPORTING Management of CubeSmart (the “REIT”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act. Under Section 404 of the Sarbanes-Oxley Act of 2002, the REIT’s management is required to assess the effectiveness of the REIT’s internalcontrol over financial reporting as of the end of each fiscal year, and report on the basis of that assessment whether the REIT’s internal control over financial reporting iseffective. The REIT’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation ofconsolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The REIT’s internal control over financial reportingincludes those policies and procedures that: ● pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and the disposition of the assets of the REIT; ● provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S.generally accepted accounting principles, and that the receipts and expenditures of the REIT are being made only in accordance with the authorization of theREIT’s management and its Board of Trustees; and ● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the REIT’s assets that could have amaterial effect on the consolidated financial statements. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls.Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes inconditions, the effectiveness of an internal control system may vary over time. Under the supervision, and with the participation, of the REIT’s management, including the principal executive officer and principal financial officer, management conducteda review, evaluation and assessment of the effectiveness of our internal control over financial reporting as of December 31, 2024, based on criteria established in InternalControl — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In performing its assessment of theeffectiveness of internal control over financial reporting, management has concluded that, as of December 31, 2024, the REIT’s internal control over financial reporting waseffective based on the COSO framework. The effectiveness of our internal control over financial reporting as of December 31, 2024, has been audited by KPMG LLP (Philadelphia, Pennsylvania; PCAOB ID #185),an independent registered public accounting firm, as stated in their report that appears herein. February 28, 2025
Page 58
F-3 MANAGEMENT’S REPORT ON CUBESMART, L.P. INTERNAL CONTROL OVER FINANCIAL REPORTING Management of CubeSmart, L.P. (the “Partnership”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under Section 404 of the Sarbanes-Oxley Act of 2002, the Partnership’s management is required to assess the effectiveness of thePartnership’s internal control over financial reporting as of the end of each fiscal year, and report on the basis of that assessment whether the Partnership’s internal control overfinancial reporting is effective. The Partnership’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Partnership’s internal control overfinancial reporting includes those policies and procedures that: ● pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and the disposition of the assets of the Partnership; ● provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S.generally accepted accounting principles, and that the receipts and expenditures of the Partnership are being made only in accordance with the authorization of thePartnership’s management and its Board of Trustees; and ● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnership’s assets that could have amaterial effect on the consolidated financial statements. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls.Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes inconditions, the effectiveness of an internal control system may vary over time. Under the supervision, and with the participation, of the Partnership’s management, including the principal executive officer and principal financial officer, managementconducted a review, evaluation and assessment of the effectiveness of our internal control over financial reporting as of December 31, 2024, based on criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In performing its assessment ofthe effectiveness of internal control over financial reporting, management has concluded that, as of December 31, 2024, the Partnership’s internal control over financial reportingwas effective based on the COSO framework. The effectiveness of our internal control over financial reporting as of December 31, 2024, has been audited by KPMG LLP (Philadelphia, Pennsylvania; PCAOB ID #185),an independent registered public accounting firm, as stated in their report that appears herein. February 28, 2025
Page 59
F-4 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Trustees of CubeSmart: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of CubeSmart and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidatedstatements of operations, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes andfinancial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects,the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period endedDecember 31, 2024, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control overfinancial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of SponsoringOrganizations of the Treadway Commission, and our report dated February 28, 2025 expressed an unqualified opinion on the effectiveness of the Company’s internal controlover financial reporting. Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance withthe U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance aboutwhether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks ofmaterial misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includedexamining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principlesused and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide areasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to becommunicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especiallychallenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements,taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures towhich it relates. Evaluation of the identification and assessment of impairment indicators for certain storage properties As discussed in Notes 2 and 3 to the consolidated financial statements, the Company had $6.0 billion of storage properties, net of accumulated depreciation, as ofDecember 31, 2024. The Company evaluates long-lived assets for impairment when events or circumstances, such as declines in occupancy or operating results,indicate that there may be an impairment. We identified the evaluation of the identification and assessment of impairment indicators for certain storage properties as a critical audit matter. Subjective auditorjudgment was required to evaluate the Company’s identification and assessment of impairment indicators, including impacts of declines in occupancy or operatingresults, for certain storage properties. Changes in the assessment of declines in occupancy or operating results could have a significant impact on the Company’sidentification and assessment of impairment indicators. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of aninternal control over the Company’s identification and assessment of impairment indicators, including declines in occupancy or operating results. We evaluated theCompany’s identification and assessment of impairment indicators for certain storage properties, including certain storage properties that had declines in occupancy ordeclines in operating results, by:
Page 60
F-5 ● assessing management’s impairment policy for storage properties ● assessing the completeness of identification of certain storage properties that had impairment indicators ● reading the minutes of meetings of the Company’s Board of Trustees for indicators that certain storage properties may be subject to impairment analysis inaccordance with management’s impairment policy ● inquiring of Company officials, including those in the organization who are responsible for, and have authority over, operational activities and compared tomanagement’s analysis. /s/ KPMG LLP We have served as the Company’s auditor since 2009. Philadelphia, PennsylvaniaFebruary 28, 2025
Page 61
F-6 Report of Independent Registered Public Accounting Firm To the Board of Trustees of CubeSmart and Partners of CubeSmart, L.P.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of CubeSmart, L.P. and subsidiaries (the Partnership) as of December 31, 2024 and 2023, the relatedconsolidated statements of operations, comprehensive income, capital, and cash flows for each of the years in the three-year period ended December 31, 2024, and the relatednotes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all materialrespects, the financial position of the Partnership as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-yearperiod ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Partnership’s internal control overfinancial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of SponsoringOrganizations of the Treadway Commission, and our report dated February 28, 2025 expressed an unqualified opinion on the effectiveness of the Partnership’s internal controlover financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these consolidated financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordancewith the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance aboutwhether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks ofmaterial misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includedexamining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principlesused and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide areasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to becommunicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especiallychallenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements,taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures towhich it relates. Evaluation of the identification and assessment of impairment indicators for certain storage properties As discussed in Notes 2 and 3 to the consolidated financial statements, the Partnership had $6.0 billion of storage properties, net of accumulated depreciation, as ofDecember 31, 2024. The Partnership evaluates long-lived assets for impairment when events or circumstances, such as declines in occupancy or operating results,indicate that there may be an impairment. We identified the evaluation of the identification and assessment of impairment indicators for certain storage properties as a critical audit matter. Subjective auditorjudgment was required to evaluate the Partnership’s identification and assessment of impairment indicators, including impacts of declines in occupancy or operatingresults, for certain storage properties. Changes in the assessment of declines in occupancy or operating results could have a significant impact on the Partnership’sidentification and assessment of impairment indicators. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of aninternal control over the Partnership’s identification and assessment of impairment indicators, including declines in occupancy or operating results. We evaluated thePartnership’s identification and assessment of impairment indicators for certain storage properties, including certain storage properties that had declines in occupancy ordeclines in operating results, by:
Page 62
F-7 ● assessing management’s impairment policy for storage properties ● assessing the completeness of identification of certain storage properties that had impairment indicators ● reading the minutes of meetings of the Board of Trustees of CubeSmart for indicators that certain storage properties may be subject to impairment analysis inaccordance with management’s impairment policy ● inquiring of Partnership officials, including those in the organization who are responsible for, and have authority over, operational activities and compared tomanagement’s analysis. /s/ KPMG LLP We have served as the Partnership’s auditor since 2009. Philadelphia, PennsylvaniaFebruary 28, 2025
Page 63
F-8 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Trustees of CubeSmart: Opinion on Internal Control Over Financial Reporting We have audited CubeSmart and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all materialrespects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued bythe Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of theCompany as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report datedFebruary 28, 2025 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control overfinancial reporting, included in the accompanying Management's Report on CubeSmart Internal Control Over Financial Reporting. Our responsibility is to express an opinion onthe Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent withrespect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance aboutwhether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining anunderstanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our auditprovides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes thosepolicies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of thecompany; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a materialeffect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures maydeteriorate. /s/ KPMG LLP Philadelphia, PennsylvaniaFebruary 28, 2025
Page 64
F-9 Report of Independent Registered Public Accounting Firm To the Board of Trustees of CubeSmart and Partners of CubeSmart, L.P.: Opinion on Internal Control Over Financial Reporting We have audited CubeSmart, L.P. and subsidiaries' (the Partnership) internal control over financial reporting as of December 31, 2024, based on criteria established in InternalControl – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Partnership maintained, in allmaterial respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of thePartnership as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income, capital, and cash flows for each of the years in thethree-year period ended December 31, 2024, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report datedFebruary 28, 2025 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control overfinancial reporting, included in the accompanying Management's Report on CubeSmart, L.P. Internal Control Over Financial Reporting. Our responsibility is to express anopinion on the Partnership’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to beindependent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance aboutwhether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining anunderstanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our auditprovides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes thosepolicies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of thecompany; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a materialeffect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures maydeteriorate. /s/ KPMG LLP Philadelphia, PennsylvaniaFebruary 28, 2025
Page 65
F-10 CUBESMART AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(in thousands, except share data) December 31, 2024 2023 ASSETSStorage properties $ 7,628,774 $ 7,367,613Less: Accumulated depreciation (1,590,588) (1,416,377)Storage properties, net (includes VIE amounts of $363,315 and $180,615, respectively) 6,038,186 5,951,236Cash and cash equivalents (includes VIE amounts of $2,907 and $3,002, respectively) 71,560 6,526Restricted cash (includes VIE amounts of $4,439 and $0, respectively) 6,103 1,691Loan procurement costs, net of amortization 2,731 3,995Investment in real estate ventures, at equity 91,973 98,288Other assets, net 183,628 163,284Total assets $ 6,394,181 $ 6,225,020 LIABILITIES AND EQUITYUnsecured senior notes, net $ 2,780,631 $ 2,776,490Revolving credit facility — 18,100Mortgage loans and notes payable, net (includes VIE amounts of $111,728 and $0, respectively) 205,915 128,186Lease liabilities - finance leases 65,668 65,714Accounts payable, accrued expenses and other liabilities 229,581 201,419Distributions payable 119,600 115,820Deferred revenue 38,918 38,483Total liabilities 3,440,313 3,344,212 Noncontrolling interests in the Operating Partnership 51,193 60,276 Commitments and contingencies EquityCommon shares $.01 par value, 400,000,000 shares authorized, 227,764,975 and 224,921,053 shares issued and outstanding atDecember 31, 2024 and 2023, respectively 2,278 2,249Additional paid-in capital 4,285,570 4,142,229Accumulated other comprehensive loss (330) (411)Accumulated deficit (1,415,662) (1,345,239)Total CubeSmart shareholders’ equity 2,871,856 2,798,828Noncontrolling interests in subsidiaries 30,819 21,704Total equity 2,902,675 2,820,532Total liabilities and equity $ 6,394,181 $ 6,225,020 See accompanying notes to the consolidated financial statements.
Page 66
F-11 CUBESMART AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data) For the year ended December 31, 2024 2023 2022 REVENUESRental income $ 911,161 $ 911,999 $ 879,289Other property related income 113,646 101,793 96,166Property management fee income 41,424 36,542 34,169Total revenues 1,066,231 1,050,334 1,009,624OPERATING EXPENSESProperty operating expenses 317,750 294,780 293,260Depreciation and amortization 205,703 201,238 310,610General and administrative 59,663 57,041 54,623Total operating expenses 583,116 553,059 658,493OTHER (EXPENSE) INCOME Interest:Interest expense on loans (90,820) (93,065) (93,284)Loan procurement amortization expense (4,067) (4,141) (3,897)Equity in earnings of real estate ventures 2,499 6,085 48,877Other 1,158 6,281 (10,355)Total other expense (91,230) (84,840) (58,659) NET INCOME 391,885 412,435 292,472Net income attributable to noncontrolling interests in the Operating Partnership (2,159) (2,535) (1,931)Net loss attributable to noncontrolling interests in subsidiaries 1,454 857 722NET INCOME ATTRIBUTABLE TO THE COMPANY $ 391,180 $ 410,757 $ 291,263 Basic earnings per share attributable to common shareholders $ 1.73 $ 1.82 $ 1.29Diluted earnings per share attributable to common shareholders $ 1.72 $ 1.82 $ 1.29 Weighted average basic shares outstanding 226,353 225,424 224,928Weighted average diluted shares outstanding 227,150 226,241 225,881 See accompanying notes to the consolidated financial statements.
Page 67
F-12 CUBESMART AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands) For the year ended December 31, 2024 2023 2022 NET INCOME $ 391,885 $ 412,435 $ 292,472Other comprehensive income:Reclassification of realized losses on interest rate swaps 81 81 81OTHER COMPREHENSIVE INCOME: 81 81 81COMPREHENSIVE INCOME 391,966 412,516 292,553Comprehensive income attributable to noncontrolling interests in the Operating Partnership (2,159) (2,536) (1,933)Comprehensive loss attributable to noncontrolling interests in subsidiaries 1,454 857 722COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY $ 391,261 $ 410,837 $ 291,342 See accompanying notes to the consolidated financial statements.
Page 68
F-13 CUBESMART AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF EQUITY(in thousands, except per share data) NoncontrollingInterestsCommon Additional Accumulated Other Total CubeSmart Noncontrolling in theShares 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 $ 108,220Contributions from noncontrolling interests in subsidiaries 3,690 3,690Distributions paid to noncontrolling interests in subsidiaries (7,387) (7,387)Issuance of common shares, net 102 1 4,876 4,877 4,877Issuance of restricted shares 56 1 1 1Conversion from units to shares 475 4 22,944 22,948 22,948 (22,948)Exercise of stock options 52 1 1,589 1,590 1,590Amortization of restricted shares 5,134 5,134 5,134Share compensation expense 2,543 2,543 2,543Adjustment for noncontrolling interests in the Operating Partnership 27,203 27,203 27,203 (27,203)Net income (loss) 291,263 291,263 (722) 290,541 1,931Other comprehensive income, net 79 79 79 2Common share distributions ($1.78 per share) (400,998) (400,998) (400,998) (2,583) Balance at December 31, 2022 224,603 $ 2,246 $ 4,125,478 $ (491) $ (1,301,030) $ 2,826,203 $ 14,178 $ 2,840,381 $ 57,419Contributions from noncontrolling interests in subsidiaries 8,699 8,699Distributions paid to noncontrolling interests in subsidiaries (316) (316)Issuance of common shares, net (276) (276) (276)Issuance of restricted shares 48Conversion from units to shares 126 1 5,041 5,042 5,042 (5,042)Exercise of stock options 144 2 2,714 2,716 2,716Amortization of restricted shares 6,454 6,454 6,454Share compensation expense 2,818 2,818 2,818Adjustment for noncontrolling interests in the Operating Partnership (8,084) (8,084) (8,084) 8,084Net income (loss) 410,757 410,757 (857) 409,900 2,535Other comprehensive income, net 80 80 80 1Common share distributions ($1.98 per share) (446,882) (446,882) (446,882) (2,721) Balance at December 31, 2023 224,921 $ 2,249 $ 4,142,229 $ (411) $ (1,345,239) $ 2,798,828 $ 21,704 $ 2,820,532 $ 60,276Contributions from noncontrolling interests in subsidiaries 10,987 10,987Distributions paid to noncontrolling interests in subsidiaries (418) (418)Issuance of common shares, net 2,336 24 118,245 118,269 118,269Issuance of restricted shares 55 1 1 1Conversion from units to shares 105 1 4,715 4,716 4,716 (4,716)Exercise of stock options 348 3 9,938 9,941 9,941Amortization of restricted shares 7,225 7,225 7,225Share compensation expense 3,218 3,218 3,218Adjustment for noncontrolling interests in the Operating Partnership 3,989 3,989 3,989 (3,989)Net income (loss) 391,180 391,180 (1,454) 389,726 2,159Other comprehensive income, net 81 81 81 -Common share distributions ($2.05 per share) (465,592) (465,592) (465,592) (2,537) Balance at December 31, 2024 227,765 $ 2,278 $ 4,285,570 $ (330) $ (1,415,662) $ 2,871,856 $ 30,819 $ 2,902,675 $ 51,193 See accompanying notes to the consolidated financial statements.
Page 69
F-14 CUBESMART AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) For the year ended December 31, 2024 2023 2022 Operating ActivitiesNet income $ 391,885 $ 412,435 $ 292,472Adjustments to reconcile net income to cash provided by operating activities:Depreciation and amortization, including amortization of loan procurement costs 209,770 205,379 314,507Non-cash portion of interest expense related to finance leases (46) (44) (43)Equity in earnings of real estate ventures (2,499) (6,085) (48,877)Cash distributed from real estate ventures 4,661 5,467 —Gain on involuntary conversion, net — (4,827) —Equity compensation expense 11,487 10,089 9,081Accretion of fair market value adjustment of debt (295) (886) (1,099)Changes in other operating accounts:Other assets (7,469) (10,138) 3,498Accounts payable and accrued expenses 24,025 96 20,395Other liabilities (445) (350) 1,532Net cash provided by operating activities $ 631,074 $ 611,136 $ 591,466Investing ActivitiesAcquisitions of storage properties (42,402) (22,429) (89,004)Acquisition of controlling interest in consolidated joint ventures, net of cash acquired (57,176) — —Additions and improvements to storage properties (43,575) (39,853) (41,233)Development costs (29,959) (47,521) (24,358)Investments in real estate ventures (1,301) (21) (21)Cash distributed from real estate ventures 5,454 8,344 62,656Funding of note receivable (5,000) — —Proceeds from sales of real estate, net — 238 43,193Proceeds from involuntary conversion, net — 7,424 —Net cash used in investing activities $ (173,959) $ (93,818) $ (48,767)Financing ActivitiesProceeds from:Revolving credit facility 697,039 794,447 633,950Principal payments on:Revolving credit facility (715,139) (837,247) (782,950)Mortgage loans and notes payable (32,341) (32,591) (2,426)Loan procurement costs — (69) (3,885)Issuance of common shares, net 118,270 (276) 4,877Cash paid upon vesting of restricted shares (1,044) (817) (1,403)Exercise of stock options 9,941 2,716 1,590Contributions from noncontrolling interests in subsidiaries 372 1,100 350Distributions paid to noncontrolling interests in subsidiaries (418) (316) (7,387)Distributions paid to common shareholders (461,769) (442,217) (387,106)Distributions paid to noncontrolling interests in Operating Partnership (2,580) (2,756) (2,702)Net cash used in financing activities $ (387,669) $ (518,026) $ (547,092)Change in cash, cash equivalents and restricted cash 69,446 (708) (4,393)Cash, cash equivalents and restricted cash at beginning of period 8,217 8,925 13,318Cash, cash equivalents and restricted cash at end of period $ 77,663 $ 8,217 $ 8,925Supplemental Cash Flow and Noncash InformationCash paid for interest, net of interest capitalized $ 92,609 $ 95,498 $ 92,293Supplemental disclosure of noncash activities:Acquisitions of storage properties $ (200) $ — $ (700)Mortgage loan assumptions $ 115,828 $ — $ —Accretion of put liability $ — $ — $ 2,444Derivative valuation adjustment $ 81 $ 81 $ 81Contributions from noncontrolling interests in subsidiaries $ 10,615 $ 7,599 $ 3,340 See accompanying notes to the consolidated financial statements.
Page 70
F-15 CUBESMART, L.P. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(in thousands) December 31, 2024 2023ASSETSStorage properties $ 7,628,774 $ 7,367,613Less: Accumulated depreciation (1,590,588) (1,416,377)Storage properties, net (includes VIE amounts of $363,315 and $180,615, respectively) 6,038,186 5,951,236Cash and cash equivalents (includes VIE amounts of $2,907 and $3,002, respectively) 71,560 6,526Restricted cash (includes VIE amounts of $4,439 and $0, respectively) 6,103 1,691Loan procurement costs, net of amortization 2,731 3,995Investment in real estate ventures, at equity 91,973 98,288Other assets, net 183,628 163,284Total assets $ 6,394,181 $ 6,225,020 LIABILITIES AND CAPITALUnsecured senior notes, net $ 2,780,631 $ 2,776,490Revolving credit facility — 18,100Mortgage loans and notes payable, net (includes VIE amounts of $111,728 and $0, respectively) 205,915 128,186Lease liabilities - finance leases 65,668 65,714Accounts payable, accrued expenses and other liabilities 229,581 201,419Distributions payable 119,600 115,820Deferred revenue 38,918 38,483Total liabilities 3,440,313 3,344,212 Limited Partnership interests of third parties 51,193 60,276 Commitments and contingencies CapitalGeneral Partner 2,872,186 2,799,239Accumulated other comprehensive loss (330) (411)Total CubeSmart, L.P. capital 2,871,856 2,798,828Noncontrolling interests in subsidiaries 30,819 21,704Total capital 2,902,675 2,820,532Total liabilities and capital $ 6,394,181 $ 6,225,020 See accompanying notes to the consolidated financial statements.
Page 71
F-16 CUBESMART, L.P. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per unit data) For the year ended December 31, 2024 2023 2022 REVENUESRental income $ 911,161 $ 911,999 $ 879,289Other property related income 113,646 101,793 96,166Property management fee income 41,424 36,542 34,169Total revenues 1,066,231 1,050,334 1,009,624OPERATING EXPENSESProperty operating expenses 317,750 294,780 293,260Depreciation and amortization 205,703 201,238 310,610General and administrative 59,663 57,041 54,623Total operating expenses 583,116 553,059 658,493OTHER (EXPENSE) INCOMEInterest:Interest expense on loans (90,820) (93,065) (93,284)Loan procurement amortization expense (4,067) (4,141) (3,897)Equity in earnings of real estate ventures 2,499 6,085 48,877Other 1,158 6,281 (10,355)Total other expense (91,230) (84,840) (58,659)NET INCOME 391,885 412,435 292,472Net loss attributable to noncontrolling interests in subsidiaries 1,454 857 722NET INCOME ATTRIBUTABLE TO CUBESMART L.P. $ 393,339 $ 413,292 $ 293,194 Basic earnings per unit attributable to CubeSmart, L.P. $ 1.73 $ 1.82 $ 1.29Diluted earnings per unit attributable to CubeSmart, L.P. $ 1.72 $ 1.82 $ 1.29 Weighted average basic units outstanding 227,603 226,817 226,449Weighted average diluted units outstanding 228,400 227,634 227,402 See accompanying notes to the consolidated financial statements.
Page 72
F-17 CUBESMART, L.P. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands) For the year ended December 31, 2024 2023 2022 NET INCOME $ 391,885 $ 412,435 $ 292,472Other comprehensive income:Reclassification of realized losses on interest rate swaps 81 81 81OTHER COMPREHENSIVE INCOME: 81 81 81COMPREHENSIVE INCOME 391,966 412,516 292,553Comprehensive loss attributable to noncontrolling interests in subsidiaries 1,454 857 722COMPREHENSIVE INCOME ATTRIBUTABLE TO CUBESMART, L.P. $ 393,420 $ 413,373 $ 293,275 See accompanying notes to the consolidated financial statements.
Page 73
F-18 CUBESMART, L.P. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CAPITAL(in thousands, except per unit data) General Partner Accumulated Other Total Noncontrolling LimitedPartnershipOP Units Comprehensive CubeSmart L.P. Interests in Total Interests Outstanding Amount (Loss) Income Capital Subsidiaries Capital of Third Parties Balance at December 31, 2021 223,918 $ 2,872,133 $ (570) $ 2,871,563 $ 18,597 $ 2,890,160 $ 108,220Contributions from noncontrolling interests in subsidiaries 3,690 3,690Distributions paid to noncontrolling interests in subsidiaries (7,387) (7,387)Issuance of OP units, net 102 4,877 4,877 4,877Issuance of restricted OP units 56 1 1 1Conversion from OP units to shares 475 22,948 22,948 22,948 (22,948)Exercise of OP unit options 52 1,590 1,590 1,590Amortization of restricted OP units 5,134 5,134 5,134OP unit compensation expense 2,543 2,543 2,543Adjustment for Operating Partnership interests of third parties 27,203 27,203 27,203 (27,203)Net income (loss) 291,263 291,263 (722) 290,541 1,931Other comprehensive income, net 79 79 79 2Common OP unit distributions ($1.78 per unit) (400,998) (400,998) (400,998) (2,583) Balance at December 31, 2022 224,603 $ 2,826,694 $ (491) $ 2,826,203 $ 14,178 $ 2,840,381 $ 57,419Contributions from noncontrolling interests in subsidiaries 8,699 8,699Distributions paid to noncontrolling interests in subsidiaries (316) (316)Issuance of OP units, net (276) (276) (276)Issuance of restricted OP units 48Conversion from OP units to shares 126 5,042 5,042 5,042 (5,042)Exercise of OP unit options 144 2,716 2,716 2,716Amortization of restricted OP units 6,454 6,454 6,454OP unit compensation expense 2,818 2,818 2,818Adjustment for Operating Partnership interests of third parties (8,084) (8,084) (8,084) 8,084Net income (loss) 410,757 410,757 (857) 409,900 2,535Other comprehensive income, net 80 80 80 1Common OP unit distributions ($1.98 per unit) (446,882) (446,882) (446,882) (2,721) Balance at December 31, 2023 224,921 $ 2,799,239 $ (411) $ 2,798,828 $ 21,704 $ 2,820,532 $ 60,276Contributions from noncontrolling interests in subsidiaries 10,987 10,987Distributions paid to noncontrolling interests in subsidiaries (418) (418)Issuance of OP units, net 2,336 118,269 118,269 118,269Issuance of restricted OP units 55 1 1 1Conversion from OP units to shares 105 4,716 4,716 4,716 (4,716)Exercise of OP unit options 348 9,941 9,941 9,941Amortization of restricted OP units 7,225 7,225 7,225OP unit compensation expense 3,218 3,218 3,218Adjustment for Operating Partnership interests of third parties 3,989 3,989 3,989 (3,989)Net income (loss) 391,180 391,180 (1,454) 389,726 2,159Other comprehensive income, net 81 81 81Common OP unit distributions ($2.05 per unit) (465,592) (465,592) (465,592) (2,537) Balance at December 31, 2024 227,765 $ 2,872,186 $ (330) $ 2,871,856 $ 30,819 $ 2,902,675 $ 51,193 See accompanying notes to the consolidated financial statements.
Page 74
F-19 CUBESMART, L.P. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) For the year ended December 31, 2024 2023 2022 Operating ActivitiesNet income $ 391,885 $ 412,435 $ 292,472Adjustments to reconcile net income to cash provided by operating activities:Depreciation and amortization, including amortization of loan procurement costs 209,770 205,379 314,507Non-cash portion of interest expense related to finance leases (46) (44) (43)Equity in earnings of real estate ventures (2,499) (6,085) (48,877)Cash distributed from real estate ventures 4,661 5,467 —Gain on involuntary conversion, net — (4,827) —Equity compensation expense 11,487 10,089 9,081Accretion of fair market value adjustment of debt (295) (886) (1,099)Changes in other operating accounts:Other assets (7,469) (10,138) 3,498Accounts payable and accrued expenses 24,025 96 20,395Other liabilities (445) (350) 1,532Net cash provided by operating activities $ 631,074 $ 611,136 $ 591,466Investing ActivitiesAcquisitions of storage properties (42,402) (22,429) (89,004)Acquisition of controlling interest in consolidated joint ventures, net of cash acquired (57,176) — —Additions and improvements to storage properties (43,575) (39,853) (41,233)Development costs (29,959) (47,521) (24,358)Investments in real estate ventures (1,301) (21) (21)Cash distributed from real estate ventures 5,454 8,344 62,656Funding of note receivable (5,000) — —Proceeds from sales of real estate, net — 238 43,193Proceeds from involuntary conversion, net — 7,424 —Net cash used in investing activities $ (173,959) $ (93,818) $ (48,767)Financing ActivitiesProceeds from:Revolving credit facility 697,039 794,447 633,950Principal payments on:Revolving credit facility (715,139) (837,247) (782,950)Mortgage loans and notes payable (32,341) (32,591) (2,426)Loan procurement costs — (69) (3,885)Issuance of OP units, net 118,270 (276) 4,877Cash paid upon vesting of restricted OP units (1,044) (817) (1,403)Exercise of OP unit options 9,941 2,716 1,590Contributions from noncontrolling interests in subsidiaries 372 1,100 350Distributions paid to noncontrolling interests in subsidiaries (418) (316) (7,387)Distributions paid to OP unitholders (464,349) (444,973) (389,808)Net cash used in financing activities $ (387,669) $ (518,026) $ (547,092)Change in cash, cash equivalents and restricted cash 69,446 (708) (4,393)Cash, cash equivalents and restricted cash at beginning of period 8,217 8,925 13,318Cash, cash equivalents and restricted cash at end of period $ 77,663 $ 8,217 $ 8,925Supplemental Cash Flow and Noncash InformationCash paid for interest, net of interest capitalized $ 92,609 $ 95,498 $ 92,293Supplemental disclosure of noncash activities:Acquisitions of storage properties $ (200) $ — $ (700)Mortgage loan assumptions $ 115,828 $ — $ —Accretion of put liability $ — $ — $ 2,444Derivative valuation adjustment $ 81 $ 81 $ 81Contributions from noncontrolling interests in subsidiaries $ 10,615 $ 7,599 $ 3,340 See accompanying notes to the consolidated financial statements.
Page 75
F-20 CUBESMART AND CUBESMART L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND NATURE OF OPERATIONS CubeSmart (the “Parent Company”) operates as a self-managed and self-administered real estate investment trust (“REIT”) with its operations conducted solely throughCubeSmart, L.P. and its subsidiaries. CubeSmart, L.P., a Delaware limited partnership (the “Operating Partnership”), operates through an umbrella partnership structure, with theParent Company, a Maryland REIT, as its sole general partner. In the notes to the consolidated financial statements, we use the terms the “Company”, “we” or “our” to refer tothe Parent Company and the Operating Partnership together, unless the context indicates otherwise. As of December 31, 2024, the Company owned (or partially owned andconsolidated) 631 self-storage properties located in the District of Columbia and 25 states throughout the United States which are presented under one reportable segment: theCompany owns, operates, develops, manages and acquires self-storage properties (see note 15). As of December 31, 2024, the Parent Company owned approximately 99.5% of the partnership interests (“OP Units” or “common units”) of the Operating Partnership. Theremaining OP Units, consisting exclusively of limited partner interests, are held by persons who contributed their interests in properties to the Operating Partnership in exchangefor OP Units. Under the partnership agreement, these persons have the right to tender their OP Units for redemption to the Operating Partnership at any time following aspecified restricted period for cash equal to the fair value of an equivalent number of common shares of the Parent Company. In lieu of delivering cash, however, the ParentCompany, as the Operating Partnership’s general partner, may, at its option, choose to acquire any OP Units so tendered by issuing common shares in exchange for the tenderedOP Units. If the Parent Company so chooses, its common shares will be exchanged for OP Units on a one-for-one basis. This one-for-one exchange ratio is subject to adjustmentto prevent dilution. With each such exchange or redemption, the Parent Company’s percentage ownership in the Operating Partnership will increase. In addition, whenever theParent Company issues common or other classes of its shares, it contributes the net proceeds it receives from the issuance to the Operating Partnership and the OperatingPartnership issues to the Parent Company an equal number of OP Units or other partnership interests having preferences and rights that mirror the preferences and rights of theshares issued. This structure is commonly referred to as an umbrella partnership REIT or “UPREIT.” 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include all of the accounts of the Company and its majority-owned and/or controlled subsidiaries. The portion of theseentities not owned by the Company is presented as noncontrolling interests as of and during the periods consolidated. All significant intercompany accounts and transactionshave been eliminated in consolidation. When the Company obtains an economic interest in an entity, the Company evaluates the entity to determine if the entity is deemed a variable interest entity (“VIE”) and if theCompany is deemed to be the primary beneficiary in accordance with authoritative guidance issued on the consolidation of VIEs. To the extent that the Company (i) has thepower to direct the activities of the VIE that most significantly impact the economic performance of the VIE and (ii) has the obligation or rights to absorb the VIE's losses orreceive its benefits, then the Company is considered the primary beneficiary. When an entity is not deemed to be a VIE, the Company considers the provisions of additionalguidance to determine whether a general partner, or the general partners as a group, controls a limited partnership or similar entity when the limited partners have certain rights.The Company consolidates (i) entities that are VIEs and of which the Company is deemed to be the primary beneficiary, and (ii) entities that are non-VIEs which the Companycontrols and which the limited partners do not have the ability to dissolve or remove the Company without cause nor substantive participating rights. The Operating Partnership meets the criteria as a VIE. The Parent Company’s sole significant asset is its investment in the Operating Partnership. As a result, substantially allof the Parent Company’s assets and liabilities represent those assets and liabilities of the Operating Partnership. All of the Parent Company’s debt is an obligation of theOperating Partnership. Noncontrolling Interests Noncontrolling interests are the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. The ownership interests in the subsidiary thatare held by owners other than the parent are noncontrolling interests. Such noncontrolling interests are reported on the Company’s consolidated balance sheets within equity,separately from the Company’s equity. Within the Company’s consolidated statements of operations, revenues, expenses and net income or loss from controlled or consolidatedentities that are less than wholly owned are reported at the consolidated amounts, including both the amounts attributable to the Company and
Page 76
F-21 noncontrolling interests. Presentation of consolidated equity activity is included for both quarterly and annual financial statements, including beginning balances, activity for theperiod and ending balances for shareholders’ equity, noncontrolling interests and total equity. However, per the FASB-issued authoritative guidance on the classification and measurement of redeemable securities, securities that are redeemable for cash or other assets atthe option of the holder, not solely within the control of the issuer, must be classified outside of permanent equity. This would result in certain outside ownership interests beingincluded as redeemable noncontrolling interests outside of permanent equity on the Company’s consolidated balance sheets. The Company makes this determination based onterms in applicable agreements, specifically in relation to redemption provisions. Additionally, with respect to noncontrolling interests for which the Company has a choice tosettle the contract by delivery of its own shares, the Company considered the FASB-issued guidance on accounting for derivative financial instruments indexed to, andpotentially settled in, a company’s own stock to evaluate whether the Company controls the actions or events necessary to issue the maximum number of shares that could berequired to be delivered under share settlement of the contract. The guidance also requires that noncontrolling interests are adjusted each period so that the carrying value equalsthe greater of its carrying value based on the accumulation of historical cost or its redemption fair value. The consolidated results of the Company include results attributable to units of the Operating Partnership that are not owned by the Company. These interests were issued inthe form of OP Units and were a component of the consideration the Company paid to acquire certain self-storage properties. Limited partners who acquired OP Units have theright to require the Operating Partnership to redeem part or all of their OP Units for, at the Company’s option, an equivalent number of common shares of the Company or cashbased upon the fair value of an equivalent number of common shares of the Company. However, the operating agreement contains certain circumstances that could result in a netcash settlement outside the control of the Company, as the Company does not have the ability to settle in unregistered shares. Accordingly, consistent with the guidancediscussed above, the Company will continue to record these noncontrolling interests outside of permanent equity on the Company’s consolidated balance sheets. Net income orloss related to these noncontrolling interests is excluded from net income or loss within the Company’s consolidated statements of operations. The Company has adjusted thecarrying value of its noncontrolling interests subject to redemption value to the extent applicable. Based on the Company’s evaluation of the redemption value of the redeemablenoncontrolling interests, the Operating Partnership reflected these interests at their redemption value as of December 31, 2024, as the estimated redemption value exceeded theircarrying value. Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management tomake estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statementsand the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Although management believes the assumptionsand estimates made are reasonable and appropriate, as discussed in the applicable sections throughout these consolidated financial statements, different assumptions andestimates could materially impact the Company’s reported results. There is a degree of uncertainty inherent in these estimates and assumptions, and changes in market conditionscould impact the Company’s future operating results. Self-Storage Properties Self-storage properties are carried at historical cost less accumulated depreciation and impairment losses. The cost of self-storage properties reflects their purchase price ordevelopment cost. Costs incurred for the renovation of a store are capitalized to the Company’s investment in that store. Ordinary repairs and maintenance are expensed asincurred. Major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. The costs todevelop self-storage properties are capitalized to construction in progress while the projects are under development. Purchase Price Allocation When stores are acquired in an asset acquisition, the purchase price and acquisition-related costs are allocated to the tangible and intangible assets acquired and liabilitiesassumed based on estimated relative fair values. Allocations to land, building and improvements and equipment are recorded based upon their respective relative fair values asestimated by management. If appropriate, the Company allocates a portion of the purchase price to an intangible asset attributed to the value of in-place leases. This intangible isgenerally amortized to expense over the expected remaining term of the respective leases. Substantially all of the storage leases in place at acquired stores are at market rates, asthe majority of the leases are month-to-month contracts. Accordingly, to date, no portion of the purchase price has been allocated to above- or below-market lease intangiblesassociated with storage leases assumed at acquisition. Above- or below- market lease intangibles associated with assumed leases in which the Company serves as lessee arerecorded as an adjustment to the right-of-use asset and reflect the difference between the contractual amounts to be paid pursuant to each in-place lease and management’s
Page 77
F-22 estimate of fair market lease rates. These amounts are amortized over the term of the lease. To date, no intangible asset has been recorded for the value of customer relationships,because the Company does not have any concentrations of significant customers and the average customer turnover is fairly frequent. Depreciation and Amortization The costs of self-storage properties and improvements are depreciated using the straight-line method based on estimated useful lives ranging from five to 39 years. Right-of-use assets associated with finance leases are amortized from the lease commencement date to the earlier of the useful life of the right-to-use asset or the end of the lease term.Fully depreciated or amortized assets and the associated accumulated depreciation or amortization are written off. The Company wrote off fully depreciated or amortized realestate assets and in-place lease intangible assets of $27.6 million and $2.0 million, respectively, for the year ended December 31, 2024, and $29.1 million and $3.4 million,respectively, for the year ended December 31, 2023. Impairment of Long-Lived Assets We evaluate long-lived assets for impairment when events or circumstances such as declines in occupancy and operating results indicate that there may be an impairment. Thecarrying value of these long-lived assets is compared to the undiscounted future net operating cash flows, plus a terminal value, attributable to the assets to determine if theasset’s basis is recoverable. If a store’s basis is not considered recoverable, an impairment loss is recorded to the extent the net carrying value of the asset exceeds the fair value.The impairment loss recognized equals the excess of net carrying value over the related fair value of the asset. There were no impairment losses recognized during the yearsended December 31, 2024, 2023 and 2022. Long-Lived Assets Held for Sale We consider long-lived assets to be “held for sale” upon satisfaction of the following criteria: (a) management commits to a plan to sell an asset (or group of assets), (b) theasset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets, (c) an active program to locate a buyerand other actions required to complete the plan to sell the asset have been initiated, (d) the sale of the asset is probable and transfer of the asset is expected to be completedwithin one year, (e) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value and (f) actions required to complete the planindicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Typically these criteria are all met when the relevant asset is under contract, significant non-refundable deposits have been made by the potential buyer, the assets areimmediately available for transfer, and there are no contingencies related to the sale that may prevent the transaction from closing. However, each potential transaction isevaluated based on its separate facts and circumstances. Assets classified as held for sale are reported at the lesser of carrying value or fair value less estimated costs to sell andare not depreciated. There were no assets classified as held for sale as of December 31, 2024. Cash and Cash Equivalents Cash and cash equivalents are highly-liquid investments with original maturities of three months or less. The Company may maintain cash equivalents in financial institutionsin excess of insured limits, but believes this risk is mitigated by only investing in or through major financial institutions. Restricted Cash Restricted cash generally consists of cash deposits required for debt service, capital replacement and expense reserves in connection with the terms of our loan agreements, aswell as utility and other deposits. Loan Procurement Costs Loan procurement costs related to borrowings were $57.2 million and $53.7 million as of December 31, 2024 and 2023, respectively, and are reported net of accumulatedamortization of $30.4 million and $25.3 million as of December 31, 2024 and 2023, respectively. In accordance with ASU No. 2015-03, Loan procurement costs, net arepresented as a direct deduction from the carrying amount of the related debt liability. If there is not an associated debt liability recorded on the Company’s consolidated balancesheets, the costs are recorded as an asset net of accumulated amortization. Loan procurement costs associated with the Company’s revolving credit facility remain in Loanprocurement costs, net of amortization on the Company’s consolidated balance sheets. The costs are amortized over the
Page 78
F-23 estimated life of the related debt using the effective interest method and are reported as Loan procurement amortization expense within the Company’s consolidated statementsof operations. Investments in Unconsolidated Real Estate Ventures The Company accounts for its investments in unconsolidated real estate ventures under the equity method of accounting when it is determined that the Company has theability to exercise significant influence over the venture. Under the equity method of accounting, investments in unconsolidated real estate ventures are recorded initially at cost,as investments in real estate ventures, and subsequently adjusted for equity in earnings (losses), cash contributions, distributions and impairments. On a periodic basis,management assesses whether there are any indicators that the value of the Company’s investments in unconsolidated real estate ventures may be other than temporarilyimpaired. An investment is impaired only if the fair value of the investment, as estimated by management, is less than the carrying value of the investment and the decline isother than temporary. To the extent impairment that is other than temporary has occurred, the loss shall be measured as the excess of the carrying amount of the investment overthe fair value of the investment, as estimated by management. The determination as to whether impairment exists requires significant management judgment about the fair valueof the Company’s ownership interest. Fair value is determined through various valuation techniques, including but not limited to, discounted cash flow models, quoted marketvalues and third-party appraisals. There were no impairment losses related to the Company’s investments in unconsolidated real estate ventures recognized during the yearsended December 31, 2024 and 2023. Differences between the Company's net investment in unconsolidated real estate ventures and its underlying equity in the net assets of the ventures are primarily a result of theCompany acquiring interests in existing unconsolidated real estate ventures. As of December 31, 2024 and 2023, the Company’s net investment in unconsolidated real estateventures was greater than its underlying equity in the net assets of the unconsolidated real estate ventures by an aggregate of $31.0 million and $31.8 million, respectively. Thesedifferences are amortized over the estimated useful lives of the self-storage properties owned by the real estate ventures. This amortization is included in equity in earnings ofreal estate ventures within the Company’s consolidated statements of operations. Other Assets Other assets are comprised of the following as of December 31, 2024 and 2023: December 31, 2024 2023 (in thousands)Intangible assets, net of accumulated amortization of $1,782 and $164, respectively $ 10,332 $ 1,806Accounts receivable, net 10,372 8,944Prepaid property taxes 9,272 8,171Prepaid insurance 5,768 4,879Amounts due from affiliates (see note 14) 18,866 18,045Assets related to deferred compensation arrangements 63,761 60,038Right-of-use assets - operating leases 49,435 50,476Ground lease receivable 6,249 6,193Note receivable (1) 5,000 —Other 4,573 4,732Total other assets, net $ 183,628 $ 163,284 (1) On October 8, 2024, the Company loaned $5.0 million to an owner of five third-party stores managed by the Company, in exchange for a note receivable of the sameamount bearing interest at 10.00% per year. The note matures on May 7, 2026 and is collateralized by a pledge of the ownership interests in the underlying properties.The Company believes that this note receivable is fully collectible. The interest income related to this note is included in the component of other (expense) incomedesignated as Other within the Company’s consolidated statements of operations. Revenue Recognition Management has determined that substantially all of the Company’s leases are operating leases. Rental income is recognized in accordance with the terms of the leases, whichgenerally are month-to-month. The Company recognizes gains from sales of real estate in accordance with the guidance on transfer of nonfinancial assets. Payments received from purchasers prior to closingare recorded as deposits. Gains on real estate sold are recognized when a valid contract exists, the collectability of the sales price is reasonably assured and the control of theproperty has transferred.
Page 79
F-24 Advertising and Marketing Costs The Company incurs advertising and marketing costs primarily attributable to internet marketing and other media advertisements. These costs are expensed as incurred. TheCompany incurred $26.0 million, $24.5 million and $22.4 million in advertising and marketing expenses for the years ended December 31, 2024, 2023 and 2022, respectively,which are included in Property operating expenses within the Company’s consolidated statements of operations. Equity Offering Costs Underwriting discounts and commissions, financial advisory fees and other offering costs are reflected as a reduction to additional paid-in capital. For the years endedDecember 31, 2024, 2023 and 2022, the Company recognized $1.5 million, $0.3 million and $0.2 million, respectively, of equity offering costs related to the issuance ofcommon shares. Other Property Related Income Other property related income consists of late fees, administrative charges, customer storage protection plan fees, sales of storage supplies and other ancillary revenues and isrecognized in the period that it is earned. Capitalized Interest The Company capitalizes interest incurred that is directly associated with construction activities until the asset is placed into service. Interest is capitalized to the related asset(s) using the weighted average rate of the Company’s outstanding debt. For the years ended December 31, 2024, 2023 and 2022, the Company capitalized $1.2 million, $1.3million and $1.3 million, respectively, of interest incurred that is directly associated with construction activities. Derivative Financial Instruments The Company carries all derivatives on the balance sheet at fair value. The Company determines the fair value of derivatives using observable prices that are based on inputsnot quoted on active markets, but corroborated by market data. The accounting for changes in the fair value of a derivative instrument depends on whether the derivative hasbeen designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. The Company’s use of derivative instruments has been limited to cash flowhedges of certain interest rate risks. The Company had no outstanding derivatives as of December 31, 2024 or 2023. Income Taxes The Company has elected to be taxed as a REIT under Sections 856-860 of the Internal Revenue Code since the Company’s commencement of operations in2004. Management believes that the requirements to maintain these elections are being met. Accordingly, no provision for federal income taxes has been reflected in theconsolidated financial statements other than for operations conducted through our taxable REIT subsidiaries. Earnings and profits, which determine the taxability of distributions to shareholders, differ from net income reported for financial reporting purposes due to differences in costbasis, the estimated useful lives used to compute depreciation, and the allocation of net income and loss for financial versus tax reporting purposes. The net tax basis in theCompany’s assets was approximately $6,122.3 million and $6,022.1 million as of December 31, 2024 and 2023, respectively. Since the Company’s initial quarter as a publicly-traded REIT, it has made regular quarterly distributions to its shareholders. Distributions to shareholders are usually taxableas ordinary income, although a portion of the distribution may be designated as capital gain or may constitute a tax-free return of capital. Annually, the Company provides eachof its shareholders a statement detailing the tax characterization of distributions paid during the preceding year as ordinary income, capital gain or return of capital. TheCompany’s distributions for 2024 consisted of a 95.2443% ordinary income distribution and a 4.7557% non-dividend distribution. The Company is subject to a 4% federal excise tax if sufficient taxable income is not distributed within prescribed time limits. The excise tax equals 4% of the annual amount,if any, by which the sum of (a) 85% of the Company’s ordinary income, (b) 95% of the Company’s net capital gains and (c) 100% of prior year undistributed taxable incomeexceeds cash distributions and certain taxes paid by the Company. No excise tax was incurred in 2024, 2023 or 2022.
Page 80
F-25 Taxable REIT subsidiaries are subject to federal and state income taxes. Our taxable REIT subsidiaries had a net deferred tax liability of $1.1 million as of both December 31,2024 and 2023. Earnings per Share and Unit Basic earnings per share and unit are calculated based on the weighted average number of common shares and restricted shares outstanding during the period. Diluted earnings per share and unit is calculated by further adjusting for the dilutive impact of share options, unvested restricted shares and contingently issuable shares outstanding during the period using the treasury stock method. Potentially dilutive securities calculated under the treasury stock method were 797,000, 817,000 and 953,000 for the years endedDecember 31, 2024, 2023 and 2022, respectively. Share-Based Payments We apply the fair value method of accounting for contingently issued shares and share options issued under our incentive award plan. Accordingly, share compensation expense is recorded ratably over the vesting period relating to such contingently issued shares and options. The Company has recognized compensation expense on a straight-line method over the requisite service period, which is included in general and administrative expense within the Company’s consolidated statement of operations. The Company recognizes forfeitures on share-based payments as they occur. Recently Issued Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07 – Segment Reporting (Topic 280):Improvements to Reportable Segment Disclosures. The amended guidance requires the disclosure of incremental segment information, including significant segment expensesthat are regularly provided to the chief operating decision maker (“CODM”) and a reconciliation of segment profit or loss to net income. The title and position of the CODMmust also be disclosed, along with how the CODM uses the reported measures to assess segment performance and to allocate resources. Entities with a single reportable segment(such as the Company) will be required to provide the disclosures required by Topic 280, as amended. The standard became effective for the Company on January 1, 2024 andthe required disclosures for the Company are included herein (see note 15). Concentration of Credit Risk The Company’s stores are located in major metropolitan and rural areas and have numerous customers per store. No single customer represents a significant concentration ofour revenues. The stores in New York, Florida, California and Texas provided approximately 18%, 14%, 11% and 9%, respectively, of the Company’s total revenues for the yearended December 31, 2024. The stores in New York, Florida, California and Texas provided approximately 17%, 15%, 11% and 9%, respectively, of the Company’s totalrevenues for the year ended December 31, 2023. The stores in New York, Florida, California and Texas provided approximately 16%, 15%, 11% and 9%, respectively, of theCompany’s total revenues for the year ended December 31, 2022. 3. STORAGE PROPERTIES The book value of the Company’s real estate assets is summarized as follows: December 31, 2024 2023(in thousands)Land $ 1,645,549 $ 1,594,742Buildings and improvements 5,759,848 5,517,544Equipment 147,709 144,372Construction in progress 33,723 69,010Right-of-use assets - finance leases 41,945 41,945Storage properties 7,628,774 7,367,613Less: Accumulated depreciation (1,590,588) (1,416,377)Storage properties, net $ 6,038,186 $ 5,951,236
Page 81
F-26 The following table summarizes the Company’s acquisition and disposition activity for the years ended December 31, 2024, 2023 and 2022: Number of Transaction Price Asset/Portfolio Metropolitan Statistical Area Transaction Date Stores (in thousands) 2024 Acquisitions: Connecticut Assets Hartford-West Hartford-East Hartford, CT January 2024 2 $ 20,200Oregon Asset Portland-Vancouver-Beaverton, OR-WA November 2024 1 10,450Pennsylvania Asset Philadelphia-Camden-Wilmington, PA-NJ-DE-MD November 2024 1 11,500Hines Portfolio (1) Dallas-Fort Worth-Arlington, TX December 2024 14 157,25018 $ 199,400 2023 Acquisition: New Jersey Asset New York-Northern New Jersey-Long Island, NY-NJ-PA December 2023 1 $ 22,0001 $ 22,000 2023 Disposition: Illinois Asset (2) Chicago-Naperville-Joliet, IL-IN-WI December 2023 1 $ 8,0001 $ 8,000 2022 Acquisitions: Maryland Asset Washington-Arlington-Alexandria, DC-VA-MD-WV February 2022 1 $ 32,000Texas Asset San Antonio, TX June 2022 1 23,000Georgia Asset Atlanta, GA July 2022 1 20,7003 $ 75,700 (1) These stores are owned by consolidated joint ventures in which the Company acquired an 85% ownership interest. Transaction price represents the acquisition of thisownership interest. (2) This store was subject to an involuntary conversion by the Department of Transportation of the State of Illinois. 4. INVESTMENT ACTIVITY 2024 Acquisitions In December 2024, the Company acquired an 85% ownership interest in seven consolidated joint ventures (see note 12) that collectively own 14 stores located in Texas (the“Hines Portfolio”) for approximately $157.3 million. The Hines Portfolio is encumbered by two mortgage loans that, at the time of the acquisition, had aggregate outstandingprincipal amounts totaling $115.4 million. Upon the Company’s purchase of its ownership interest, the mortgage debt was recorded at a fair value of $115.8 million, whichincluded an aggregate net premium of $0.4 million to reflect the estimated fair value at the time of the purchase. In connection with this transaction, which was accounted for asan asset acquisition, the Company allocated the purchase price and acquisition-related costs to the tangible and intangible assets acquired based on relative fair value. Intangibleassets consisted of in-place leases, which aggregated to $10.1 million at the time of the acquisition and prior to amortization of such amounts. The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during the year ended December 31, 2024 was approximately $0.8 million. During the year ended December 31, 2024, the Company acquired four additional stores located in Connecticut (2), Oregon (1) and Pennsylvania (1) for an aggregatepurchase price of $42.2 million. In connection with these transactions, which were accounted for as asset acquisitions, the Company allocated the purchase price and acquisition-related costs to the tangible and intangible assets acquired based on relative fair value. Intangible assets consisted of in-place leases, which aggregated to $2.0 million at the timeof the acquisition and prior to amortization of such amounts. The estimated life of these in-place leases is 12 months and the amortization expense that was recognized duringthe year ended December 31, 2024 was approximately $0.9 million.
Page 82
F-27 2023 Acquisition During the year ended December 31, 2023, the Company acquired one store located in New Jersey for a purchase price of $22.0 million. In connection with this transaction,which was accounted for as an asset acquisition, the Company allocated the purchase price and acquisition-related costs to the tangible and intangible assets acquired based onrelative fair value. Intangible assets consisted of in-place leases, which aggregated to $2.0 million at the time of the acquisition and prior to amortization of such amounts. Theestimated life of these in-place leases is 12 months and the amortization expense that was recognized during the years ended December 31, 2024 and 2023 were approximately$1.8 million and $0.2 million, respectively. 2023 Dispositions During the year ended December 31, 2023, the Company sold the California Yacht Club, which it purchased in December 2021 as part of its acquisition of LAACO, Ltd., for$0.8 million. A loss of $0.2 million was recognized in conjunction with the sale. This loss is included in the component of other (expense) income designated as Other within theCompany’s consolidated statements of operations. Additionally, in December 2023, a store was subject to an involuntary conversion by the Department of Transportation of the State of Illinois. The Company received $8.0million as consideration and recorded a gain of $4.8 million. This gain is included in the component of other (expense) income designated as Other within the Company’sconsolidated statements of operations. 2022 Acquisition During the year ended December 31, 2022, the Company acquired three stores located in Georgia (1), Maryland (1) and Texas (1) for an aggregate purchase price of $75.7million. In connection with these transactions, which were accounted for as asset acquisitions, the Company allocated the purchase price and acquisition-related costs to thetangible and intangible assets acquired based on relative fair value. Intangible assets consisted of in-place leases, which aggregated to $3.4 million at the time of the acquisitionsand prior to amortization of such amounts. The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during the years endedDecember 31, 2023 and 2022 was approximately $1.1 million and $2.3 million, respectively. There was no amortization expense recognized for these in-place leases during theyear ended December 31, 2024. Additionally, on February 2, 2022, the Company acquired land underlying a wholly-owned store located in Bronx, New York for $7.5 million. The land was previouslysubject to a ground lease in which the Company served as lessee. As a result of the transaction, which was accounted for as an asset acquisition, the Company was released fromits obligations under the ground lease, and the right-of-use asset and lease liability totaling $4.1 million and $5.0 million, respectively, were removed from the Company’sconsolidated balance sheets. Also, on April 28, 2022, the Company acquired land underlying a store owned by 191 IV CUBE LLC, an unconsolidated joint venture in which the Company holds a 20%ownership interest (see note 5). The purchase price for the land was $6.1 million, and the Company now serves as the lessor in a ground lease to 191 IV CUBE LLC. 2022 Disposition During the year ended December 31, 2022, the Company sold the Los Angeles Athletic Club, which it purchased in December 2021 as part of its acquisition of LAACO,Ltd., for $44.0 million. No gain or loss was recognized in conjunction with the sale. Development Activity As of December 31, 2024, the Company held ownership interests in consolidated joint ventures to develop two self-storage properties located in New York. Construction forthese projects is expected to be completed by the third quarter of 2025. As of December 31, 2024, development costs incurred to date for these projects totaled $23.6 million.Total construction costs for these projects are expected to be $45.7 million. These costs are capitalized to construction in progress while the projects are under development andare reflected in Storage properties on the Company’s consolidated balance sheets.
Page 83
F-28 The Company has completed the construction of and opened for operation the following stores since January 1, 2022. The costs associated with the construction of thesestores are capitalized to land, building and improvements, as well as equipment and are reflected in Storage properties on the Company’s consolidated balance sheets. CubeSmartNumber of Ownership TotalStore Location Stores Date Opened Interest Construction Costs(in thousands) Astoria, NY 1 Q2 2024 70% $ 45,900Clark, NJ 1 Q2 2024 90% 15,900Valley Stream, NY (1) 1 Q3 2022 100% 37,200Vienna, VA (2) 1 Q2 2022 80% 21,8004 $ 120,800 (1) This store was previously owned by a consolidated joint venture, in which the Company held a 51% ownership interest. On January 18, 2023, the noncontrollingmember in the venture that owned this store put its 49% interest in the venture to the Company for $15.3 million. The cash payment related to this transaction isincluded in Development costs in the consolidated statements of cash flows. (2) This store is located adjacent to an existing store. Given this proximity, this store has been combined with the adjacent existing store in our store count upon opening,as well as for operational and reporting purposes. 5. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES The Company’s investments in unconsolidated real estate ventures are summarized as follows (dollars in thousands): CubeSmart Number of Stores as of Carrying Value of Investment as ofOwnership December 31, December 31,Unconsolidated Real Estate Ventures Interest 2024 2023 2024 2023Fontana Self Storage, LLC ("Fontana") (1) 50% 1 1 $ 13,200 $ 13,575Rancho Cucamonga Self Storage, LLC ("RCSS") (1) 50% 1 1 20,107 20,679191 V CUBE LLC ("HVP V") 20% 6 6 11,353 12,759191 IV CUBE LLC ("HVP IV") 20% 28 28 14,591 17,085CUBE HHF Northeast Venture LLC ("HHFNE") 10% 13 13 1,469 951CUBE HHF Limited Partnership ("HHF") 50% 28 28 31,253 33,23977 77 $ 91,973 $ 98,288 (1) On December 9, 2021, the Company completed the acquisition of LAACO, Ltd. which included a 50% interest in Fontana and RCSS, each of which owns one self-storage property in California. As of the date of acquisition, the Company recognized differences between the Company’s equity investment in Fontana and RCSS andthe underlying equity reflected at the venture level. As of December 31, 2024, this difference was $12.4 million for Fontana and $18.6 million for RCSS. Thesedifferences are being amortized over the estimated useful life of the self-storage properties owned by the ventures. As of December 31, 2024, the Company also held a 10% interest in 191 IV CUBE Southeast LLC ("HVPSE"). On August 30, 2022, HVPSE sold all 14 of its stores to anunaffiliated third-party buyer for an aggregate sales price of $235.0 million. During the year ended December 31, 2023, the Company received distributions of $1.7 million inexcess of its investment in HVPSE from proceeds that were held back at the time of the sale. These distributions are included in Equity in earnings of real estate ventures withinthe Company’s consolidated statements of operations. As of December 31, 2024 and 2023, HVPSE had no significant assets or liabilities. The Company determined that Fontana, RCSS, HVP V, HVPSE, HVP IV, HHFNE and HHF (collectively, the “Ventures”) are not VIEs in accordance with the accountingstandard for the consolidation of VIEs. As a result, the Company used the voting interest model under the accounting standard for consolidation in order to determine whether toconsolidate the Ventures. Based upon each member’s substantive participating rights over the activities of each entity as stipulated in the operating agreements, the Ventures arenot consolidated by the Company and are accounted for under the equity method of accounting. The Company’s investments in the Ventures are included in Investment in realestate ventures, at equity on the Company’s consolidated balance sheets and the Company’s earnings from its investments in the Ventures are presented in Equity in earnings ofreal estate ventures within the Company’s consolidated statements of operations.
Page 84
F-29 The amounts reflected in the following table are based on the historical financial information of the Ventures. The following is a summary of the financial position of theVentures as of December 31, 2024 and 2023: December 31,2024 2023Assets (in thousands) Storage properties, net $ 684,067 $ 715,142Other assets 17,126 10,382Total assets $ 701,193 $ 725,524 Liabilities and equityDebt $ 472,633 $ 470,573Other liabilities 17,462 18,557EquityCubeSmart 60,993 66,446Joint venture partners 150,105 169,948Total liabilities and equity $ 701,193 $ 725,524 The following is a summary of results of operations of the Ventures for the years ended December 31, 2024, 2023, and 2022: For the year ended December 31, 2024 2023 2022 (in thousands)Total revenues $ 100,049 $ 99,442 $ 102,910Operating expenses (41,096) (40,677) (42,408)Other expenses (422) (347) (484)Interest expense, net (25,570) (17,189) (15,568)Depreciation and amortization (29,404) (30,607) (36,866)Gains from sale of real estate, net — — 114,107Net income $ 3,557 $ 10,622 $ 121,691Company’s share of net income $ 2,499 $ 6,085 $ 48,877 6. UNSECURED SENIOR NOTES The Company’s unsecured senior notes are summarized as follows (collectively referred to as the “Senior Notes”): December 31, Effective Issuance MaturityUnsecured Senior Notes 2024 2023 Interest Rate Date Date(in thousands)$300M 4.000% Guaranteed Notes due 2025 (1) $ 300,000 $ 300,000 3.99% Various (1) Nov-25$300M 3.125% Guaranteed Notes due 2026 300,000 300,000 3.18% Aug-16 Sep-26$550M 2.250% Guaranteed Notes due 2028 550,000 550,000 2.33% Nov-21 Dec-28$350M 4.375% Guaranteed Notes due 2029 350,000 350,000 4.46% Jan-19 Feb-29$350M 3.000% Guaranteed Notes due 2030 350,000 350,000 3.04% Oct-19 Feb-30$450M 2.000% Guaranteed Notes due 2031 450,000 450,000 2.10% Oct-20 Feb-31$500M 2.500% Guaranteed Notes due 2032 500,000 500,000 2.59% Nov-21 Feb-32Principal balance outstanding 2,800,000 2,800,000Less: Discount on issuance of unsecured senior notes, net (8,495) (10,148)Less: Loan procurement costs, net (10,874) (13,362)Total unsecured senior notes, net $ 2,780,631 $ 2,776,490 (1) On April 4, 2017, the Operating Partnership issued $50.0 million of its 4.000% senior notes due 2025, which are part of the same series as the $250.0 million principalamount of the Operating Partnership’s 4.000% senior notes due November 15, 2025 issued on October 26, 2015. The $50.0 million and $250.0 million tranches werepriced at 101.343% and 99.735%, respectively, of the principal amount to yield 3.811% and 4.032%, respectively, to maturity. The combined weighted averageeffective interest rate of the 2025 notes is 3.994%.
Page 85
F-30 The indenture under which the Senior Notes were issued restricts the ability of the Operating Partnership and its subsidiaries to incur debt unless the Operating Partnershipand its consolidated subsidiaries comply with a leverage ratio not to exceed 60% and an interest coverage ratio of more than 1.5:1.0 after giving effect to the incurrence of thedebt. The indenture also restricts the ability of the Operating Partnership and its subsidiaries to incur secured debt unless the Operating Partnership and its consolidatedsubsidiaries comply with a secured debt leverage ratio not to exceed 40% after giving effect to the incurrence of the debt. The indenture also contains other financial andcustomary covenants, including a covenant not to own unencumbered assets with a value less than 150% of the unsecured indebtedness of the Operating Partnership and itsconsolidated subsidiaries. As of and for the year ended December 31, 2024, the Operating Partnership was in compliance with all of the financial covenants under the SeniorNotes. 7. REVOLVING CREDIT FACILITY On October 26, 2022, the Company amended and restated, in its entirety, its unsecured revolving credit agreement (the “Second Amended and Restated Credit Facility”)which, subsequent to the amendment and restatement, is comprised of an $850.0 million unsecured revolving credit facility (the “Revolver”) maturing on February 15, 2027.Under the Second Amended and Restated Credit Facility, pricing on the Revolver is dependent upon the Company’s unsecured debt credit ratings and leverage levels. At theCompany’s current unsecured debt credit ratings and leverage levels, amounts drawn under the Revolver are priced using a margin of 0.775% plus a facility fee of 0.15% overthe Secured Overnight Financing Rate (“SOFR”) plus a 0.10% SOFR adjustment. As of December 31, 2024, the Revolver had an effective interest rate of 5.52%. Additionally, as of December 31, 2024, $849.4 million was available for borrowing under theRevolver. The available balance under the Revolver is reduced by an outstanding letter of credit of $0.6 million. Under the Second Amended and Restated Credit Facility, the Company’s ability to borrow under the Revolver is subject to ongoing compliance with certain financialcovenants which include, among other things, (1) a maximum total indebtedness to total asset value of 60.0%, and (2) a minimum fixed charge coverage ratio of 1.5:1.0. As ofand for the year ended December 31, 2024, the Operating Partnership was in compliance with all financial covenants of the Second Amended and Restated Credit Facility. 8. MORTGAGE LOANS AND NOTES PAYABLE The Company’s mortgage loans and notes payable are summarized as follows: Carrying Value as ofDecember 31, Effective MaturityMortgage Loans and Notes Payable 2024 2023 Interest Rate Date(in thousands)Annapolis I, MD (1) $ — $ 4,703 3.78% May-24Brooklyn XV, NY (1) — 14,746 2.15% May-24Long Island City IV, NY (1) — 11,946 2.15% May-24Long Island City II, NY 17,368 17,834 2.25% Jul-26Long Island City III, NY 17,371 17,839 2.25% Aug-26Allen, TX (2) 7,432 — 6.29% Aug-26Dallas-Fort Worth, TX (2) 108,000 — 6.23% May-29Flushing II, NY 54,300 54,300 2.15% Jul-29Principal balance outstanding 204,471 121,368Plus: Unamortized fair value adjustment 6,137 7,689Less: Loan procurement costs, net (4,693) (871)Total mortgage loans and notes payable, net $ 205,915 $ 128,186 (1) These mortgage loans were repaid in full in May 2024. (2) The Company owns an 85% interest in consolidated joint ventures that are the borrowers on these mortgage loans.
Page 86
F-31 As of December 31, 2024 and 2023, the Company’s mortgage loans and notes payable were secured by certain of its self-storage properties with net book values ofapproximately $403.9 million and $356.1 million, respectively. The following table represents the future principal payment requirements on the outstanding mortgage loans andnotes payable as of December 31, 2024 (in thousands): 2025 $ 1,1852026 40,9862027 —2028 —2029 162,3002030 and thereafter —Total principal payments $ 204,471 9. ACCUMULATED OTHER COMPREHENSIVE LOSS Accumulated other comprehensive loss represents unrealized losses on interest rate swaps (see note 10). The following table summarizes the changes in accumulated othercomprehensive loss for the years ended December 31, 2024 and 2023. Year ended December 31,2024 2023 (in thousands)Beginning balance $ (413) $ (494)Reclassification of realized losses on interest rate swaps (1) 81 81Ending balance (332) (413)Less: portion included in noncontrolling interests in the Operating Partnership 2 2Total accumulated other comprehensive loss included in equity $ (330) $ (411) (1) See note 10 for additional information about the effects of the amounts reclassified. 10. RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS The Company is exposed to credit risk with regard to its cash accounts. The Company holds deposits at certain financial institutions in excess of Federal Deposit InsuranceCorporation limits. The Company’s cash accounts are held with major financial institutions and management believes that the risk of loss due to disruption at these financialinstitutions is low. The Company’s use of derivative instruments is limited to the utilization of interest rate swap agreements or other instruments to manage interest rate risk exposures and notfor speculative purposes. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure, aswell as to hedge specific transactions. The counterparties to these arrangements are major financial institutions with which the Company and its subsidiaries may also have otherfinancial relationships. The Company is potentially exposed to credit loss in the event of non-performance by these counterparties. However, because of the high credit ratings ofthe counterparties, the Company does not anticipate that any of the counterparties will fail to meet these obligations as they come due. The Company does not hedge credit orproperty value market risks. The Company formally assesses, both at inception of a hedge and on an on-going basis, whether each derivative is highly-effective in offsetting changes in cash flows of thehedged item. If management determines that the derivative is highly-effective as a hedge, then the Company accounts for the derivative using hedge accounting, pursuant towhich gains or losses inherent in the derivative do not impact the Company’s results of operations. If management determines that the derivative is not highly-effective as ahedge or if a derivative ceases to be a highly-effective hedge, the Company discontinues hedge accounting prospectively and reflects within its consolidated statements ofoperations realized and unrealized gains and losses with respect to the derivative. As of December 31, 2024 and 2023, all derivative instruments entered into by the Companyhad been settled. On December 24, 2018, the Company entered into interest rate swap agreements with notional amounts that aggregated to $150.0 million (the “Interest Rate Swaps”) toprotect the Company against adverse fluctuations in interest rates by reducing exposure to variability in cash flows relating to interest payments on a forecasted issuance of long-term debt. The Interest Rate Swaps qualified and were designated as cash flow hedges. Accordingly, the Interest Rate Swaps were recorded on the Company’s consolidatedbalance sheets at fair value and the related gains or losses were deferred in shareholders’ equity as accumulated other comprehensive income or loss. These deferred gains andlosses were amortized into interest expense during the period or periods in which the related interest payments affected earnings. On January 24, 2019, in conjunction with theissuance of $300.0 million of outstanding 4.375% senior notes due 2029
Page 87
F-32 (the “2029 Notes”), the Company settled the Interest Rate Swaps for $0.8 million. The $0.8 million termination premium will be reclassified from accumulated othercomprehensive loss as an increase to interest expense over the life of the 2029 Notes, which mature on February 15, 2029. The change in unrealized losses on interest rate swapsreflects a reclassification of $0.1 million of unrealized losses from accumulated other comprehensive loss as an increase to interest expense during 2024. The Company estimatesthat $0.1 million will be reclassified as an increase to interest expense during 2025. 11. FAIR VALUE MEASUREMENTS The Company applies the methods of determining fair value, as described in authoritative guidance, to value its financial assets and liabilities. As defined in the guidance, fairvalue is based on the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurementdate. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservableinputs used to measure fair value into three broad levels, which are described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highestpriority to Level 1 inputs. Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs, to the extentpossible, as well as considering counterparty credit risk in its assessment of fair value. The fair values of financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, other financial instruments included in other assets, accountspayable, accrued expenses and other liabilities approximate their respective carrying values at December 31, 2024 and 2023. The following table summarizes the carrying value and estimated fair value of the Company’s debt as of December 31, 2024 and 2023: As of December 31,2024 2023(in thousands)Carrying value $ 2,986,546 $ 2,922,776Fair value 2,728,503 2,631,221 The fair value of debt estimates were based on a discounted cash flow analysis assuming market interest rates for comparable obligations as of December 31, 2024 and2023. The Company estimates the fair value of its fixed-rate debt and the credit spreads over variable market rates on its variable-rate debt by discounting the future cash flowsof each instrument at estimated market rates or credit spreads consistent with the maturity of the debt obligation with similar credit policies, which is classified within Level 2 ofthe fair value hierarchy. Rates and credit spreads take into consideration general market conditions and the respective debt maturities.
Page 88
F-33 12. NONCONTROLLING INTERESTS Interests in Consolidated Joint Ventures Noncontrolling interests in subsidiaries represent the ownership interests of third parties in the Company’s consolidated joint ventures. All consolidated joint ventures wereformed to develop, own and operate new stores with the exception of Anoka and Hines (both defined below), which both owned existing stores that had commenced operationsprior to the Company’s acquisition of its ownership interest. The following table summarizes the Company’s consolidated joint ventures, each of which are accounted for asVIEs: CubeSmart December 31, 2024Number Ownership Total Total Related PartyConsolidated Joint Ventures of Stores Interest Assets Liabilities Loans (1) (in thousands)Hines Capital ("Hines") (2) 14 85% $ 186,516 $ 116,977 $ —New Rochelle Investors, LLC ("New Rochelle") 1 70% 29,854 6,680 5,2371074 Raritan Road, LLC ("Clark") 1 90% 15,632 10,282 10,195350 Main Street, LLC ("Port Chester") 1 90% 9,040 2,567 1,401Astoria Investors, LLC ("Astoria") 1 70% 45,308 31,992 29,796CS Lock Up Anoka, LLC ("Anoka") 1 50% 9,728 5,572 5,526CS Valley Forge Village Storage, LLC ("VFV") 1 70% 18,507 14,885 14,792CS Vienna, LLC ("Vienna") 1 80% 29,318 34,802 34,486SH3, LLC ("SH3") 1 90% 35,571 290 —22 $ 379,474 $ 224,047 $ 101,433 (1) Related party loans represent amounts payable from the joint venture to the Company and are included in total liabilities within the table above. The loans and relatedparty interest have been eliminated for consolidation purposes. (2) Consists of seven consolidated joint ventures. Operating Partnership Ownership During the years ended December 31, 2024, 2023 and 2022, 105,757, 126,087 and 475,046 OP Units, respectively, were redeemed for common shares of the Company. As of December 31, 2024 and 2023, 1,194,705 and 1,300,462 OP Units, respectively, were owned by third parties. The per unit cash redemption amount of the outstanding OPUnits owned by third parties was calculated based upon the closing price of the common shares of CubeSmart on the New York Stock Exchange on the final trading day of theyear. Based on the Company’s evaluation of the redemption value of the redeemable noncontrolling interests, the Company has reflected these interests at the greater of thecarrying value based on the accumulation of historical cost or the redemption value as of December 31, 2024 and 2023. The aggregate redemption value of the 1,194,705 OPUnits owned by third parties as of December 31, 2024 was $51.2 million. 13. LEASES CubeSmart as Lessor The Company derives rental revenue primarily from rents received from customers who rent cubes at its self-storage properties under month-to-month leases for personal orbusiness use. The self-storage lease agreements utilized by the Company vary slightly to comply with state-specific laws and regulations, but, subject to such laws andregulations, generally provide for automatic monthly renewals, flexibility to increase rental rates over time as market conditions permit and the collection of contingent fees suchas administrative and late fees. None of the self-storage lease agreements contain options that allow the customer to purchase the leased self-storage space at any time during, orat the expiration of, the lease term. All self-storage leases in which the Company serves as lessor have been classified as operating leases. Accordingly, storage cubes are carriedat historical cost less accumulated depreciation and impairment, if any, and are included in Storage properties on the Company’s consolidated balance sheets. Operating leaseincome for amounts received under the Company’s self-storage lease agreements is recognized on a straight-line basis which, due to the month-to-month nature of the leases,results in the recognition of income during the initial term and each subsequent monthly renewal using the then-in-place rent amount. Operating lease income is included inRental income within the Company’s consolidated statements of operations. Variable lease income related to the Company’s self-storage lease agreements consists ofadministrative and late fees charged to customers. For the years ended December 31, 2024, 2023 and 2022, administrative and late fees totaled $34.3 million, $30.0 million, and$27.8 million, respectively, and are included in Other property related income within the Company’s consolidated statements of operations.
Page 89
F-34 CubeSmart as Lessee The Company serves as lessee in lease agreements for land, office space, automobiles and certain equipment, which have remaining lease terms of up to 40 years. Certain ofthe Company’s leases (1) provide for one or more options to renew, with renewal options that can extend the lease up to 69 years, (2) allow for early termination at certain pointsduring the lease term and/or (3) give the Company the option to purchase the leased property. In all cases, the exercise of the lease renewal, termination and purchase options, ifprovided for in the lease, are at the Company’s sole discretion. Certain of the Company’s lease agreements, particularly its land leases, require rental payments that areperiodically adjusted for inflation using a defined index. None of the Company’s lease agreements contain any material residual value guarantees or material restrictivecovenants. Lease expense for payments related to the Company’s finance leases is recognized as interest expense using the interest method over the related lease term. Leaseexpense for payments related to the Company’s operating leases is recognized on a straight-line basis over the related lease term, which includes options to extend or terminatethe lease when it is reasonably certain that the Company will exercise that option. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make leasepayments as specified in the lease. Right-of-use assets and lease liabilities related to the Company’s operating leases are recognized at the lease commencement date based onthe present value of the remaining lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing ratebased on the information available regarding the Company’s unsecured borrowing rates and implied secured spread at the lease commencement date in determining the presentvalue of lease payments. The right-of-use asset also includes any lease payments made at or before lease commencement less any lease incentives. For the years ended December 31, 2024, 2023 and 2022, the Company’s lease cost consists of the following components: Year Ended December 31,2024 2023 2022(in thousands)Finance lease cost:Amortization of finance lease right-of-use assets $ 964 $ 964 $ 964Interest expense related to finance lease liabilities 2,137 2,138 2,140Operating lease cost 3,003 3,064 2,980Short-term lease cost (1) 1,235 1,375 868Total lease costs $ 7,339 $ 7,541 $ 6,952 Cash paid for amounts included in measurement of lease liabilities:Operating cash outflows for finance leases $ 2,183 $ 2,183 $ 2,183Operating cash outflows for operating leases 2,536 2,601 2,453Total cash outflows for lease liability measurement $ 4,719 $ 4,784 $ 4,636 (1) Represents automobile leases that have a lease term of 12 months. The Company has made an accounting policy election not to apply the recognition requirements ofASC 842 to this asset class. The lease cost associated with these leases is recognized on a straight-line basis over the related lease term.
Page 90
F-35 The following table represents supplemental balance sheet information related to leases as of December 31, 2024 and 2023: December 31, 2024 2023(dollars in thousands)Finance LeasesRight-of-use assets included in Storage properties, net $ 41,945 $ 41,945Lease liabilities included in Lease liabilities - finance leases $ 65,668 $ 65,714 Operating LeasesRight-of-use assets included in Other assets, net $ 49,435 $ 50,476Lease liabilities included in Accounts payable, accrued expenses and other liabilities $ 49,968 $ 50,324 Weighted Average Lease Term (in years)Finance leases 39.5 40.5Operating leases 31.1 32.0 Weighted Average Discount RateFinance leases 3.25% 3.25%Operating leases 4.52% 4.52% The following table represents the future lease liability maturities as of December 31, 2024 (in thousands): Finance Operating2025 $ 2,224 $ 2,5242026 2,334 2,5872027 2,371 2,6182028 2,371 2,6492029 2,371 2,6772030 and thereafter 113,484 84,041Total lease payments 125,155 97,096Less: Imputed interest (59,487) (47,128)Present value of lease liabilities $ 65,668 $ 49,968 As of December 31, 2024, the Company has not entered into any lease agreements that are set to commence in the future. 14. RELATED PARTY TRANSACTIONS The Company provides management services to certain joint ventures and other related parties. Management agreements provide for fee income to the Company based on apercentage of revenues at the managed stores. Total management fees for unconsolidated real estate ventures or other entities in which the Company held an ownership interestfor the years ending December 31, 2024, 2023 and 2022 totaled $4.8 million, $4.8 million and $5.1 million, respectively. The management agreements for certain joint ventures, other related parties and third-party stores provide for the reimbursement to the Company for certain expensesincurred to manage the stores. These reimbursements consist of amounts due for management fees, payroll and other store expenses. The amounts due to the Company were$18.9 million and $18.0 million as of December 31, 2024 and 2023, respectively, and are included in Other assets, net on the Company’s consolidated balance sheets.Additionally, the Company had outstanding mortgage loans receivable from consolidated joint ventures of $101.4 million and $86.3 million as of December 31, 2024 and 2023,respectively, which are eliminated for consolidation purposes. The Company believes that all of these related-party receivables are fully collectible. The HVP V, HVPSE, HVP IV and HHFNE operating agreements provide for acquisition, disposition and other fees payable from HVP V, HVPSE, HVP IV and HHFNE tothe Company upon the closing of a property transaction by HVP V, HVPSE, HVP IV and HHFNE, or any of their subsidiaries and completion of certain measures as defined inthe operating agreements. During the year ended December 31, 2022, the Company recognized $0.6 million in fees associated with property transactions. No such fees wererecognized during the years
Page 91
F-36 ended December 31, 2024 or 2023. Property transaction fees are included in the component of other (expense) income designated as Other within the Company’s consolidatedstatements of operations. In April 2022, the Company began serving as lessor in a ground lease related to land underlying an HVP IV property located in Texas (see note 4). During the years endedDecember 31, 2024, 2023, and 2022, the Company recognized income associated with this ground lease of $0.4 million, $0.4 million and $0.2 million, respectively. This incomeis included in the component of other (expense) income designated as Other within the Company’s consolidated statements of operations. 15. SEGMENT INFORMATION Overview The Company has one operating segment: the ownership, operation, development, management, and acquisition of self-storage properties (the “self-storage segment”).Accordingly, the self-storage segment is the Company’s only reportable segment. The self-storage segment derives substantially all of its revenue from customers who lease self-storage space at the Company’s self-storage properties and fees earned from managing self-storage properties. Expenses incurred by the segment relate to expenses directlyrelated to these revenue-generating activities, the depreciation and amortization of the Company’s assets, and other expenses incurred for the administration and financing of theCompany’s operations. The accounting policies applicable to the self-storage segment are the same as those described in the summary of significant accounting policies (see note 2). The Companydoes not have intra-entity sales or transfers. The Company’s chief operating decision maker (“CODM”) is the Chief Executive Officer. In determining the Company’s operating segment, management considered the reports and information that the CODM reviews, the Company’s organizational structure, thebasis of the Company’s incentive compensation, and the information discussed on the Company’s earnings calls and presented on its website. After such analysis, managementdetermined that the Company is primarily and fundamentally managed at the consolidated level, with one operating segment. Segment Assets The CODM does not regularly review total assets for our single reportable segment as total assets are not used to assess performance or allocate resources.
Page 92
F-37 Segment Profit or Loss As a single-segment entity, the Company’s measure of segment profit or loss is net income, which is reported on the Company’s consolidated statements of operations. Thismeasure includes all of the Company’s revenues and expenses, allowing the CODM to evaluate the self-storage segment’s overall performance and informing the CODM’sdecisions to allocate resources to different operational, investing and financing aspects of the self-storage segment. The following table details the revenues and significant segment-level expenses of the self-storage segment. Year Ended December 31,2024 2023 2022(in thousands)Total revenues $ 1,066,231 $ 1,050,334 $ 1,009,624 Significant segment-level expenses (income): Property taxes 106,090 97,650 98,186 Personnel expense 87,418 80,469 83,253 Advertising 26,000 24,508 22,432 Repair and maintenance 11,592 10,919 9,952 Utilities 24,505 24,104 24,080 Property insurance 15,377 13,085 10,054 Other property operating expenses 46,768 44,045 45,303 Total property operating expenses 317,750 294,780 293,260 Depreciation and amortization 205,703 201,238 310,610 General and administrative 59,663 57,041 54,623 Interest expense on loans 90,820 93,065 93,284 Loan procurement amortization expense 4,067 4,141 3,897 Equity in earnings of real estate ventures (2,499) (6,085) (48,877) Other (1,158) (6,281) 10,355Net income $ 391,885 $ 412,435 $ 292,472 16. COMMITMENTS AND CONTINGENCIES Development Commitments The Company has agreements with developers for the construction of two new self-storage properties (see note 4), which will require payments of approximately $24.2million, due in installments upon completion of certain construction milestones, during 2025. Litigation From time to time, the Company is involved in claims which arise in the ordinary course of business. In accordance with applicable accounting guidance, management establishes an accrued liability for claim expenses, insurance retention and litigation costs when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be exposure to loss in excess of those amounts accrued. The estimated loss, if any, is based upon currently available information and is subject to significant judgment, a variety of assumptions and known and unknown uncertainties. In the opinion of management, the Company has made adequate provisions for potential liabilities arising from any such matters, which are included in Accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets. 17. SHARE-BASED COMPENSATION PLANS The Company has a share-based compensation plan (the “Plan”) which it utilizes to compensate certain employees and non-employee Trustees. The Plan was last amendedand restated in 2016. The Plan provides for the grant of share options, share appreciation rights, restricted shares, performance units, which may be denominated in cash orshares, including restricted shares and restricted share units, and other share-based awards, including unrestricted common shares or awards denominated or payable in, orvalued in whole or part by reference to, common shares. Share options granted under the Plan may be non-qualified share options or incentive share options.
Page 93
F-38 Upon shareholder approval of the amendment and restatement of the Plan on June 1, 2016, 4,500,000 additional common shares were made available for award under thePlan. As a result, these 4,500,000 additional shares, together with the 991,117 shares that remained available for future awards under the Plan at the time of the shareholderapproval, plus any common shares that are restored to availability upon expiration or forfeiture of outstanding options or restricted share awards, would constitute the“Aggregate Share Reserve”. As of December 31, 2024: (i) 687,537 common shares remained available for future awards under the Plan; (ii) 379,414 unvested restricted shareawards were outstanding under the Plan; and (iii) 2,816,466 common shares were subject to outstanding options under the Plan. The Plan is administered by the Compensation Committee of the Board (the “Compensation Committee”). The Compensation Committee interprets the Plan and, subject to itsright to delegate authority to grant awards, determines the terms and provisions of option grants and share awards. Under the Plan, the Compensation Committee determines the vesting schedule of each award, subject to a one-year minimum vesting requirement for share options, shareappreciation rights, and certain restricted share and restricted share unit awards, but with permitted acceleration of vesting in the event of a participant’s death or disability, or inthe event of a change in control or certain changes in our capital structure. Notwithstanding the foregoing one-year minimum vesting limitation, up to five percent of the sharessubject to the Aggregate Share Reserve may be subject to awards that are not subject to such limitation. The exercise price for options is equivalent to the fair value of theunderlying common shares at the grant date. The Compensation Committee also determines the term of each option, which shall not exceed 10 years from the grant date. Share Options The fair values for options granted in 2024, 2023 and 2022 were estimated at the time the options were granted using the Black-Scholes option-pricing model applying thefollowing weighted average assumptions: Assumptions: 2024 2023 2022 Risk-free interest rate 3.9% 4.1% 1.5% Expected dividend yield 4.1% 4.1% 3.7% Volatility (1) 27.00% 26.00% 25.00% Weighted average expected life of the options (2) 6years 6years 6yearsWeighted average grant date fair value of options granted per share $ 9.30 $ 7.90 $ 8.83Term 10years 10years 10years (1) Expected volatility is based upon the Company’s historical daily share prices. (2) The expected life is based on the contractual term of the options as well as the weighted average vesting period. In 2024, 2023 and 2022, the Company recognized compensation expense related to options issued to employees and executives of approximately $3.2 million, $2.8 millionand $2.5 million, respectively, which is included in General and administrative expense within the Company’s consolidated statements of operations. The share options vestratably over three years subject to certain accelerated vesting due to the age and years of service of certain employees. As of December 31, 2024, the Company hadapproximately $3.5 million of unrecognized option compensation costs related to all grants that are expected to be recognized over a weighted average period of 1.7 years.
Page 94
F-39 The table below summarizes the option activity under the Plan for the year ended December 31, 2024: Options Weighted AverageStrike Price Weighted AverageRemainingContractual Term (Years) Balance at December 31, 2023 2,763,159 $ 34.75 5.95Options granted 401,075 46.35 9.00Options exercised (347,768) 28.58 3.28Balance at December 31, 2024 2,816,466 $ 37.16 5.79 Vested or expected to vest at December 31, 2024 2,816,466 $ 37.16 5.79Exercisable at December 31, 2024 2,045,624 $ 33.96 4.81 As of December 31, 2024, the aggregate intrinsic value of options that were exercisable was approximately $21.1 million. As of that date, the aggregate intrinsic value ofoptions that had vested or were expected to vest was approximately $21.8 million. The aggregate intrinsic value of options exercised was approximately $6.1 million, $3.9million and $1.0 million for the years ended December 31, 2024, 2023 and 2022, respectively. Restricted Shares & Performance Units During 2024, 2023 and 2022 the Company granted restricted shares to employees and Trustees and also granted performance units to certain executives. The fair values for restricted share awards made under the Plan were valued at the grant date fair value, which is the market price of the underlying common shares. Theshares vest over either a 3-year or 5-year period beginning with the first anniversary of the grant and subject to certain accelerated vesting due to the age and years of service ofcertain employees. Performance units represent the right to earn common shares. The performance units were granted in the form of deferred share units with a market condition, entitling theholders thereof to receive common shares at a future date. The performance units are awarded based on the Company’s total return to shareholders with respect to a specifiedpeer group consisting of publicly-traded REITs over a three-year period. The performance units cliff vest upon the third anniversary of the effective date. The Company used aMonte Carlo simulation analysis to estimate the fair value of the awards, the key assumptions of which are as follows: Assumptions: 2024 2023 2022 Risk-free interest rate 4.1% 4.2% 1.0% Volatility (1) 26.00% 32.00% 28.00% (1) Expected volatility is based upon the Company’s historical daily share prices. During the years ended December 31, 2024, 2023 and 2022, the Company recognized compensation expense related to restricted shares and performance units ofapproximately $8.3 million, $7.3 million and $6.5 million, respectively, which is included in General and administrative expense within the Company’s consolidated statementsof operations. The following table presents non-vested restricted share and performance unit activity under the Plan for the year ended December 31, 2024: Number of Non- Vested Restricted Shares and Performance Units Non-Vested at January 1, 2024 360,529Granted 190,865Vested (161,366)Forfeited (10,614)Non-Vested at December 31, 2024 379,414 The weighted average fair value of restricted shares and performance units granted during the years ended December 31, 2024, 2023 and 2022 was $51.58, $46.94 and $61.41,respectively. The total fair value of restricted shares and performance units vested during the years ended December 31, 2024, 2023 and 2022 was $7.1 million, $6.1 million and$5.6 million, respectively. As of December 31, 2024 the Company had approximately $9.6 million of remaining unrecognized restricted share and performance unitcompensation costs that are expected to be recognized over a weighted average period of 2.0 years.
Page 95
F-40 18. EARNINGS PER SHARE AND UNIT AND SHAREHOLDERS’ EQUITY AND CAPITAL Earnings per share and shareholders’ equity The following is a summary of the elements used in calculating basic and diluted earnings per share: For the year ended December 31,2024 2023 2022(dollars and shares in thousands, except per share amounts)Net income $ 391,885 $ 412,435 $ 292,472Net income attributable to noncontrolling interests in the Operating Partnership (2,159) (2,535) (1,931)Net loss attributable to noncontrolling interests in subsidiaries 1,454 857 722Net income attributable to the Company's common shareholders $ 391,180 $ 410,757 $ 291,263 Weighted average basic shares outstanding 226,353 225,424 224,928Share options and restricted share units 797 817 953Weighted average diluted shares outstanding 227,150 226,241 225,881 Basic earnings per share attributable to common shareholders $ 1.73 $ 1.82 $ 1.29Diluted earnings per share attributable to common shareholders (1) $ 1.72 $ 1.82 $ 1.29 Dividends declared per common share $ 2.05 $ 1.98 $ 1.78 (1) The amounts of anti-dilutive options that were excluded from the computation of diluted earnings per share for the years ended December 31, 2024, 2023 and 2022were 0.7 million, 0.7 million and 0.3 million, respectively. Income allocated to noncontrolling interests of the Operating Partnership has been excluded from the numerator and OP Units owned by third parties have been omitted fromthe denominator for the purpose of computing diluted earnings per share since the effect of including these amounts in the numerator and denominator would be anti-dilutive.Weighted average outstanding OP Units owned by third parties for the years ended December 31, 2024, 2023 and 2022 were 1.3 million, 1.4 million and 1.5 million,respectively.
Page 96
F-41 Earnings per unit and capital The following is a summary of the elements used in calculating basic and diluted earnings per unit: For the year ended December 31,2024 2023 2022(dollars and units in thousands, except per unit amounts)Net income $ 391,885 $ 412,435 $ 292,472Net loss attributable to noncontrolling interests in subsidiaries 1,454 857 722Net income attributable to CubeSmart, L.P. $ 393,339 $ 413,292 $ 293,194 Weighted average basic units outstanding 227,603 226,817 226,449Unit options and restricted share units 797 817 953Weighted average diluted units outstanding 228,400 227,634 227,402 Basic earnings per unit attributable to CubeSmart, L.P. $ 1.73 $ 1.82 $ 1.29Diluted earnings per unit attributable to CubeSmart, L.P. (1) $ 1.72 $ 1.82 $ 1.29 Dividends declared per common unit $ 2.05 $ 1.98 $ 1.78 (1) The amounts of anti-dilutive options that were excluded from the computation of diluted earnings per unit for the years ended December 31, 2024, 2023 and 2022 were0.7 million, 0.7 million and 0.3 million, respectively. The OP Units owned by the General Partner and the OP Units owned by third parties have essentially the same economic characteristics as they share equally in the total netincome or loss and distributions of the Operating Partnership. OP Units owned by third parties may be redeemed for cash, or at the Company’s option, common shares ofCubeSmart on a one-for-one basis. The following is a summary of OP Units outstanding: As of December 31,2024 2023 2022Outstanding OP Units owned by third parties 1,194,705 1,300,462 1,426,549Outstanding OP Units owned by the General Partner 227,764,975 224,921,053 224,603,462 Common Shares The Company maintains an at-the-market equity program that enables it to offer and sell up to 60.0 million common shares through sales agents pursuant to equitydistribution agreements (the “Equity Distribution Agreements”). The Company’s sales activity under the program for the years ended December 31, 2024, 2023 and 2022 issummarized below: For the year ended December 31,2024 2023 2022(dollars and shares in thousands, except per share amounts)Number of shares sold 2,336 — 102Average sales price per share $ 51.25 $ — $ 50.64Net proceeds after deducting offering costs $ 118,269 $ — $ 4,936 The proceeds from the sales of common shares under the program during the years ended December 31, 2024 and 2022 were used to fund the acquisition and development ofself-storage properties and for general corporate purposes. As of December 31, 2024, 2023 and 2022, 3.5 million common shares, 5.8 million common shares and 5.8 millioncommon shares, respectively, remained available for issuance under the Equity Distribution Agreements. 19. SUBSEQUENT EVENTS Subsequent to December 31, 2024, the Company acquired the remaining 80% interest in HVP IV, an unconsolidated real estate venture in which the Company previouslyowned a 20% noncontrolling interest, for $452.8 million, which included $44.4 million to repay the Company’s portion of the venture’s existing indebtedness. As of the date ofacquisition, HVP IV owned 28 stores in Arizona (2), Connecticut (3), Florida (4), Georgia (2), Illinois (5), Maryland (2), Minnesota (1), Pennsylvania (1) and Texas (8).
Page 97
Table of Contents F-42 CUBESMARTSCHEDULE IIIREAL ESTATE AND RELATED DEPRECIATIONDecember 31, 2024(dollars in thousands) Gross Carrying Amount atTotal Initial Cost Costs December 31, 2024 Rentable Buildings Subsequent Buildings AccumulatedNumber of Square Feet & to & DepreciationState Stores (unaudited) Encumbrances Land Improvements Acquisition Land Improvements Total (A)Arizona 48 3,096,841$ — $ 98,442$ 389,514$ 30,053$ 99,493$ 402,748$ 502,241$ 72,165California 63 4,785,454 — 371,460 683,683 42,066 373,301 666,971 1,040,272 134,777Colorado 10 654,192 — 11,812 46,755 5,107 11,786 45,405 57,191 16,226Connecticut 24 1,341,702 — 23,842 99,319 22,654 25,388 105,112 130,500 40,110Florida 90 6,792,732 — 104,987 531,360 100,720 112,652 553,858 666,510 206,213Georgia 22 1,662,605 — 20,015 117,825 12,211 19,826 117,323 137,149 37,606Illinois 42 2,710,231 — 52,723 219,307 32,557 52,619 226,398 279,017 84,142Indiana 1 70,386 — 1,134 5,589 263 1,134 5,846 6,980 1,953Maryland 20 1,686,207 — 40,467 214,985 16,452 41,323 218,596 259,919 63,653Massachusetts 20 1,256,140 — 31,948 159,000 15,626 32,200 168,628 200,828 43,260Minnesota 2 175,816 — 2,621 21,655 439 2,621 22,051 24,672 4,009Nevada 22 1,706,904 — 69,956 394,023 7,222 71,704 399,040 470,744 43,772New Jersey 30 2,160,765 — 53,445 215,305 46,574 56,956 241,056 298,012 78,607New Mexico 3 182,261 — 2,866 9,367 2,030 2,867 8,081 10,948 3,880New York 60 4,813,803 89,039 444,340 1,351,443 64,073 460,567 1,382,189 1,842,756 378,947North Carolina 9 611,773 — 10,349 44,680 7,190 10,787 47,925 58,712 16,209Ohio 20 1,294,528 — 13,529 51,265 19,547 14,937 55,517 70,454 24,749Oregon 1 59,863 — 2,069 7,620 — 2,069 7,620 9,689 38Pennsylvania 13 950,718 — 18,999 105,338 11,281 18,924 111,143 130,067 27,558Rhode Island 4 247,305 — 3,480 17,156 1,792 3,481 18,880 22,361 6,144South Carolina 8 432,324 — 6,117 31,039 2,119 6,117 33,158 39,275 5,368Tennessee 9 756,220 — 9,117 54,403 7,271 8,991 53,203 62,194 16,740Texas 90 6,684,450 115,432 136,683 617,741 40,018 136,937 630,730 767,667 133,656Utah 4 235,763 — 10,763 2,844 5,902 10,623 7,031 17,654 2,215Virginia 11 1,060,160 — 37,282 138,668 6,264 37,283 137,657 174,940 41,886Washington D.C. 5 410,676 — 28,759 80,996 2,729 28,802 77,581 106,383 21,038Other Corporate Assets — — — 2,131 15,447 1,761 2,161 16,101 18,262 4,141631 45,839,819$ 204,471$ 1,609,336$ 5,626,327$ 503,921$ 1,645,549$ 5,759,848$ 7,405,397$ 1,509,062 (A) Depreciation on buildings and improvements is recorded on a straight-line basis over their estimated useful lives, which range from five to 39 years.
Page 98
Table of Contents F-43 Activity in storage properties during the period from January 1, 2022 through December 31, 2024 was as follows (in thousands): 2024 2023 2022Storage properties*Balance at beginning of year $ 7,367,613 $ 7,295,778 $ 7,183,494Acquisitions & improvements 324,653 74,259 191,495Fully depreciated assets (27,573) (29,133) (32,344)Dispositions and other (632) (4,717) (6,230)Construction in progress, net (35,287) 31,426 (40,637) Balance at end of year $ 7,628,774 $ 7,367,613 $ 7,295,778 Accumulated depreciation*Balance at beginning of year $ 1,416,377 $ 1,247,775 $ 1,085,824Depreciation expense 201,942 199,065 195,522Fully depreciated assets (27,573) (29,133) (32,344)Dispositions and other (158) (1,330) (1,227) Balance at end of year $ 1,590,588 $ 1,416,377 $ 1,247,775 Storage properties, net $ 6,038,186 $ 5,951,236 $ 6,048,003 * These amounts include equipment at the Company’s stores which is excluded from Schedule III. As of December 31, 2024, the aggregate cost of Storage properties for federal income tax purposes was approximately $8,047.8 million.