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LEASES

12 Months Ended

Dec. 31, 2023

13. 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 years ended December 31, 2023, 2022 and 2021, administrative and late fees totaled $30.0 million, $27.8 million, and $21.3 million, respectively, and 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 41 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 regarding 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 years ended December 31, 2023, 2022 and 2021, the Company’s lease cost consists of the following components:


		Year Ended December 31,
		2023		2022		2021

	(in thousands)
Finance lease cost:
Amortization of finance lease right-of-use assets		$	964	$	964	$	964
Interest expense related to finance lease liabilities			2,138		2,140		2,139
Operating lease cost			3,064		2,980		3,278
Short-term lease cost ⁽¹⁾			1,375		868		1,173
Total lease costs		$	7,541	$	6,952	$	7,554

Cash paid for amounts included in measurement of lease liabilities:
Operating cash outflows for finance leases		$	2,183	$	2,183	$	1,938
Operating cash outflows for operating leases			2,601		2,453		2,513
Total cash outflows for lease liability measurement		$	4,784	$	4,636	$	4,451

(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 December 31, 2023 and 2022:


	December 31,
	2023			2022

	(dollars in thousands)
Finance Leases
Right-of-use assets included in Storage properties, net	$	41,945		$	41,945
Lease liabilities included in Lease liabilities - finance leases	$	65,714		$	65,758

Operating Leases
Right-of-use assets included in Other assets, net	$	50,476		$	49,491
Lease liabilities included in Accounts payable, accrued expenses and other liabilities	$	50,324		$	48,664

Weighted Average Lease Term (in years)
Finance leases		40.5			41.5
Operating leases		32.0			33.3

Weighted Average Discount Rate
Finance leases		3.25	%		3.25	%
Operating leases		4.52	%		4.44	%

The following table represents the future lease liability maturities as of December 31, 2023 (in thousands):


	Finance		Operating
2024	$	2,183	$	2,536
2025		2,224		2,524
2026		2,334		2,587
2027		2,371		2,618
2028		2,371		2,649
2029 and thereafter		115,855		86,718
Total lease payments		127,338		99,632
Less: Imputed interest		(61,624)		(49,308)
Present value of lease liabilities	$	65,714	$	50,324

As of December 31, 2023, the Company has not entered into any lease agreements that are set to commence in the future.