CUBE

Business Context and Reporting Period

Company: U-Store-It Trust (Cubesmart)

Filing Type: Form 10-Q (Quarterly Report)

Period Ended: September 30, 2007

Overview: The Company is a self-administered REIT owning and operating self-storage facilities. As of September 30, 2007, the portfolio consisted of 411 facilities totaling approximately 26.2 million square feet across 26 states. The Company reported a net loss for the quarter, driven by high interest expenses and one-time charges, despite revenue growth from acquisitions.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 4% ($2.3 million) for the three months ended September 30, 2007, compared to the same period in 2006. This was driven by acquisitions in 2006 and 2007, including a $121 million acquisition of 14 facilities from Rising Tide in September 2007.
• Operating Expenses: Property operating expenses rose 15% year-over-year due to new acquisitions and increased personnel costs (facilities open Sundays). General and administrative expenses decreased 29% due to the absence of $2.1 million in severance costs recorded in the prior year.
• One-Time Charges: The Company recognized a $1.3 million "Lease abandonment charge" in Q3 2007 related to vacating corporate office space in Cleveland, Ohio.
• Interest Expense: Interest expense increased 15% ($1.8 million) for the quarter due to higher outstanding debt levels financing recent acquisitions.
• Discontinued Operations: The Company sold three properties in May 2007, resulting in a $2.1 million gain on disposition included in discontinued operations for the nine-month period.

Guidance, Outlook, and Risks

• Capital Expenditures: Management expects recurring capital expenditures to total $7 to $10 million for 2007 and $8 to $12 million for 2008.
• Debt Maturities: Scheduled principal payments are approximately $16.4 million for the remainder of 2007 and $17 million for 2008.
• Legal Settlement: On September 14, 2007, the Company settled all pending litigation with the Amsdell family and Rising Tide Development. The settlement included the acquisition of 14 facilities and a standstill agreement preventing the Amsdells from initiating proxy solicitations until June 30, 2008.
• Internal Controls: The Company previously identified material weaknesses in internal controls over financial reporting related to accounting errors and personnel depth. Management is implementing remediation, including hiring new senior finance personnel and moving departments, with a goal of completion by year-end.
• Market Risks: The Company faces risks related to interest rate fluctuations on variable-rate debt (approx. $440 million variable) and potential tightening of credit markets affecting refinancing capabilities.

Investor Verification Checklist

• Restatement Impact: Verify the full impact of the restatements to 2006 financials regarding the classification of auction rate securities and cash equivalents.
• Debt Covenants: Confirm continued compliance with financial covenants, specifically the maximum total indebtedness to total asset value (65%) and minimum interest coverage ratio (2.0:1.0).
• Acquisition Integration: Assess the operational performance and revenue contribution of the 14 facilities acquired from Rising Tide in September 2007.
• Internal Control Remediation: Monitor the progress of remediation efforts for material weaknesses in internal controls to ensure future financial reporting accuracy.
• Liquidity Position: Review the reliance on the revolving credit facility ($58.5 million available) to fund operations and debt service given the low cash balance ($5.9 million).