Business Context and Reporting Period
Company: U-Store-It Trust (Cubesmart)
Filing Type: Form 8-K (Current Report)
Date of Report: August 6, 2007
Event: Entry into a Material Definitive Agreement to settle all pending state and federal litigation involving the Company and the Amsdell family (former Chairman, Trustee, and President of a subsidiary) and their affiliate, Rising Tide Development LLC.
Key Financial Metrics and Transaction Details
- Acquisition Price: $121 million for 14 self-storage facilities (Rising Tide Properties).
- Funding Source: Proceeds from the Company's $250 million unsecured revolving credit facility.
- Transaction Structure: Rising Tide may structure the sale as a Section 1031 like-kind exchange.
- Lease Modifications: Amendments to approximately 32,000 square feet of corporate office space leases in Cleveland, Ohio, removing rent acceleration clauses and facilitating subleasing of approximately 22,000 square feet.
- Financial Statements: Not applicable (Item 9.01 indicates no financial statements or pro forma data are included in this filing).
Material Changes and Agreements
The filing details several material agreements executed to resolve disputes and restructure relationships:
- Settlement and Release: All parties agreed to voluntarily dismiss pending litigation with prejudice and release all claims related to business relationships, the Option Agreement, Property Management Agreement, and Age Discrimination claims.
- Termination of Agreements:
- Option Agreement: Terminated the 2004 option to acquire 18 properties (14 acquired now, 3 previously acquired, 1 undeveloped).
- Property Management & Marketing Agreements: Terminated agreements where the Company managed Rising Tide properties for a fee (greater of 5.35% of gross revenue or $1,500/month per property).
- Standstill Agreement: The Amsdell family agreed not to initiate proxy solicitations, shareholder proposals, or extraordinary corporate transactions (e.g., mergers, tender offers) until June 30, 2008, without Board approval.
- Employment and Noncompetition:
- Employment agreements with Robert J. Amsdell and Todd C. Amsdell were terminated (effective Feb 2007).
- Noncompetition restrictions were modified to allow the Amsdells to compete regarding the one undeveloped property not acquired and properties involved in a Section 1031 exchange.
Outlook, Risks, and Management Commentary
Management Commentary: The Board of Trustees and Corporate Governance Committee approved the settlement terms to resolve long-standing litigation and acquire properties the Company has managed since 2004. The transaction is conditioned on the closing of the property acquisition.
Risks and Contingencies:
- Closing Conditions: The termination of the Option, Property Management, and Marketing agreements is contingent upon the successful closing of the $121 million property purchase.
- Representations: Due to the Company's long-term management of the properties, the Purchase Agreement contains limited customary representations and no representations regarding the physical condition of the properties.
- Future Competition: Modified noncompetition agreements allow the Amsdell family to develop specific properties and compete in like-kind exchanges, potentially creating future competitive dynamics.
Key Facts for Investor Verification
- Verify the closing status of the $121 million acquisition of the 14 Rising Tide Properties.
- Confirm the utilization of the $250 million revolving credit facility and its impact on the Company's liquidity and debt covenants.
- Monitor the Standstill Agreement expiration date of June 30, 2008, for potential future governance actions by the Amsdell family.
- Review the physical condition and valuation of the acquired properties, noting the lack of physical condition representations in the Purchase Agreement.
- Assess the impact of the modified noncompetition clauses on the Company's market position in the Cleveland area and regarding the undeveloped property.