# CubeSmart: Form 10-Q for the period ended Jun 30, 2013

- Company: [CubeSmart](/companies/cube.md) (CIK 1298675)
- Form: 10-Q
- Filed: 2013-08-09
- Accepted by EDGAR: Aug 9, 2013, 16:17 ET
- Period: 2013-06-30
- Accession: 0001104659-13-062341
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1298675/000110465913062341/a13-13646_110q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1298675/000110465913062341/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2013-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2013-04-01 to 2013-06-30 | $30.0m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2013-01-01 to 2013-06-30 | $60.8m | us-gaap:CostOfRevenue |
| Operating income | 3 months, 2013-04-01 to 2013-06-30 | $15.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2013-01-01 to 2013-06-30 | $25.8m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2013-04-01 to 2013-06-30 | $2.5m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2013-01-01 to 2013-06-30 | $2.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2013-04-01 to 2013-06-30 | $0.01 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2013-01-01 to 2013-06-30 | −$0.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2013-04-01 to 2013-06-30 | $0.01 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2013-01-01 to 2013-06-30 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2013-04-01 to 2013-06-30 | 136,329,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2013-01-01 to 2013-06-30 | 133,316,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2013-01-01 to 2013-06-30 | $65.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 6 months, 2013-01-01 to 2013-06-30 | $29.3m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2013-06-30 | $4.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2013-06-30 | $2.20bn | us-gaap:Assets |
| Total liabilities | at 2013-06-30 | $1.16bn | us-gaap:Liabilities |
| Shareholders' equity | at 2013-06-30 | $1.00bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 52,177 characters.

*The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. The Company makes certain statements in this section that 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 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, 2012.*

### Overview

The Company is 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 facilities. 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, 2013 and December 31, 2012, the Company owned 386 and 381 self-storage facilities, respectively, totaling approximately 25.8 million and 25.5 million rentable square feet, respectively. As of June 30, 2013, the Company owned facilities in the District of Columbia and the following 21 states: Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Maryland, Massachusetts, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Utah, Virginia and Wisconsin. In addition, as of June 30, 2013, the Company managed 133 facilities for third parties bringing the total number of facilities which it owned and/or managed to 519. As of June 30, 2013, the Company managed facilities for third parties in the District of Columbia and the following 25 states: Alabama, Arkansas , California, Colorado, Connecticut, Florida, Georgia, Illinois, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, and Virginia.

The Company derives revenues principally from rents received from its customers who rent cubes at its self-storage facilities 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. We have a decentralized approach to the management and operation of our facilities, which places an emphasis on local, market level oversight and control. 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.

The Company typically experiences seasonal fluctuations in the occupancy levels of our facilities, which are generally slightly higher during the summer months due to increased moving activity.

The United States continues to experience slow economic growth as it recovers from an economic downturn that resulted in higher unemployment, stagnant employment growth, shrinking demand for products, large-scale business failures and tight credit markets. 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. A continuation of – or slow recovery from – ongoing adverse economic conditions affecting disposable consumer income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs, 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.

In the future, the Company intends to continue its focus on maximizing internal growth opportunities and selectively pursuing targeted acquisitions and developments of self-storage facilities.

The Company has one reportable segment: we own, operate, develop, manage and acquire self-storage facilities.

The Company’s self-storage facilities are located in major metropolitan and rural areas and have numerous tenants per facility. No single tenant represents a significant concentration of our revenues. The facilities in New York, Florida, California and Texas provided approximately 17%, 15%, 10% and 10%, respectively, of total revenues for the three months ended June 30, 2013.

### 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 an understanding 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. 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 from estimates calculated and utilized by management.

### Self-Storage Facilities

The Company records self-storage facilities 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 40 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 facilities are acquired, the purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values. When a portfolio of facilities is acquired, the purchase price is allocated to the individual facilities based upon an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates, which take into account the relative size, age and location of the individual facility along with current and projected occupancy and rental rate levels or appraised values, if available. Allocations to the individual assets and liabilities are based upon comparable market sales information for land, buildings and improvements and estimates of depreciated replacement cost of equipment.

In allocating the purchase price for an acquisition, the Company determines whether the acquisition includes intangible assets or liabilities. The Company allocates a portion of the purchase price to an intangible asset attributable to the value of in-place leases. This intangible asset is generally amortized to expense over the expected remaining term of the in-place leases. Substantially all of the leases in place at acquired facilities are at market rates, as the majority of the leases are month-to-month contracts. Accordingly, to date no portion of the purchase price for an acquired property has been allocated to above- or below-market lease intangibles. To date, no intangible asset has been recorded for the value of tenant relationships, because the Company does not have any concentrations of significant tenants and the average tenant turnover is fairly frequent.

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 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 property’s basis is recoverable. If a property’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 2013 and 2012.

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 facility (or group of facilities), (b) the facility is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such facilities, (c) an active program to locate a buyer and other actions required to complete the plan to sell the facility have been initiated, (d) the sale of the facility is probable and transfer of the asset is expected to be completed within one year, (e) the facility 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. Properties classified as held for sale are reported at the lesser of carrying value or fair value less estimated costs to sell.

### Revenue Recognition

Management has determined that all of our leases with tenants are operating leases. Rental income is recognized in accordance with the terms of the lease agreements or contracts, which generally are month-to-month.

The Company recognizes gains on disposition of properties only upon closing in accordance with the guidance on sales of real estate. Payments received from purchasers prior to closing are recorded as deposits. Profit on real estate sold is recognized using the full accrual method upon closing when the collectability of the sales price is reasonably assured and the Company is not obligated to perform significant activities after the sale. Profit may be deferred in whole or part until the sale meets the requirements of profit recognition on sales under this guidance.

### Share-Based Payments

We apply the fair value method of accounting for contingently issued shares and share options issued under our equity incentive plans. Accordingly, share compensation expense is recorded ratably over the vesting period relating to such contingently issued shares and options. The Company has elected to recognize compensation expense on a straight-line method over the requisite service period.

### Noncontrolling Interests

Noncontrolling interests are the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. The ownership interests in the subsidiary that are held by owners other than the parent are noncontrolling interests. In accordance with authoritative guidance issued on noncontrolling interests in consolidated financial statements, such noncontrolling interests are reported on the consolidated balance sheets within equity/capital, separately from the Parent Company’s equity/capital. The guidance also requires that noncontrolling interests are adjusted each period so that the carrying value equals the greater of its carrying value based on the accumulation of historical cost or its redemption value. On the consolidated statements of operations, revenues, expenses and net income or loss from less-than-wholly-owned subsidiaries are reported at the consolidated amounts, including both the amounts attributable to the Parent Company and noncontrolling interests. Presentation of consolidated equity/capital activity is included for both quarterly and annual financial statements, including beginning balances, activity for the period and ending balances for shareholders’ equity/capital, noncontrolling interests and total equity/capital.

### Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued an amendment to the accounting standard for the reporting of amounts reclassified out of accumulated other comprehensive income (“AOCI”). The amendment requires entities to disclose for items reclassified out of AOCI and into net income in their entirety, the effect of the reclassification on each affected net income line item and for AOCI items that are not reclassified in their entirety into net income, a cross reference to other required GAAP disclosures. This amendment became effective for fiscal years and interim periods beginning after December 15, 2012. The adoption of this guidance in 2013 did not have a material impact on the Company’s consolidated financial position or results of operations as its impact was limited to disclosure requirements.

### 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 facilities and should not be taken as indicative of future operations. The Company considers its same-store portfolio to consist of only those facilities owned and operated on a stabilized basis at the beginning and at the end of the applicable years presented. We consider a property to be stabilized once it has achieved an occupancy rate representative of similar self-storage assets in the respective markets for a full year measured as of the most recent January 1 or has otherwise been placed in-service and has not been significantly damaged by natural disaster or undergone significant renovation. Same-store results are considered to be useful to investors in evaluating our performance because it provides information relating to changes in facility-level operating performance without taking into account the effects of acquisitions, developments or dispositions. At June 30, 2013, there were 328 same-store properties and 58 non same-store properties, of which 47 were 2012 and 2013 acquisitions and 11 were properties that were not stabilized, had been damaged by natural disaster or had undergone significant renovation.

### Acquisition and Disposition Activities

The comparability of the Company’s results of operations is affected by the timing of acquisition and disposition activities during the periods reported. At June 30, 2013 and 2012, the Company owned 386 and 370 self-storage facilities and related assets, respectively. The following table summarizes the change in number of owned self-storage facilities from January 1, 2012 through June 30, 2013:

|  | 2013 | 2012 |
| --- | ---: | ---: |
| Balance - January 1 | 381 | 370 |
| Facilities acquired | 1 | 6 |
| Facilities sold | (5) | - |
| Balance - March 31 | 377 | 376 |
| Facilities acquired | 9 | 2 |
| Facilities sold | - | (8) |
| Balance - June 30 | 386 | 370 |
| Facilities acquired |  | 24 |
| Facilities sold |  | (7) |
| Balance - September 30 |  | 387 |
| Facilities acquired |  | 5 |
| Facilities sold |  | (11) |
| Balance - December 31 |  | 381 |

31

***Comparison of the three months ended June 30, 2013 to the three months ended June 30, 2012 (in thousands, except property counts, occupancies and rates)***

| REVENUES | Same-Store Property Portfolio 2013 | 2012 | Increase/% (Decrease) | Change | Non Same-Store Properties 2013 | 2012 | Other/ Eliminations 2013 | 2012 | Total Portfolio 2013 | 2012 | Increase/% (Decrease) | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Rental income | $58,317 | $54,195 | $4,122 | 7.6% | $13,914 | $5,229 | $- | $- | $72,231 | $59,424 | $12,807 | 21.6% |
| Other property related income | 6,744 | 5,511 | 1,233 | 22.4% | 1,433 | 669 | 677 | 561 | 8,854 | 6,741 | 2,113 | 31.3% |
| Property management fee income | - | - | - | - | - | - | 1,217 | 1,103 | 1,217 | 1,103 | 114 | 10.3% |
| Total revenues | 65,061 | 59,706 | 5,355 | 9.0% | 15,347 | 5,898 | 1,894 | 1,664 | 82,302 | 67,268 | 15,034 | 22.3% |
| OPERATING EXPENSES |  |  |  |  |  |  |  |  |  |  |  |  |
| Property operating expenses | 21,520 | 21,204 | 316 | 1.5% | 5,001 | 2,391 | 3,434 | 3,112 | 29,955 | 26,707 | 3,248 | 12.2% |
| NET OPERATING INCOME | $43,541 | $38,502 | $5,039 | 13.1% | $10,346 | $3,507 | $(1,540) | $(1,448) | $52,347 | $40,561 | $11,786 | 29.1% |
| Property count | 328 | 328 |  |  | 58 | 17 |  |  | 386 | 345 |  |  |
| Total square footage | 21,786 | 21,786 |  |  | 4,050 | 1,081 |  |  | 25,836 | 22,867 |  |  |
| Period End Occupancy (1) | 90.0% | 84.1% |  |  | 89.1% | 76.1% |  |  | 89.7% | 83.7% |  |  |
| Period Average Occupancy (2) | 88.2% | 81.9% |  |  |  |  |  |  |  |  |  |  |
| Realized annual rent per occupied square foot (3) | $12.14 | $12.14 |  |  |  |  |  |  |  |  |  |  |
| Depreciation and amortization |  |  |  |  |  |  |  |  | 29,241 | 27,077 | 2,164 | 8.0% |
| General and administrative |  |  |  |  |  |  |  |  | 7,515 | 6,278 | 1,237 | 19.7% |
| Subtotal |  |  |  |  |  |  |  |  | 36,756 | 33,355 | 3,401 | 10.2% |
| OPERATING INCOME |  |  |  |  |  |  |  |  | 15,591 | 7,206 | 8,385 | 116.4% |
| OTHER INCOME (EXPENSE) |  |  |  |  |  |  |  |  |  |  |  |  |
| Interest: |  |  |  |  |  |  |  |  |  |  |  |  |
| Interest expense on loans |  |  |  |  |  |  |  |  | (10,683) | (9,280) | (1,403) | -15.1% |
| Loan procurement amortization expense |  |  |  |  |  |  |  |  | (497) | (1,114) | 617 | 55.4% |
| Acquisition related costs |  |  |  |  |  |  |  |  | (1,648) | (313) | (1,335) | -426.5% |
| Equity in losses of real estate ventures |  |  |  |  |  |  |  |  | - | (210) | 210 | 100.0% |
| Other |  |  |  |  |  |  |  |  | (187) | (107) | (80) | -74.8% |
| Total other expense |  |  |  |  |  |  |  |  | (13,015) | (11,024) | (1,991) | -18.1% |
| INCOME (LOSS) FROM CONTINUING OPERATIONS |  |  |  |  |  |  |  |  | 2,576 | (3,818) | 6,394 | 167.5% |
| DISCONTINUED OPERATIONS |  |  |  |  |  |  |  |  |  |  |  |  |
| (Loss) income from discontinued operations |  |  |  |  |  |  |  |  | (8) | 967 | (975) | -100.8% |
| Gain on disposition of discontinued operations |  |  |  |  |  |  |  |  | - | 6,206 | (6,206) | -100.0% |
| Total discontinued operations |  |  |  |  |  |  |  |  | (8) | 7,173 | (7,181) | -100.1% |
| NET INCOME |  |  |  |  |  |  |  |  | 2,568 | 3,355 | (787) | -23.5% |
| NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS |  |  |  |  |  |  |  |  |  |  |  |  |
| Noncontrolling interests in the Operating Partnership |  |  |  |  |  |  |  |  | (18) | (38) | 20 | 52.6% |
| Noncontrolling interests in subsidiaries |  |  |  |  |  |  |  |  | - | (774) | 774 | 100.0% |
| NET INCOME ATTRIBUTABLE TO THE COMPANY |  |  |  |  |  |  |  |  | 2,550 | 2,543 | 7 | 0.3% |

(1) Represents occupancy at June 30th of the respective year.

(2) Represents the weighted average occupancy for the period.

(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 $59.4 million during the three months ended June 30, 2012 to $72.2 million during the three months ended June 30, 2013, an increase of $12.8 million, or 22%. This increase is primarily attributable to $8.7 million of additional income from the properties acquired in 2012 and 2013 and increases in average occupancy on the same-store portfolio which contributed $4.1 million to the increase in rental income during the three months ended June 30, 2013 as compared to the three months ended June 30, 2012.

Other property related income increased from $6.7 million during the three months ended June 30, 2012 to $8.9 million during the three months ended June 30, 2013, an increase of $2.1 million, or 31%. This increase is primarily attributable to $0.8 million of additional income from the 2012 and 2013 acquisitions and increased tenant insurance commissions of $1.2 million during the three months ended June 30, 2013 as compared to the three months ended June 30, 2012.

#### Operating Expenses

Property operating expenses increased from $26.7 million during the three months ended June 30, 2012 to $30.0 million during the three months ended June 30, 2013, an increase of $3.2 million, or 12%. This increase is primarily attributable to $2.6 million of increased expenses associated with newly acquired properties as well as increased expenses on the same store portfolio. The escalations in same store expenses were primarily associated with expected increases in real estate tax assessments.

Depreciation and amortization increased from $27.1 million in the three months ended June 30, 2012 to $29.2 million in the three months ended June 30, 2013, an increase of $2.2 million, or 8%. This increase is primarily attributable to depreciation and amortization expense related to the 2012 acquisitions.

#### Other Income (Expenses)

Interest expense increased from $9.3 million during the three months ended June 30, 2012 to $10.7 million during the three months ended June 30, 2013, an increase of $1.4 million, or 15%. The increase is attributable to a higher amount of outstanding debt in 2013. To fund a portion of the Company’s growth, the average debt balance during the three months ended June 30, 2013 increased approximately $119 million from the same period in 2012, from $906 million to $1,025 million. This increase was offset by a decrease in the weighted average effective interest rate of our outstanding debt from 4.08% for the three months ended June 30, 2012 to 4.17% for the three months ended June 30, 2013 as a result of the amendments to our Term Loan Facility and Credit Facility.

Loan procurement amortization expense decreased from $1.1 million during 2012 to $0.5 million during 2013. This decrease is the result of accelerated amortization expense in the prior year related to early repayment of debt.

Acquisition related costs increased from $0.3 million during the three months ended June 30, 2012 to $1.6 million during the three months ended June 30, 2013. Acquisition costs are non-recurring and fluctuate based on quarterly investment activity.

Equity in losses of real estate ventures was $0.2 million for the three months ended June 30, 2012 with no comparable amount during the 2013 period. This expense is related to earnings attributable to HSREV, a partnership in which the Company purchased the remaining 50% ownership interest during September 2012.

### Comparison of the six months ended June 30, 2013 to the six months ended June 30, 2012 (in thousands, except property counts, occupancies and rates)

| REVENUES | Same-Store Property Portfolio 2013 | 2012 | Increase/% (Decrease) | Change | Non Same-Store Properties 2013 | 2012 | Other/ Eliminations 2013 | 2012 | Total Portfolio 2013 | 2012 | Increase/% (Decrease) | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Rental income | $114,971 | $107,959 | $7,012 | 6.5% | $26,878 | $8,782 | $- | $- | $141,849 | $116,741 | $25,108 | 21.5% |
| Other property related income | 12,652 | 10,330 | 2,322 | 22.5% | 2,645 | 1,116 | 1,251 | 1,071 | 16,548 | 12,517 | 4,031 | 32.2% |
| Property management fee income | - | - | - | - | - | - | 2,362 | 2,123 | 2,362 | 2,123 | 239 | 11.3% |
| Total revenues | 127,623 | 118,289 | 9,334 | 7.9% | 29,523 | 9,898 | 3,613 | 3,194 | 160,759 | 131,381 | 29,378 | 22.4% |
| OPERATING EXPENSES |  |  |  |  |  |  |  |  |  |  |  |  |
| Property operating expenses | 43,676 | 42,217 | 1,459 | 3.5% | 9,901 | 3,993 | 7,199 | 6,440 | 60,776 | 52,650 | 8,126 | 15.4% |
| NET OPERATING INCOME | $83,947 | $76,072 | $7,875 | 10.4% | $19,622 | $5,905 | $(3,586) | $(3,246) | $99,983 | $78,731 | $21,252 | 27.0% |
| Property count | 328 | 328 |  |  | 58 | 17 |  |  | 386 | 345 |  |  |
| Total square footage | 21,786 | 21,786 |  |  | 4,050 | 1,081 |  |  | 25,836 | 22,867 |  |  |
| Period End Occupancy (1) | 90.0% | 84.1% |  |  | 89.1% | 76.1% |  |  | 89.7% | 83.7% |  |  |
| Period Average Occupancy (2) | 86.7% | 80.5% |  |  |  |  |  |  |  |  |  |  |
| Realized annual rent per occupied square foot (3) | $12.17 | $12.31 |  |  |  |  |  |  |  |  |  |  |
| Depreciation and amortization |  |  |  |  |  |  |  |  | 59,073 | 52,160 | 6,913 | 13.3% |
| General and administrative |  |  |  |  |  |  |  |  | 15,128 | 12,722 | 2,406 | 18.9% |
| Subtotal |  |  |  |  |  |  |  |  | 74,201 | 64,882 | 9,319 | 14.4% |
| OPERATING INCOME |  |  |  |  |  |  |  |  | 25,782 | 13,849 | 11,933 | 86.2% |
| OTHER INCOME (EXPENSE) |  |  |  |  |  |  |  |  |  |  |  |  |
| Interest: |  |  |  |  |  |  |  |  |  |  |  |  |
| Interest expense on loans |  |  |  |  |  |  |  |  | (21,050) | (18,570) | (2,480) | -13.4% |
| Loan procurement amortization expense |  |  |  |  |  |  |  |  | (973) | (1,917) | 944 | 49.2% |
| Acquisition related costs |  |  |  |  |  |  |  |  | (1,763) | (863) | (900) | -104.3% |
| Equity in losses of real estate ventures |  |  |  |  |  |  |  |  | - | (461) | 461 | 100.0% |
| Other |  |  |  |  |  |  |  |  | (260) | (178) | (82) | -46.1% |
| Total other expense |  |  |  |  |  |  |  |  | (24,046) | (21,989) | (2,057) | -9.4% |
| INCOME (LOSS) FROM CONTINUING OPERATIONS |  |  |  |  |  |  |  |  | 1,736 | (8,140) | 9,876 | 121.3% |
| DISCONTINUED OPERATIONS |  |  |  |  |  |  |  |  |  |  |  |  |
| Income from discontinued operations |  |  |  |  |  |  |  |  | 176 | 2,031 | (1,855) | -91.3% |
| Gain on disposition of discontinued operations |  |  |  |  |  |  |  |  | 228 | 6,206 | (5,978) | -96.3% |
| Total discontinued operations |  |  |  |  |  |  |  |  | 404 | 8,237 | (7,833) | -95.1% |
| NET INCOME |  |  |  |  |  |  |  |  | 2,140 | 97 | 2,043 | 2106.2% |
| NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS |  |  |  |  |  |  |  |  |  |  |  |  |
| Noncontrolling interests in the Operating Partnership |  |  |  |  |  |  |  |  | 17 | 111 | (94) | -84.7% |
| Noncontrolling interests in subsidiaries |  |  |  |  |  |  |  |  | 1 | (1,508) | 1,509 | 100.1% |
| NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY |  |  |  |  |  |  |  |  | 2,158 | (1,300) | 3,458 | 266.0% |

(1) Represents occupancy at June 30th of the respective year.

(2) Represents the weighted average occupancy for the period.

(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 $116.7 million during the six months ended June 30, 2012 to $141.8 million during the six months ended June 30, 2013, an increase of $25.1 million, or 22%. This increase is primarily attributable to $18.1 million of additional income from the properties acquired in 2012 and 2013 and increases in average occupancy on the same-store portfolio, which contributed $7.0 million to the increase in rental income during the six months ended June 30, 2013 as compared to the six months ended June 30, 2012.

Other property related income increased from $12.5 million during the six months ended June 30, 2012 to $16.5 million during the six months ended June 30, 2013, an increase of $4.0 million, or 32%. This increase is primarily attributable to $1.5 million of additional income from the 2012 and 2013 acquisitions and increased tenant insurance commissions of $2.3 million during the six months ended June 30, 2013 as compared to the six months ended June 30, 2012.

#### Operating Expenses

Property operating expenses increased from $52.7 million during the six months ended June 30, 2012 to $60.8 million during the six months ended June 30, 2013, an increase of $8.1 million, or 15%. This increase is primarily attributable to $5.9 million of increased expenses associated with newly acquired properties as well as increased expenses on the same store portfolio. The increases in same store expenses were associated with snow removal and utilities due to a colder winter in 2013 compared to the prior year and expected increases in real estate tax assessments.

Depreciation and amortization increased from $52.2 million in the six months ended June 30, 2012 to $59.1 million in the six months ended June 30, 2013, an increase of $6.9 million, or 13%. This increase is primarily attributable to depreciation and amortization expense related to the 2012 acquisitions.

#### Other Income (Expenses)

Interest expense increased from $18.6 million during the six months ended June 30, 2012 to $21.1 million during the six months ended June 30, 2013, an increase of $2.5 million, or 13%. The increase is attributable to a higher amount of outstanding debt in 2013. To fund a portion of the Company’s growth, the average debt balance during the six months ended June 30, 2013 increased approximately $171 million from the same period in 2012, from $856 million to $1,027 million. This increase was offset by a decrease in the weighted average effective interest rate of our outstanding debt from 4.34% for the six months ended June 30, 2012 to 4.10% for the six months ended June 30, 2013 as a result of the amendments to our Term Loan Facility and Credit Facility.

Loan procurement amortization expense decreased from $1.9 million during 2012 to $1.0 million during 2013. This decrease is the result of accelerated amortization expense in the prior year related to early repayment of debt.

Acquisition related costs increased from $0.9 million during the six months ended June 30, 2012 to $1.8 million during the six months ended June 30, 2013. Acquisition costs are non-recurring and fluctuate based on investment activity.

Equity in losses of real estate ventures was $0.5 million for the six months ended June 30, 2012 with no comparable amount during the 2013 period. This expense is related to earnings attributable to HSREV, a partnership in which the Company purchased the remaining 50% ownership interest during September 2012.

### Cash Flows

### Comparison of the six months ended June 30, 2013 to the six months ended June 30, 2012

A comparison of cash flow from operating, investing and financing activities for the six months ended June 30, 2013 and 2012 is as follows (in thousands):

| Net cash flow provided by (used in): | Six Months Ended June 30, 2013 | 2012 | Change |
| --- | ---: | ---: | ---: |
| Operating activities | $65,311 | $52,595 | $12,716 |
| Investing activities | $(104,046) | $(70,881) | $(33,165) |
| Financing activities | $38,261 | $147,013 | $(108,752) |

Cash flows provided by operating activities for the six months ended June 30, 2013 and 2012 were $65.3 million and $52.6 million, respectively, an increase of $12.7 million. Our principal source of cash flow is from the operation of our properties. Our increased cash flow from operating activities is primarily attributable to our 2012 acquisitions, the majority of which were completed subsequent to the six months ended June 30, 2012. These acquisitions contributed to the increase in operating cash flows for the six months ended June 30, 2013 when compared to the same period in 2012.

For the six months ended June 30, 2013 and 2012, cash flows used in investing activities were $104.0 million and $70.9 million, respectively, an increase of $33.1 million. Cash flows used in investing activities, except for recurring capital expenditures, are typically non-recurring and fluctuate based on acquisition and disposition activity. The increase was driven in large part by $17.6 million in development costs incurred during the six months ended June 30, 2013 relating to two development properties. Additionally, cash flows from investing activities decreased $11.7 million due to more proceeds from property dispositions during the six months ended June 30, 2012 than during the same period in 2013.

For the six months ended June 30, 2013 and 2012, cash flows provided by financing activities were $38.3 million and $147.0 million, respectively, a decrease of $108.7 million. Cash flows provided by financing activities are primarily used to fund investing activities. The decrease in cash flow provided by financing activities of $108.7 million exceeds the increase in cash flow used in investing activities of $33.1 million as a portion of proceeds from the Company’s $249.6 million senior note issuance during the six months ended June 30, 2012 were held as cash as of June 30, 2012 and used to fund investing activities in subsequent quarters.

### 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 from us at our facilities. Therefore, our ability to generate cash from operations is dependent on the rents that we are able to charge and collect from our customers. We believe that the facilities in which we invest — self-storage facilities — are less sensitive than other real estate product types to current near-term economic downturns. However, prolonged economic downturns will 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 its 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 facilities, refinancing of certain mortgage indebtedness, interest expense and scheduled principal payments on debt, expected distributions to limited partners and shareholders, costs to develop facilities and recurring capital expenditures. These funding requirements will vary from year to year, in some cases significantly. We expect remaining recurring capital expenditures in the 2013 fiscal year to be approximately $4.0 million to $8.0 million. In addition, we expect costs associated with development activities for the remainder of the 2013 fiscal year to be approximately $10.0 million to $15.0 million. Our currently scheduled principal payments on debt (including debt maturities) are approximately $16.1 million for the remainder of 2013.

Our most restrictive debt covenants limit the amount of additional leverage we can add; however, we believe cash flow from operations, access to our “at the market” equity program and access to our Credit Facility are adequate to execute our current business plan and remain in compliance with our debt covenants.

Our liquidity needs beyond 2013 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 facilities; (iii) acquisitions of additional facilities; and (iv) development of new facilities. We will have to satisfy our needs through either additional borrowings, including borrowings under the revolving portion of our Credit Facility, sales of common or preferred shares and/or cash generated through facility dispositions and joint venture transactions.

Notwithstanding the discussion above, we believe that, as a publicly traded REIT, we will have access to multiple sources of capital to fund 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 long-term 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, 2013, we had approximately $4.0 million in available cash and cash equivalents. In addition, we had approximately $189.8 million of availability for borrowings under our Credit Facility.

### Unsecured Senior Notes and Bank Credit Facilities

On June 26, 2012, the Operating Partnership issued $250 million in aggregate principal amount of unsecured senior notes due July 15, 2022 (the “senior notes”) which bear interest at a rate of 4.80%. The indenture under which the unsecured 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 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. The Operating Partnership is currently in compliance with all of the financial covenants under the senior notes.

On June 20, 2011, the Company entered into an unsecured term loan agreement (the “Term Loan Facility”) which consisted of a $100 million term loan with a five-year maturity (“Term Loan A”) and a $100 million term loan with a seven-year maturity (“Term Loan B”).

On December 9, 2011, the Company entered into a credit facility (the “Credit Facility”) comprised of a $100 million unsecured term loan maturing in December 2014 (“Term Loan C”); a $200 million unsecured term loan maturing in March 2017 (“Term Loan D”); and a $300 million unsecured revolving facility maturing in December 2015 (“Revolver”).

On June 18, 2013, the Company amended both the Term Loan Facility and Credit Facility. With respect to the Term Loan Facility, among other things, the amendment extended the maturity and decreased the pricing of Term Loan A, while Term Loan B remained unchanged by the amendment. Pricing on the Term Loan Facility depends on the Company’s unsecured debt credit ratings. At the Company’s current Baa3/BBB- level, amounts drawn under Term Loan A are priced at 1.50% over LIBOR, with no LIBOR floor, while amounts drawn under Term Loan B are priced at 2.00% over LIBOR, with no LIBOR floor.

|  | Amount | Term Loan Facility Prior to Amendment Maturity Date | LIBOR Spread | Term Loan Facility As Amended Maturity Date | LIBOR Spread |
| --- | --- | --- | ---: | --- | ---: |
| Term Loan A | $100 million | June 2016 | 1.85% | June 2018 | 1.50% |
| Term Loan B | $100 million | June 2018 | 2.00% | June 2018 | 2.00% |

With respect to the Credit Facility, among other things, the amendment extended the maturities of the Revolver and Term Loan D and decreased the pricing of the Revolver, Term Loan C and Term Loan D. Pricing on the Credit Facility depends on the Company’s unsecured debt credit ratings. At the Company’s current Baa3/BBB- level, amounts drawn under the Revolver are priced at 1.60% over LIBOR, inclusive of a facility fee of 0.30%, with no LIBOR floor, while amounts drawn under Term Loan C and Term Loan D are priced at 1.50% over LIBOR, with no LIBOR floor.

|  | Amount | Credit Facility Prior to Amendment Maturity Date | LIBOR Spread | Credit Facility As Amended Maturity Date | LIBOR Spread |
| --- | --- | --- | ---: | --- | ---: |
| Revolver | $300 million | December 2015 | 1.80% | June 2017 | 1.60% |
| Term Loan C | $100 million | December 2014 | 1.75% | December 2014 | 1.50% |
| Term Loan D | $200 million | March 2017 | 1.75% | January 2019 | 1.50% |

As of June 30, 2013, $200 million of unsecured term loan borrowings were outstanding under the Term Loan Facility, $300 million of unsecured term loan borrowings were outstanding under the Credit Facility, $110 million of unsecured revolving credit facility borrowings were outstanding and $189.8 million was available for borrowing on the unsecured revolving portion of the Credit Facility. The available balance under the unsecured revolving portion of the Credit Facility is reduced by an outstanding letter of credit of $0.2 million.

In connection with the unsecured borrowings, the Company had interest rate swaps as of June 30, 2013 that fix 30-day LIBOR.

### Applicable Hedging Arrangements

| Notional Amount | Maturity Date | Effective LIBOR Fixed Rate |
| --- | --- | ---: |
| $100 million | June 2016 | 1.803% |
| $200 million | March 2017 | 1.336% |
| $100 million | June 2018 | 2.468% |

As of June 30, 2013, borrowings under the Credit Facility and Term Loan Facility, as amended, had an effective weighted average interest rate of 2.80%.

The Term Loan Facility and the term loans under the Credit Facility were fully drawn at June 30, 2013 and no further borrowings may be made under that facility and those term loans. The Company’s ability to borrow under the revolving facility is subject to ongoing compliance with certain financial covenants which include:

- Maximum total indebtedness to total asset value of 60.0% at any time;
- Minimum fixed charge coverage ratio of 1.50:1.00; and
- Minimum tangible net worth of $821,211,200 plus 75% of net proceeds from equity issuances after June 30, 2010.

Further, under the Credit Facility and Term Loan Facility, the Company is restricted from paying distributions on common shares that would exceed an amount equal to the greater of (i) 95% of funds from operations, and (ii) such amount as may be necessary to maintain the Parent Company’s REIT status.

The Company is currently in compliance with all of its financial covenants and anticipates being in compliance with all of its financial covenants through the terms of the Credit Facility and Term Loan Facility.

### At The Market Program

Pursuant to our previous sales agreement with Cantor Fitzgerald & Co. (the “Previous Sales Agent”), dated April 3, 2009, as amended on January 26, 2011 and September 16, 2011 (as amended, the “Previous Sales Agreement”), the Company had the option to sell up to 20 million common shares at “at the market” prices. From January 1, 2013 until the termination of the Previous Sales Agreement on May 7, 2013, we sold 0.1 million common shares under the Previous Sales Agreement with an average sales price of $15.30 per share, resulting in gross proceeds of $1.5 million under the program ($165.3 million of gross proceeds and 16.2 million shares sold with an average sales price of $10.19 since program inception in 2009). The Company incurred $0.02 million of offering costs in conjunction with the 2013 sales. The proceeds from the sales conducted during the six months ended June 30, 2013 under the Previous Sales Agreement were used to fund general working purposes.

On May 7, 2013, the Company terminated the Previous Sales Agreement with the Previous Sales Agent and entered into separate Equity Distribution Agreements (the “Equity Distribution Agreements”) with each of Wells Fargo Securities LLC; BMO Capital Markets Corp.; Jefferies LLC; Merrill Lynch, Pierce, Fenner & Smith Incorporated; and RBC Capital Markets, LLC (collectively, the “Sales Agents”). Pursuant to the Equity Distribution Agreements, the Company may sell, from time to time, up to 12 million common shares of beneficial interest through the Sales Agents. From the inception of the Equity Distribution Agreements on May 7, 2013 to June 30, 2013, the Company sold 1.1 million shares under the Equity Distribution Agreements, with an average sales price of $17.19 per share, resulting in gross proceeds of $19.3 million under the program. The Company incurred $0.5 million of offering costs in conjunction with the sales. The proceeds from the sales conducted under the Equity Distribution Agreements from the inception of such agreements on May 7, 2013 to June 30, 2013 were used to fund acquisitions of storage facilities and general working purposes. As of June 30, 2013, 10.9 million common shares remained available for issuance under the Equity Distribution Agreements.

### 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, acquisition related costs, equity in losses of real estate venture, amounts attributable to noncontrolling interests, other expense, depreciation and amortization expense, general and administrative expense, and deducting from net income: income from discontinued operations, gain on disposition of discontinued operations, other income, gain from remeasurement of investment in real estate venture 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 facilities, and for all of our facilities 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 facility managers to evaluate the economic productivity of our facilities, including our ability to lease our facilities, 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 expense, which can vary depending upon accounting methods and the book value of assets; and
- It enables 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, defines FFO as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property and real estate 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 the Company’s facilities. Given the nature of its business as a real estate owner and operator, the Company considers FFO to be a key measure of its operating performance that is not specifically defined by accounting principles generally accepted in the United States. The Company believes that FFO is useful to management and investors as a starting point in measuring its operational performance because it excludes various items included in net income that do not relate to or are not indicative of its operating performance - such as gains (or losses) from sales of property, gains on remeasurement of investment in real estate ventures, impairments of depreciable assets, and depreciation - and 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 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 other non-recurring items, which we believe are not indicative of the Company’s operating results.

The following table presents a reconciliation of net income to FFO for the three and six months ended June 30, 2013 and 2012 (in thousands):

|  | Three months ended June 30, 2013 | 2012 | Six months ended June 30, 2013 | 2012 |
| --- | ---: | ---: | ---: | ---: |
| **Net income (loss) attributable to common shareholders** | $1,048 | $1,041 | $(846) | $(4,304) |
| Add (deduct): |  |  |  |  |
| Real estate depreciation and amortization |  |  |  |  |
| Real property - continuing operations | 28,860 | 26,662 | 58,322 | 51,434 |
| Real property - discontinued operations | - | 666 | 57 | 1,297 |
| Company’s share of unconsolidated real estate ventures | - | 513 | - | 1,027 |
| Noncontrolling interest’s share of consolidated real estate ventures | - | (424) | - | (858) |
| Gains on sale of real estate | - | (6,206) | (228) | (6,206) |
| Noncontrolling interests in the Operating Partnership | 18 | 38 | (17) | (111) |
| **FFO** | $29,926 | $22,290 | $57,288 | $42,279 |
| Add (deduct): |  |  |  |  |
| Acquisition related costs | 1,648 | 313 | 1,763 | 863 |
| **FFO, as adjusted** | $31,574 | $22,603 | $59,051 | $43,142 |
| Weighted-average diluted shares and units outstanding | 138,610 | 128,760 | 138,220 | 128,156 |

### Off-Balance Sheet Arrangements

We do not currently have any off-balance sheet arrangements.

## Market risk

As filed, 2,987 characters.

The Company’s future income, cash flows and fair values relevant to financial instruments depend upon prevailing interest rates.

### Market Risk

Our investment policy relating to cash and cash equivalents is to preserve principal and liquidity while maximizing the return through investment of available funds.

### Effect of Changes in Interest Rates on our Outstanding Debt

Our interest rate risk objectives are to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we manage our exposure to fluctuations in market interest rates for a portion of our borrowings through the use of derivative financial instruments such as interest rate swaps or caps to mitigate our interest rate risk on a related financial instrument or to effectively fix the interest rate on a portion of our variable rate debt. The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market rates. The range of changes chosen reflects our view of changes which are reasonably possible over a one-year period. Market values are the present value of projected future cash flows based on the market rates chosen.

As of June 30, 2013 our consolidated debt consisted of $859.7 million of outstanding mortgages, unsecured senior notes and unsecured term loans that are subject to fixed rates, including variable rate debt that is effectively fixed through our use of interest rate swaps. As of June 30, 2013, there was $214.8 million of outstanding mortgages and credit facility borrowings subject to floating rates. Changes in interest rates have different impacts on the fixed and variable rate portions of our debt portfolio. A change in interest rates on the fixed portion of the debt portfolio impacts the net financial instrument position, but has no impact on interest incurred or cash flows. A change in interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows, but does not impact the net financial instrument position.

If market rates of interest on our variable rate debt increase by 100 basis points, the increase in annual interest expense on our variable rate debt would decrease future earnings and cash flows by approximately $2.1 million a year. If market rates of interest on our variable rate debt decrease by 100 basis points, the decrease in interest expense on our variable rate debt would increase future earnings and cash flows by approximately $2.1 million a year.

If market rates of interest increase by 100 basis points, the fair value of our outstanding fixed-rate mortgage debt, unsecured senior notes and unsecured term loans would decrease by approximately $50.5 million. If market rates of interest decrease by 100 basis points, the fair value of our outstanding fixed-rate mortgage debt, unsecured senior notes and unsecured term loans would increase by approximately $47.8 million.

## Controls and procedures

As filed, 3,345 characters.

### Controls and Procedures (Parent Company)

### Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Parent Company carried out an evaluation, under the supervision and with the participation of its management, including its chief executive officer and chief financial officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).

Based on that evaluation, the Parent Company’s chief executive officer and chief financial officer have concluded that the Parent Company’s disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information required to be disclosed by the Parent Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Parent Company’s management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

### Changes in Internal Controls Over Financial Reporting

There has been no change in the Parent Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during its most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

### Controls and Procedures (Operating Partnership)

### Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Operating Partnership carried out an evaluation, under the supervision and with the participation of its management, including the Operating Partnership’s chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Operating Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act).

Based on that evaluation, the Operating Partnership’s chief executive officer and chief financial officer have concluded that the Operating Partnership’s disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information required to be disclosed by the Operating Partnership in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Operating Partnership’s management, including the Operating Partnership’s chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

### Changes in Internal Controls Over Financial Reporting

There has been no change in the Operating Partnership’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during its most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

Filed Aug 9, 2013.
Source: SEC EDGAR, the filing index for accession 0001104659-13-062341. Last ingested by Listed: Nov 14, 2026, 11:22 ET. No prices; not investment advice.