CUBE

Business Context and Reporting Period

Company: U-Store-It Trust (Cubesmart)

Filing Type: Form 10-Q (Quarterly Report)

Period Ended: June 30, 2010

Business Overview: The Company is a self-administered and self-managed Real Estate Investment Trust (REIT) that acquires, develops, manages, and operates self-storage facilities. As of June 30, 2010, the Company owned 367 facilities containing approximately 23.7 million rentable square feet across 26 states and the District of Columbia. It also managed 114 properties for third parties.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue: Total revenues increased slightly by 1% ($0.5 million) for the three months ended June 30, 2010, compared to the same period in 2009. This was driven by a 100% increase in property management fee income ($0.6 million) and a 5% increase in other property-related income, offset by a 1% decrease in rental income from same-store properties.
• Operating Expenses: Property operating expenses decreased by 2% ($0.5 million) primarily due to a $1.1 million reduction in real estate tax expenses. General and administrative expenses increased by 22% ($1.2 million) due to higher professional fees and legal costs.
• Interest Expense: Interest expense decreased by 16% ($1.9 million) for the quarter, attributed to the payoff of specific mortgage loans (YSI 26 and YSI 4) and lower outstanding borrowings on the credit facility.
• Discontinued Operations: The Company reported no income or gains from discontinued operations in 2010, whereas the prior year period included income and gains from the sale of 19 properties.
• Debt Reduction: Mortgage loans and notes payable decreased from $569.0 million at December 31, 2009, to $465.9 million at June 30, 2010, reflecting significant principal paydowns.

Guidance, Outlook, and Risks

Management Commentary: Management expects to focus on internal growth and selective acquisitions. They anticipate recurring capital expenditures for the remainder of fiscal year 2010 to be between $4 million and $6 million. The Company remains in compliance with all debt covenants.

Liquidity: The Company maintains approximately $31.9 million in cash and $250 million in availability under its secured revolving credit facility. Scheduled principal payments for the remainder of 2010 are approximately $15.4 million.

Risks and Contingencies:

• Economic Conditions: Continued adverse economic conditions, including high unemployment and reduced consumer spending, could negatively impact occupancy and rental rates.
• Refinancing Risk: The Company faces significant debt maturities in 2011 ($90.5 million) and relies on the ability to refinance existing indebtedness or access capital markets.
• Interest Rate Risk: A portion of the debt is variable-rate; however, a 1% increase in LIBOR would not impact cash flows due to a 1.5% floor in the credit facility agreement.
• Acquisition Integration: The Company acquired 85 management contracts in April 2010, introducing risks related to integration and contingent consideration.

Investor Verification Checklist

• Debt Maturities: Verify the Company's plan to fund the $90.5 million in principal payments due in 2011 given current credit market conditions.
• Same-Store Performance: Monitor the 2% decrease in realized annual rent per occupied square foot on the same-store portfolio to assess pricing power.
• Capital Expenditures: Confirm if the projected $4–$6 million in recurring capital expenditures for the remainder of 2010 is sufficient to maintain asset quality.
• REIT Compliance: Ensure the Company maintains its REIT status by distributing at least 90% of taxable income, which impacts cash retention for debt service.
• Acquisition Impact: Review the performance of the 85 newly acquired management contracts and the associated contingent consideration liability.