CubeSmartCUBEEarnings & Financial Report
NYSE · real estate investment trust
CubeSmart is a real estate investment trust that invests in self storage facilities in the United States. As of December 31, 2024, it owned 631 self storage properties in 25 states and the District of Columbia containing 45.8 million rentable square feet. It is the 3rd largest self storage company in the United States.
What changed in CubeSmart's 10-K — 2022 vs 2023
Top changes in CubeSmart's 2023 10-K
147 paragraphs added · 163 removed · 125 edited across 6 sections
- Item 7. Management's Discussion & Analysis+62 / −71 · 49 edited
- Item 1A. Risk Factors+68 / −74 · 59 edited
- Item 5. Market for Registrant's Common Equity+7 / −8 · 7 edited
- Item 7A. Quantitative and Qualitative Disclosures About Market Risk+8 / −8 · 8 edited
- Item 4. Mine Safety Disclosures+1 / −1 · 1 edited
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
59 edited+9 added−15 removed119 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
59 edited+9 added−15 removed119 unchanged
2022 filing
2023 filing
As a result, if a liability were asserted against us based upon ownership of an acquired property, we might be required to pay significant sums to 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 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 risks associated with integrating and managing new stores, including customer retention and mortgage default risks.
As a result, if a liability were asserted against us based upon ownership of an acquired property, we might be required to pay significant sums to 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 risks associated with integrating and managing new stores, including customer retention and mortgage default risks.
The more favorable rates applicable to regular corporate dividends could cause shareholders who are individuals to perceive investments in REITs to be relatively less attractive than investments in the stock of non-REIT corporations that pay dividends to which more favorable 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, or credit 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 the partnership level.
The more favorable tax rates applicable to regular corporate dividends could cause shareholders who are individuals to perceive 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, or credit 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 the partnership level.
Our ability to finance new acquisitions and refinance future debt maturities could be adversely impacted by our inability to secure 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 service payment obligations and the inability to refinance outstanding indebtedness at maturity.
Our ability to finance new acquisitions and development and refinance future debt maturities could be adversely impacted by our inability to secure 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 service payment obligations and the inability to refinance outstanding indebtedness at maturity.
If there is an increase in 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 control transactions 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 under circumstances 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 date on which the shareholder becomes an interested shareholder, and thereafter imposes stringent fair price and super-majority shareholder voting requirements on these combinations; and ● “control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in electing Trustees) acquired in a “control share acquisition” (defined as the 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 by our 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 to redemption in certain circumstances. We have opted out of these provisions of Maryland law.
If there is an increase in 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 control transactions 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 under circumstances 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 date on which the shareholder becomes an interested shareholder, and thereafter imposes stringent fair price and super-majority shareholder voting requirements on these combinations; and ● “control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in electing Trustees) acquired in a “control share acquisition” (defined as the 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 by our 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 to redemption in certain circumstances. 23 Table of Contents 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 approval. 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) amend our bylaws or repeal individual bylaws in a manner that provides the Board with greater authority, and (3) issue additional equity securities.
However, our Board may opt to make these provisions applicable to us at any time without shareholder notice or approval. 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) amend our bylaws or repeal individual bylaws in a manner that provides the Board with greater authority, and (3) issue additional equity securities.
If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business, results of operations, and financial condition could be materially harmed, we could fail to meet our reporting obligations, and there could be a material adverse effect on the market price of our common shares. ITEM 1B.
If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their design or implementation, our business, results of operations, and financial condition could be materially harmed, we could fail to meet our reporting obligations, and there could be a material adverse effect on the market price of our common shares. ITEM 1B.
Our initiatives also extend from individuals to entire communities, including those we serve. Any failure to achieve our ESG goals or a perception (whether or not valid) of our failure to act responsibly with respect to the environmental, social, or governance issues, or to effectively respond to new, or changes in, legal or regulatory requirements concerning ESG matters, or increased operating costs due to increased regulation or environmental causes could adversely affect our business, financial condition, results of operations, access to capital and reputation and increase 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, and stock price. Pursuant to the Sarbanes-Oxley Act of 2002, we are required to provide a report by management on internal control over financial reporting, including management’s assessment of the effectiveness of internal control.
Our initiatives also extend from individuals to entire communities, including those we serve. Any failure to achieve our ESG goals or a perception (whether or not valid) of our failure to act responsibly with respect to the environmental, social, or governance issues, or to effectively respond to new, or changes in, legal or regulatory requirements concerning ESG matters, or increased operating costs due to increased regulation or environmental causes could adversely affect our business, financial condition, results of operations, access to capital and reputation and increase 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, and share price. Pursuant to the Sarbanes-Oxley Act of 2002, we are required to provide a report by management on internal control over financial reporting, including management’s assessment of the effectiveness of internal control.
Certain entities through which 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 in audits, in some instances there may be no controlling precedent or interpretive guidance on the specific point at issue.
Certain entities through which 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 in these audits, in some instances there may be no controlling precedent or interpretive guidance on the specific point at issue.
Any such commercial dispute and related resolution would involve all of the risks described above, including, in particular, our agreement to restrict the use of our brand name or other intellectual property. We also could be sued for personal injuries and/or property damage occurring on our properties.
Any such commercial dispute and related resolution would involve 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.
Increased regulatory requirements related to environmental causes, and related ESG disclosure rules, including the SEC’s recent disclosure proposal on climate change, may result in increased compliance costs or increased energy and other costs. In addition to environmental issues, these constituencies are also focused on social and other governance issues, including matters such as human capital and social issues.
Increased regulatory requirements related to environmental causes, and related ESG 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 to environmental issues, these constituencies are also focused on social and other governance issues, including matters such as human capital and social issues.
If our debt cannot be paid, refinanced or extended at maturity, we may not be able to make distributions to shareholders at expected levels or at all and may not be able to acquire new stores. Failure to make distributions to our shareholders could result in our failure to qualify as a REIT for federal income tax purposes.
If our debt cannot be paid, refinanced or extended at maturity, we may not be able to make 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 result in our failure to qualify as a REIT for federal income tax purposes.
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. 16 Table of Contents 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 or develop 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 to maintain our status as a REIT, and these sources of capital may not be available on favorable terms, if at all.
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 or develop 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 to maintain our status as a REIT, and these sources of capital may not be available on favorable terms, if at all.
We do not carry insurance for losses such as loss from civil unrest, riots, war or acts of God, and, in some cases, flood and environmental hazards, because such coverage is either not available or is not available at commercially reasonable rates.
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 and environmental hazards, because such coverage is either not available or not available at commercially reasonable rates.
Although we believe that future acquisitions that we complete 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 the area or an unfamiliarity with local governmental and permitting procedures; and ● 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 of undisclosed environmental contamination; claims by customers, vendors or other persons arising on account of actions or omissions of the former owners of the properties; and claims by local governments, adjoining property owners, property owner associations and easement holders for fees, assessments or taxes on other property-related changes.
Although we believe that future acquisitions that we complete 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 the area or an unfamiliarity with local governmental and permitting procedures; and 14 Table of Contents ● 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 of undisclosed environmental contamination; claims by customers, vendors or other persons arising on account of actions or omissions of the former owners of the properties; and claims by local governments, adjoining property owners, property owner associations and easement holders for fees, assessments or taxes on other property-related changes.
Some of our policies, such as those covering losses due to terrorism, hurricanes, floods and earthquakes, are insured subject to limitations involving large deductibles or co-payments and policy limits that may not be sufficient to cover losses.
Some of our policies, such as those covering losses due to terrorism, hurricanes, floods, earthquakes and windstorms, are insured subject to limitations involving large deductibles or co-payments and policy limits that may not be sufficient to cover losses.
Adverse economic conditions affecting disposable consumer income, such as employment levels, business conditions, inflation, 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.
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.
There can be no assurance that these rules will not have a material adverse effect on us. 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 of equity or debt securities, additional bank borrowings (which may include extension of maturity dates), joint ventures or asset sales.
There can be no assurance that these rules will not have a material adverse effect on us. 21 Table of Contents 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 of equity or debt securities, additional bank borrowings (which may include extension of maturity dates), joint ventures or asset sales.
If we are unable to obtain external sources of capital, we may not be able to acquire or develop properties when strategic opportunities 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. 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 be adversely affected . We derive revenues principally from rents received from customers who rent cubes at our self-storage properties under month-to-month leases.
If we are unable to obtain external sources of capital, we may not be able to acquire or develop properties when strategic opportunities 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. 15 Table of Contents 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 be adversely affected . We derive revenues principally from rents received from customers who rent cubes at our self-storage properties under month-to-month leases.
If we are required to take impairment charges, our results of operations will be adversely impacted. 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 may negatively affect us.
If we are required to take impairment 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 may negatively affect us.
Furthermore, our income may decline because we will be required to depreciate/amortize in future periods costs for acquired real property and intangible assets.
Furthermore, our net income may decline because we will be required to depreciate/amortize in future periods costs for acquired real property and intangible assets.
If we are required to make substantial modifications to comply with the ADA or similar state 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 make distributions 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 technology systems 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 and internet commerce, and many of our new customers come from the telephone or over the internet.
If we are required to make substantial modifications to comply with the ADA or similar state 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 make distributions 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 technology systems 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 customers come from the telephone or over the internet.
However, we cannot assure that our environmental assessments have identified or will identify all 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, that environmental conditions on neighboring properties 18 Table of Contents will not have an impact on any of our properties, or that a material environmental condition does not otherwise exist with respect 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.
However, we cannot assure that our environmental assessments have identified or will identify all 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, that environmental conditions on neighboring properties will not have an impact on any of our properties, or that a material environmental condition does not otherwise exist with respect 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.
In addition, any such resolution could involve our agreement with terms that restrict the operation of our business. There are other commercial parties, at both a local and national level, that may assert that our use of our brand names and other intellectual property conflict with their rights to use brand names, internet domains and other intellectual property that they consider to be similar to ours.
In addition, any such resolution could involve our agreement 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 their rights to use brand names, internet domains and other intellectual property that they consider to be similar to ours.
Failure of 90% or more of a publicly traded partnership’s gross income to be “qualifying income” under Section 7704 of the Internal Revenue Code in each of its tax years could result in such entity being taxed as a corporation rather than a partnership for U.S. federal income tax purposes.
Failure of 90% or more of a publicly traded partnership’s gross income to be “qualifying income” under Section 7704 of the Code in each of its tax years could result in such entity being taxed as a corporation rather than a partnership for U.S. federal income tax purposes.
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; 19 Table of Contents ● 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 which are 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 or the 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 service obligations 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 our rental 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.
Events or conditions beyond our control that may adversely affect our operations or the value of our properties include but are not limited to: 18 Table of Contents ● 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 which are 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, pandemics or 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 service obligations 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 our rental 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.
This, along with other factors, should enable us to continue to qualify for the tax benefits accorded to a REIT under the Internal Revenue Code. We have not established a minimum dividends payment level, and all future distributions will be made at the discretion of our Board.
This, along with other factors, should enable us to continue 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 be made 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; 26 Table of Contents ● 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 cash flow 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 the operation of our business. We may become subject to disputes with commercial parties with whom we maintain relationships or other parties with whom we do business.
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 cash flow 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 the operation 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 do business.
This competition for investments may reduce the number of suitable investment opportunities available to us, 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 operating results. 17 Table of Contents 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.
This competition for investments may reduce the number of suitable investment opportunities available to us, 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 operating results. 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.
If we fail to qualify as a REIT 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 would nevertheless 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, we would be subject to federal income tax at regular corporate rates on all of our income.
If we fail to qualify as a REIT 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 would nevertheless 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.
Thus, higher market interest rates could cause the market price of our equity securities to go down; ● anticipated benefit of an investment in our securities as compared to investment in securities of companies in other industries (including benefits associated with tax treatment 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; ● relatively low trading volumes in securities of REITs; 25 Table of Contents ● 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 cash distributions.
Thus, higher market interest rates could cause the market price of our equity securities to go down; 24 Table of Contents ● anticipated benefit of an investment in our securities as compared to investment in securities of companies in other industries (including benefits associated with tax treatment 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 cash distributions.
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 on investment in our capital stock. 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 certain thresholds that are adjusted annually under current law).
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 on investment 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 certain thresholds that are adjusted annually under current law).
The loss of services of one or more members of our 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, may adversely affect our rental revenues. Our performance depends on our ability to recruit and retain high-quality employees, both in our stores, in our sales staff and in our corporate headquarters.
The loss of services of one or more members of our 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, may adversely 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.
If we become more highly leveraged, then the resulting increase in debt service could adversely affect our ability to make payments on our outstanding indebtedness and to pay our anticipated distributions and/or the distributions required to maintain our REIT status, and could harm our financial condition. 23 Table of Contents 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.
If we become more highly leveraged, then the resulting increase in debt service could adversely affect our ability to make payments on our outstanding indebtedness 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.
Moreover, the nature of our business involves the receipt and retention of personal information about our customers. We also rely extensively on third-party vendors to retain data, process transactions and provide other systems and services.
Moreover, the nature of our business involves the receipt and retention of personal information about our customers. We also rely extensively on third-party vendors to retain data, host software, process transactions and provide other systems and services.
We also are required to distribute to our shareholders with respect to each year at least 90% of our REIT taxable income, excluding net 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 application of the REIT requirements for us.
We also are required to distribute to our shareholders with respect to each year at least 90% of our REIT taxable income, excluding net capital gains. The fact that we hold 19 Table of Contents substantially all of our assets through the Operating Partnership and its subsidiaries and joint ventures further complicates the application of the REIT requirements for us.
Furthermore, we are restricted from incurring certain 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 the indentures governing the Credit Facility and senior notes. 22 Table of Contents There can be no assurance that we will be able to refinance our debt on favorable terms or at all.
Furthermore, we are restricted from incurring certain 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 the indentures 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.
In addition, an increase in interest rates could decrease the amounts that 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. Our organizational documents contain no limitation on the amount of debt we may incur.
In addition, an increase in interest rates could decrease the amounts that 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. 22 Table of Contents Our organizational documents contain no limitation on the amount of debt we may incur.
Our Chief Executive Officer, Chief Financial Officer, Chief Legal Officer and Chief Operating Officer are parties to the Company’s executive severance plan, however, we cannot provide assurance that any of them will remain in our employment.
Our Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Legal Officer and Chief Human Resources Officer are parties to the Company’s executive severance plan, however, we cannot provide assurance that any of them will remain in our employment.
In addition, if the damaged stores are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these stores were irreparably damaged. Additionally, we use a combination of insurance products, some of which include deductibles and self-insured retention amounts, to provide risk mitigation for potential liabilities associated with automobiles, workers’ compensation, employment practices, general contractors, cyber risks, crime, directors and officers, employee health-care benefits and personal injuries that might be sustained at our stores.
In addition, if the damaged stores are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these stores were irreparably damaged. Additionally, we use a combination of insurance products, some of which include deductibles and self-insured retention amounts, to provide risk mitigation for potential liabilities associated with automobiles, workers’ compensation, employment practices, 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.
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.
Moreover, if we have net income from “prohibited transactions,” that income will be 20 Table of Contents 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.
In addition, changes in the regulatory environment affecting health care reimbursements, and increased compliance costs related 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 to pass through any increased expenses through higher prices. 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.
In addition, changes in the regulatory environment affecting health care reimbursements, and increased compliance costs related 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 to recoup any increased expenses through higher prices. 26 Table of Contents 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.
Moreover, in the 15 Table of Contents event we are unable to complete pending or future acquisitions, we may have incurred significant legal, accounting, due diligence and other transaction costs in connection with such acquisitions without realizing the expected benefits. Those acquisitions that we do consummate would increase our size and may potentially alter our capital structure.
Moreover, in the event we are unable to complete pending or future acquisitions, we may have incurred significant legal, accounting, due diligence and other transaction costs in connection with such acquisitions without realizing the expected benefits. Those acquisitions that we do consummate would increase our size and may potentially alter our capital structure.
Any such action could inhibit or impede a third party from making a proposal to acquire us at a price that could be beneficial to our shareholders. 24 Table of Contents 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.
Any such action could inhibit or impede 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.
As a taxable 20 Table of Contents corporation, we would not be allowed to take a deduction for distributions to shareholders in computing our taxable income or pass through long-term capital gains to individual shareholders at favorable rates. We also could be subject to increased state and local taxes.
As a taxable corporation, we would not be allowed to take a deduction for distributions to shareholders in computing our taxable income or pass through long-term capital gains to individual shareholders at favorable rates. We also could be subject to increased state and local taxes.
To the extent that any of these conditions occur, they are likely to affect market rents for self-storage space, which could cause a decrease in our rental revenue.
To the extent that any of these conditions occur, they are likely to affect market rents for self-storage space, which could cause a decrease in our rental and management fee revenue.
Attacks, armed conflicts or active-shooter situations could negatively impact the demand for self-storage and increase the cost 27 Table of Contents of insurance coverage for our stores, which could reduce our profitability and cash flow.
Attacks, armed conflicts or active-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 and cash flow.
A general reduction in the level of discretionary spending or shifts in consumer discretionary spending could adversely affect our growth and profitability. It is difficult to determine the breadth and duration of economic and financial market disruptions and the many ways in which they may affect our customers and our business in general.
A general reduction in the level of discretionary spending or shifts in consumer discretionary spending could adversely affect our growth and profitability. 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 they may affect our customers and our business in general.
Furthermore, any terrorist attacks, armed conflicts or active-shooter situations could result in increased volatility in or damage to the United States and worldwide financial markets and economy. Environmental, social and governance (“ESG”) issues, including those related to climate change and sustainability, 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.
Furthermore, any terrorist attacks, armed conflicts or active-shooter situations could result in increased volatility in or damage to the United States and worldwide financial markets and economy. Environmental, social and governance (“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.
In addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on some deductions taken by a taxable REIT subsidiary if the economic arrangements between the 21 Table of Contents REIT, the REIT’s customers, and the taxable REIT subsidiary are not comparable to similar arrangements between unrelated parties.
In addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on some deductions 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 to similar arrangements between unrelated parties.
Our stores in New York, Florida, California and Texas accounted for approximately 16%, 15%, 11% and 9%, respectively, of our total 2022 revenues. As a result of this geographic concentration of our stores, we are particularly susceptible to adverse market conditions in these areas.
Our stores in New York, Florida, California and Texas accounted for approximately 17%, 15%, 11% and 9%, respectively, of our total 2023 revenues. As a result of this geographic concentration of our stores, we are particularly susceptible to adverse market conditions in these areas.
Inflation, changes in building codes 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 been damaged or destroyed.
Inflation, changes in building codes 16 Table of Contents 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 been damaged or destroyed.
In addition, experienced computer programmers and hackers may be able to penetrate our security systems and misappropriate or make unavailable to us our confidential information, create system disruptions or cause shutdowns.
In addition, experienced computer programmers and hackers may be able to penetrate our security systems and misappropriate or make unavailable to us our confidential information, create system disruptions or cause shutdowns, whether due to malfeasance or human error.
In addition, our customers could lose confidence in our ability to protect their personal information, which could cause them to discontinue leasing at our stores. 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, implement improvements to our customer-facing technology in a timely manner, allow accurate visibility to product availability when customers are ready to rent, quickly and efficiently fulfill our customers rental and payment methods they demand or provide a convenient and consistent experience for our customers regardless of the ultimate sales channel, our ability to compete and our results of operations could be adversely affected. 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 generate revenues sufficient to meet our operating expenses, including debt service and capital expenditures, our cash flow and ability to pay distributions to our shareholders will be adversely affected.
Additionally, if the types of information that artificial intelligence applications assist in producing are or are alleged 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, implement improvements to our customer-facing technology in a timely manner, allow accurate visibility to product availability when customers are ready to rent, quickly and efficiently fulfill our customers rental and payment methods they demand or provide a convenient and consistent experience for our customers regardless of the ultimate sales channel, our ability to compete and our results of operations could be adversely affected. 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 generate revenues sufficient to meet our operating expenses, including debt service and capital expenditures, our cash flow and ability to pay distributions to our shareholders will be adversely affected.
Between January 1, 2020 and December 31, 2022, the closing price per share of our common shares has ranged from a high of $57.02 (on December 30, 2021) to a low of $20.85 (on March 23, 2020).
Between January 1, 2021 and December 31, 2023, the closing price per share of our common shares has ranged from a high of $57.02 (on December 30, 2021) to a low of $31.87 (on January 5, 2021).
Furthermore, we have experienced, and could continue to experience, a shortage of labor for certain positions, including due to market trends and conditions such as continued concerns around the COVID-19 pandemic, the availability of new telecommuting employment options and other factors, which could decrease the pool of available qualified talent for key functions. As of December 31, 2022, we had 2,332 property-level personnel involved in the management and operation of our stores.
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 further decrease the pool of available talent for key functions. As of December 31, 2023, we had 2,553 property-level personnel involved in the management and operation of our stores.
We obtain or examine environmental assessments from qualified and reputable environmental consulting firms (and intend to conduct such assessments prior to the acquisition or development of additional stores). The environmental assessments received to date have not revealed, nor do we have actual knowledge of, any environmental liability that we believe will have a material adverse effect on us.
The environmental assessments received to date have not revealed, nor do we have actual knowledge of, any 17 Table of Contents environmental liability that we believe will have a material adverse effect on us.
If operating expenses continue to increase without a corresponding increase in revenues, our profitability could diminish and limit our ability to make distributions to our shareholders. 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 in amounts such that all or substantially all of our taxable income in each year, subject to certain adjustments, is distributed.
Such increases in interest rates could have a material effect on our financial performance, as further described under the heading “The terms and covenants relating to our indebtedness 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 in amounts such that all or substantially all of our taxable income in each year, subject to certain adjustments, is distributed.
In addition, we may be required to self-insure against certain losses or our insurance costs may increase. 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.
In addition, our reputation and investor relationships could be damaged as a result of our involvement with activities perceived to be 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 climate change. 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.
Any adverse economic or real 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 business climate, could adversely affect our rental revenues, which could impair our ability to satisfy our debt service obligations and pay distributions to our shareholders. Our business, financial condition, results of operations and share price have, and may in the future be, impacted by the COVID-19 pandemic and other potential future pandemics and such impact could be materially adverse. Since the first quarter of 2020, the world has been impacted by the COVID-19 pandemic, which has resulted in global business disruptions and significant volatility in U.S. and international debt and equity markets.
Any adverse economic or real 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 business climate, 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.
Removed
The extent to which the COVID-19 pandemic and any other potential future pandemics ultimately impact our business, results of operations, financial condition and share price will depend on numerous evolving factors, including, among others: the duration and scope of such pandemic; actions that have been and continue to be taken by governmental entities, individuals and businesses in response to such pandemic; the impact on economic activity from such pandemic and actions taken in response thereto; the impact on capital availability and costs of capital; the impact on our employees any other operational disruptions or difficulties we may face; and, the effect on our customers and their ability to make rental payments.
Added
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 to prevent 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 level rise, fires, and drought, which could result in significant damage to our stores, increased capital expenditures, increased expenses, reduced revenues, or reduced demand for our self-storage space.
Removed
Any of these events, individually or in aggregate, could have a material adverse impact on the Company’s business, financial condition, results of operations and share price. We face risks associated with property acquisitions. We intend to continue to acquire individual and portfolios of self-storage properties.
Added
Indirect impacts of climate change could also adversely impact our business, including through increased costs, such as insurance costs or regulatory compliance costs.
Removed
Climate change may result in more frequent severe weather events, potential changes in precipitation patterns and extreme variability in weather patterns, which may affect those stores in areas prone to or at risk of flooding.
Added
Potential governmental, political and social pressure related to climate change and actions to mitigate climate change could in the future result in (i) costly changes 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, resulting in a reduced demand for our self-storage space.
Removed
Concern over climate change may result in new or increased legal and regulatory requirements.
Added
We obtain or examine environmental assessments from qualified and reputable environmental consulting firms (and intend to conduct such assessments prior to the acquisition or development of additional stores).
Removed
UNRESOLVED STAFF COMMENTS None. 28 Table of Contents ITEM 2. PROPERTIES As of December 31, 2022, we owned 611 self-storage properties that contain approximately 44.1 million rentable square feet and are located in 24 states and the District of Columbia.
Added
In addition, our customers could lose confidence in our ability to protect their personal information, which could cause them to discontinue leasing at our stores. We currently incorporate artificial intelligence solutions into our business, and applications of artificial intelligence may become important in our operations over time.
Removed
The following table sets forth summary information regarding our stores by state as of December 31, 2022. Total % of Total Number of Number of Rentable Rentable Ending State Stores Units Square Feet Square Feet Occupancy Florida 90 65,171 6,796,098 15.4 % 92.5 % Texas 76 46,909 5,446,871 12.3 % 91.8 % California 63 45,131 4,765,486 10.8 % 91.4 % New York 59 83,893 4,742,378 10.8 % 90.5 % Arizona 48 28,180 3,089,826 7.0 % 86.3 % Illinois 43 25,916 2,760,969 6.3 % 92.2 % New Jersey 28 20,479 1,983,356 4.5 % 90.9 % Nevada 22 14,645 1,702,416 3.9 % 86.9 % Maryland 20 17,319 1,683,821 3.8 % 92.3 % Georgia 22 14,082 1,657,378 3.8 % 87.4 % Ohio 20 11,130 1,294,303 2.9 % 91.3 % Massachusetts 20 13,035 1,252,577 2.8 % 86.2 % Connecticut 22 10,781 1,200,002 2.7 % 92.7 % Virginia 11 11,076 1,060,480 2.4 % 80.1 % Pennsylvania 12 9,051 890,385 2.0 % 82.3 % Tennessee 9 5,699 755,655 1.7 % 91.3 % Colorado 10 5,544 654,252 1.5 % 90.9 % North Carolina 9 5,348 611,792 1.4 % 91.7 % South Carolina 8 3,879 432,389 1.0 % 91.6 % Washington D.C. 5 5,321 410,676 0.9 % 90.5 % Rhode Island 4 2,037 247,305 0.6 % 90.6 % Utah 4 2,351 239,388 0.5 % 90.4 % New Mexico 3 1,694 182,261 0.4 % 90.9 % Minnesota 2 1,828 176,296 0.4 % 85.1 % Indiana 1 583 70,386 0.2 % 94.2 % Total/Weighted average 611 451,082 44,106,746 100.0 % 90.3 % We have grown by adding stores to our portfolio through acquisitions and development.
Added
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 to compete effectively and adversely affect our results of operations.
Removed
The tables set forth below show the ending occupancy, annual rent per occupied square foot and total revenues related to our stores owned as of December 31, 2022, and for each of the previous three years, grouped by the year during which we first owned or operated the store. Stores by Year Acquired/Developed– Ending Occupancy Rentable Ending Occupancy Year Acquired/Developed (1) # of Stores Square Feet 2022 2021 2020 2019 and earlier 516 36,571,449 91.8 % 92.9 % 92.7 % 2020 21 1,851,162 89.3 % 87.6 % 83.7 % 2021 69 5,160,761 83.3 % 87.5 % — 2022 5 523,374 55.5 % — — All stores owned as of December 31, 2022 611 44,106,746 90.3 % 92.0 % 92.3 % 29 Table of Contents Stores by Year Acquired/Developed - Annual Rent Per Occupied Square Foot (2) Annual Rent per Square Foot Year Acquired/Developed (1) # of Stores 2022 2021 2020 2019 and earlier 516 $ 22.35 $ 19.79 $ 17.89 2020 21 30.62 29.21 26.62 2021 69 20.99 19.71 — 2022 5 23.42 — — All stores owned as of December 31, 2022 611 $ 22.44 $ 20.00 $ 18.10 Stores by Year Acquired/Developed - Total Revenues (dollars in thousands) Total Revenues Year Acquired/Developed (1) # of Stores 2022 2021 2020 2019 and earlier 516 $ 805,699 $ 717,630 $ 630,750 2020 21 53,194 46,822 4,337 2021 69 96,047 8,668 — 2022 5 4,436 — — All stores owned as of December 31, 2022 611 $ 959,376 $ 773,120 $ 635,087 (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. (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.
Added
Further, for tax years beginning after December 31, 2022, we may also be subject to certain taxes enacted by the Inflation Reduction Act of 2022 that are applicable to non-REIT corporations, including a corporate alternative minimum tax and a nondeductible one percent excise tax on certain stock repurchases.
Removed
Rental revenue includes the impact of promotional discounts, which reduce rental income over the promotional period, of $19.2 million, $19.7 million and $15.3 million for the periods ended December 31, 2022, 2021 and 2020, respectively. Unconsolidated Real Estate Ventures As of December 31, 2022, we held ownership interests ranging from 10% to 50% in seven unconsolidated real estate ventures for an aggregate investment carrying value of $106.0 million.
Added
If operating expenses continue to increase without a corresponding increase in revenues, our profitability could diminish and limit our ability to make distributions to our shareholders. 25 Table of Contents 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.
Removed
We hold interests in these real estate ventures with unaffiliated third parties to acquire, own and operate self-storage properties in select markets.
Added
UNRESOLVED STAFF COMMENTS None. 27 Table of Contents
Removed
As of December 31, 2022, 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.
Removed
The self-storage properties owned by these real estate ventures are managed by 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), New York (1), North Carolina (1), Pennsylvania (1), Rhode Island (2), Texas (35) and Vermont (2). Each of the seven 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 when it is determined that we have the ability to exercise significant influence over the venture.
Removed
See note 5 to our consolidated financial statements for further disclosure regarding the assets, liabilities and operating results of our unconsolidated real estate ventures which we account for using the equity method of accounting. Capital Expenditures We have a capital improvement program that covers office upgrades, addition of climate control to select cubes, construction of parking areas and other store upgrades.
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Item 4. Mine Safety Disclosures
Mine Safety Disclosures — required of mining issuers
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Item 4. Mine Safety Disclosures
Mine Safety Disclosures — required of mining issuers
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2022 filing
2023 filing
Item 4. Mining Safety Disclosures 31 PART II 31 Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities 31
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 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
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Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
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2023 filing
Unless terminated earlier by resolution of the Board of Trustees, the program will expire when the number of authorized shares has been repurchased.
Unless terminated earlier by resolution of the Board, the program will expire when the number of authorized shares has been repurchased.
These amounts do not include common shares held by brokers and other institutions on behalf of shareholders. The Parent Company’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol CUBE.
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.
However, we cannot provide any assurance as to the amount or timing of future distributions. 31 Table of Contents 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 of capital, rather than a dividend, for federal income tax purposes.
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 of capital, rather than a dividend, for federal income tax purposes.
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, 2022: Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs October 1 - October 31 364 $ 40.06 N/A 3,000,000 November 1 - November 30 121 $ 40.17 N/A 3,000,000 December 1 - December 31 — $ — N/A 3,000,000 Total 485 $ 40.09 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. The Parent Company adopted a share repurchase program in 2007 for up to 3.0 million of the Parent Company’s outstanding common shares.
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, 2023: Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs October 1 - October 31 322 $ 38.13 N/A 3,000,000 November 1 - November 30 — $ — N/A 3,000,000 December 1 - December 31 — $ — N/A 3,000,000 Total 322 $ 38.13 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. The Parent Company adopted a share repurchase program in 2007 for up to 3.0 million of the Parent Company’s outstanding common shares.
The Parent Company has made no repurchases under this program to date. Market Information for and Holders of Record of Common Shares As of December 31, 2022, there were 155 registered record holders of the Parent Company’s common shares and 21 holders (other than the Parent Company) of the Operating Partnership’s common units.
The Parent Company has made no repurchases under this program to date. Market Information for and Holders of Record of Common Shares As of December 31, 2023, there were 161 registered record holders of the Parent Company’s common shares and 20 holders (other than the Parent Company) of the Operating Partnership’s OP Units.
Annually, we provide each of the Parent Company’s common shareholders a statement detailing the tax characterization of dividends paid during the preceding year as ordinary income, capital gain or return of capital.
Annually, we provide each of the Parent Company’s common shareholders a statement detailing the tax characterization of dividends paid during the preceding year as ordinary income, capital gain or return of capital. The Parent Company’s dividends for 2023 consisted entirely of ordinary income distributions. 32 Table of Contents We intend to continue to declare quarterly distributions.
The following chart compares the yearly cumulative total shareholder return 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 Equity REIT Index as provided by NAREIT for the period beginning December 31, 2017 and ending December 31, 2022. For the year ended December 31, Index 2017 2018 2019 2020 2021 2022 CubeSmart 100.00 103.42 118.02 131.79 230.09 169.55 S&P 500 Index 100.00 95.62 125.72 148.85 191.58 156.88 Russell 2000 Index 100.00 88.99 111.70 134.00 153.85 122.41 FTSE NAREIT All Equity REIT Index 100.00 95.96 123.46 117.14 165.51 124.22 ITEM 6. [Reserved] 32 Table of Contents
The following chart compares the yearly cumulative total shareholder return 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 Equity REIT Index as provided by NAREIT for the period beginning December 31, 2018 and ending December 31, 2023. For the year ended December 31, Index 2018 2019 2020 2021 2022 2023 CubeSmart 100.00 114.12 127.44 222.49 163.95 197.56 S&P 500 Index 100.00 131.49 155.68 200.37 164.08 207.21 Russell 2000 Index 100.00 125.53 150.58 172.90 137.56 160.85 FTSE NAREIT All Equity REIT Index 100.00 128.66 122.07 172.49 129.45 144.16 ITEM 6. [Reserved] 33 Table of Contents
Removed
The characterization of the Parent Company’s dividends for 2022 consisted of an 88.7377% ordinary income distribution and an 11.2623% capital gain distribution. We intend to continue to declare quarterly distributions.
Item 6. [Reserved]
Selected Financial Data — reserved (removed by SEC in 2021)
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Item 6. [Reserved]
Selected Financial Data — reserved (removed by SEC in 2021)
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2023 filing
Item 6. Selected Financial Data 32 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 44
Item 6. Selected Financial Data 33 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 34 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 44
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
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Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
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2023 filing
The nature of our 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 both the short and long term. Our short-term liquidity needs consist primarily of funds necessary to pay operating expenses associated with our stores, refinancing of certain mortgage indebtedness, interest expense and scheduled principal payments on debt, expected distributions to limited partners and shareholders, capital expenditures and the development of new stores.
The nature of our 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 both the short and long term. Our short-term liquidity needs consist primarily of funds necessary to pay operating expenses associated with our stores, refinancing of certain mortgage indebtedness, interest expense and scheduled principal payments on debt, expected distributions to limited partners and shareholders, capital expenditures and the acquisition and development of new stores.
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 and circumstances such as declines in occupancy and operating results indicate that there may be an impairment.
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 that there may be an impairment.
Historical results set forth in the consolidated statements of operations reflect only the existing stores for each period presented and should not be taken as indicative of 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 the applicable years presented.
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 indicative of 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 the applicable years presented.
There were no impairment losses recognized in accordance with these procedures during the years ended December 31, 2022, 2021 and 2020. 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 of assets), (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 to locate 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 be completed within one year, 34 Table of Contents (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 plan 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 are immediately available for transfer and there are no contingencies related to the sale that may prevent the transaction from closing.
There were no impairment losses recognized in accordance with these procedures during the years ended December 31, 2023, 2022 and 2021. 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 of assets), (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 to locate 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 be completed within one year, 35 Table of Contents (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 plan 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 are immediately available for transfer and there are no contingencies related to the sale that may prevent the transaction from closing.
NOI should not be considered as a substitute for operating income, net income, cash flows provided by operating, investing and financing activities, or other income statement or cash flow statement data prepared in accordance with GAAP. We believe NOI is useful to investors in evaluating our operating performance because: ● it is one of the primary measures used by our management and our store managers to evaluate the economic productivity of our stores, including our ability to lease our stores, increase pricing and 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 items included in net income that do not relate to or are not indicative of operating performance, such as depreciation and amortization, which can vary depending upon accounting 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 (primarily interest expense on our outstanding indebtedness) and depreciation of our basis in our assets from our operating results. 38 Table of Contents 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 to analyze certain significant items, including depreciation and interest expense, that directly affect our net income.
NOI should not be considered as a substitute for operating income, net income, cash flows provided by operating, investing and financing activities, or other income statement or cash flow statement data prepared in accordance with GAAP. 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 pricing and 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 items included in net income that do not relate to or are not indicative of operating performance, such as depreciation and amortization, which can vary depending upon accounting 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 (primarily interest 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 to analyze certain significant items, including depreciation and interest expense, that directly affect our net income.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021 for a comparison of the year ended December 31, 2021 to the year ended December 31, 2020. 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.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022 for a comparison of the year ended December 31, 2022 to the year ended December 31, 2021. 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.
Our currently scheduled principal payments on debt are approximately $32.6 million in 2023. 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 execute our current business plan and remain in compliance with our covenants. Our liquidity needs beyond 2023 consist primarily of contractual obligations which include repayments of indebtedness at maturity, as well as potential discretionary expenditures such as (i) non-recurring capital expenditures; (ii) redevelopment of operating stores; (iii) acquisitions of additional stores; and (iv) development of new stores.
Our currently scheduled principal payments on debt are approximately $32.3 million in 2024. 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 execute our current business plan and remain in compliance with our covenants. Our liquidity needs beyond 2024 consist primarily of contractual obligations which include repayments of indebtedness at maturity, as well as potential discretionary expenditures such as (i) non-recurring capital expenditures; (ii) redevelopment of operating stores; (iii) acquisitions of additional stores; and (iv) development of new stores.
As of December 31, 2022, we owned stores in the District of Columbia and the following 24 states: Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah and Virginia.
As of December 31, 2023, we owned stores in the District of Columbia and the following 24 states: Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah and Virginia.
There were no impairment losses related to the Company’s investments in unconsolidated real estate ventures recognized during the years ended December 31, 2022, 2021 and 2020. 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 the Company acquiring interests in existing unconsolidated real estate ventures.
There were no impairment losses related to the Company’s investments in unconsolidated real estate ventures recognized during the years ended December 31, 2023, 2022 and 2021. 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 the Company acquiring interests in existing unconsolidated real estate ventures.
Certain of the accounting policies used in the preparation of these consolidated 33 Table of Contents financial statements are particularly important for an understanding of the financial position and results of operations presented in the historical consolidated financial statements included in this Report. A summary of significant accounting policies is also provided in note 2 to our consolidated financial statements.
Certain of the accounting policies used in the preparation of these consolidated financial statements are particularly important for an understanding of the financial position and results of operations presented in the 34 Table of Contents historical consolidated financial statements included in this Report. A summary of significant accounting policies is also provided in note 2 to our consolidated financial statements.
There were no stores classified as held for sale as of December 31, 2022. 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 the ability to exercise significant influence over the venture.
There were no stores classified as held for sale as of December 31, 2023. 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 the ability to exercise significant influence over the venture.
As of and for the year ended December 31, 2022, the Operating Partnership was in compliance with all of the financial covenants under the Senior Notes. Revolving Credit Facility On December 9, 2011, we entered into a credit agreement (the “Credit Facility”), which was subsequently amended and restated.
As of and for the year ended December 31, 2023, the Operating Partnership was in compliance with all of the financial covenants under the Senior Notes. Revolving Credit Facility On December 9, 2011, we entered into a credit agreement (the “Credit Facility”), which was subsequently amended and restated.
We believe that FFO is 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 relate to or are not 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 of depreciable assets and depreciation, which can make periodic and peer analyses of operating performance more difficult.
We believe that FFO is 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 relate to or are not 39 Table of Contents 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 of depreciable assets and depreciation, which can make periodic and peer analyses of operating performance more difficult.
However, prolonged economic downturns will adversely affect our cash flows from operations. 41 Table of Contents 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, to its 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.
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, to its 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.
For analytical presentation, all percentages are calculated using the numbers presented in the financial statements contained in this Report. The comparability of our results of operations is affected by the timing of acquisition and disposition activities during the periods reported.
For analytical presentation, all percentages are calculated using the numbers presented in the Company’s consolidated financial statements contained in this Report. The comparability of our results of operations is affected by the timing of acquisition and disposition activities during the periods reported.
Our stores in New York, Florida, California and Texas provided approximately 16%, 15%, 11% and 9%, respectively, of total revenues for the year ended December 31, 2022. 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 statements included in this Report.
Our stores in New York, Florida, California and Texas provided approximately 17%, 15%, 11% and 9%, respectively, of total revenues for the year ended December 31, 2023. 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 statements included in this Report.
Our ability to access the equity capital markets will be dependent on a number of factors as well, including general market conditions for REITs and market perceptions about us. As of December 31, 2022, we had approximately $6.1 million in available cash and cash equivalents.
Our ability to access the equity capital markets will be dependent on a number of factors as well, including general market conditions for REITs and market perceptions about us. As of December 31, 2023, we had approximately $6.5 million in available cash and cash equivalents.
In addition, we had approximately $788.5 million of availability for borrowings under our Revolver. Unsecured Senior Notes Our unsecured senior notes are summarized as follows (collectively referred to as the “Senior Notes”): December 31, Effective Issuance Maturity Unsecured Senior Notes 2022 2021 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-32 Principal balance outstanding 2,800,000 2,800,000 Less: Discount on issuance of unsecured senior notes, net (11,801) (13,455) Less: Loan procurement costs, net (15,849) (18,336) Total unsecured senior notes, net $ 2,772,350 $ 2,768,209 42 Table of Contents (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.
In addition, we had approximately $831.3 million of availability for borrowings under our Revolver. 42 Table of Contents Unsecured Senior Notes Our unsecured senior notes are summarized as follows (collectively referred to as the “Senior Notes”): December 31, Effective Issuance Maturity Unsecured Senior Notes 2023 2022 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-32 Principal balance outstanding 2,800,000 2,800,000 Less: Discount on issuance of unsecured senior notes, net (10,148) (11,801) Less: Loan procurement costs, net (13,362) (15,849) Total unsecured senior notes, net $ 2,776,490 $ 2,772,350 (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.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021 for a comparison of the year ended December 31, 2021 to the year ended December 31, 2020. 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.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022 for a comparison of the year ended December 31, 2022 to the year ended December 31, 2021. 41 Table of Contents 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.
As of December 31, 2022, 2021 and 2020, we owned (or partially owned and consolidated) 611, 607 and 543 self-storage properties and related assets, respectively. The following table summarizes the change in number of owned stores from January 1, 2020 through December 31, 2022: 35 Table of Contents 2022 2021 2020 Balance - January 1 607 543 523 Stores acquired 1 — 1 Stores developed — 1 — Stores combined (1) — (1) — Balance - March 31 608 543 524 Stores acquired (2) 1 2 2 Stores developed 1 2 1 Stores combined (1) (1) — — Balance - June 30 609 547 527 Stores acquired 1 2 — Stores developed 1 — — Stores sold — (4) — Balance - September 30 611 545 527 Stores acquired — 62 18 Stores developed — 1 — Stores combined (3) — — (1) Stores sold — (1) (1) Balance - December 31 611 607 543 (1) On June 21, 2022 and March 3, 2021, we completed development of new stores located in Vienna, VA and Arlington, VA for approximately $21.8 million and $26.4 million, respectively.
As of December 31, 2023, 2022 and 2021, we owned (or partially owned and consolidated) 611, 611 and 607 self-storage properties and related assets, respectively. 36 Table of Contents The following table summarizes the change in number of owned stores from January 1, 2021 through December 31, 2023: 2023 2022 2021 Balance - January 1 611 607 543 Stores acquired — 1 — Stores developed — — 1 Stores combined (1) — — (1) Balance - March 31 611 608 543 Stores acquired (2) — 1 2 Stores developed — 1 2 Stores combined (1) — (1) — Balance - June 30 611 609 547 Stores acquired — 1 2 Stores developed — 1 — Stores sold — — (4) Balance - September 30 611 611 545 Stores acquired 1 — 62 Stores developed — — 1 Stores sold (3) (1) — (1) Balance - December 31 611 611 607 (1) On June 21, 2022 and March 3, 2021, we completed development of new stores located in Vienna, VA and Arlington, VA for approximately $21.8 million and $26.4 million, respectively.
As of December 31, 2022 and 2021, the Company’s net investment in unconsolidated real estate ventures was greater than its underlying equity in the net assets of the unconsolidated real estate ventures by an aggregate of $32.7 million and $33.6 million, respectively. These differences are amortized over the lives of the self-storage properties owned by the real estate ventures.
As of December 31, 2023 and 2022, the Company’s net investment in unconsolidated real estate ventures was greater than its underlying equity in the net assets of the unconsolidated real estate ventures by an aggregate of $31.8 million and $32.7 million, respectively. These differences are amortized over the lives of the self-storage properties owned by the real estate ventures.
In addition, as of December 31, 2022, we managed 668 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 1,279.
In addition, as of December 31, 2023, we managed 795 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 1,406.
Our sales activity under the program for the years ended December 31, 2022, 2021 and 2020 is summarized below: For the year ended December 31, 2022 2021 2020 (dollars and shares in thousands, except per share amounts) Number of shares sold 102 4,982 3,627 Average sales price per share $ 50.64 $ 40.57 $ 33.69 Net proceeds after deducting offering costs $ 4,936 $ 199,977 $ 120,727 We used proceeds from sales of common shares under the program during the years ended December 31, 2022, 2021 and 2020 to fund the acquisition and development of storage properties and for general corporate purposes.
Our sales activity under the program for the years ended December 31, 2023, 2022 and 2021 is summarized below: For the year ended December 31, 2023 2022 2021 (dollars and shares in thousands, except per share amounts) Number of shares sold — 102 4,982 Average sales price per share $ — $ 50.64 $ 40.57 Net proceeds after deducting offering costs $ — $ 4,936 $ 199,977 We used proceeds from sales of common shares under the program during the years ended December 31, 2022 and 2021 to fund the acquisition and development of self-storage properties and for general corporate purposes.
We believe that same-store results are useful to investors in evaluating our performance because they provide information relating to changes in store-level operating performance without taking into account the effects of acquisitions, developments or dispositions. As of December 31, 2022, we owned 521 same-store properties and 90 non same-store properties.
We believe that same-store results are useful to investors in evaluating our performance because they provide information relating to changes in store-level operating performance without taking into account the effects of acquisitions, developments or dispositions. As of December 31, 2023, we owned 592 same-store properties and 19 non same-store properties.
As of and for the year ended December 31, 2022, the Operating Partnership was in compliance with all of its financial covenants. Issuance of Common Shares On November 19, 2021 we closed an underwritten offering of 15.5 million common shares at a public offering price of $51.00 per share, resulting in net proceeds of $765.6 million, after deducting offering costs. 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 distribution agreements (the “Equity Distribution Agreements”).
As of and for the year ended December 31, 2023, the Operating Partnership was in compliance with all financial covenants of the Second Amended and Restated Credit Facility. Issuance of Common Shares On November 19, 2021 we closed an underwritten offering of 15.5 million common shares at a public offering price of $51.00 per share, resulting in net proceeds of $765.6 million, after deducting offering costs. 43 Table of Contents 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 distribution agreements (the “Equity Distribution Agreements”).
The Parent Company has elected to be taxed as a REIT for U.S. federal income tax purposes. As of December 31, 2022 and 2021, we owned (or partially owned and consolidated) 611 self-storage properties totaling approximately 44.1 million rentable square feet and 607 self-storage properties totaling approximately 43.6 million rentable square feet, respectively.
The Parent Company has elected to be taxed as a REIT for U.S. federal income tax purposes. As of both December 31, 2023 and 2022, we owned (or partially owned and consolidated) 611 self-storage properties containing an aggregate of approximately 44.1 million rentable square feet.
All of the non same-store properties were 2021 and 2022 acquisitions, dispositions, 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.
The non same-store property portfolio results include 2022 and 2023 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.
Realized annual rent per occupied square foot in our same-store portfolio increased 13.2% as a result of higher rental rates for new and existing customers for 2022 compared to 2021. Other property related income increased from $83.6 million in 2021 to $96.2 million in 2022, an increase of $12.6 million, or 15.0%.
Realized annual rent per occupied square foot in our same-store portfolio increased 4.8% as a result of higher rental rates for new and existing customers during 2023 compared to 2022. Other property related income increased from $96.2 million in 2022 to $101.8 million in 2023, an increase of $5.6 million, or 5.9%.
In the 2023 fiscal year, we expect recurring capital expenditures to be approximately $15.0 million to $20.0 million, planned capital improvements and store upgrades to be approximately $11.0 million to $16.0 million and costs associated with the development of new stores to be approximately $20.0 million to $30.0 million.
In the 2024 fiscal year, we expect recurring capital expenditures to be approximately $20.5 million to $25.5 million, planned capital improvements and store upgrades to be approximately $18.5 million to $23.5 million and costs associated with the development of new stores to be approximately $30.0 million to $40.0 million.
As of December 31, 2022, we managed stores for third parties in the District of Columbia and the following 38 states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, 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 revenues principally from rents received from customers who rent cubes at our self-storage properties under month-to-month leases.
As of December 31, 2023, we managed stores for third parties in the District of Columbia and 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 space at our stores and fees earned from managing stores.
This amortization is included in equity in earnings of real estate ventures on the Company’s consolidated statements of operations. Recent Accounting Pronouncements For a discussion of recent accounting pronouncements affecting our business, see note 2 to the Company’s consolidated financial statements. Results of Operations The following discussion of our results of operations should be read in conjunction with the consolidated financial statements and the accompanying notes thereto.
This amortization is included in equity in earnings of real 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.
The $5.4 million increase in same-store other property related income was mainly attributable to a $4.4 million increase in fee revenue.
The $2.7 million increase in same-store other property related income was attributable to a $3.0 million increase in fee revenue.
As of December 31, 2022, borrowings under the Revolver had an interest rate of 5.33%. Additionally, as of December 31, 2022, $788.5 million was available for borrowing under the Revolver. The available balance under the Revolver is reduced by an outstanding letter of credit of $0.6 million.
Additionally, as of December 31, 2023, $831.3 million was available for borrowing under the Revolver. The available balance under the Revolver is reduced by an outstanding letter of credit of $0.6 million.
Our increased cash flow from operating activities was primarily attributable to stores acquired and developed during 2021 and 2022 and increased net operating income levels in the same-store portfolio in the 2022 period as compared to the corresponding 2021 period. Cash used in investing activities decreased from $1,852.7 million for the year ended December 31, 2021 to $48.8 million for the year ended December 31, 2022, reflecting a decrease of $1,803.9 million.
Our increased cash flow from operating activities was primarily attributable to increased net operating income levels in the same-store portfolio in the 2023 period as compared to the corresponding 2022 period. Cash used in investing activities increased from $48.8 million for the year ended December 31, 2022 to $93.8 million for the year ended December 31, 2023, reflecting an increase of $45.1 million.
These costs were known to us and the assumption of the obligation to make these payments post-closing was contemplated in our net consideration paid in the transaction. In accordance with GAAP, and based on the specific details of the arrangements with the employees prior to closing, these costs are considered post-combination compensation expenses.
In accordance with GAAP, and based on the specific details of the arrangements with the employees prior to closing, these costs are considered post-combination compensation expenses.
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, as adjusted may not be comparable to FFO, as adjusted reported by other REITs or real estate companies. 39 Table of Contents The following table presents a reconciliation of net income to FFO and FFO, as adjusted, for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 Net income attributable to the Company’s common shareholders $ 291,263 $ 223,482 Add (deduct): Real estate depreciation and amortization: Real property 305,845 226,599 Company’s share of unconsolidated real estate ventures 9,320 8,510 Gains from sales of real estate, net (1) (45,705) (56,181) Noncontrolling interests in the Operating Partnership 1,931 7,873 FFO attributable to the Company's common shareholders and OP unitholders $ 562,654 $ 410,283 Add (deduct): Loss on early repayment of debt (2) — 20,884 Transaction-related expenses (3) 10,546 14,986 Loan forgiveness income (4) — (1,546) Bridge loan fee (5) — 4,000 Property damage related to hurricane, net of expected insurance proceeds 1,266 — FFO, as adjusted, attributable to the Company's common shareholders and OP unitholders $ 574,466 $ 448,607 Weighted average diluted shares outstanding 225,881 205,009 Weighted average diluted units outstanding 1,521 7,117 Weighted average diluted shares and units outstanding 227,402 212,126 (1) The years ended December 31, 2022 and 2021 included gains of $45.7 million and $23.5 million, respectively, related to sales of real estate within the Company's unconsolidated real estate ventures.
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, as adjusted 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, 2023 and 2022 (in thousands): Year Ended December 31, 2023 2022 Net income attributable to the Company’s common shareholders $ 410,757 $ 291,263 Add (deduct): Real estate depreciation and amortization: Real property 194,845 305,845 Company’s share of unconsolidated real estate ventures 8,446 9,320 Gains from sales of real estate, net (1) (1,477) (45,705) Noncontrolling interests in the Operating Partnership 2,535 1,931 FFO attributable to the Company's common shareholders and third-party OP unitholders $ 615,106 $ 562,654 (Deduct) add: Gain on involuntary conversion (2) (4,827) — Property damage related to hurricane, net of expected insurance proceeds (844) 1,266 Transaction-related expenses (3) — 10,546 FFO, as adjusted, attributable to the Company’s common shareholders and third-party OP unitholders $ 609,435 $ 574,466 Weighted average diluted shares outstanding 226,241 225,881 Weighted average diluted units outstanding owned by third parties 1,393 1,521 Weighted average diluted shares and units outstanding 227,634 227,402 (1) For the year ended December 31, 2022, $45.7 million represents gains related to the sale by 191 IV CUBE Southeast LLC ("HVPSE") of all 14 of its self-storage properties on August 30, 2022.
These changes were offset by an $84.8 million decrease in principal payments on mortgage loans due to the repayment of two secured loans and the repayment of LAACO's outstanding long-term debt at closing during the 2021 period with no comparable repayments during the 2022 period. Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020 Refer to the section entitled “Cash Flows” within Item 7.
Additionally, principal payments on mortgage loans increased $30.2 million due to the repayment of two secured loans during the 2023 period with no comparable repayments during the 2022 period. Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021 Refer to the section entitled “Cash Flows” within Item 7.
Under the Second Amended and Restated Credit Facility, pricing on the Revolver is dependent upon our unsecured debt credit ratings and leverage levels. At our 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% over SOFR and a 0.10% SOFR adjustment.
At our 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% over the Secured Overnight Financing Rate (“SOFR”) and a 0.10% SOFR adjustment. As of December 31, 2023, borrowings under the Revolver had an interest rate of 6.41%.
The increase was also due to a $4.2 million increase in customer storage protection plan participation at our owned and managed stores. Operating Expenses Property operating expenses increased from $252.1 million in 2021 to $293.3 million in 2022, an increase of $41.2 million, or 16.3%.
The increase was also due to a $2.9 million increase in customer storage protection plan participation at our owned and managed stores. Operating Expenses Depreciation and amortization decreased from $310.6 million in 2022 to $201.2 million in 2023, a decrease of $109.4 million, or 35.2%.
This increase was primarily attributable to increased personnel expenses. Other (expense) income Interest expense on loans increased from $78.4 million in 2021 to $93.3 million in 2022, an increase of $14.8 million, or 18.9%. The increase was attributable to a higher amount of outstanding debt during 2022 compared to 2021.
The increase was primarily attributable to increased personnel expenses. Other (expense) income Interest expense on loans decreased from $93.3 million in 2022 to $93.1 million in 2023, a decrease of $0.2 million, or 0.2%.
This increase was primarily attributable to depreciation and amortization associated with newly acquired or developed stores. General and administrative expenses increased from $47.8 million in 2021 to $54.6 million in 2022, an increase of $6.8 million, or 14.3%.
The decrease was primarily attributable to decreased amortization of in-place lease intangibles related to stores acquired in 2021. General and administrative expenses increased from $54.6 million in 2022 to $57.0 million in 2023, an increase of $2.4 million, or 4.4%.
We completed the development of six stores during 2021 and 2022 and began construction on two new stores during the same time period. Cash provided by financing activities was $1,410.6 million for the year ended December 31, 2021 compared to cash used in financing activities of $547.1 million for the year ended December 31, 2022, reflecting a change of $1,957.7 million.
We acquired two stores and land during the year ended December 31, 2022 compared to one store during the corresponding 2023 period. Cash used in financing activities was $547.1 million for the year ended December 31, 2022 compared to $518.0 million for the year ended December 31, 2023, reflecting a decrease of $29.1 million.
The amortization of this fee is included in loan procurement amortization expense. 40 Table of Contents Cash Flows Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021 A comparison of cash flow related to operating, investing and financing activities for the years ended December 31, 2022 and 2021 is as follows: Year Ended December 31, Net cash provided by (used in): 2022 2021 Change (in thousands) Operating activities $ 591,466 $ 449,185 $ 142,281 Investing activities $ (48,767) $ (1,852,668) $ 1,803,901 Financing activities $ (547,092) $ 1,410,572 $ (1,957,664) Cash provided by operating activities increased from $449.2 million for the year ended December 31, 2021 to $591.5 million for the year ended December 31, 2022, reflecting an increase of $142.3 million.
Transaction-related expenses are included in the component of other (expense) income designated as Other within our consolidated statements of operations. Cash Flows Comparison of the Year Ended December 31, 2023 to the Year Ended December 31, 2022 A comparison of cash flows related to operating, investing and financing activities for the years ended December 31, 2023 and 2022 is as follows: Year Ended December 31, Net cash provided by (used in): 2023 2022 Change (in thousands) Operating activities $ 611,136 $ 591,466 $ 19,670 Investing activities $ (93,818) $ (48,767) $ (45,051) Financing activities $ (518,026) $ (547,092) $ 29,066 Cash provided by operating activities increased from $591.5 million for the year ended December 31, 2022 to $611.1 million for the year ended December 31, 2023, reflecting an increase of $19.7 million.
(1) $ 21.49 $ 18.99 Depreciation and amortization 310,610 232,049 78,561 33.9 % General and administrative 54,623 47,809 6,814 14.3 % Subtotal 365,233 279,858 85,375 30.5 % OTHER (EXPENSE) INCOME Interest: Interest expense on loans (93,284) (78,448) (14,836) (18.9) % Loan procurement amortization expense (3,897) (8,168) 4,271 52.3 % Loss on early extinguishment of debt — (20,328) 20,328 100.0 % Equity in earnings of real estate ventures 48,877 25,275 23,602 93.4 % Gains from sales of real estate, net — 32,698 (32,698) (100.0) % Other (10,355) (10,818) 463 4.3 % Total other expense (58,659) (59,789) 1,130 1.9 % NET INCOME 292,472 230,813 61,659 26.7 % NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS Noncontrolling interests in the Operating Partnership (1,931) (7,873) 5,942 75.5 % Noncontrolling interests in subsidiaries 722 542 180 33.2 % NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS $ 291,263 $ 223,482 $ 67,781 30.3 % (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 Rental income increased from $707.8 million in 2021 to $879.3 million in 2022, an increase of $171.5 million, or 24.2%.
(1) $ 22.70 $ 21.65 Depreciation and amortization 201,238 310,610 (109,372) (35.2) % General and administrative 57,041 54,623 2,418 4.4 % Subtotal 258,279 365,233 (106,954) (29.3) % OTHER (EXPENSE) INCOME Interest: Interest expense on loans (93,065) (93,284) 219 0.2 % Loan procurement amortization expense (4,141) (3,897) (244) (6.3) % Equity in earnings of real estate ventures 6,085 48,877 (42,792) (87.6) % Other 6,281 (10,355) 16,636 160.7 % Total other expense (84,840) (58,659) (26,181) (44.6) % NET INCOME 412,435 292,472 119,963 41.0 % Net income attributable to noncontrolling interests in the Operating Partnership (2,535) (1,931) (604) (31.3) % Net loss attributable to noncontrolling interests in subsidiaries 857 722 135 18.7 % NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS $ 410,757 $ 291,263 $ 119,494 41.0 % (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 Rental income increased from $879.3 million in 2022 to $912.0 million in 2023, an increase of $32.7 million, or 3.7%.
To fund a portion of our growth, our 37 Table of Contents average outstanding debt balance increased by $788.2 million to $3.14 billion during 2022 as compared to $2.35 billion during 2021, partially offset by lower interest rates during the 2022 period.
The decrease was attributable to a lower amount of outstanding debt during 2023 compared to 2022, partially offset by higher interest rates during 2023 compared to 2022. The average outstanding debt balance decreased by $0.12 billion to $3.02 billion during 2023 as compared to $3.14 billion during 2022.
For the year ended December 31, 2021, transaction-related expenses include severance expenses ($14.8 million) and other transaction expenses ($0.2 million). Prior to our acquisition of LAACO on December 9, 2021, the predecessor company entered into severance agreements with certain employees, including members of their executive team.
Prior to our acquisition of LAACO, Ltd. on December 9, 2021, the predecessor company entered into severance agreements with certain employees, including members of their executive team. These costs were known to us and the assumption of the obligation to make these payments post-closing was contemplated in our net consideration paid in the transaction.
The weighted average effective interest rate on the Company's outstanding debt for the years ended December 31, 2022 and 2021 was 2.94% and 3.36%, respectively. Loss on early extinguishment of debt was $20.3 million for the year ended December 31, 2021.
The weighted average effective interest rate on the Company's outstanding debt for the years ended December 31, 2023 and 2022 was 3.04% and 2.94%, respectively. Equity in earnings of real estate ventures decreased from $48.9 million in 2022 to $6.1 million in 2023, a decrease of $42.8 million, or 87.6%.
Additionally, for the year ended December 31, 2021, $0.6 million relates to debt modification costs that are included in the Company's share of equity in earnings of real estate ventures. (3) For the year ended December 31, 2022, transaction-related expenses include severance expenses ($10.3 million) and other transaction expenses ($0.2 million).
This amount is included in the component of other (expense) income designated as Other within our consolidated statements of operations. (3) For the year ended December 31, 2022, transaction-related expenses include severance expenses ($10.3 million) and other transaction expenses ($0.2 million).
This increase was primarily attributable to $89.4 million of additional rental income from the stores acquired or opened in 2021 and 2022 included in our non-same-store portfolio. The $82.1 million increase in same-store rental income was due primarily to an increase in rental rates for new and existing customers.
The $28.1 million increase in same-store rental income was due primarily to an increase in rental rates.
Removed
The California Yacht Club, which we acquired through our acquisition of LAACO in 2021, has been classified as held for sale as of December 31, 2022.
Added
Given this proximity, each developed store has been combined with the adjacent existing store in our store count upon opening, as well as for operational and reporting purposes. (2) For the quarter ended June 30, 2021, includes one store acquired by a consolidated joint venture in which we hold a 50% 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. 37 Table of Contents Comparison of the Year Ended December 31, 2023 to the Year Ended December 31, 2022 (dollars and square feet in thousands) Non Same-Store Other/ Same-Store Property Portfolio Property Portfolio Eliminations Total Portfolio % % 2023 2022 Change Change 2023 2022 2023 2022 2023 2022 Change Change REVENUES: Rental income $ 882,011 $ 853,939 $ 28,072 3.3 % $ 29,988 $ 25,350 $ — $ — $ 911,999 $ 879,289 $ 32,710 3.7 % Other property related income 38,420 35,718 2,702 7.6 % 1,822 1,045 61,551 59,403 101,793 96,166 5,627 5.9 % Property management fee income — — — 0.0 % — — 36,542 34,169 36,542 34,169 2,373 6.9 % Total revenues 920,431 889,657 30,774 3.5 % 31,810 26,395 98,093 93,572 1,050,334 1,009,624 40,710 4.0 % OPERATING EXPENSES: Property operating expenses 245,447 241,833 3,614 1.5 % 10,050 9,133 39,283 42,294 294,780 293,260 1,520 0.5 % NET OPERATING INCOME: 674,984 647,824 27,160 4.2 % 21,760 17,262 58,810 51,278 755,554 716,364 39,190 5.5 % Store count 592 592 19 19 611 611 Total square feet 42,338 42,338 1,794 1,769 44,132 44,107 Period end occupancy 90.3 % 91.3 % 77.3 % 66.3 % 89.8 % 90.3 % Period average occupancy 91.8 % 93.2 % Realized annual rent per occupied sq. ft.
Removed
Given this proximity, each developed store has been combined with the adjacent existing store in our store count upon opening, as well as for operational and reporting purposes. (2) For the quarter ended June 30, 2021, includes one store acquired by a consolidated joint venture in which we hold a 50% interest. (3) On November 10, 2020, we acquired a store located in Merritt Island, FL for approximately $3.9 million.
Added
The decrease was primarily due to our portion of the gains and distributions in excess of our equity investment associated with the sale by 191 IV CUBE Southeast LLC (“HVPSE”) of all of its 14 stores during the year ended December 31, 2022 (see note 5 to our consolidated financial statements). 38 Table of Contents The component of other (expense) income designated as Other changed from $10.4 million of expense in 2022 to $6.3 million of income in 2023.
Removed
The store acquired is located in near proximity to an existing wholly-owned store.
Added
This change was primarily due to $10.5 million of transaction-related expenses in 2022 comprised primarily of severance costs associated with the acquisition of LAACO.
Removed
Given their proximity to each other, the acquired store has been combined with the existing store in our store count, as well as for operational and reporting purposes. 36 Table of Contents Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021 (dollars in thousands) Non Same-Store Other/ Same-Store Property Portfolio Properties Eliminations Total Portfolio % % 2022 2021 Change Change 2022 2021 2022 2021 2022 2021 Change Change REVENUES: Rental income $ 744,094 $ 661,989 $ 82,105 12.4 % $ 135,195 $ 45,762 $ — $ — $ 879,289 $ 707,751 $ 171,538 24.2 % Other property related income 32,844 27,469 5,375 19.6 % 4,755 1,836 58,567 54,300 96,166 83,605 12,561 15.0 % Property management fee income — — — 0.0 % — — 34,169 31,208 34,169 31,208 2,961 9.5 % Total revenues 776,938 689,458 87,480 12.7 % 139,950 47,598 92,736 85,508 1,009,624 822,564 187,060 22.7 % OPERATING EXPENSES: Property operating expenses 207,023 201,070 5,953 3.0 % 42,814 15,331 43,423 35,703 293,260 252,104 41,156 16.3 % NET OPERATING INCOME: 569,915 488,388 81,527 16.7 % 97,136 32,267 49,313 49,805 716,364 570,460 145,904 25.6 % Store count 521 521 90 86 611 607 Total square footage 36,850 36,850 7,257 6,745 44,107 43,595 Period end occupancy 92.1 % 93.3 % 81.0 % 85.1 % 90.3 % 92.0 % Period average occupancy 94.0 % 94.6 % Realized annual rent per occupied sq. ft.
Added
In addition, the 2023 amount includes a $4.8 million gain relating to a store that was subject to an involuntary conversion by the Department of Transportation of the State of Illinois. Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021 Refer to the section entitled “Results of Operations” within Item 7.
Removed
This increase was primarily attributable to $27.5 million of increased expenses associated with newly acquired or developed stores.
Added
A portion of the proceeds from the sale were held back to pay venture-level expenses. For the year ended December 31, 2023, $1.7 million represents distributions in excess of our investment in HVPSE from the proceeds that were held back from this sale.
Removed
The $6.0 million increase in property operating expenses in the same-store portfolio was primarily due to a $4.7 million increase in property taxes. Depreciation and amortization increased from $232.0 million in 2021 to $310.6 million in 2022, an increase of $78.6 million, or 33.9%.
Added
These amounts are included in equity in earnings of real estate ventures 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 the California Yacht Club, which was acquired in 2021 as part of the Company's acquisition of LAACO, Ltd.
Removed
This amount was related to the early redemption of $300.0 million of outstanding 4.375% senior notes due 2023 (the “2023 Notes”) . There were no such losses for the year ended December 31, 2022. Equity in earnings of real estate ventures increased from $25.3 million in 2021 to $48.9 million in 2022, an increase of $23.6 million, or 93.4%.
Added
This amount is included in the component of other (expense) income designated as Other within our consolidated statements of operations. 40 Table of Contents (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.
Removed
The increase was mainly due to gains associated with sales of real estate within our unconsolidated real estate ventures. During the year ended December 31, 2022, our portion of the gains related to HVPSE's sale of all 14 of its stores was $45.7 million.
Added
The change was primarily the result of a $48.8 million decrease in cash distributed from real estate ventures due to distributions related to the sale by HVPSE of all 14 of its stores during the 2022 period.
Removed
During the year ended December 31, 2021, our portion of the gains related to HHF’s sale of seven stores was $23.5 million. See note 5 to our consolidated financial statements. Gains from sales of real estate, net were $32.7 million for the year ended December 31, 2021. There were no such gains for the year ended December 31, 2022.
Added
Additionally, net proceeds received from the sale of real estate decreased by $43.0 million as a result of the sale during the 2022 period of the Los Angeles Athletic Club, which we purchased in December 2021 as part of our acquisition of LAACO, Ltd.
Removed
These gains are determined on a transactional basis and, accordingly, are not comparable across reporting periods. For the years ended December 31, 2022 and 2021, the component of other (expense) income designated as other includes $10.5 million and $15.0 million, respectively, of transaction-related expenses comprised primarily of severance costs associated with the acquisition of LAACO. Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020 Refer to the section entitled “Results of Operations” within Item 7.
Added
Also, development costs increased by $23.2 million, primarily due to the payment of a put liability associated with a previously consolidated joint venture. These increases were partially offset by a decrease in acquisitions of storage properties of $66.6 million.
Removed
These amounts are included in the Company's share of equity in earnings of real estate ventures. (2) For the year ended December 31, 2021, $20.0 million relates to a prepayment premium and $0.3 million relates to a write-off of unamortized loan procurement costs associated with the Company’s redemption, in full, of its $300.0 million of outstanding 4.380% senior notes due on December 23, 2021.
Added
Net repayments on the Credit Facility (as defined below) decreased by $106.2 million during the 2023 period as compared to the corresponding 2022 period. The change was partially offset by a $55.1 million increase in cash distributions paid to common shareholders and noncontrolling interests in the Operating Partnership due to an increase in the common divided per share/unit.
Removed
Transaction-related expenses are included in the component of other (expense) income designated as Other. (4) The Company assumed a Paycheck Protection Program loan in conjunction with the LAACO transaction.
Added
Under the Second Amended and Restated Credit Facility, pricing on the Revolver is dependent upon our unsecured debt credit ratings and leverage levels.
Removed
This loan was subsequently forgiven by the Small Business Administration and the associated income is included in the component of other (expense) income designated as Other. (5) Relates to a nonrefundable commitment fee to obtain bridge financing in the event that the Company's November 2021 senior note offerings were delayed, or could not be executed, in advance of the LAACO transaction.
Added
As of December 31, 2023, 2022 and 2021, 5.8 million common shares, 5.8 million common shares and 5.9 million common shares, respectively, remained available for issuance under the Equity Distribution Agreements. Recent Developments Subsequent to December 31, 2023, we acquired a two-store portfolio located in Connecticut for a purchase price of $20.2 million. Other Material Changes in Financial Position December 31, 2023 2022 Change (in thousands) Selected Assets Storage properties, net $ 5,951,236 $ 6,048,003 $ (96,767) Selected Liabilities Revolving credit facility 18,100 60,900 (42,800) Mortgage loans and notes payable, net 128,186 162,918 (34,732) Accounts payable, accrued expenses and other liabilities 201,419 214,384 (12,965) Storage properties, net decreased $96.8 million from December 31, 2022 to December 31, 2023 primarily as a result of depreciation on existing assets partially offset by the acquisition of one storage property, additions and improvements to storage properties, and development costs incurred during the year. Revolving credit facility decreased $42.8 million from December 31, 2022 to December 31, 2023 primarily due to available cash that was used to pay down the revolving credit facility balance. Mortgage loans and notes payable, net decreased $34.7 million from December 31, 2022 to December 31, 2023 primarily due to the repayment in June 2023 of two mortgage loans totaling $30.5 million. Accounts payable, accrued expenses and other liabilities decreased $13.0 million from December 31, 2022 to December 31, 2023 primarily due to the payment during 2023 of a put liability related to the purchase of a noncontrolling member’s interest in a consolidated joint venture. 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 other persons, also known as variable interest entities, not previously discussed.
Removed
Upon issuance of the senior notes, the bridge financing commitment expired and the fee was fully amortized.
Removed
The change was primarily driven by the $1,679.0 million of cash used for the acquisition of LAACO in 2021. There were no acquisitions of the scale of the LAACO transaction during the 2022 period.
Removed
Excluding the storage properties acquired through the acquisition of LAACO, cash used during the year ended December 31, 2021 included the acquisition of nine stores (including the acquisition of a 50% membership interest in a consolidated joint venture that owns a single store) for an aggregate net purchase price of $152.8 million.
Removed
Cash used during the year ended December 31, 2022 related to the acquisition of three stores and land for an aggregate net purchase price of $89.3 million. The change was also driven by a decrease in development costs of $45.5 million due to fewer development projects under construction.
Removed
During the year ended December 31, 2021, we received net proceeds from unsecured senior notes of $1,043.4 million while making principal payments of $300.0 million on unsecured senior notes. There were no senior note transactions during the 2022 period.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
8 edited+0 added−0 removed2 unchanged
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
8 edited+0 added−0 removed2 unchanged
2022 filing
2023 filing
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 the net financial instrument position. If market interest rates on our variable-rate debt increase by 100 basis points, the increase in annual interest expense on our variable-rate debt would decrease future earnings and cash flows by approximately $0.6 million a year.
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 the net financial instrument position. If market interest rates on our variable-rate debt increase by 100 basis points, the increase in annual interest expense on our variable-rate debt would decrease future earnings and cash flows by approximately $0.2 million a year.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements required by this item appear with an Index to Financial Statements and Schedules, starting on page F-1 of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements required by this item appear with an Index to the Consolidated Financial Statements and Schedules, starting on page F-1 of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
If market interest rates on our variable-rate debt decrease by 100 basis points, the decrease in interest expense on our variable-rate debt would increase future earnings and cash flows by approximately $0.6 million a year. 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 $135.2 million.
If market interest rates on our variable-rate debt decrease by 100 basis points, the decrease in interest expense on our variable-rate debt would increase future earnings and cash flows by approximately $0.2 million a year. 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 $122.2 million.
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 the return through 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.
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. 44 Table of Contents 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.
The analysis below presents the 44 Table of Contents sensitivity of the market value of our financial instruments to selected changes in market interest rates. The range of changes chosen reflects our view of changes which are reasonably possible over a one-year period.
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 chosen reflects 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 market interest rates chosen. As of December 31, 2022 our consolidated debt consisted of $2.95 billion of outstanding mortgage loans and notes payable and unsecured senior notes that are subject to fixed rates.
Market values are the present value of projected future cash flows based on the market interest rates chosen. As of December 31, 2023 our consolidated debt consisted of $2.92 billion of outstanding mortgage loans and notes payable and unsecured senior notes that are subject to fixed rates.
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 by approximately $139.0 million. ITEM 8.
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 by approximately $127.1 million. ITEM 8.
Additionally, as of December 31, 2022, there were $60.9 million of outstanding unsecured credit facility borrowings subject to floating rates. Changes in market interest rates have different impacts on the fixed- and variable-rate portions of our debt portfolio.
Additionally, as of December 31, 2023, there were $18.1 million of outstanding unsecured credit facility borrowings subject to floating rates. Changes in market interest rates have different impacts on the fixed- and variable-rate portions of our debt portfolio.