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    CUBE   US2296631094

CUBESMART

(CUBE)
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CUBESMART : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

07/30/2021 | 04:26pm EDT
The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Report. Some of the
statements we make in this section are forward-looking statements within the
meaning of the federal securities laws. For a discussion of forward-looking
statements, see the section in this Report entitled "Forward-Looking
Statements." Certain risk factors may cause actual results, performance or
achievements to differ materially from those expressed or implied by the
following discussion. For a complete discussion of such risk factors, see the
section entitled "Risk Factors" in the Parent Company's and Operating
Partnership's combined   Annual Report on Form 10-K for the year ended December
31, 2020  .



Overview


We are an integrated self-storage real estate company, and as such we have
in-house capabilities in the operation, design, development, leasing, management
and acquisition of self-storage properties. The Parent Company's operations are
conducted solely through the Operating Partnership and its subsidiaries. The
Parent Company has elected to be taxed as a REIT for U.S. federal income tax
purposes. As of June 30, 2021 and December 31, 2020, we owned (or partially
owned and consolidated) 547 and 543 self-storage properties, respectively. These
properties totaled approximately 39.0 million and 38.5 million rentable square
feet, respectively, as of such dates. As of June 30, 2021, 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. In addition, as of June 30, 2021, we managed 718 stores for
third parties (including 113 stores containing an aggregate of approximately 8.2
million rentable square feet as part of six separate unconsolidated real estate
ventures) bringing the total number of stores which we owned and/or managed to
1,265. As of June 30, 2021, we managed stores for third parties in the following
36 states: Alabama, Arizona, California, Colorado, Connecticut, Florida,
Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland,
Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Jersey,
New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, 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. Therefore, our
operating results depend materially on our ability to retain our existing
customers and lease our available self-storage cubes to new customers while
maintaining and, where possible, increasing our pricing levels. In addition, our
operating results depend on the ability of our customers to make required rental
payments to us. Our approach to the management and operation of our stores
combines centralized marketing, revenue management and other operational support
with local operations teams that provide market-level oversight and management.
We believe this approach allows us to respond quickly and effectively to changes
in local market conditions, and to maximize revenues by managing rental rates
and occupancy levels.


We typically experience seasonal fluctuations in the occupancy levels of our stores, which are generally slightly higher during the summer months due to increased moving activity.




Our results of operations may be sensitive to changes in overall economic
conditions that impact consumer spending, including discretionary spending, as
well as to increased bad debts due to recessionary pressures. Adverse economic
conditions affecting disposable consumer income, such as employment levels,
business conditions, interest rates, tax rates, fuel and energy costs, inflation
and other matters could reduce consumer spending or cause consumers to shift
their spending to other products and services. A general reduction in the level
of discretionary spending or shifts in consumer discretionary spending could
adversely affect our growth and profitability.



We continue our focus on maximizing internal growth opportunities and selectively pursuing targeted acquisitions and developments of self-storage properties.

We have one reportable segment: we own, operate, develop, manage and acquire self-storage properties.



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Our self-storage properties are located in major metropolitan and suburban areas
and have numerous customers per store. No single customer represents a
significant concentration of our revenues. Our stores in New York, Florida,
Texas and California provided approximately 19%, 15%, 9% and 8%, respectively,
of total revenues for the six months ended June 30, 2021.



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 unaudited
consolidated financial statements included in this Report. 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 historical consolidated
financial statements included in this Report. A summary of significant
accounting policies is also provided in the aforementioned notes to our
consolidated financial statements (see note 2 to the unaudited consolidated
financial statements). These policies require the application of judgment and
assumptions by management and, as a result, are subject to a degree of
uncertainty. Due to this uncertainty, actual results could differ materially
from estimates calculated and utilized by management.



Basis of Presentation



The accompanying consolidated financial statements include all of the accounts
of the Company, and its majority-owned and/or controlled subsidiaries. The
portion of these entities not owned by the Company is presented as
noncontrolling interests as of and during the periods presented. All significant
intercompany accounts and transactions have been eliminated in consolidation.



When the Company obtains an economic interest in an entity, the Company
evaluates the entity to determine if the entity is deemed a variable interest
entity ("VIE"), and if the Company is deemed to be the primary beneficiary, in
accordance with authoritative guidance issued by the Financial Accounting
Standards Board ("FASB") on the consolidation of VIEs. To the extent that the
Company (i) has the power to direct the activities of the VIE that most
significantly impact the economic performance of the VIE and (ii) has the
obligation or rights to absorb the VIE's losses or receive its benefits, then
the Company is considered the primary beneficiary. The Company may also consider
additional factors included in the authoritative guidance, such as whether or
not it is the partner in the VIE that is most closely associated with the VIE.
When an entity is not deemed to be a VIE, the Company considers the provisions
of additional FASB guidance to determine whether a general partner, or the
general partners as a group, controls a limited partnership or similar entity
when the limited partners have certain rights. The Company consolidates
(i) entities that are VIEs and of which the Company is deemed to be the primary
beneficiary and (ii) entities that are non-VIEs which the Company controls and
in which the limited partners do not have substantive participating rights, or
the ability to dissolve the entity or remove the Company without cause nor
substantive participating rights.



Self-Storage Properties



The Company records self-storage properties at cost less accumulated
depreciation. Depreciation on the buildings and equipment is recorded on a
straight-line basis over their estimated useful lives, which range from five to
39 years. Expenditures for significant renovations or improvements that extend
the useful life of assets are capitalized. Repairs and maintenance costs are
expensed as incurred.



When stores are acquired, the purchase price is allocated to the tangible and
intangible assets acquired and liabilities assumed based on estimated fair
values. Allocations to land, building and improvements and equipment are
recorded based upon their respective fair values as estimated by management. If
appropriate, the Company allocates a portion of the purchase price to an
intangible asset attributed to the value of in-place leases. This intangible
asset is generally amortized to expense over the expected remaining term of the
respective leases. Substantially all of the storage leases in place at acquired
stores are at market rates, as the majority of the leases are month-to-month
contracts. Accordingly, to date, no portion of the purchase price has been
allocated to above- or below-market lease intangibles associated with storage
leases assumed at acquisition. Above- or below- market lease intangibles
associated with assumed ground leases in which the Company serves as lessee are
recorded as an adjustment to the right-of-use asset and reflect the difference
between the contractual amounts to be paid pursuant to each in-place ground
lease and management's estimate of fair market lease rates. These amounts are
amortized over the term of the lease. To date, no intangible asset has been
recorded for the value of customer relationships, because the Company does not
have any concentrations of significant customers and the average customer
turnover is fairly frequent.

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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. The carrying value of these long-lived
assets is compared to the undiscounted future net operating cash flows, plus a
terminal value, attributable to the assets to determine if the store's basis is
recoverable. If a store's basis is not considered recoverable, an impairment
loss is recorded to the extent the net carrying value of the asset exceeds the
fair value. The impairment loss recognized equals the excess of net carrying
value over the related fair value of the asset. There were no impairment losses
recognized in accordance with these procedures during the three and six months
ended June 30, 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 a store (or
group of stores), (b) the store is available for immediate sale in its present
condition subject only to terms that are usual and customary for sales of such
stores, (c) an active program to locate a buyer and other actions required to
complete the plan to sell the store have been initiated, (d) the sale of the
store is probable and transfer of the asset is expected to be completed within
one year, (e) the store 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. However, each
potential transaction is evaluated based on its separate facts and
circumstances. Stores classified as held for sale are reported at the lesser of
carrying value or fair value less estimated costs to sell. There were no stores
classified as held for sale as of June 30, 2021.



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. Under the equity
method, investments in unconsolidated real estate ventures are recorded
initially at cost, as investments in real estate entities, and subsequently
adjusted for equity in earnings (losses), cash contributions, less distributions
and impairments. On a periodic basis, management also assesses whether there are
any indicators that the carrying value of the Company's investments in
unconsolidated real estate entities may be other than temporarily impaired. An
investment is impaired only if the fair value of the investment, as estimated by
management, is less than the carrying value of the investment and the decline is
other than temporary. To the extent impairment has occurred, the loss shall be
measured as the excess of the carrying amount of the investment over the fair
value of the investment, as estimated by management. The determination as to
whether impairment exists requires significant management judgment about the
fair value of its ownership interest. Fair value is determined through various
valuation techniques, including, but not limited to, discounted cash flow
models, quoted market values and third-party appraisals. There were no
impairment losses related to the Company's investments in unconsolidated real
estate ventures recognized during the six months ended June 30, 2021 and 2020.



Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements affecting our business, see note 2 to the 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. Historical results set forth in the consolidated statements of
operations reflect only the existing stores 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 periods presented. We consider a store to be
stabilized once it has achieved an occupancy rate that we believe, based on our
assessment of market-specific data, is representative of similar self-storage
assets in the applicable market for a full year measured as of the most recent
January 1 and has not been significantly damaged by natural disaster or

                                       36

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undergone significant renovation. 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
June 30, 2021, we owned 511 same-store properties and 36 non-same-store
properties. For analytical presentation, all percentages are calculated using
the numbers presented in the financial statements contained in this Report.

Acquisition and Development Activities

The comparability of our results of operations is affected by the timing of
acquisition and disposition activities during the periods reported. As of
June 30, 2021 and 2020, we owned 547 and 527 self-storage properties and related
assets, respectively. The following table summarizes the change in number of
owned stores from January 1, 2020 through June 30, 2021:




                          2021    2020

Balance - January 1        543     523
Stores acquired              -       1
Stores developed             1       -
Stores combined (1)        (1)       -
Balance - March 31         543     524
Stores acquired (2)          2       2
Stores developed             2       1
Balance - June 30          547     527
Stores acquired                      -
Stores developed                     -
Balance - September 30             527
Stores acquired                     18
Stores combined (3)                (1)
Stores sold                        (1)
Balance - December 31              543



     On March 3, 2021, the Company completed development of a store located in

Arlington, VA for a total cost of approximately $26.4 million. The developed

(1) store is located adjacent to an existing consolidated joint venture store.

Given their proximity to each other, the stores have been combined in our

     store count, as well as for operational and reporting purposes.



(2) For 2021, includes one store acquired by a consolidated joint venture in

     which the Company holds a 50% interest.



On November 10, 2020, the Company acquired a store located in Merritt Island,

FL for approximately $3.9 million. The acquired store is located in near

(3) proximity to an existing wholly-owned store. Given their proximity to each

other, the stores have been combined in our store count, as well as for

     operational and reporting purposes.



Impact of COVID-19 on the Consolidated Financial Statements and Business Operations




Our assessment of the impact of COVID-19 on the consolidated financial
statements and business operations has not changed materially from the
description provided in Part I. Item 1. "Business," of our   Annual Report on
Form 10-K for the year ended December 31, 2020  . However, the duration and
scope of the pandemic; actions that have been and continue to be taken by
governmental entities, individuals and businesses in response to the pandemic;
and the continued impact on economic activity from the pandemic may,
individually or in aggregate, impact our future business, financial condition,
results of operations, access to capital and share price.



                                       37

  Table of Contents

Comparison of the three months ended June 30, 2021 to the three months ended June 30, 2020 (in thousands)




                                                                                        Non Same-Store                Other/
                                           Same-Store Property Portfolio                  Properties               Eliminations                          Total Portfolio
                                                                             %                                                                                                       %
                                     2021           2020        Change    
Change      2021         2020        2021         2020          2021           2020         Change      Change
REVENUES:
Rental income                     $   154,254$  135,992$ 18,262

13.4 % $ 16,105$ 4,492 $ - $ - $ 170,359$ 140,484$ 29,875 21.3 % Other property related income (1) 6,938 5,402 1,536

 28.4 %        650         219       13,630       10,901         21,218         16,522        4,696       28.4 %
Property management fee income              -             -           -       0.0 %          -           -        7,670        6,792          7,670          6,792          878       12.9 %
Total revenues                        161,192       141,394      19,798    

14.0 % 16,755 4,711 21,300 17,693 199,247

163,798 35,449 21.6 %


OPERATING EXPENSES:
Property operating expenses (2)        49,460        46,416       3,044    

6.6 % 5,146 1,962 9,145 6,967 63,751

     55,345        8,406       15.2 %
NET OPERATING INCOME:                 111,732        94,978      16,754    

17.6 % 11,609 2,749 12,155 10,726 135,496

    108,453       27,043       24.9 %

Store count                               511           511                                 36          16                                      547            527
Total square footage                   35,693        35,693                              3,317       1,345                                   39,010         37,038
Period end occupancy                     96.1 %        93.7 %                             77.4 %      63.1 %                                   94.5 %         92.5 %
Period average occupancy                 95.6 %        92.6 %
Realized annual rent per occupied
sq. ft. (3)                       $     18.08$    16.46

Depreciation and amortization                                              
                                                                 54,139         39,893       14,246       35.7 %
General and administrative                                                                                                                   11,560          9,543        2,017       21.1 %
Subtotal                                                                                                                                     65,699         49,436       16,263       32.9 %

OTHER (EXPENSE) INCOME
Interest:
Interest expense on loans                                                                                                                  (19,112)       (18,702)        (410)      (2.2) %
Loan procurement amortization expense                                                                                                       (1,012)          (753)        (259)     (34.4) %
Equity in earnings (losses) of real estate ventures                        
                                                                    316          (174)          490      281.6 %
Other                                                                                                                                           377          (456)          833      182.7 %
Total other expense                                                                                                                        (19,431)       (20,085)          654        3.3 %
NET INCOME                                                                                                                                   50,366    

38,932 11,434 29.4 % NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS Noncontrolling interests in the Operating Partnership

                                                                                       (1,768)          (389)      (1,379)    (354.5) %
Noncontrolling interests in subsidiaries                                                                                                        154           (38)          192      505.3 %
NET INCOME ATTRIBUTABLE TO THE COMPANY'S COMMON SHAREHOLDERS               
                                                            $    48,752$    38,505$  10,247       26.6 %

Protection plan revenue, which prior to 2021 had been included in our (1) same-store and non same-store portfolio results, is now recorded in indirect

property overhead. Prior periods have been adjusted for comparability.

For comparability purposes, current year amounts related to the expiration of (2) certain real estate tax abatements have been excluded from the same-store

portfolio results ($60k for the three months ended June 30, 2021).

(3) 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 $140.5 million during the three months ended June
30, 2020 to $170.4 million for the three months ended June 30, 2021, an increase
of $29.9 million, or 21.3%. The $18.3 million increase in same-store rental
income was primarily due to higher rental rates and occupancy. Realized annual
rent per occupied square foot in our same-store portfolio increased 9.8% as a
result of higher rental rates for new and existing customers for the three
months ended June 30, 2021 as compared to the three months ended June 30, 2020.
The remaining increase in revenues was primarily attributable to $11.6 million
of additional rental income from the stores acquired or opened in 2020 and 2021
included in our non-same-store portfolio.



Other property related income increased from $16.5 million during the three
months ended June 30, 2020 to $21.2 million for the three months ended June 30,
2021, an increase of $4.7 million, or 28.4%. The $1.5 million increase in
same-store other property related income was mainly attributable to an increase
in fee revenue. The increase was also due to a $1.7 million increase in customer
storage protection plan participation at our owned and managed stores.



Property management fee income increased from $6.8 million during the three
months ended June 30, 2020 to $7.7 million for the three months ended June 30,
2021, an increase of $0.9 million, or 12.9%. This increase was primarily due to
an increase in rental income at our managed stores for the three months ended
June 30, 2021 as compared to the three months ended June 30, 2020.



Operating Expenses



Property operating expenses increased from $55.3 million during the three months
ended June 30, 2020 to $63.8 million for the three months ended June 30, 2021,
an increase of $8.4 million, or 15.2%. The $3.0 million increase in property
operating expenses on the same-store portfolio was primarily due to a $1.2
million increase in advertising and a

                                       38

Table of Contents

$0.7 million increase in property taxes. The remainder of the increase was primarily attributable to $3.2 million of increased expenses associated with newly acquired or developed stores.

Depreciation and amortization increased from $39.9 million during the three
months ended June 30, 2020 to $54.1 million for the three months ended June 30,
2021, an increase of $14.2 million, or 35.7%. This increase was primarily
attributable to depreciation and amortization associated with newly acquired or
developed stores.


General and administrative expenses increased from $9.5 million during the three
months ended June 30, 2020 to $11.6 million for the three months ended June 30,
2021, an increase of $2.0 million, or 21.1%. This increase was primarily
attributable to increased personnel expenses resulting from additional employee
headcount to support our growth.



Other (Expense) Income



Interest expense on loans increased from $18.7 million during the three months
ended June 30, 2020 to $19.1 million for the three months ended June 30, 2021,
an increase of $0.4 million, or 2.2%. The increase was attributable to a higher
amount of outstanding debt partially offset by lower interest rates during the
three months ended June 30, 2021. To fund a portion of the Company's growth, the
average outstanding debt balance increased $265.8 million to $2,246.5 million
during the three months ended June 30, 2021 as compared to $1,980.7 million
during the three months ended June 30, 2020. The weighted average effective
interest rate on the Company's outstanding debt for the three months ended
June 30, 2021 and 2020 was 3.41% and 3.92%, respectively.



Comparison of the six months ended June 30, 2021 to the six months ended
June 30, 2020 (in thousands)




                                                                                       Non Same-Store                Other/
                                          Same-Store Property Portfolio                  Properties               Eliminations                          Total Portfolio
                                                                            %                                                                                                       %
                                     2021          2020        Change     Change      2021         2020        2021         2020          2021           2020         Change      Change
REVENUES:
Rental income                     $  301,576$  273,406$ 28,170

10.3 % $ 31,259$ 8,063 $ - $ - $ 332,835 $

281,469 $ 51,366 18.2 % Other property related income (1) 12,923 11,688 1,235 10.6 % 1,160 407 26,439 21,329 40,522

         33,424        7,098       21.2 %
Property management fee income             -             -           -       0.0 %          -           -       14,731       12,986         14,731         12,986        1,745       13.4 %
Total revenues                       314,499       285,094      29,405     

10.3 % 32,419 8,470 41,170 34,315 388,088

327,879 60,209 18.4 %


OPERATING EXPENSES:
Property operating expenses (2)       97,239        93,240       3,999     
 4.3 %      9,962       3,694       17,778       14,151        124,979        111,085       13,894       12.5 %
NET OPERATING INCOME:                217,260       191,854      25,406      13.2 %     22,457       4,776       23,392       20,164        263,109        216,794       46,315       21.4 %

Store count                              511           511                                 36          16                                      547            527
Total square footage                  35,693        35,693                              3,317       1,345                                   39,010         37,038
Period end occupancy                    96.1 %        93.7 %                             77.4 %      63.1 %                                   94.5 %         92.5 %
Period average occupancy                94.7 %        91.8 %
Realized annual rent per occupied
sq. ft. (3)                       $    17.84$    16.69

Depreciation and amortization                                              
                                                               107,949         80,731       27,218       33.7 %
General and administrative                                                                                                                  22,476         19,908        2,568       12.9 %
Subtotal                                                                                                                                   130,425        100,639       29,786       29.6 %

OTHER (EXPENSE) INCOME
Interest:
Interest expense on loans                                                                                                                 (38,346)       (37,383)        (963)      (2.6) %
Loan procurement amortization expense                                                                                                      (2,047)        (1,507)        (540)     (35.8) %
Equity in earnings (losses) of real estate ventures                        
                                                                   336          (179)          515      287.7 %
Other                                                                                                                                        1,054            163          891      546.6 %
Total other expense                                                                                                                       (39,003)       (38,906)         (97)      (0.2) %

NET INCOME                                                                                                                                  93,681     

77,249 16,432 21.3 % NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS Noncontrolling interests in the Operating Partnership

                                                                                      (3,317)          (772)      (2,545)    (329.7) %
Noncontrolling interests in subsidiaries                                                                                                       120           (76)          196      257.9 %
NET INCOME ATTRIBUTABLE TO THE COMPANY'S COMMON SHAREHOLDERS               
                                                           $    90,484$    76,401$  14,083       18.4 %

Protection plan revenue, which prior to 2021 had been included in our (1) same-store and non same-store portfolio results, is now recorded in indirect

property overhead. Prior periods have been adjusted for comparability.

For comparability purposes, current year amounts related to the expiration of (2) certain real estate tax abatements have been excluded from the same-store

portfolio results ($120k for the six months ended June 30, 2021).

(3) Realized annual rent per occupied square foot is computed by dividing rental

    income by the weighted average occupied square feet for the period.




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  Table of Contents

Revenues



Rental income increased from $281.5 million during the six months ended June 30,
2020 to $332.8 million for the six months ended June 30, 2021, an increase of
$51.4 million, or 18.2%. The $28.2 million increase in same-store rental income
was primarily due to higher rental rates and occupancy. Realized annual rent per
occupied square foot in our same-store portfolio increased 6.9% as a result of
higher rental rates for new and existing customers for the six months ended June
30, 2021 as compared to the six months ended June 30, 2020. The remaining
increase in revenues was primarily attributable to $23.2 million of additional
rental income from the stores acquired or opened in 2020 and 2021 included in
our non-same-store portfolio.



Other property related income increased from $33.4 million during the six months
ended June 30, 2020 to $40.5 million for the six months ended June 30, 2021, an
increase of $7.1 million, or 21.2%. The $1.2 million increase in same-store
other property related income was mainly attributable to an increase in fee
revenue. The increase was also due to a $3.5 million increase in customer
storage protection plan participation at our owned and managed stores.



Property management fee income increased from $13.0 million during the six
months ended June 30, 2020 to $14.7 million for the six months ended June 30,
2021, an increase of $1.7 million, or 13.4%. This increase was primarily due to
an increase in rental income at our managed stores for the six months ended June
30, 2021 as compared to the six months ended June 30, 2020.



Operating Expenses



Property operating expenses increased from $111.1 million during the six months
ended June 30, 2020 to $125.0 million for the six months ended June 30, 2021, an
increase of $13.9 million, or 12.5%. The $4.0 million increase in property
operating expenses in the same-store portfolio was primarily due to a $1.4
million increase in property taxes and a $1.3 million increase in advertising.
The remainder of the increase was primarily attributable to $6.3 million of
increased expenses associated with newly acquired or developed stores.



Depreciation and amortization increased from $80.7 million during the six months
ended June 30, 2020 to $107.9 million for the six months ended June 30, 2021, an
increase of $27.2 million, or 33.7%. This increase was primarily attributable to
depreciation and amortization associated with newly acquired or developed
stores.



General and administrative expenses increased from $19.9 million during the six
months ended June 30, 2020 to $22.5 million for the six months ended June 30,
2021, an increase of $2.6 million, or 12.9%. This increase was primarily
attributable to increased personnel expenses resulting from additional employee
headcount to support our growth.



Other (Expense) Income



Interest expense on loans increased from $37.4 million during the six months
ended June 30, 2020 to $38.3 million for the six months ended June 30, 2021, an
increase of $1.0 million, or 2.6%. The increase was attributable to a higher
amount of outstanding debt partially offset by lower interest rates during the
six months ended June 30, 2021. To fund a portion of the Company's growth, the
average outstanding debt balance increased $323.7 million to $2,286.2 million
during the six months ended June 30, 2021 as compared to $1,962.5 million during
the six months ended June 30, 2020. The weighted average effective interest rate
on the Company's outstanding debt for the six months ended June 30, 2021 and
2020 was 3.40% and 3.94%, respectively.





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  Table of Contents

Cash Flows


Comparison of the six months ended June 30, 2021 to the six months ended June 30, 2020

A comparison of cash flow from operating, investing and financing activities for the six months ended June 30, 2021 and 2020 is as follows:





                                     Six Months Ended June 30,
Net cash provided by (used in):         2021             2020          Change

                                                  (in thousands)

Operating activities               $      217,358$   188,515$   28,843
Investing activities               $     (87,970)$ (124,525)$   36,555
Financing activities               $    (129,390)$ (116,039)$ (13,351)
Cash provided by operating activities increased from $188.5 million for the six
months ended June 30, 2020 to $217.4 million for the six months ended
June 30, 2021, reflecting an increase of $28.8 million. Our increased cash flow
from operating activities was primarily attributable to stores acquired and
developed during 2020 and 2021 and increased net operating income levels in the
same-store portfolio in the 2021 period as compared to the 2020 period.



Cash used in investing activities decreased from $124.5 million for the six
months ended June 30, 2020 to $88.0 million for the six months ended
June 30, 2021, reflecting a decrease of $36.6 million. The change was primarily
driven by a decrease in cash used for acquisitions of storage properties. Cash
used during the six months ended June 30, 2021 related to the acquisition of two
stores for an aggregate purchase price of $34.1 million, while cash used during
the six months ended June 30, 2020 related to the acquisition of three stores
for an aggregate purchase price of $74.7 million.



Cash used in financing activities was $116.0 million for the six months ended
June 30, 2020 compared to $129.4 million for the six months ended June 30, 2021,
reflecting an increase of $13.4 million. This change was primarily the result of
a $108.6 million increase in net revolving credit facility payments during the
six months ended June 30, 2021 compared to the six months ended June 30, 2020.
Additionally, principal payments on mortgage loans increased $44.0 million from
the six months ended June 30, 2020 to the six months ended June 30, 2021
resulting primarily from the repayment of two secured loans during the 2021
period with no comparable repayments during the 2020 period. These increases in
cash outflows were offset by $142.1 million of net proceeds received from the
issuance of common shares under our "at-the-market" equity program during the
six months ended June 30, 2021, with no comparable cash inflows during the
2020
period.


Liquidity and Capital Resources



Liquidity Overview



Our cash flow from operations has historically been one of our primary sources
of liquidity used to fund debt service, distributions and capital expenditures.
We derive substantially all of our revenue from customers who lease space at our
stores and fees earned from managing stores. Therefore, our ability to generate
cash from operations is dependent on the rents and management fees that we are
able to charge and collect from our customers. We believe that the properties in
which we invest, self-storage properties, are less sensitive than other real
estate product types to near-term economic downturns. However, prolonged
economic downturns could 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 REIT taxable income, excluding
capital gains, to its shareholders on an annual basis or pay federal income tax.
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 term and the 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.


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These funding requirements will vary from year to year, in some cases
significantly. For the remainder of the 2021 fiscal year, we expect recurring
capital expenditures to be approximately $4.0 million to $9.0 million, planned
capital improvements and store upgrades to be approximately $4.0 million to $9.0
million and costs associated with the development of new stores to be
approximately $8.5 million to $18.5 million. Our currently scheduled principal
payments on our outstanding debt are approximately $1.2 million for the
remainder of 2021.



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 Credit Facility 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 2021 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. We will have to satisfy the portion of our
needs not covered by cash flow from operations through additional borrowings,
including borrowings under our Amended and Restated Credit Facility, sales of
common or preferred shares of the Parent Company and common or preferred units
of the Operating Partnership and/or cash generated through store dispositions
and joint venture transactions.



We believe that, as a publicly traded REIT, we will have access to multiple
sources of capital to fund our long-term liquidity requirements, including the
incurrence of additional debt and the issuance of additional equity. However, we
cannot provide any assurance that this will be the case. Our ability to incur
additional debt will be dependent on a number of factors, including our degree
of leverage, the value of our unencumbered assets and borrowing restrictions
that may be imposed by lenders. In addition, dislocation in the United States
debt markets may significantly reduce the availability and increase the cost of
debt capital, including conventional mortgage financing and commercial
mortgage-backed securities financing. There can be no assurance that such
capital will be readily available in the future. Our ability to access the
equity 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 June 30, 2021, we had approximately $4.0 million in available cash and cash equivalents. In addition, we had approximately $724.8 million of availability for borrowings under our Amended and Restated Credit Facility.



Unsecured Senior Notes


Our unsecured senior notes, which are issued by the Operating Partnership and guaranteed by the Parent Company, are summarized as follows (collectively referred to as the "Senior Notes"):




                                         June 30,       December 31,        Effective       Issuance     Maturity
Unsecured Senior Notes                     2021             2020          Interest Rate       Date         Date

                                               (in thousands)
$300M 4.375% Guaranteed Notes due
2023 (1)                                $   300,000$     300,000         4.33  %      Various (1)     Dec-23
$300M 4.000% Guaranteed Notes due
2025 (2)                                    300,000           300,000         3.99  %      Various (2)     Nov-25
$300M 3.125% Guaranteed Notes due
2026                                        300,000           300,000         3.18  %           Aug-16     Sep-26
$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
Principal balance outstanding             2,050,000         2,050,000
Less: Discount on issuance of
unsecured senior notes, net                 (7,086)           (7,470)

Less: Loan procurement costs, net (11,288) (12,158) Total unsecured senior notes, net $ 2,031,626$ 2,030,372



     On April 4, 2017, the Operating Partnership issued $50.0 million of its

4.375% senior notes due 2023, which are part of the same series as the $250.0

(1) million principal amount of the Operating Partnership's 4.375% senior notes

     due December 15, 2023 issued on December 17, 2013. The $50.0 million and
     $250.0 million tranches


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  Table of Contents

were priced at 105.040% and 98.995%, respectively, of the principal amount to

  yield 3.495% and 4.501%, respectively, to maturity. The combined weighted
  average effective interest rate of the 2023 notes is 4.330%.




     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

(2) due November 15, 2025 issued on October 26, 2015. The $50.0 million and

$250.0 million tranches were priced at 101.343% and 99.735%, respectively, of

the principal amount to yield 3.811% and 4.032%, respectively, to

maturity. The combined weighted average effective interest rate of the 2025

     notes is 3.994%.




The indenture under which the Senior Notes were issued restricts the ability of
the Operating Partnership and its subsidiaries to incur debt unless the
Operating Partnership and its consolidated subsidiaries comply with a leverage
ratio not to exceed 60% and an interest coverage ratio of more than 1.5:1.0
after giving effect to the incurrence of the debt. The indenture also restricts
the ability of the Operating Partnership and its subsidiaries to incur secured
debt unless the Operating Partnership and its consolidated subsidiaries comply
with a secured debt leverage ratio not to exceed 40% after giving effect to the
incurrence of the debt. The indenture also contains other financial and
customary covenants, including a covenant not to own unencumbered assets with a
value less than 150% of the unsecured indebtedness of the Operating Partnership
and its consolidated subsidiaries. As of June 30, 2021, 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").
On June 19, 2019, we amended and restated, in its entirety, the Credit Facility
(the "Amended and Restated Credit Facility") which, subsequent to the amendment
and restatement, is comprised of a $750.0 million unsecured revolving facility
(the "Revolver") maturing on June 19, 2024. Under the Amended and Restated
Credit Facility, pricing on the Revolver is dependent upon our unsecured debt
credit ratings. At the Company's current Baa2/BBB level, amounts drawn under the
Revolver are priced at 1.10% over LIBOR, inclusive of a facility fee of 0.15%.



As of June 30, 2021, borrowings under the Revolver had an effective interest
rate of 1.20%. Additionally, as of June 30, 2021, $724.8 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.



Under the Amended and Restated Credit Facility, our ability to borrow under the
Revolver is subject to ongoing compliance with certain financial covenants which
include, among other things, (1) a maximum total indebtedness to total asset
value of 60.0%, and (2) a minimum fixed charge coverage ratio of 1.5:1.0. As of
June 30, 2021, we were in compliance with all of our financial covenants.



At-the-Market Equity Program


We maintain an "at-the-market" equity program that enables us to sell common shares through sales agents pursuant to equity distribution agreements (the "Equity Distribution Agreements").




During the six months ended June 30, 2021, we sold a total of 3.9 million common
shares at an average sales price of $37.00 per share, resulting in net proceeds
of $142.1 million, after deducting offering costs. We used the proceeds from the
2021 sales under the program to fund the acquisition and development of
self-storage properties and for general corporate purposes. As of June 30, 2021,
7.0 million common shares remained available for issuance under the Equity
Distribution Agreements.



Recent Developments


Subsequent to June 30, 2021, we acquired two self-storage properties located in New Jersey and Pennsylvania for an aggregate purchase price of $33.0 million.





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  Table of Contents

Non-GAAP Financial Measures



NOI



We define net operating income, which we refer to as "NOI", as total continuing
revenues less continuing property operating expenses. NOI also can be calculated
by adding back to net income (loss): interest expense on loans, loan procurement
amortization expense, loss on early extinguishment of debt, acquisition related
costs, equity in losses of real estate ventures, other expense, depreciation and
amortization expense, general and administrative expense, and deducting from net
income (loss): equity in earnings of real estate ventures, gains from sale of
real estate, net, other income, gains from remeasurement of investments in real
estate ventures and interest income. NOI is not a measure of performance
calculated in accordance with GAAP.



We use NOI as a measure of operating performance at each of our stores, and for
all of our stores in the aggregate. NOI should not be considered as a substitute
for 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.




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. We compensate for these
limitations by considering the economic effect of the excluded expense items
independently as well as in connection with our analysis of net income. NOI
should be considered in addition to, but not as a substitute for, other measures
of financial performance reported in accordance with GAAP, such as total
revenues, operating income and net income.



FFO


Funds from operations ("FFO") is a widely used performance measure for real
estate companies and is provided here as a supplemental measure of operating
performance. The April 2002 National Policy Bulletin of the National Association
of Real Estate Investment Trusts (the "White Paper"), as amended and restated,
defines FFO as net income (computed in accordance with GAAP), excluding gains
(or losses) from sales of real estate and related impairment charges, plus real
estate depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures.



Management uses FFO as a key performance indicator in evaluating the operations
of our stores. Given the nature of our business as a real estate owner and
operator, we consider FFO a key measure of our operating performance that is not
specifically defined by accounting principles generally accepted in the United
States. We believe that 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

                                       44

Table of Contents

of depreciable assets, and depreciation, which can make periodic and peer analyses of operating performance more difficult. Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies.

FFO should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of our performance. FFO does not
represent cash generated from operating activities determined in accordance with
GAAP and is not a measure of liquidity or an indicator of our ability to make
cash distributions. We believe that to further understand our performance, FFO
should be compared with our reported net income and considered in addition to
cash flows computed in accordance with GAAP, as presented in our consolidated
financial statements.



FFO, as adjusted


FFO, as adjusted represents FFO as defined above, excluding the effects of
acquisition related costs, gains or losses from early extinguishment of debt,
and non-recurring items, which we believe are not indicative of the Company's
operating results. We present FFO, as adjusted because we believe it is a
helpful measure in understanding our results of operations insofar as we believe
that the items noted above that are included in FFO, but excluded from FFO, as
adjusted are not indicative of our ongoing operating results. We also believe
that the analyst community considers our FFO, as adjusted (or similar measures
using different terminology) when evaluating us. Because other REITs or real
estate companies may not compute FFO, as adjusted in the same manner as we do,
and may use different terminology, our computation of FFO, as adjusted may not
be comparable to FFO, as adjusted reported by other REITs or real estate
companies.



                                       45

  Table of Contents

The following table presents a reconciliation of net income attributable to the Company's common shareholders to FFO (and FFO, as adjusted) attributable to common shareholders and OP unitholders for the three and six months ended June 30, 2021 and 2020.




                                                  Three Months Ended June 30,           Six Months Ended June 30,
                                                    2021                2020              2021               2020

                                                                           (in thousands)
Net income attributable to the Company's
common
shareholders                                   $       48,752$       38,505$       90,484$       76,401

Add:
Real estate depreciation and amortization:
Real property                                          52,747              39,021           105,599             79,029
Company's share of unconsolidated real
estate ventures                                         2,014               1,953             3,887              3,662
Noncontrolling interests in the Operating
Partnership                                             1,768                 389             3,317                772
FFO attributable to common shareholders and
OP unitholders                                 $      105,281      $      

79,868 $ 203,287$ 159,864

Add:

Loss on early repayment of debt (1)                       133                   -               556                  -
FFO, as adjusted, attributable to common
shareholders and OP
unitholders                                    $      105,414      $      

79,868 $ 203,843$ 159,864


Weighted average diluted shares outstanding           202,809             194,192           201,527            194,231
Weighted average diluted units outstanding              7,328               1,949             7,355              1,961
Weighted average diluted shares and units
outstanding                                           210,137             196,141           208,882            196,192



For the three and six months ended June 30, 2021, loss on early repayment of

(1) debt relates to costs that are included in the Company's share of equity in

     earnings (losses) of real estate ventures.



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.

© Edgar Online, source Glimpses

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Sales 2021 797 M - -
Net income 2021 199 M - -
Net Debt 2021 2 277 M - -
P/E ratio 2021 53,8x
Yield 2021 2,63%
Capitalization 10 512 M 10 512 M -
EV / Sales 2021 16,0x
EV / Sales 2022 14,9x
Nbr of Employees 3 111
Free-Float 99,4%
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Number of Analysts 11
Last Close Price 52,10 $
Average target price 54,89 $
Spread / Average Target 5,35%
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Managers and Directors
Christopher P. Marr President, Chief Executive Officer & Trustee
Timothy M. Martin Chief Financial Officer & Treasurer
Marianne M. Keler Chairman
Joel D. Keaton Chief Operating Officer
John F. Remondi Independent Trustee
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