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LEASES

6 Months Ended

Jun. 30, 2021

14. LEASES

CubeSmart as Lessor

The Company derives revenue primarily from rents received from customers who rent cubes at its self-storage properties under month-to-month leases for personal or business use. The self-storage lease agreements utilized by the Company vary slightly to comply with state-specific laws and regulations, but, subject to such laws and regulations, generally provide for automatic monthly renewals, flexibility to increase rental rates over time as market conditions permit and the collection of contingent fees such as administrative and late fees. None of the self-storage lease agreements contain options that allow the customer to purchase the leased space at any time during, or at the expiration of, the lease term. All self-storage leases in which the Company serves as lessor have been classified as operating leases. Accordingly, storage cubes are carried at historical cost less accumulated depreciation and impairment, if any, and are included in Storage properties on the Company’s consolidated balance sheets. Operating lease income for amounts received under the Company’s self-storage lease agreements is recognized on a straight-line basis which, due to the month-to-month nature of the leases, results in the recognition of income during the initial term and each subsequent monthly renewal using the then-in-place rent amount. Operating lease income is included in Rental income within the Company’s consolidated statements of operations. Variable lease income related to the Company’s self-storage lease agreements consists of administrative and late fees charged to customers. For the three and six months ended June 30, 2021, administrative and late fees totaled $5.0 million and $9.8 million, respectively. For the three and six months ended June 30, 2020, administrative and late fees totaled $4.5 million and $9.9 million, respectively. Administrative and late fees are included in Other property related income within the Company’s consolidated statements of operations.

CubeSmart as Lessee

The Company serves as lessee in lease agreements for land, office space, automobiles and certain equipment, which have remaining lease terms of up to 44 years. Certain of the Company’s leases (1) provide for one or more options to renew, with renewal options that can extend the lease up to 69 years, (2) allow for early termination at certain points during the lease term and/or (3) give the Company the option to purchase the leased property. In all cases, the exercise of the lease renewal, termination and purchase options, if provided for in the lease, are at the Company’s sole discretion. Certain of the Company’s lease agreements, particularly its land leases, require rental payments that are periodically adjusted for inflation using a defined index. None of the Company’s lease agreements contain any material residual value guarantees or material restrictive covenants. Lease expense for payments related to the Company’s finance leases is recognized as interest expense using the interest method over the related lease term. Lease expense for payments related to the Company’s operating leases is recognized on a straight-line basis over the related lease term, which includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments as specified in the lease. Right-of-use assets and lease liabilities related to the Company’s operating leases are recognized at the lease commencement date based on the present value of the remaining lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available surrounding the Company’s unsecured borrowing rates and implied secured spread at the lease commencement date in determining the present value of lease payments. The right-of-use asset also includes any lease payments made at or before lease commencement less any lease incentives.

For the three and six months ended June 30, 2021 and 2020, the Company’s lease cost consists of the following components:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020

	(in thousands)
Finance lease cost:
Amortization of finance lease right-of-use assets	$	241	$	—	$	482	$	—
Interest expense related to finance lease liabilities		533		—		1,060		—
Operating lease cost		822		746		1,644		1,492
Short-term lease cost ⁽¹⁾		326		275		632		583
Total lease cost	$	1,922	$	1,021	$	3,818	$	2,075

Cash paid for amounts included in measurement of lease liabilities:
Operating cash outflows for finance leases	$	445	$	—	$	861	$	—
Operating cash outflows for operating leases		635		577		1,253		1,142
Total cash outflows for lease liability measurement	$	1,080	$	577	$	2,114	$	1,142

(1)

Represents automobile leases that have a lease term of 12 months. The Company has made an accounting policy election not to apply the recognition requirements of ASC 842 to this asset class. The lease cost associated with these leases is recognized on a straight-line basis over the related lease term.

The following table represents supplemental balance sheet information related to leases as of June 30, 2021 and December 31, 2020.


	June 30,			December 31,
	2021			2020

	(dollars in thousands)
Finance Leases
Right-of-use assets included in Storage properties, net	$	41,414		$	41,896
Lease liabilities included in Lease liabilities - finance leases	$	65,798		$	65,599

Operating Leases
Right-of-use assets included in Other assets, net	$	54,683		$	55,302
Lease liabilities included in Accounts payable, accrued expenses and other liabilities	$	53,476		$	53,595

Weighted Average Lease Term (in years)
Finance leases		43.0			43.5
Operating leases		34.4			34.8

Weighted Average Discount Rate
Finance leases		3.25	%		3.25	%
Operating leases		4.47	%		4.46	%

The following table represents the future lease liability maturities as of June 30, 2021 (in thousands):


	Finance		Operating
2021	$	1,075	$	1,258
2022		2,183		2,639
2023		2,183		2,690
2024		2,183		2,540
2025		2,224		2,539
2026 and thereafter		122,932		99,290
Total lease payments		132,780		110,956
Less: Imputed interest		(66,982)		(57,480)
Present value of lease liabilities	$	65,798	$	53,476

During the three and six months ended June 30, 2021 and 2020, the Company did not enter into any lease agreements set to commence in the future.