CUBE

Business Context and Reporting Period

Company: U-Store-It Trust (d/b/a CubeSmart)

Filing Type: Form 10-K (Annual Report)

Reporting Period: Fiscal year ended December 31, 2004. The Company commenced operations on October 21, 2004, following the completion of its Initial Public Offering (IPO) and formation transactions. The report combines the results of the Company (Oct 21–Dec 31, 2004) and its Predecessor entities (Jan 1–Oct 20, 2004).

Business Overview: A self-administered and self-managed Real Estate Investment Trust (REIT) focused on the ownership, operation, acquisition, and development of self-storage facilities in the United States. As of December 31, 2004, the Company owned and managed 201 facilities aggregating approximately 13.0 million rentable square feet across 21 states, with an occupancy rate of 82.2%.

Key Financial Metrics

Material Changes vs. Prior Period

• Portfolio Expansion: The Company acquired 46 self-storage facilities for approximately $221.8 million in 2004, increasing the total portfolio from 155 facilities (Predecessor) to 201 facilities.
• Revenue Growth: Total revenues increased to $91.6 million in 2004 compared to $80.8 million in 2003. This 13.4% increase is primarily attributable to the acquisition of the 46 new facilities and a 6.4% increase in same-store revenues.
• Net Loss vs. Net Income: While the Predecessor reported net income of $16.2 million in 2003, the Company reported a net loss of $29.9 million for the 2004 period. This reversal is due to significant one-time charges, including $22.2 million for costs to acquire the management company, $7.0 million for early extinguishment of debt, and $4.5 million in loan procurement amortization.
• Capital Structure: Total indebtedness increased from $271.6 million in 2003 to $380.5 million in 2004, reflecting new fixed-rate mortgage loans ($270 million) and the assumption of debt in acquisitions, partially offset by the repayment of prior variable-rate debt.

Guidance, Outlook, and Risks

Management Commentary & Outlook: The Company intends to pursue growth through targeted acquisitions and selective development. As of March 23, 2005, the Company had entered into definitive agreements to acquire an additional 89 facilities for approximately $272.3 million, expected to close by June 30, 2005. The Company expects to incur approximately $8.2 million in recurring capital expenditures in 2005.

Key Risks and Contingencies:

• REIT Qualification: The Company must distribute at least 90% of its REIT taxable income annually to maintain tax-advantaged status. Failure to qualify would subject the Company to corporate income tax.
• Debt Refinancing: Approximately $106.1 million of indebtedness is due in 2006. The Company faces refinancing risk if market conditions deteriorate.
• Concentration Risk: Facilities in Florida, Illinois, and California accounted for approximately 46% of total rentable square feet, exposing the Company to regional economic downturns.
• Competition: The self-storage industry is highly competitive, with major competitors including Public Storage and Storage USA, which may impact occupancy and rental rates.
• Related Party Transactions: The Company has options to purchase 15 facilities from Rising Tide Development, LLC, an entity controlled by the Chairman and CEO, creating potential conflicts of interest.

Investor Verification Checklist

• Acquisition Closing: Verify the closing of the 89 proposed facilities (valued at $272.3 million) and the associated financing terms.
• Debt Maturity Wall: Confirm the refinancing status of the $106.1 million in debt maturing in 2006.
• Same-Store Performance: Monitor same-store occupancy and rental rate trends to ensure organic growth continues despite the large acquisition volume.
• REIT Compliance: Verify that the Company maintains the required 90% distribution of taxable income to avoid corporate taxation.
• Related Party Options: Track the exercise of options on facilities owned by Rising Tide Development and the pricing mechanisms used.