10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

xQuarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2010.

or

oTransition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                       to                       .

Commission file number: 001-32324

U-STORE-IT TRUST

(Exact Name of Registrant as Specified in its Charter)

Maryland	20-1024732
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)
460 East Swedesford Road
Wayne, Pennsylvania	19087
(Address of Principal Executive Offices)	(Zip Code)

(610) 293-5700

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class	Outstanding at August 2, 2010
common shares, $.01 par value	93,642,380

U-STORE-IT TRUST

TABLE OF CONTENTS

Part I. FINANCIAL INFORMATION
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
Part II. OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 5.	Other Information	27
Item 6.	Exhibits	28

Forward-Looking Statements

This Quarterly Report on Form 10-Q, together with other statements and information publicly disseminated by U-Store-It Trust (“we,” “us,” “our” or the “Company”), contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions and other information that is not historical information.  In some cases, forward-looking statements can be identified by terminology such as “believes,” “expects,” “estimates,” “may,” “will,” “should,” “anticipates,” or “intends” or the negative of such terms or other comparable terminology, or by discussions of strategy.  Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated.  Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, future events and actual results, performance, transactions or achievements, financial and otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forward-looking statements.  As a result, you should not rely on or construe any forward-looking statements in this Report, or which management may make orally or in writing from time to time, as predictions of future events or as guarantees of future performance.  We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this Report or as of the dates otherwise indicated in the statements.  All of our forward-looking statements, including those in this Report, are qualified in their entirety by this statement.

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this Report.  Any forward-looking statements should be considered in light of the risks and uncertainties referred to in Item 1A. “Risk Factors” in the U-Store-It Trust Annual Report on Form 10-K for the year ended December 31, 2009 and in our other filings with the Securities and Exchange Commission (“SEC”).  These risks include, but are not limited to, the following:

·changes in national and local economic, business, real estate and other market conditions which, among other things, reduce demand for self-storage facilities or increase costs of owning and operating self-storage facilities;

·competition from other self-storage facilities and storage alternatives, which could result in lower occupancy and decreased rents;

·the execution of our business plan;

·financing risks including the risk of over-leverage and the corresponding risk of default on our mortgage and other debt and potential inability to refinance existing indebtedness;

·increases in interest rates and operating costs;

·counterparty non-performance related to the use of derivative financial instruments;

·our ability to maintain our status as a real estate investment trust (“REIT”) for federal income tax purposes;

2

·acquisition and development risks, including unanticipated costs associated with the integration and operation of acquisitions;

·risks of investing through joint ventures, including risks that our joint venture partners may not fulfill their obligations or may pursue actions that are inconsistent with our objectives;

·changes in real estate and zoning laws or regulations;

·risks related to natural disasters;

·potential environmental and other liabilities; and

·other risks identified in our Annual Report on Form 10-K and, from time to time, in other reports that we file with the Securities and Exchange Commission (the “SEC”) or in other documents that we publicly disseminate.

Given these uncertainties and the other risks identified elsewhere in our Annual Report on Form 10-K and in this Report, we caution readers not to place undue reliance on forward-looking statements.  We undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise except as may be required by securities laws.

3

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

U-STORE-IT TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

	June 30,			December 31,
	2010			2009
ASSETS
Storage facilities	$	1,739,617		$	1,774,542
Less: Accumulated depreciation	(336,392		)	(344,009		)
Storage facilities, net	1,403,225			1,430,533
Cash and cash equivalents	31,877			102,768
Restricted cash	13,961			16,381
Loan procurement costs, net of amortization	16,458			18,366
Notes receivable	256			20,112
Other assets, net	19,257			10,710
Total assets	$	1,485,034		$	1,598,870
LIABILITIES AND EQUITY
Secured term loan	$	200,000		$	200,000
Mortgage loans and notes payable	465,854			569,026
Accounts payable, accrued expenses and other liabilities	35,400			33,767
Distributions payable	2,435			2,448
Deferred revenue	8,932			8,449
Security deposits	428			456
Total liabilities	713,049			814,146
Noncontrolling interests in the Operating Partnership	44,731			45,394
Commitments and contingencies
Equity
Common shares $.01 par value, 200,000,000 shares authorized, 92,958,089 and 92,654,979 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively	930			927
Additional paid in capital	977,211			974,926
Accumulated other comprehensive loss	(1,104		)	(874		)
Accumulated deficit	(292,350		)	(279,670		)
Total U-Store-It Trust shareholders’ equity	684,687			695,309
Noncontrolling interest in subsidiaries	42,567			44,021
Total equity	727,254			739,330
Total liabilities and equity	$	1,485,034		$	1,598,870

See accompanying notes to the unaudited consolidated financial statements.

4

U-STORE-IT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
REVENUES
Rental income	$	49,465		$	49,807		$	98,461		$	101,052
Other property related income	4,702			4,480			8,780			8,170
Property management fee income	590			—			634			—
Total revenues	54,757			54,287			107,875			109,222
OPERATING EXPENSES
Property operating expenses	24,421			24,920			47,390			48,568
Depreciation and amortization	16,363			17,756			32,741			35,583
General and administrative	6,844			5,628			12,711			11,102
Total operating expenses	47,628			48,304			92,842			95,253
OPERATING INCOME	7,129			5,983			15,033			13,969
OTHER INCOME (EXPENSE)
Interest:
Interest expense on loans	(9,625		)	(11,473		)	(19,676		)	(22,826		)
Loan procurement amortization expense	(1,620		)	(545		)	(3,159		)	(1,028		)
Interest income	62			55			597			100
Acquisition related costs	(300		)	—			(300		)	—
Other	(35		)	(1		)	(76		)	(13		)
Total other expense	(11,518		)	(11,964		)	(22,614		)	(23,767		)
LOSS FROM CONTINUING OPERATIONS	(4,389		)	(5,981		)	(7,581		)	(9,798		)
DISCONTINUED OPERATIONS
Income from discontinued operations	—			775			—			1,804
Net gain on disposition of discontinued operations	—			2,120			—			2,622
Total discontinued operations	—			2,895			—			4,426
NET LOSS	(4,389		)	(3,086		)	(7,581		)	(5,372		)
NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Noncontrolling interests in the Operating Partnership	233			242			411			419
Noncontrolling interest in subsidiaries	(365		)	—			(826		)	—
NET LOSS ATTRIBUTABLE TO THE COMPANY	$	(4,521	)	$	(2,844	)	$	(7,996	)	$	(4,953	)
Basic and diluted loss per share from continuing operations attributable to common shareholders	$	(0.05	)	$	(0.09	)	$	(0.09	)	$	(0.16	)
Basic and diluted earnings per share from discontinued operations attributable to common shareholders	$	—		$	0.04		$	—		$	0.07
Basic and diluted loss per share attributable to common shareholders	$	(0.05	)	$	(0.05	)	$	(0.09	)	$	(0.09	)
Weighted-average basic and diluted shares outstanding	92,925			58,165			92,880			57,928
AMOUNTS ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS:
Loss from continuing operations	$	(4,521	)	$	(5,507	)	$	(7,996	)	$	(9,020	)
Total discontinued operations	—			2,663			—			4,067
Net loss	$	(4,521	)	$	(2,844	)	$	(7,996	)	$	(4,953	)

See accompanying notes to the unaudited consolidated financial statements.

5

U-STORE-IT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

For the Six-Month Periods Ended June 30, 2010 and 2009

(in thousands)

(unaudited)

																					Noncontrolling
	Common Shares			Additional Paid in		Accumulated Other Comprehensive			Accumulated			Total Shareholders’			Noncontrolling Interest in			Total			Interests in the Operating
	Number	Amount		Capital		Loss			Deficit			Equity			Subsidiaries			Equity			Partnership
Balance at December 31, 2009	92,655	$	927	$	974,926	$	(874	)	$	(279,670	)	$	695,309		$	44,021		$	739,330		$	45,394
Contributions from noncontrolling interests in subsidiaries	—	—		—		—			—			—			16			16			—
Issuance of restricted shares	201	2		—		—			—			2			—			2			—
Issuance of common shares	46	—		371		—			—			371			—			371			—
Exercise of stock options	52	1		180		—			—			181			—			181			—
Conversion from units to shares	4	—		—		—			—			—			—			—			—
Amortization of restricted shares	—	—		753		—			—			753			—			753			—
Share compensation expense	—	—		981		—			—			981			—			981			—
Net (loss) income	—	—		—		—			(7,996		)	(7,996		)	826			(7,170		)	(411		)
Other comprehensive income:
Unrealized loss on foreign currency translation	—	—		—		(230		)	—			(230		)	(7		)	(237		)	(12		)
Distributions	—	—		—		—			(4,684		)	(4,684		)	(2,289		)	(6,973		)	(240		)
Balance at June 30, 2010	92,958	$	930	$	977,211	$	(1,104	)	$	(292,350	)	$	684,687		$	42,567		$	727,254		$	44,731

	Common Shares			Additional Paid in		Accumulated Other Comprehensive			Accumulated			Total Shareholders’			Noncontrolling Interest in		Total			Noncontrolling Interests in the Operating
	Number	Amount		Capital		Loss			Deficit			Equity			Subsidiaries		Equity			Partnership
Balance at December 31, 2008	57,623	$	576	$	801,029	$	(7,553	)	$	(271,124	)	$	522,928		$	—	$	522,928		$	46,026
Issuance of restricted shares	84	1		—		—			—			1			—		1			—
Issuance of common shares	2,431	24		9,503		—			—			9,527			—		9,527			—
Amortization of restricted shares	—	—		825		—			—			825			—		825			—
Share compensation expense	—	—		890		—			—			890			—		890			—
Net loss	—	—		—		—			(4,953		)	(4,953		)	—		(4,953		)	(419		)
Other comprehensive income:
Unrealized gain on interest rate swap	—	—		—		2,680			—			2,680			—		2,680			235
Unrealized gain on foreign currency translation	—	—		—		708			—			708			—		708			61
Distributions	—	—		—		—			(2,970		)	(2,970		)	—		(2,970		)	(254		)
Balance at June 30, 2009	60,138	$	601	$	812,247	$	(4,165	)	$	(279,047	)	$	529,636		$	—	$	529,636		$	45,649

See accompanying notes to the unaudited consolidated financial statements.

6

U-STORE-IT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended June 30,
	2010			2009
Operating Activities
Net loss	$	(7,581	)	$	(5,372	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization	35,880			38,503
Gain on disposition of discontinued operations	—			(2,622		)
Equity compensation expense	1,734			1,714
Accretion of fair market value adjustment of debt	(187		)	(233		)
Changes in other operating accounts:
Other assets	(2,681		)	(1,257		)
Accounts payable and accrued expenses	(182		)	(3,374		)
Other liabilities	455			(197		)
Net cash provided by operating activities	$	27,438		$	27,162
Investing Activities
Acquisitions, additions and improvements to storage facilities	$	(9,944	)	$	(8,339	)
Proceeds from sales of properties, net	—			11,180
Proceeds from repayment of notes receivable	19,856			—
Decrease (increase) in restricted cash	2,420			(2,581		)
Net cash provided by investing activities	$	12,332		$	260
Financing Activities
Proceeds from:
Revolving credit facility	$	—		$	9,500
Mortgage loans and notes payable	—			51,900
Principal payments on:
Revolving credit facility	—			(77,500		)
Secured term loans	—			(10,972		)
Mortgage loans and notes payable	(102,753		)	(6,570		)
Proceeds from issuance of common shares, net	371			9,530
Exercise of stock options	181			—
Contributions from noncontrolling interests in subsidiaries	16			—
Distributions paid to shareholders	(4,694		)	(2,900		)
Distributions paid to noncontrolling interests in Operating Partnership	(242		)	(254		)
Distributions paid to noncontrolling interests in subsidiaries	(2,289		)	—
Loan procurement costs	(1,251		)	(2,243		)
Net cash used in financing activities	$	(110,661	)	$	(29,509	)
Decrease in cash and cash equivalents	(70,891		)	(2,087		)
Cash and cash equivalents at beginning of period	102,768			3,744
Cash and cash equivalents at end of period	$	31,877		$	1,657
Supplemental Cash Flow and Noncash Information
Cash paid for interest, net of interest capitalized	$	19,940		$	22,700
Supplemental disclosure of noncash activities:
Acquisition related contingent consideration	$	1,849		$	—
Derivative valuation adjustment	$	—		$	2,915
Foreign currency translation adjustment	$	(249	)	$	769

See accompanying notes to the unaudited consolidated financial statements.

7

U-STORE-IT TRUST AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.  ORGANIZATION AND NATURE OF OPERATIONS

U-Store-It Trust, a Maryland real estate investment trust (collectively with its subsidiaries, “we”, “us” or the “Company”), is a self-administered and self-managed real estate investment trust, or REIT, active in acquiring, developing, managing and operating self-storage properties for business and personal use under month-to-month leases.  The Company’s self-storage facilities (collectively, the “Properties”) are located in 26 states throughout the United States, and in the District of Columbia and are managed under one reportable operating segment: we own, operate, develop, manage and acquire self-storage facilities.  The Company owns substantially all of its assets through U-Store-It, L.P., a Delaware limited partnership (the “Operating Partnership”).  The Company is the sole general partner of the Operating Partnership and, as of June 30, 2010, owned a 95.1% interest in the Operating Partnership.  The Company manages its owned assets through YSI Management, LLC (the “Management Company”), a wholly owned subsidiary of the Operating Partnership, and manages its managed assets through Storage Asset Management, LLC.  The Company owns four subsidiaries that have elected to be treated as taxable REIT subsidiaries.  In general, a taxable REIT subsidiary may perform non-customary services for tenants, hold assets that the Company, as a REIT, cannot hold directly and generally may engage in any real estate or non-real estate related business.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the SEC regarding interim financial reporting and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods presented in accordance with generally accepted accounting principles in the United States (“GAAP”).  Accordingly, readers of this Quarterly Report on Form 10-Q should refer to the Company’s audited financial statements prepared in accordance with GAAP, and the related notes thereto, for the year ended December 31, 2009, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 as certain footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report pursuant to the rules of the SEC.  The results of operations for each of the three and six months ended June 30, 2010 and 2009 are not necessarily indicative of the results of operations to be expected for any future period or the full year.

New Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) established the FASB Accounting Standards Codification™ (“Codification”) as the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements issued for interim and annual periods ending after September 15, 2009.  The Codification has changed the manner in which GAAP guidance is referenced, but did not have an impact on our consolidated financial position, results of operations or cash flows.

The FASB issued authoritative guidance on accounting for transfers of financial assets in June 2009, which we adopted on a prospective basis beginning January 1, 2010.  The guidance requires entities to provide more information regarding sales of securitized financial assets and similar transactions, particularly if the entity has continuing exposure to the risks related to transferred financial assets.  It also eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets and requires additional disclosures.  The application did not have an impact on our consolidated financial position, results of operations or cash flows.

The FASB issued authoritative guidance on how a company determines when an entity should be consolidated in June 2009, which we adopted on a prospective basis beginning January 1, 2010.  The guidance clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance.  The guidance requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity.  It also requires additional disclosures about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement.  The application did not have an impact on our consolidated financial position, results of operations or cash flows.

8

3.  STORAGE FACILITIES

The book value of the Company’s real estate assets is summarized as follows:

	June 30,			December 31,
	2010			2009
	(in thousands)
Land and improvements	$	369,656		$	369,842
Buildings and improvements	1,244,579			1,243,047
Equipment	122,745			157,452
Construction in progress	2,637			4,201
Total	1,739,617			1,774,542
Less accumulated depreciation	(336,392		)	(344,009		)
Storage facilities, net	$	1,403,225		$	1,430,533

As assets become fully depreciated, they are removed from their respective asset category.  During the six months ended June 30, 2010 and 2009, $40.3 million and $27.7 million of assets became fully depreciated, and were removed from storage facilities, respectively.

4.  ACQUISITIONS

The Company entered into an acquisition accounted for as a business combination of 85 management contracts from United Stor-All Management, LLC (“United Stor-All”) on April 28, 2010.  The 85 contracts relate to facilities located in 16 states and the District of Columbia.  The Company recorded the fair value of the assets acquired which include the intangible value related to the management contracts and are included in other assets, net on the Company’s consolidated balance sheet.  The Company’s estimation of the fair value of the acquired assets and liabilities utilized Level 3 inputs and considered the probability of the expected period the contracts would remain in place, including estimated renewal periods, and the amount of the discounted future contingent payments to be made.  The Company paid $4.1 million in cash for the contracts and recognized $1.8 million in contingent consideration.  The Company will account for the contingent consideration liability by recording the changes in fair value of the liability recorded in earnings.  The Company has recognized $0.2 million of amortization during the three months ended June 30, 2010.  The Company expensed $0.3 million in transition related costs that are included in acquisition related costs on the Company’s consolidated statement of operations.  The estimated life of the intangible value of the management contracts is 56 months and the estimated remaining amortization expense that will be recognized during 2010 is $0.6 million.

5.  SECURED CREDIT FACILITY

On December 8, 2009, the Company and its Operating Partnership entered into a three-year, $450 million senior secured credit facility (the “secured credit facility”), consisting of a $200 million secured term loan and a $250 million secured revolving credit facility.  The secured credit facility is collateralized by mortgages on borrowing base properties as defined in the secured credit facility agreement.  At June 30, 2010, $200 million of secured term loan borrowings were outstanding under the secured credit facility.  At June 30, 2010, $250 million was available for borrowing under the secured revolving credit facility.  Borrowings under the secured credit facility bear interest at rates ranging from 3.25% to 4.00% over LIBOR, with a LIBOR floor of 1.5%, depending on the Company’s leverage ratio.  At June 30, 2010, borrowings under the secured credit facility had a weighted average interest rate of 5.0% and the Company was in compliance with all covenants of the agreement.

The secured credit facility replaced the prior, three-year $450 million unsecured credit facility, which was entered into in November 2006, and consisted of a $200 million unsecured term loan and $250 million in unsecured revolving loans.  All borrowings under the unsecured credit facility were repaid in December 2009.

9

6.  MORTGAGE LOANS AND NOTES PAYABLE

The Company’s mortgage loans and related notes payable are summarized as follows:

	Carrying Value as of:
	June 30,		December 31,		Effective		Maturity
Mortgage Loan	2010		2009		Interest Rate		Date
	(in thousands)
YSI 1	$	—	$	83,342	5.19	%	May-10
YSI 4	—		6,065		5.25	%	Jul-10
YSI 26	—		9,475		5.00	%	Aug-10
YSI 25	7,912		7,975		5.00	%	Oct-10
USIFB	3,603		3,834		4.59	%	Dec-10
YSI 2	82,572		83,480		5.33	%	Jan-11
YSI 12	1,499		1,520		5.97	%	Sep-11
YSI 13	1,288		1,307		5.97	%	Sep-11
YSI 6	76,755		77,370		5.13	%	Aug-12
YASKY	80,000		80,000		4.96	%	Sep-12
YSI 14	1,786		1,812		5.97	%	Jan-13
YSI 7	3,132		3,163		6.50	%	Jun-13
YSI 8	1,790		1,808		6.50	%	Jun-13
YSI 9	1,968		1,988		6.50	%	Jun-13
YSI 17	4,184		4,246		6.32	%	Jul-13
YSI 27	507		516		5.59	%	Nov-13
YSI 30	7,443		7,567		5.59	%	Nov-13
YSI 11	2,453		2,486		5.87	%	Dec-13
YSI 5	3,238		3,281		5.25	%	Jan-14
YSI 28	1,576		1,598		5.59	%	Feb-14
YSI 34	14,889		14,955		8.00	%	Jun-14
YSI 37	2,227		2,244		7.25	%	Aug-14
YSI 40	2,551		2,581		7.25	%	Aug-14
YSI 44	1,108		1,121		7.00	%	Sep-14
YSI 41	3,928		3,976		6.60	%	Sep-14
YSI 38	4,026		4,078		6.35	%	Sep-14
YSI 45	5,485		5,527		6.75	%	Oct-14
YSI 46	3,458		3,486		6.75	%	Oct-14
YSI 43	2,957		2,994		6.50	%	Nov-14
YSI 48	25,465		25,652		7.25	%	Nov-14
YSI 50	2,351		2,380		6.75	%	Dec-14
YSI 10	4,128		4,166		5.87	%	Jan-15
YSI 15	1,899		1,920		6.41	%	Jan-15
YSI 20	63,372		64,258		5.97	%	Nov-15
YSI 31	13,777		13,891		6.75	%	Jun-19	(a)
YSI 35	4,499		4,499		6.90	%	Jul-19	(a)
YSI 32	6,110		6,160		6.75	%	Jul-19	(a)
YSI 33	11,472		11,570		6.42	%	Jul-19
YSI 42	3,224		3,263		6.88	%	Aug-19	(a)
YSI 39	3,961		3,991		6.50	%	Nov-19	(a)
YSI 47	3,217		3,250		6.63	%	Jan-20	(a)
Unamortized fair value adjustment	44		231
Total mortgage loans and notes payable	$	465,854	$	569,026

10

(a)These borrowings have a fixed interest rate for the first five years of their respective term.  At the end of the initial five years, the rate resets and remains constant over the remaining five years of the loan term.

The following table presents the future principal payments on outstanding mortgage loans and notes payable at June 30, 2010 (in thousands):

2010	$	15,393
2011	90,544
2012	159,984
2013	26,240
2014	88,261
2015 and thereafter	85,388
Total mortgage payments	465,810
Plus: Fair value adjustment	44
Total mortgage indebtedness	$	465,854

The Company currently intends to fund the remainder of its 2010 principal payment requirements with available cash and from cash provided by operating activities.

7.  FAIR VALUE MEASUREMENTS

In January 2008, the FASB issued a pronouncement regarding the methods to value financial assets and liabilities.  The Company adopted this pronouncement effective January 1, 2009.  As defined in the guidance, fair value is based on the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.  The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available.  The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considering counterparty credit risk in its assessment of fair value.

In April 2009, the FASB issued a pronouncement regarding disclosures about fair value of financial instruments and a pronouncement which amends GAAP as follows: a) to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements and b) to require disclosures in summarized financial information at interim reporting periods.  This pronouncement is effective for interim reporting periods ending after June 15, 2009.  Accordingly, the Company adopted this pronouncement during the quarter ended September 30, 2009.  Disclosures about fair value of financial instruments are based on pertinent information available to management as of the valuation date.  Considerable judgment is necessary to interpret market data and develop estimated fair values.  Accordingly, the estimates presented are not necessarily indicative of the amounts at which these instruments could be purchased, sold or settled.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

11

The fair value of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximates their respective book values at June 30, 2010 and December 31, 2009.  At June 30, 2010 and December 31, 2009, the Company had fixed interest rate loans with a carrying value of $465.9 million and $569.0 million, respectively.  The estimated fair values of these fixed rate loans were $445.7 million and $530.7 million at June 30, 2010 and December 31, 2009, respectively.  The Company has a variable interest rate loan with a carrying value of $200.0 million at June 30, 2010 and December 31, 2009, the fair value of which estimates its carrying value.  These estimates are based on discounted cash flow analyses assuming market interest rates for comparable obligations at June 30, 2010 and December 31, 2009.

8.  NONCONTROLLING INTERESTS

Variable Interests in Consolidated Real Estate Joint Ventures

On August 13, 2009, the Company, through a wholly-owned affiliate, formed a joint venture (“HART”) with an affiliate of Heitman, LLC (“Heitman”) to own and operate 22 self-storage facilities, which are located throughout the United States.  Upon formation, Heitman contributed approximately $51 million of cash to a newly-formed limited partnership and the Company contributed certain unencumbered wholly-owned properties with an agreed upon value of approximately $102 million to such limited partnership.  In exchange for its contribution of those properties, the Company received a cash distribution from HART of approximately $51 million and retained a 50% interest in HART.  The Company is the managing partner of HART and the manager of the properties owned by HART, and receives a market rate management fee for its management services.

The Company determined that HART is a variable interest entity under GAAP, and that it is the primary beneficiary.  Accordingly, the assets, liabilities, and results of operations of HART are consolidated.  The 50% interest that is owned by Heitman is reflected as noncontrolling interest in subsidiaries within permanent equity, separate from the Company’s equity on the consolidated balance sheet.  At June 30, 2010, HART had total assets of $91.5 million, including $89.5 million of storage facilities, net and total liabilities of $2.3 million.

USIFB, LLP (“the Venture”) was formed to own, operate, acquire and develop self-storage facilities in England.  The Company owns a 97% interest in the Venture through a wholly-owned subsidiary and the Venture commenced operations at one facility in London, England during 2008.  The Company determined that the Venture is a variable interest entity under GAAP, and that it is the primary beneficiary.  Accordingly, the assets, liabilities and results of operations of the Venture are consolidated.  At June 30, 2010, the Venture had total assets of $7.5 million and total liabilities of $3.8 million including a mortgage loan of $3.6 million secured by storage facilities, net with a book value of $7.2 million.  At June 30, 2010, the Venture’s creditors had no recourse to the general credit of the Company.

Operating Partnership Ownership

The Company has followed the FASB guidance regarding the classification and measurement of redeemable securities.  Under this guidance, securities that are redeemable for cash or other assets, at the option of the holder and not solely within the control of the issuer, must be classified outside of permanent equity.  This classification results in certain outside ownership interests being included as redeemable noncontrolling interests outside of permanent equity in the consolidated balance sheets.  The Company makes this determination based on terms in applicable agreements, specifically in relation to redemption provisions.  Additionally, with respect to noncontrolling interests for which the Company has a choice to settle the redemption by delivery of its own shares, the Company considered the guidance regarding accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own shares, to evaluate whether the Company controls the actions or events necessary to presume share settlement.  The guidance also requires that noncontrolling interests be adjusted each period to the greater of the carrying value based on the accumulation of historical cost or the redemption value.

The consolidated results of the Company include results attributable to units of the Operating Partnership that are not owned by the Company, which amounted to approximately 4.9% of all outstanding Partnership units as of June 30, 2010 and December 31, 2009.  The interests in the Operating Partnership represented by these units were a component of the consideration that the Company paid to acquire certain self-storage facilities.  The holders of the units are limited partners in the Operating Partnership and have the right to require the Operating Partnership to redeem part or all of their units for, at the Company’s option, an equivalent number of common shares of the Company or cash based upon the fair value of an equivalent number of common shares of the Company.  However, the partnership agreement contains certain circumstances that could result in a settlement outside the control of the Company. 

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Accordingly, consistent with the guidance, the Company will record these noncontrolling interests outside of permanent equity in the consolidated balance sheets.  Net income or loss related to these noncontrolling interests is excluded from net income or loss attributable to the Company in the consolidated statements of operations.

The per unit cash redemption amount would equal the average of the closing prices of the common shares of the New York Stock Exchange for the 10 trading days ending prior to the Company’s receipt of the redemption notice.  At June 30, 2010 and December 31, 2009, 4,806,136 and 4,809,636 units were outstanding, respectively, and the calculated aggregate redemption value of outstanding Operating Partnership units based upon the Company’s share price was approximately $37.8 million and $35.4 million, respectively.  Based on the Company’s evaluation of the redemption value of the redeemable noncontrolling interest, the Company has reflected these interests at their carrying value as of June 30, 2010 and December 31, 2009 because the carrying cost exceeded the estimated redemption value.

9.  RELATED PARTY TRANSACTIONS

During 2005 and 2006, the Operating Partnership entered into various office lease agreements with Amsdell and Amsdell, an entity owned by Robert Amsdell and Barry Amsdell (each a former Trustee).  Pursuant to these lease agreements, the Operating Partnership rented office space in the Airport Executive Park, an office and flex development located in Cleveland, Ohio, which is owned by Amsdell and Amsdell.  The Company’s independent Trustees approved the terms of, and entry into, each of the office lease agreements by the Operating Partnership.  In addition to monthly rent, the office lease agreements provide that the Operating Partnership reimburse Amsdell and Amsdell for certain maintenance and improvements to the leased office space.  The aggregate amount of payments by the Company to Amsdell and Amsdell under these lease agreements for each of the three months ended June 30, 2010 and June 30, 2009 was approximately $0.1 million.  Additionally, the aggregate amount of payments for each of the six months ended June 30, 2010 and June 30, 2009 was approximately $0.2 million.  We vacated the office space owned by Amsdell and Amsdell in 2007, but remain obligated under certain of the lease agreements through 2014.  Subsequently, the Company entered into a sublease agreement for a portion of the space with a third party for the remainder of the lease term.

Total future minimum rental payments under the related party lease agreements as of June 30, 2010 are as follows:

	Due to Related Party		Due from Subtenant
	Amount		Amount
	(in thousands)
2010	$	227	$	139
2011	475		278
2012	475		278
2013	499		278
2014	499		278
	$	2,175	$	1,251

10.  DISCONTINUED OPERATIONS

There were no property sales during the six months ended June 30, 2010.  For the three months ended June 30, 2009, income from discontinued operations relates to 19 properties that the Company sold during 2009.  For the six months ended June 30, 2009, income from discontinued operations relates to 20 properties that the Company sold during 2009.  Net gain on disposition of discontinued operations relates to gains recognized on property sales completed during the three and six months ended June 30, 2009.

The following table summarizes the revenue and expense information for the properties classified as discontinued operations for the three and six months ended June 30, 2009 (in thousands):

13

	Three Months Ended		Six Months Ended
	June 30, 2009		June 30, 2009
REVENUES
Rental income	$	2,584	$	5,292
Other property related income	211		391
Total revenues	2,795		5,683
OPERATING EXPENSES
Property operating expenses	1,088		1,987
Depreciation	932		1,892
Total operating expenses	2,020		3,879
INCOME FROM DISCONTINUED OPERATIONS	775		1,804
Net gain on disposition of discontinued operations	2,120		2,622
Income from discontinued operations	$	2,895	$	4,426

11.  PRO FORMA FINANCIAL INFORMATION

During 2010, the Company entered into an acquisition accounted for as a business combination of 85 management contracts from United Stor-All (see note 4).

The consolidated pro forma financial information set forth below reflects adjustments to the Company’s historical financial data to give effect to the acquisition as if it had occurred at the beginning of each period presented.  The unaudited pro forma information presented below does not purport to represent what the Company’s actual results of operations would have been for the periods indicated, nor does it purport to represent the Company’s future results of operations.

The following table summarizes, on a pro forma basis, our consolidated results of operations for the six months ended June 30, 2010 and 2009 based on the assumptions described above:

	Six Months Ended June 30,
	2010			2009
	(in thousands, except per share data)
Pro forma revenue	$	109,046		$	110,979
Pro forma net loss	$	(8,158	)	$	(4,981	)
Net loss per common share
Basic and diluted - as reported	$	(0.09	)	$	(0.16	)
Basic and diluted - as pro forma	$	(0.09	)	$	(0.16	)

12.  COMPREHENSIVE INCOME (LOSS)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(in thousands)						(in thousands)
NET LOSS	$	(4,389	)	$	(3,086	)	$	(7,581	)	$	(5,372	)
Other comprehensive income (loss):
Unrealized gain on derivative financial instruments	—			1,821			—			2,915
Unrealized gain (loss) on foreign currency translation	(52		)	501			(249		)	769
COMPREHENSIVE LOSS	$	(4,441	)	$	(764	)	$	(7,830	)	$	(1,688	)

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 complete 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 Company’s Annual Report on the Form 10-K for the year ended December 31, 2009 and in Part II, Item 1A — Risk Factors, in our subsequent quarterly reports.

Overview

The Company is an integrated self-storage real estate company, which means that it has in-house capabilities in the operation, design, development, leasing, management and acquisition of self-storage facilities.  The Company has elected to be taxed as a REIT for federal tax purposes.  As of June 30, 2010 and December 31, 2009, the Company owned 367 self-storage facilities that contain approximately 23.7 million rentable square feet.  In addition, as of June 30, 2010, the Company managed 114 properties for third parties bringing the total number of properties which it owned and/or managed to 481.

The Company derives revenues principally from rents received from its customers who rent units at its self-storage facilities under month-to-month leases, and, to a lesser extent, from the management of properties owned by third parties.  Therefore, our operating results depend materially on our ability to retain our existing customers and lease our available self-storage units 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 believe that our decentralized approach to the management and operation of our facilities, which places an emphasis on local, market level oversight and control, allows us to respond quickly and effectively to changes in local market conditions, increasing rents where appropriate, while maintaining occupancy levels, or increasing occupancy levels while maintaining pricing 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 has recently experienced an economic downturn that has resulted in higher unemployment, 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 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 focus on internal growth opportunities and selectively pursuing targeted acquisitions and developments of self-storage facilities.  We intend to incur additional debt in connection with any such future acquisitions or developments.

The Company has one reportable operating 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 Florida, California, Texas and Illinois provided approximately 18%, 15%, 10% and 7%, respectively, of total revenues for the three and six month periods ended June 30, 2010.

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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.  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 lives 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 at fair value which may include 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, the Company determines whether the acquisition includes intangible assets or liabilities, which may include the value of in-place leases, above or below market lease intangibles, and tenant relationships.  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 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 indicate that there may be impairment.  The carrying values of these long-lived assets are compared to the undiscounted future net operating cash flows attributable to the assets.  An impairment loss is recorded if the net carrying value of the asset exceeds the undiscounted future net operating cash flows attributable to the asset.  The impairment loss recognized equals the excess of net carrying value over the related fair value of the asset.  Future events, or facts and circumstances that currently exist, that we have not yet identified, could cause us to conclude in the future that our long-lived assets are impaired.  Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.  No impairment was recorded for the periods ended June 30, 2010 and 2009.

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 assets are 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.  In most transactions, these contingencies are not satisfied until the actual closing of the transaction; and, accordingly, the facility is generally not identified as held for sale until the closing actually occurs.  However, each potential transaction is evaluated based on its separate facts and circumstances.  Properties classified as held for sale are reported as 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.

16

Management fee revenues are recognized monthly as services are performed and in accordance with the terms of the related management agreements.

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.  Noncontrolling interests are reported on the consolidated balance sheets within equity, separately from the Company’s equity.  On the consolidated statements of operations, revenues, expenses and net income or loss related to these noncontrolling interests is excluded from net income or loss attributable to the Company.  Presentation of consolidated equity activity is included for both quarterly and annual financial statements, including beginning balances, activity for the period and ending balances for shareholders’ equity, noncontrolling interests and total equity.  The Company has adjusted the carrying value of its noncontrolling interests subject to redemption value to the extent applicable.

Recent Accounting Pronouncements

The FASB established the FASB Accounting Standards Codification™ (“Codification”) as the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements issued for interim and annual periods ending after September 15, 2009.  The Codification has changed the manner in which U.S. GAAP guidance is referenced, but did not have an impact on our consolidated financial position, results of operations or cash flows.

The FASB issued authoritative guidance on accounting for transfers of financial assets in June 2009, which was adopted on a prospective basis beginning January 1, 2010.  The guidance requires entities to provide more information regarding sales of securitized financial assets and similar transactions, particularly if the entity has continuing exposure to the risks related to transferred financial assets.  It also eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets and requires additional disclosures.  The application did not have an impact on our consolidated financial position, results of operations or cash flows.

The FASB issued authoritative guidance on how a company determines when an entity should be consolidated in June 2009, which was adopted on a prospective basis beginning January 1, 2010.  The guidance clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance.  The guidance requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity.  It also requires additional disclosures about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement.  The application did not have an impact on our consolidated financial position, results of operations or cash flows.

Results of Operations

The following discussion of our results of operations should be read in conjunction with the unaudited 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.

17

Acquisition and Development 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, 2010 and 2009, the Company owned 367 and 384 self-storage facilities and related assets, respectively.  The following table summarizes the change in number of owned self-storage facilities from January 1, 2009 through June 30, 2010:

	Self-Storage Facilities
Balance - January 1, 2009	387
Facilities acquired	—
Facilities sold	(20	)
Balance - December 31, 2009	367
Facilities acquired	—
Facilities sold	—
Balance - June 30, 2010	367

Comparison of the three months ended June 30, 2010 to the three months ended June 30, 2009

The following table and subsequent discussion provides information pertaining to our portfolio for the three months ended June 30, 2010 and 2009.  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 periods presented.  Same-store results are considered to be useful to investors in evaluating our performance as they provide information relating to changes in facility-level operating performance without taking into account the effects of acquisitions, developments or dispositions.

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										Non Same-Store				Other/
	Same Store Property Portfolio									Properties				Eliminations						Total Portfolio
	(dolloars in thousands)
					Increase/			%																		Increase/
	2010		2009		(Decrease)			Change		2010		2009		2010			2009			2010			2009			(Decrease)			Change
REVENUES:
Rental income	$	49,269	$	49,672	$	(403	)	-1	%	$	296	$	135	$	(100	)	$	—		$	49,465		$	49,807		$	(342	)	-1	%
Other property related income	4,467		4,393		74			2	%	235		87		—			—			4,702			4,480			222			5	%
Property management fee income	—		—		—			0	%	—		—		590			—			590			—			590			100	%
Total revenues	53,736		54,065		(329		)	-1	%	531		222		490			—			54,757			54,287			470			1	%
OPERATING EXPENSES:
Property operating expenses	21,838		22,834		(996		)	-4	%	463		101		2,120			1,985			24,421			24,920			(499		)	-2	%
NET OPERATING INCOME:	31,898		31,231		667			2	%	68		121		(1,630		)	(1,985		)	30,336			29,367			969			3	%
Depreciation and amortization																				16,363			17,756			(1,393		)	-8	%
General and administrative																				6,844			5,628			1,216			22	%
Subtotal																				23,207			23,384			(177		)	-1	%
Operating income																				7,129			5,983			1,146			19	%
Other Income (Expense):
Interest:
Interest expense on loans																				(9,625		)	(11,473		)	1,848			-16	%
Loan procurement amortization expense																				(1,620		)	(545		)	(1,075		)	197	%
Interest income																				62			55			7			13	%
Acquisition related costs																				(300		)	—			(300		)	-100	%
Other																				(35		)	(1		)	(34		)	3400	%
Total other expense																				(11,518		)	(11,964		)	446			-4	%
LOSS FROM CONTINUING OPERATIONS																				(4,389		)	(5,981		)	1,592			-27	%
DISCONTINUED OPERATIONS
Income from discontinued operations																				—			775			(775		)	-100	%
Net gain on disposition of discontinued operations																				—			2,120			(2,120		)	-100	%
Total discontinued operations																				—			2,895			(2,895		)	-100	%
NET LOSS																				$	(4,389	)	$	(3,086	)	$	(1,303	)	42	%
NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Noncontrolling interests in the Operating Partnership																				233			242			(9		)	-4	%
Noncontrolling interests in subsidiaries																				(365		)	—			(365		)	-100	%
NET LOSS ATTRIBUTABLE TO THE COMPANY																				$	(4,521	)	$	(2,844	)	$	(1,677	)	59	%

Total Portfolio

Total Revenues

Rental income decreased from $49.8 million for the three months ended June 30, 2009 to $49.5 million for the three months ended June 30, 2010, a decrease of $0.3 million.  This decrease is primarily attributable to a decrease of rental income from the same-store properties of $0.4 million during the three months ended June 30, 2010 as compared to the three months ended June 30, 2010, offset by an increase in rental income of $0.1 million from assets that do not meet the same-store criteria

Other property related income increased from $4.5 million for the three months ended June 30, 2009 to $4.7 million for the three months ended June 30, 2010, an increase of $0.2 million, or 5%.  This increase is primarily attributable to increased tenant insurance commissions and convenience fee income across the portfolio of storage facilities during the second quarter 2010 as compared to the second quarter 2009.

Property management fee income increased to $0.6 million for the three months ended June 30, 2010 from no such income for the three months ended June 30, 2009, an increase of $0.6 million, or 100%. This increase is primarily attributable to a $0.6 million increase in management fees related to the Company’s managed properties.

Total Operating Expenses

Property operating expenses decreased from $24.9 million for the three months ended June 30, 2009 to $24.4 million for the three months ended June 30, 2010, a decrease of $0.5 million, or 2%.  This decrease is primarily attributable to a $1.1 million decrease in

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real estate tax expense, offset by an increase in other property related expense of $0.5 million during the 2010 period as compared to the 2009 period.

Depreciation and amortization decreased from $17.8 million for the three months ended June 30, 2009 to $16.4 million for the three months ended June 30, 2010, a decrease of $1.4 million, or 8%.  This decrease is primarily attributable to depreciation expense recognized in the 2009 period related to assets that became fully depreciated during 2009, with no similar activity on these fully depreciated assets in the 2010 period.

General and administrative expenses increased from $5.6 million for the three months ended June 30, 2009 to $6.8 million for the three months ended June 30, 2010, an increase of $1.2 million, or 22%.  This increase is primarily attributable to $1.0 million in professional fee and contract related costs during the 2010 period that the Company did not incur during the 2009 period, and a $0.2 million increase in legal expenses incurred during 2010 as compared to 2009.

Total Other Expenses

Interest expense decreased from $11.5 million for the three months ended June 30, 2009 to $9.6 million for the three months ended June 30, 2010, a decrease of $1.9 million, or 16%.  The decrease is attributable to the payoffs of the $9.4 million YSI 26 loan and the $6.0 million YSI 4 loan during the second quarter of 2010, and lower outstanding borrowings on the credit facility during the 2010 period as compared to the 2009 period resulting in an overall decrease in interest expense.

Discontinued Operations

Income from discontinued operations decreased from $0.8 million for the three months ended June 30, 2009 to no such income for the three months ended June 30, 2010.  The income from discontinued operations in 2009 represents the income during the three months ended June 30, 2009, from properties sold throughout 2009.  Net gains on disposition of discontinued operations decreased from $2.1 million for the three months ended June 30, 2009 to no such gains for the three months ended June 30, 2010 as a result of the sale of two assets during the three months ended June 30, 2009 compared to no asset sales during the 2010 period.

Same-Store Property Portfolio

Same-store revenues decreased from $54.1 million for the three months ended June 30, 2009 to $53.7 million for the three months ended June 30, 2010, a decrease of $0.4 million, or 1%.  The decrease is primarily attributable a 2% decrease in realized annual rent per occupied square foot on the same-store portfolio in the 2010 period as compared to the 2009 period.  Same-store property operating expenses decreased from $22.8 million for the three months ended June 30, 2009 to $21.8 million for the three months ended June 30, 2010, a decrease of $1.0 million or 4%.  The decrease is primarily attributable to a $0.6 million decrease in real estate tax expense, a $0.3 million decrease in utility expenses and a $0.1 million decrease in repairs and maintenance expenses during the 2010 period as compared to the 2009 period.

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Comparison of Operating Results for the Six Months Ended June 30, 2010 and June 30, 2009

										Non Same-Store				Other/
	Same Store Property Portfolio									Properties				Eliminations						Total Portfolio
	(dolloars in thousands)
					Increase/			%																		Increase/
	2010		2009		(Decrease)			Change		2010		2009		2010			2009			2010			2009			(Decrease)			Change
REVENUES:
Rental income	$	97,987	$	100,462	$	(2,475	)	-2	%	$	574	$	590	$	(100	)	$	—		$	98,461		$	101,052		$	(2,591	)	-3	%
Other property related income	8,408		8,014		394			5	%	372		156		—			—			8,780			8,170			610			7	%
Property management fee income	—		—		—			0	%	—		—		634			—			634			—			634			100	%
Total revenues	106,395		108,476		(2,081		)	-2	%	946		746		534			—			107,875			109,222			(1,347		)	-1	%
OPERATING EXPENSES:
Property operating expenses	42,814		44,382		(1,568		)	-4	%	744		430		3,832			3,756			47,390			48,568			(1,178		)	-2	%
NET OPERATING INCOME:	63,581		64,094		(513		)	-1	%	202		316		(3,298		)	(3,756		)	60,485			60,654			(169		)	0	%
Depreciation and amortization																				32,741			35,583			(2,842		)	-8	%
General and administrative																				12,711			11,102			1,609			14	%
Subtotal																				45,452			46,685			(1,233		)	-3	%
Operating income																				15,033			13,969			1,064			8	%
Other Income (Expense):
Interest:
Interest expense on loans																				(19,676		)	(22,826		)	3,150			-14	%
Loan procurement amortization expense																				(3,159		)	(1,028		)	(2,131		)	207	%
Interest income																				597			100			497			497	%
Acquisition related costs																				(300		)	—			(300		)	-100	%
Other																				(76		)	(13		)	(63		)	485	%
Total other expense																				(22,614		)	(23,767		)	1,153			-5	%
LOSS FROM CONTINUING OPERATIONS																				(7,581		)	(9,798		)	2,217			-23	%
DISCONTINUED OPERATIONS
Income from discontinued operations																				—			1,804			(1,804		)	-100	%
Net gain on disposition of discontinued operations																				—			2,622			(2,622		)	-100	%
Total discontinued operations																				—			4,426			(4,426		)	-100	%
NET LOSS																				$	(7,581	)	$	(5,372	)	$	(2,209	)	41	%
NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Noncontrolling interests in the Operating Partnership																				411			419			(8		)	-2	%
Noncontrolling interests in subsidiaries																				(826		)	—			(826		)	-100	%
NET LOSS ATTRIBUTABLE TO THE COMPANY																				$	(7,996	)	$	(4,953	)	$	(3,043	)	61	%

Total Revenues

Rental income decreased from $101.1 million for the six months ended June 30, 2009 to $98.5 million for the six months ended June 30, 2010, a decrease of $2.6 million, or 3%.  This decrease is primarily attributable to a 2% decrease in realized annual rent per square foot from the same-store properties during the six months ended June 30, 2010 as compared to the six months ended June 30, 2009.

Other property related income increased from $8.2 million for the six months ended June 30, 2009 to $8.8 million for the six months ended June 30, 2010, an increase of $0.6 million, or 7%. This increase is primarily attributable to an increase of $0.5 million in tenant insurance commissions and convenience fee income across the portfolio of storage facilities during the six months ended June 30, 2010 as compared to the six months ended June 30, 2009.

Property management fee income increased to $0.6 million for the six months ended June 30, 2010 from no such income for the six months ended June 30, 2009, an increase of $0.6 million, or 100%. This increase is primarily attributable to a $0.6 million increase in management fees related to the Company’s managed properties.

Total Operating Expenses

Property operating expenses decreased from $48.6 million for the six months ended June 30, 2009 to $47.4 million for the six months ended June 30, 2010, a decrease of $1.2 million, or 2%.  The decrease is primarily attributable to a decrease of $1.4 million in

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real estate tax expense, offset by a $0.2 million increase in other property related expenses during the 2010 period as compared to the 2009 period.

Depreciation and amortization decreased from $35.6 million for the six months ended June 30, 2009 to $32.7 million for the six months ended June 30, 2010, a decrease of $2.9 million, or 8%. This decrease is primarily attributable to depreciation expense recognized in the 2009 period related to assets that became fully depreciated during 2009, with no similar activity on these fully depreciated assets in the 2010 period.

General and administrative expenses increased from $11.1 million for the six months ended June 30, 2009 to $12.7 million for the six months ended June 30, 2010, an increase of $1.6 million, or 14%.  This increase is primarily attributable to $1.0 million in professional fee and contract related costs incurred during the 2010 period that the Company did not incur during the 2009 period, and a $0.4 million increase in legal expense and restricted share and option expense during 2010 as compared to 2009.

Total Other Expenses

Interest expense decreased from $22.8 million for the six months ended June 30, 2009 to $19.7 million for the six months ended June 30, 2010, a decrease of $3.1 million, or 14%. The decrease is attributable to the payoff of the $83.3 million YSI 1 loan during the first quarter of 2010, the payoffs of the $9.4 million YSI 26 loan and the $6.0 million YSI 4 loan during the second quarter of 2010, and lower outstanding borrowings on the credit facility during the 2010 period as compared to the 2009 period resulting in an overall decrease in interest expense.

Discontinued Operations

Income from discontinued operations decreased from $1.8 million for the six months ended June 30, 2009 to no such income for the six months ended June 30, 2010.  The income from discontinued operations in 2009 represents the income during the six months ended June 30, 2009, from properties sold throughout 2009.  Net gains on disposition of discontinued operations decreased from $2.6 million for the six months ended June 30, 2009 to no such gains for the six months ended June 30, 2010 as a result of the sale of three assets during the six months ended June 30, 2009 compared to no asset sales during the 2010 period.

Same-Store Property Portfolio

Same-store revenues decreased from $108.5 million for the six months ended June 30, 2009 to $106.4 million for the six months ended June 30, 2010, a decrease of $2.1 million, or 2%.  The decrease is primarily attributable a 2% decrease in realized annual rent per occupied square foot on the same-store portfolio in the 2010 period as compared to the 2009 period.  Same-store property operating expenses decreased from $44.4 million for the six months ended June 30, 2009 to $42.8 million for the six months ended June 30, 2010, a decrease of $1.6 million or 4%.  The decrease is primarily attributable to a $0.6 million decrease in real estate tax expense, a $0.4 million decrease in utility expenses and a $0.5 million decrease in advertising expenses during the 2010 period as compared to the 2009 period.

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, amounts attributable to noncontrolling interests, other expense, depreciation and amortization expense, general and administrative expense, and deducting from net income: income from discontinued operations, gains on disposition of discontinued operations, other income, 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:

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·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 helps 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.

Cash Flows

Comparison of the six months ended June 30, 2010 to the six months ended June 30, 2009

A comparison of cash flow from operating, investing and financing activities for the six months ended June 30, 2010 and 2009 is as follows (in thousands):

	Six Months Ended June 30,
	2010			2009			Change
Net cash flow provided by (used in):
Operating activities	$	27,438		$	27,162		$	276
Investing activities	$	12,332		$	260		$	12,072
Financing activities	$	(110,661	)	$	(29,509	)	$	(81,152	)

Cash flows provided by operating activities for the six months ended June 30, 2010 and 2009 were $27.4 million and $27.2 million, respectively, an increase of $0.2 million.  The increase primarily relates to a $0.6 million increase in the change in other liabilities as a result of the timing of certain payments, offset by reduced levels of NOI of $0.1 million during the 2010 period as compared to the 2009 period.

Cash provided by investing activities changed from $0.3 million in 2009 to $12.3 million in 2010, an increase of $12.0 million.  The increase primarily relates to cash receipts of $19.9 million related to proceeds in 2010 from the repayment of notes receivable that originated in conjunction with asset dispositions during 2009 and a decrease in restricted cash of $5.0 million, offset by a decrease in proceeds from dispositions during 2010 of $11.2 million.

Cash used in financing activities increased from $29.5 million to $110.7 million during the six months ended June 30, 2009 and 2010, respectively.  The increase primarily relates to increased net debt payoffs of $69.1 million and increased distributions paid to shareholders and non-controlling interests of $4.1 million during 2010 as compared to 2009 due to additional outstanding shares during the 2010 period as a result of equity offered during 2009.

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Issuance of Common Shares

In April 2009, we commenced the sale of up to 10 million common shares pursuant to a continuous offering program.  Pursuant to the program, we may sell shares in amounts and at times to be determined by us.  Actual sales will be determined by a variety of factors to be determined by us, including market conditions, the trading price of our common shares and determinations by us of the appropriate sources of funding.  In connection with the offering program, we engaged a sales agent who receives compensation equal to up to three percent of the gross sales price per common share for any shares sold pursuant to the program.  During the three months ended June 30, 2010 we sold 45,800 shares under the program at and average sales price of $8.30 per share resulting in net proceeds of $0.4 million.  We used the net proceeds for general corporate purposes.  From its inception in April 2009 through June 30, 2010, we have sold 2.5 million shares under this program at an average sales price of $4.13 per share resulting in net proceeds of $10.4 million.

Liquidity and Capital Resources

Liquidity Overview

Our cash flow from operations has historically been one of our primary sources of liquidity 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, we are required to distribute at least 90% of our REIT taxable income, excluding capital gains, to our 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 and recurring capital expenditures.  These liquidity needs will vary from year to year, in some cases significantly.  We expect recurring capital expenditures remaining in fiscal year 2010 to be approximately $4 million to $6 million.  In addition, our currently scheduled principal payments on debt, including borrowings outstanding on the credit facility and secured term loans, are approximately $15.4 million during the remainder of 2010 and $90.5 million in 2011.

Our most restrictive debt covenants limit the amount of additional leverage that we can incur; however, we believe the sources of capital described above will allow us to execute our current business plan and remain in compliance with our debt covenants.

Our liquidity needs beyond 2010 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 a new or revised revolving 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 is dependent on a number of factors, including our degree of leverage, the value of our assets and borrowing restrictions that may be imposed by lenders.  In addition, dislocations 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 is also dependent on a number of factors, including general market conditions for REITs and market perceptions about us.

Current and Expected Sources of Cash Excluding Credit Facility

As of June 30, 2010, we had approximately $31.9 million in available cash and cash equivalents.  In addition, we had approximately $250.0 million of availability for borrowings under our secured revolving credit facility.

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Bank Credit Facilities

On December 8, 2009, the Company and its Operating Partnership entered into a three-year, $450 million senior secured credit facility (the “secured credit facility”), consisting of a $200 million secured term loan and a $250 million secured revolving credit facility.  The secured credit facility is secured by mortgages on borrowing base properties.  At June 30, 2010, $200 million of secured term loan borrowings were outstanding under the secured credit facility.  At June 30, 2010, approximately $250 million was available for borrowing under the secured revolving credit facility.  Borrowings under the secured credit facility bear interest at rates ranging from 3.25% to 4.00% over LIBOR, with a LIBOR floor of 1.5%, depending on our leverage ratio.  At June 30, 2010, borrowings under the secured credit facility had a weighted average interest rate of 5.0% and the Company was in compliance with all covenants of the agreement.

Our ability to borrow and extend the maturity date under this secured credit facility and secured term loan will be subject to our ongoing compliance with the following financial covenants, among others:

·         Maximum total indebtedness to total asset value of 65% (67.5% in first year);

·         Minimum fixed charge coverage ratio of 1.45:1.0; and

·         Minimum tangible net worth of $827.0 million plus 75% of net proceeds from future equity issuances.

Further, under our secured credit facility, we are restricted from paying distributions on our common shares that would exceed an amount equal to the greater of (i) 95% of our funds from operations, and (ii) such amount as may be necessary to maintain our REIT status.

We are currently in compliance with all of our covenants and anticipate being in compliance with all of our covenants through the duration of the term of the credit facility and secured term loan.

The secured credit facility replaced the prior, three-year $450 million unsecured credit facility, which was entered into in November 2006, and consisted of $200 million in an unsecured term loan and $250 million in unsecured revolving loans.  Outstanding balances under of the unsecured credit facility were repaid in December 2009.  Borrowings under the unsecured credit facility bore interest, at our option, at either an alternative base rate or a Eurodollar rate, in each case, plus an applicable margin based on our leverage ratio or our credit rating.  The alternative base interest rate was a fluctuating rate equal to the higher of the prime rate or the sum of the federal funds effective rate plus 50 basis points.  The applicable margin for the alternative base rate varied from 0.00% to 0.50% depending on our leverage ratio.

Off-Balance Sheet Arrangements

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

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.  The carrying value of these investments approximates fair value on the reporting dates.

Effect of Changes in Interest Rates on our Outstanding Debt

The analysis below presents the sensitivity of the fair 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.  Fair values are the present value of projected future cash flows based on the market rates chosen.

Our financial instruments consist of both fixed and variable rate debt.  As of June 30, 2010, our consolidated debt consisted of $465.9 million in fixed rate loans payable and $200.0 million in a variable rate secured term loan.  All financial instruments were entered into for other than trading purposes and the fair value of these financial instruments is referred to as the financial position.  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 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 financial instrument position.

If market rates of interest on our variable rate debt increase or decrease by 1%, the change in annual interest expense on our variable rate debt would not change future earnings and cash flows, as a 1% increase in LIBOR would not exceed the minimum LIBOR rate of 1.5% used to calculate interest expense in accordance with the secured credit facility.

If market rates of interest increase by 1%, the fair value of our outstanding fixed-rate mortgage debt would decrease by approximately $11.3 million.  If market rates of interest decrease by 1%, the fair value of our outstanding fixed-rate mortgage debt would increase by approximately $11.8 million.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our 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 CEO and the CFO have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Controls Over Financial Reporting

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

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PART II. OTHER INFORMATION

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information about repurchases of the Company’s common shares during the three month period ended June 30, 2010:

	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2)
April 1- April 30	—	—		N/A	3,000,000
May 1- May 31	—	—		N/A	3,000,000
June 1- June 30	2,798	$	7.54	N/A	3,000,000
Total	2,798				3,000,000

(1)       Represents common shares withheld by the Company upon the vesting of restricted shares to cover employee tax obligations.

(2)       On June 27, 2007, the Company announced that the Board of Trustees approved a share repurchase program for up to 3.0 million of the Company’s outstanding common shares.  Unless terminated earlier by resolution of the Board of Trustees, the program will expire when the number of authorized shares has been repurchased.  The Company has made no repurchases under this program.

ITEM 5.      OTHER INFORMATION

Our discussion of federal income tax considerations in Exhibit 99.1 attached hereto, which is incorporated herein by reference, updates our discussion of federal income tax considerations in our previous SEC filings, including in Exhibit 99.1 to our Annual Report on Form 10-K for the year ended December 31, 2009.  Our updated discussion addresses recently enacted tax law changes.  We have also attached hereto as Exhibit 8.1, which is incorporated herein by reference, the legal opinion of Pepper Hamilton LLP as to federal income tax matters summarized in Exhibit 99.1.

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ITEM 6.  EXHIBITS

Exhibit No.
8.1	Opinion of Pepper Hamilton LLP as to certain tax matters
10.1*	Amended and Restated U-Store-It Trust 2007 Equity Incentive Plan, incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on June 4, 2010
10.2*	Amended and Restated Executive Employment Agreement, dated June 29, 2010, by and between U-Store-It Trust and Dean Jernigan, incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on July 2, 2010
10.3*	Amended and Restated Executive Employment Agreement, dated June 29, 2010, by and between U-Store-It Trust and Timothy M. Martin, incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on July 2, 2010
10.4*	Amended and Restated Non-Competition Agreement, dated June 29, 2010, by and between U-Store-It Trust and Dean Jernigan, incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on July 2, 2010
10.5*	Amended and Restated Non-Competition Agreement, dated June 29, 2010, by and between U-Store-It Trust and Timothy M. Martin, incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on July 2, 2010
12.1	Statement regarding Computation of Ratios of U-Store-It Trust.
23.1	Consent of Pepper Hamilton LLP (contained in Exhibit 8.1)
31.1	Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed here with)
31.2	Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed here with)
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished here with)
99.1	Material Tax Considerations

* Denotes a contract or compensatory plan, contract or arrangement

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SIGNATURES OF REGISTRANT

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	U-STORE-IT TRUST
	(Registrant)
Date: August 6, 2010	By:	/s/ Dean Jernigan
	Dean Jernigan, Chief Executive Officer
	(Principal Executive Officer)
Date: August 6, 2010	By:	/s/ Timothy M. Martin
	Timothy M. Martin, Chief Financial Officer
	(Principal Financial Officer)

29

EX-8.1

EXHIBIT 8.1

August 6, 2010

U-Store-It Trust

460 East Swedesford Road, Suite 3000

Wayne, Pennsylvania 19087

Ladies and Gentlemen:

We have acted as counsel to U-Store-It Trust, a Maryland real estate investment trust (the “Company), in connection with the preparation of this opinion.

The opinions expressed herein are based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations thereunder (including proposed and temporary Treasury regulations) and interpretations of the foregoing as expressed in court decisions, legislative history and administrative determinations of the Internal Revenue Service (the “IRS”) (including its practices and policies in issuing private letter rulings, which are not binding on the IRS, except with respect to a taxpayer that receives such a ruling), all as of the date hereof.  This opinion represents our best legal judgment with respect to the probable outcome on the merits and is not binding on the IRS or the courts.  There can be no assurance that positions contrary to our opinion will not be taken by the IRS, or that a court considering the issues would not reach a conclusion contrary to such opinions.  No assurance can be given that future legislative, judicial or administrative changes, on either a prospective or retroactive basis, would not adversely affect the opinions expressed herein.

In rendering the opinions expressed herein, we have examined such statutes, regulations, records, certificates and other documents as we have considered necessary or appropriate as a basis for such opinions, including: (1) Company’s Annual Report on Form 10-K for the year ending December 31, 2009 and Quarterly Report on Form 10-Q filed on August 6, 2010 (collectively, the “Company Reports”) with the Securities and Exchange Commission (the “Commission”); (2) the Articles of Amendment and Restatement of Declaration of Trust of Company, as amended or supplemented through the date hereof; and (3) the Second Amended and Restated Agreement of Limited Partnership of U-Store-It, L.P. (“Operating Partnership”) dated as of October 27, 2004, as amended or supplemented through the date hereof.

In rendering the opinions expressed herein, we have relied upon written representations as to factual matters of Company and Operating Partnership contained in an Officer’s Certificate Regarding Certain Tax Matters dated the date hereof regarding their consolidated assets, operations and activities (the “Officer’s Certificate”).  We have not made an independent investigation or audit of the facts set forth in the Officer’s Certificate or in any other

document.  We consequently have relied upon the accuracy of the representations as to factual matters in the Officer’s Certificate.  After inquiry, we are not aware of any facts or circumstances contrary to, or inconsistent with, the representations that we have relied upon or the other assumptions set forth herein.  Our opinion is limited to the tax matters specifically covered herein, and we have not addressed, nor have we been asked to address, any other tax matters relevant to Company, the Operating Partnership or any other person.

We have assumed, with your consent, that, insofar as relevant to the opinions expressed herein:

(1)           Company has been and will be operated in the manner described in the Officer’s Certificate and the Company Reports (including in the documents incorporated therein by reference);

(2)           all of the obligations imposed by the documents that we reviewed have been and will continue to be performed or satisfied in accordance with their terms; and all of such documents have been properly executed, are valid originals or authentic copies of valid originals, and all signatures thereon are genuine;

(3)           all representations made in the Officer’s Certificate (and other factual information provided to us) are true, correct and complete and will continue to be true, correct and complete, and any representation or statement made in the Officer’s Certificate “to the best of knowledge,” “to the knowledge” or “to the actual knowledge” of any person(s) or party(ies) or similarly qualified is true, correct and complete as if made without such qualification; and

(4)           all documents that we have reviewed have been properly executed, are valid originals or authentic copies of valid originals, and all signatures thereon are genuine.

Based upon, subject to the foregoing and the discussion below, we are of the opinion that:

1.Commencing with its taxable year ended December 31, 2004, Company has been organized and operated in a manner so as to qualify for taxation as a REIT under the Code, and Company’s proposed method of operation will enable it to continue to qualify for taxation as a REIT.

2.The discussion of Material Federal Income Tax Considerations in Exhibit 99.1 to Form 10-Q filed with the Commission on August 6, 2010, to the extent it describes

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provisions of federal income tax law and regulations or legal conclusions with respect thereto, is correct in all material respects as of the date hereof.

We assume no obligation to advise you of any changes in our opinion subsequent to the date of this letter.  Company’s qualification for taxation as a REIT depends upon Company’s ability to meet, on a continuing basis, through actual annual operating and other results, the requirements of the Code, including the requirements with regard to the sources of its gross income, the composition of its assets, the level of its distributions to shareholders and the diversity of its share ownership.  We will not review Company’s compliance with these requirements on a continuing basis.  Accordingly, no assurance can be given that the actual results of Company’s operations, the sources of its income, the nature of its assets, the level of its distributions to shareholders and the diversity of its share ownership for any given taxable year will satisfy the requirements under the Code for qualification and taxation as a REIT.

We hereby consent to the incorporation of this opinion by reference in the Company’s Registration Statements on Form S-8 (No. 333-167623, 333-143126, 333-143125, 333-143124, 333-134684 and 333-119987) and the Registration Statements on Form S-3 (No. 333-156463, 333-141709, and 333-141710).

Very truly yours,

/s/ Pepper Hamilton LLP

PEPPER HAMILTON LLP

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EX-12.1

Exhibit 12.1

U-Store-It Trust

Computation of Ratio of Earnings to Fixed Charges

(dollars in thousands)

	Year Ended December 31,															Six Months Ended June 30,
	2005			2006			2007			2008			2009			2009			2010
Earnings before fixed charges:
Add:
Loss from continuing operations	$	(4,576	)	$	(16,820	)	$	(24,370	)	$	(23,428	)	$	(17,017	)	$	(9,798	)	$	(7,581	)
Fixed charges - per below	34,229			49,695			56,192			54,192			47,831			22,891			19,792
Less:
Capitalized interest	—			(35		)	(108		)	(99		)	(73		)	(27		)	(78		)
Earnings before fixed charges	29,653			32,840			31,714			30,665			30,741			13,066			12,133
Fixed charges:
Interest expense (including amortization premiums and discounts related to indebtedness)	33,952			47,600			55,880			53,943			47,608			22,826			19,676
Early extinguishment of debt	93			1,907			—			—			—			—			—
Capitalized interest	—			35			108			99			73			27			78
Estimate of interest within rental expense	184			153			204			150			150			38			38
Total Fixed Charges	34,229			49,695			56,192			54,192			47,831			22,891			19,792
Ratio of earnings to fixed charges (a)	0.87			0.66			0.56			0.57			0.64			0.57			0.61

(a)  Due to our losses in fiscal 2005, 2006, 2007, 2008, 2009 and 2010, the coverage ratio was less than 1:1.  The Company must generate additional earnings of $4.6 million, $16.9 million, $24.5 million, $23.5 million, $17.1 million, $9.8 million, and $7.6 million to achieve a coverage of 1:1 in fiscal 2005, 2006, 2007, 2008, 2009, and the six months ended June 30, 2009 and 2010, repectively.

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dean Jernigan, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of U-Store-It Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Trustees (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2010	/s/ Dean Jernigan
	Dean Jernigan
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy M. Martin, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of U-Store-It Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Trustees (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2010	/s/ Timothy M. Martin
	Timothy M. Martin
	Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of

the

Sarbanes-Oxley Act of 2002

The undersigned, the Chief Executive Officer and Chief Financial Officer of U-Store-It Trust (the “Company”), each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(a) The Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2010 (the “Report”) filed on the date hereof with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 6, 2010	/s/ Dean Jernigan
	Dean Jernigan
	Chief Executive Officer

Date: August 6, 2010	/s/ Timothy M. Martin
	Timothy M. Martin
	Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.1

Exhibit 99.1

MATERIAL FEDERAL INCOME TAX CONSIDERATIONS

This section summarizes the current material federal income tax considerations relating to the purchase, ownership and disposition of our common shares and the qualification and taxation of the Company as a REIT.  We use the terms “we” and “our” and “Company”  refer solely to U-Store-It Trust and not to our subsidiaries and affiliates which have not elected to be taxed as REITs under the Internal Revenue Code of 1986, as amended (the “Code”).

This discussion is not exhaustive of all possible tax considerations and does not provide a detailed discussion of any state, local or foreign tax considerations.  The discussion does not address all aspects of taxation that may be relevant to particular investors in light of their personal investment or tax circumstances, or to certain types of investors that are subject to special treatment under the federal income tax laws, such as insurance companies, regulated investment companies, REITs, tax-exempt organizations (except to the limited extent discussed below under “Taxation of Tax-Exempt Shareholders”), financial institutions or broker-dealers, non-U.S. individuals and foreign corporations (except to the limited extent discussed below under “Taxation of Non-U.S. Shareholders”) and other persons subject to special tax rules.   This summary deals only with our shareholders and debt holders that hold common shares as “capital assets” within the meaning of Section 1221 of the Code. This discussion is not intended to be, and should not be construed as, tax advice.

The information in this summary is based on the Code, current, temporary and proposed Treasury regulations, the legislative history of the Code, current administrative interpretations and practices of the Internal Revenue Service, including its practices and policies as endorsed in private letter rulings, which are not binding on the Internal Revenue Service, and existing court decisions.  Future legislation, regulations, administrative interpretations and court decisions could change current law or adversely affect existing interpretations of current law.  Any change could apply retroactively.  We have not obtained any rulings from the Internal Revenue Service concerning the tax treatment of the matters discussed in this summary.  Therefore, it is possible that the Internal Revenue Service could challenge the statements in this summary, which do not bind the Internal Revenue Service or the courts, and that a court could agree with the Internal Revenue Service.

We urge you to consult your own tax advisor regarding the specific tax consequences to you of ownership of our common shares and of our election to be taxed as a REIT. Specifically, you should consult your own tax advisor regarding the federal, state, local, foreign, and other tax consequences of such ownership and election, and regarding potential changes in applicable tax laws.

Qualification of the Company as a REIT

We elected to be taxed as a REIT under the federal income tax laws beginning with our short taxable year ended December 31, 2004. We believe that, beginning with such short taxable year, we have been organized and have operated in such a manner as to qualify for taxation as a REIT under the Code and intend to continue to operate in such a manner. However, there can be no assurance that we have qualified or will remain qualified as a REIT

Our continued qualification and taxation as a REIT depend upon our ability to meet on a continuing basis, through actual annual operating results, certain qualification tests set forth in the federal income tax laws. Those qualification tests involve the percentage of income that we earn from specified sources, the percentage of our assets that falls within specified categories, the diversity of our share ownership, and the percentage of our earnings that we distribute.  Accordingly, no assurance can be given that the actual results of our operations for any particular taxable year will satisfy such requirements. For a discussion of the tax consequences of our failure to qualify as a REIT, see “Requirements for Qualification — Failure to Qualify” below.

Pursuant to our declaration of trust, our board of trustees has the authority to make any tax elections on our behalf that, in its sole judgment, are in our best interest.  This authority includes the ability to revoke or otherwise terminate our status as a REIT.  Our board of trustees has the authority under our declaration of trust to make these elections without the necessity of obtaining the approval of our shareholders.  In addition, our board of trustees has the authority to waive any restrictions and limitations contained in our declaration of trust that are intended to preserve our status as a REIT during any period in which our board of trustees has determined not to pursue or preserve our status as a REIT.

Taxation of the Company as a REIT

The sections of the Code relating to qualification and operation as a REIT, and the federal income taxation of a REIT, are highly technical and complex. The following discussion sets forth only the material aspects of those sections. This summary is qualified in its entirety by the applicable Code provisions and the related rules and regulations.

If we qualify as a REIT, we generally will not be subject to federal income tax on the taxable income that we distribute to our shareholders. The benefit of that tax treatment is that it avoids the “double taxation,” or taxation at both the corporate and shareholder levels, that generally results from owning shares in a corporation. However, we will be subject to federal tax in the following circumstances:

·We are subject to the corporate federal income tax on any taxable income, including net capital gain that we do not distribute to shareholders during, or within a specified time period after, the calendar year in which the income is earned.

·We may be subject to the corporate “alternative minimum tax” on any items of tax preference, including any deductions of net operating losses.

·We are subject to tax, at the highest corporate rate, on net income from the sale or other disposition of property acquired through foreclosure (“foreclosure property”) that we hold primarily for sale to customers in the ordinary course of business, and other non-qualifying income from foreclosure property.

·We are subject to a 100% tax on net income from sales or other dispositions of property, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business.

·If we fail to satisfy one or both of the 75% gross income test or the 95% gross income test, as described below under “Requirements for Qualification — Gross Income Tests,” but nonetheless continue to qualify as a REIT because we meet other requirements, we will be subject to a 100% tax on: the greater of  the amount by which we fail the 75% gross income test or the 95% gross income test multiplied, in either case, by a fraction intended to reflect our profitability.

·If we fail to distribute during a calendar year at least the sum of: (1) 85% of our REIT ordinary income for the year, (2) 95% of our REIT capital gain net income for the year, and (3) any undistributed taxable income required to be distributed from earlier periods, then we will be subject to a 4% nondeductible excise tax on the excess of the required distribution over the amount we actually distributed.

·If we fail any of the asset tests, as described below under “Requirements for Qualification — Asset Tests,” other than certain de minimis failures, but our failure was due to reasonable cause and not to willful neglect, and we nonetheless maintain our REIT qualification because of specified cure provisions, , we will pay a tax equal to the greater of $50,000 or 35% of the net income from the nonqualifying assets during the period in which we failed to satisfy the asset tests. The amount of gain on which we will pay tax generally is the lesser of the amount of gain that we recognize at the time of the sale or disposition, and the amount of gain that we would have recognized if we had sold the asset at the time we acquired it.

·We will pay a tax equal to the greater of $50,000 or 35% of the net income from the nonqualifying assets during the period in which we failed to satisfy the asset tests.

·If we fail to satisfy one or more requirements for REIT qualification, other than the gross income tests and the asset tests, and such failure is due to reasonable cause and not to willful neglect, we will be required to pay a penalty of $50,000 for each such failure.

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·We may elect to retain and pay income tax on our net long-term capital gain.

·We will be subject to a 100% excise tax on transactions with a taxable REIT subsidiary that are not conducted on an arm’s-length basis.

·If we acquire any asset from a C corporation (a corporation that generally is subject to full corporate-level tax) in a transaction in which the adjusted basis of the assets in our hands is determined by reference to the adjusted tax basis of the asset in the hands of the C corporation, we will pay tax at the highest regular corporate rate then applicable if we recognize gain on the sale or disposition of the asset during the 10-year period after we acquire the asset, unless the C corporation elects to treat the assets as if they were sold for their fair market value at the time or our acquisition.

·We may be required to pay monetary penalties to the Internal Revenue Service in certain circumstances, including if we fail to meet record-keeping requirements intended to monitor our compliance with rules relating to the composition of a REIT’s shareholders, as described below in “Requirements for Qualification - Recordkeeping Requirements.”

·The earnings of our lower-tier entities that are subchapter C corporations, including taxable REIT subsidiaries, are subject to federal corporate income tax.

In addition, we may be subject to a variety of taxes, including payroll taxes and state, local and foreign income, property and other taxes on our assets and operations. We could also be subject to tax in situations and on transactions not presently contemplated.

Requirements for Qualification

To qualify as a REIT, we must elect to be treated as a REIT, and we must meet various (a) organizational requirements, (b) gross income tests, (c) asset tests, and (d) annual distribution requirements.

Organizational Requirements. A REIT is a corporation, trust or association that meets each of the following requirements:

(1)It is managed by one or more trustees or directors;

(2)Its beneficial ownership is evidenced by transferable shares, or by transferable certificates of beneficial interest;

(3)It would be taxable as a domestic corporation, but for Sections 856 through 860 of the Code;

(4)It is neither a financial institution nor an insurance company subject to special provisions of the federal income tax laws;

(5)At least 100 persons are beneficial owners of its shares or ownership certificates (determined without reference to any rules of attribution);

(6)Not more than 50% in value of its outstanding shares or ownership certificates is owned, directly or indirectly, by five or fewer individuals, which the federal income tax laws define to include certain entities, during the last half of any taxable year;

(7)It elects to be a REIT, or has made such election for a previous taxable year which has not been revoked or terminated, and satisfies all relevant filing and other administrative requirements established by the Internal Revenue Service that must be met to elect and maintain REIT status;

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(8)It uses a calendar year for federal income tax purposes and complies with the recordkeeping requirements of the federal income tax laws; and

(9)It meets certain other qualifications, tests described below, regarding the nature of its income and assets and the distribution of its income.

We must meet requirements 1 through 4, 8 and 9 during our entire taxable year and must meet requirement 5 during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. If we comply with all the requirements for ascertaining information concerning the ownership of our outstanding shares in a taxable year and have no reason to know that we violated requirement 6, we will be deemed to have satisfied requirement 6 for that taxable year. Our declaration of trust provides for restrictions regarding the ownership and transfer of our shares of beneficial interest that are intended to assist us in continuing to satisfy requirements 5 and 6.  However, these restrictions may not ensure that we will, in all cases, be able to satisfy these requirements.  The provisions of the declaration of trust restricting the ownership and transfer of our shares of beneficial interest are described in “Description of Our Shares — Restrictions on Ownership and Transfer.”

For purposes of determining share ownership under requirement 6, an “individual” generally includes a supplemental unemployment compensation benefits plan, a private foundation, or a portion of a trust permanently set aside or used exclusively for charitable purposes. An “individual,” however, generally does not include a trust that is a qualified employee pension or profit sharing trust under the federal income tax laws, and beneficiaries of such a trust will be treated as holding our shares in proportion to their actuarial interests in the trust for purposes of requirement 6. We believe we have issued sufficient shares of beneficial interest with enough diversity of ownership to satisfy requirements 5 and 6 set forth above.

To monitor compliance with the share ownership requirements, we are required to maintain records regarding the actual ownership of our shares. To do so, we must demand written statements each year from the record holders of certain percentages of our shares in which the record holders are to disclose the actual owners of the shares (the persons required to include in gross income the dividends paid by us). A list of those persons failing or refusing to comply with this demand must be maintained as part of our records. Failure by us to comply with these record-keeping requirements could subject us to monetary penalties. If we satisfy these requirements and have no reason to know that condition (6) is not satisfied, we will be deemed to have satisfied such condition. A shareholder that fails or refuses to comply with the demand is required by Treasury Regulations to submit a statement with its tax return disclosing the actual ownership of the shares and other information.

Qualified REIT Subsidiaries. A corporation that is a “qualified REIT subsidiary” is not treated as a corporation separate from its parent REIT. A “qualified REIT subsidiary” is a corporation, all of the capital stock of which is owned by the REIT and that has not elected to be a taxable REIT subsidiary. All assets, liabilities, and items of income, deduction, and credit of a “qualified REIT subsidiary” are treated as assets, liabilities, and items of income, deduction, and credit of the REIT. Thus, in applying the requirements described herein, any “qualified REIT subsidiary” that we own will be ignored, and all assets, liabilities, and items of income, deduction, and credit of such subsidiary will be treated as our assets, liabilities, and items of income, deduction, and credit.

Partnership Subsidiaries.  An unincorporated domestic entity, such as a partnership or limited liability company that has a single owner, generally is not treated as an entity separate from its parent for federal income tax purposes. An unincorporated domestic entity with two or more owners is generally treated as a partnership for federal income tax purposes. In the case of a REIT that is a partner in a partnership, the REIT is treated as owning its proportionate share of the assets of the partnership and as earning its allocable share of the gross income of the partnership for purposes of the applicable REIT qualification tests. Thus, our proportionate share of the assets, liabilities and items of income of our operating partnership and any other partnership, joint venture, or limited liability company that is treated as a partnership for federal income tax purposes in which we acquire an interest, directly or indirectly, is treated as our assets and gross income for purposes of applying the various REIT qualification requirements.

Taxable REIT Subsidiaries. A REIT is permitted to own up to 100% of the stock of one or more “taxable REIT subsidiaries.” A taxable REIT subsidiary is a corporation subject to U.S. federal income tax, and state and local income tax where applicable, as a regular “C” corporation.  The subsidiary and the REIT must jointly elect to

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treat the subsidiary as a taxable REIT subsidiary. In addition, if a taxable REIT subsidiary owns, directly or indirectly, securities representing 35% or more of the vote or value of a subsidiary corporation, that subsidiary will also be treated as a taxable REIT subsidiary. Several provisions regarding the arrangements between a REIT and its taxable REIT subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of United States federal income taxation.   For example, the taxable REIT subsidiary rules limit the deductibility of interest paid or accrued by a taxable REIT subsidiary to its parent REIT.   Further, the rules impose a 100% excise tax on transactions between a taxable REIT subsidiary and its parent REIT or the REIT’s tenants that are not conducted on an arm’s-length basis. We may engage in activities indirectly through a taxable REIT subsidiary that would jeopardize our REIT status if we engaged in the activities directly. For example, a taxable REIT subsidiary of ours may provide services to unrelated parties which might produce income that does not qualify under the gross income tests described below. A taxable REIT subsidiary may also engage in other activities that, if conducted by us directly, could result in the receipt of non-qualified income or the ownership of non-qualified assets or the imposition of the 100% tax on income from prohibited transactions. See description below under “Prohibited Transactions.”

Gross Income Tests. We must satisfy two gross income tests annually to maintain our qualification as a REIT. First, at least 75% of our gross income for each taxable year must consist of defined types of income that we derive, directly or indirectly, from investments relating to real property or mortgages on real property or qualified temporary investment income. Qualifying income for purposes of that 75% gross income test generally includes:

·rents from real property;

·interest on debt secured by mortgages on real property or on interests in real property (including certain types of mortgage-backed securities);

·dividends or other distributions on, and gain from the sale of, shares in other REITs (excluding dividends from our taxable REIT subsidiaries);

·gain from the sale of real estate assets;

·income and gain derived from foreclosure property; and

·income derived from the temporary investment of new capital that is attributable to the issuance of our shares of beneficial interest or a public offering of our debt with a maturity date of at least five years and that we receive during the one year period beginning on the date on which we receive such new capital.

Second, in general, at least 95% of our gross income for each taxable year must consist of income that is qualifying income for purposes of the 75% gross income test, other types of interest and dividends (including dividends from our taxable REIT subsidiaries), gain from the sale or disposition of stock or securities, or any combination of these.  Gross income from our sale of property that we hold primarily for sale to customers in the ordinary course of business is excluded from both the numerator and the denominator in both income tests.   See “Prohibited Transactions.”  In addition, certain gains from hedging transactions and certain foreign currency gains will be excluded from both the numerator and the denominator for purposes of one or both of the income tests.  See Hedging Transactions,” and “Foreign Currency Gain.”

Rents from Real Property. Rent that we receive from our real property will qualify as “rents from real property,” which is qualifying income for purposes of the 75% and 95% gross income tests, only if the following conditions are met:

First, the rent must not be based in whole or in part on the income or profits of any person. Participating rent, however, will qualify as “rents from real property” if it is based on percentages of receipts or sales and the percentages are fixed at the time the leases are entered into, are not renegotiated during the term of the leases in a manner that has the effect of basing percentage rent on income or profits, and conform with normal business practice.

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Second, we must not own, actually or constructively, 10% or more of the stock of any corporate tenant or the assets or net profits of any tenant, referred to as a related party tenant, other than a taxable REIT subsidiary. The constructive ownership rules generally provide that, if 10% or more in value of our shares is owned, directly or indirectly, by or for any person, we are considered as owning the stock owned, directly or indirectly, by or for such person. We do not own any stock or any assets or net profits of any tenant directly.  However, because the constructive ownership rules are broad and it is not possible to monitor continually direct and indirect transfers of our shares, no absolute assurance can be given that such transfers or other events of which we have no knowledge will not cause us to own constructively 10% or more of a tenant (or a subtenant, in which case only rent attributable to the subtenant is disqualified) other than a taxable REIT subsidiary at some future date.

Under an exception to the related-party tenant rule described in the preceding paragraph, rent that we receive from a taxable REIT subsidiary will qualify as “rents from real property” as long as (1) at least 90% of the leased space in the property is leased to persons other than taxable REIT subsidiaries and related-party tenants, and (2) the amount paid by the taxable REIT subsidiary to rent space at the property is substantially comparable to rents paid by other tenants of the property for comparable space. The “substantially comparable” requirement must be satisfied when the lease is entered into, when it is extended, and when the lease is modified, if the modification increases the rent paid by the taxable REIT subsidiary. If the requirement that at least 90% of the leased space in the related property is rented to unrelated tenants is met when a lease is entered into, extended, or modified, such requirement will continue to be met as long as there is no increase in the space leased to any taxable REIT subsidiary or related party tenant. Any increased rent attributable to a modification of a lease with a taxable REIT subsidiary in which we own directly or indirectly more than 50% of the voting power or value of the stock (a “controlled taxable REIT subsidiary”) will not be treated as “rents from real property.”

Third, the rent attributable to the personal property leased in connection with a lease of real property must not be greater than 15% of the total rent received under the lease. The rent attributable to personal property under a lease is the amount that bears the same ratio to total rent under the lease for the taxable year as the average of the fair market values of the leased personal property at the beginning and at the end of the taxable year bears to the average of the aggregate fair market values of both the real and personal property covered by the lease at the beginning and at the end of such taxable year (the “personal property ratio”). With respect to each of our leases, we believe that the personal property ratio generally is less than 15%. Where that is not, or may in the future not be, the case, we believe that any income attributable to personal property will not jeopardize our ability to qualify as a REIT. There can be no assurance, however, that the Internal Revenue Service would not challenge our calculation of a personal property ratio, or that a court would not uphold such assertion. If such a challenge were successfully asserted, we could fail to satisfy the 75% or 95% gross income test and thus lose our REIT status.

Fourth, we cannot furnish or render non-customary services to the tenants of our properties, or manage or operate our properties, other than through an independent contractor who is adequately compensated and from whom we do not derive or receive any income. However, we need not provide services through an “independent contractor,” but instead may provide services directly to our tenants, if the services are “usually or customarily rendered” in connection with the rental of space for occupancy only and are not considered to be provided for the tenants’ convenience. In addition, we may provide a minimal amount of “non-customary” services to the tenants of a property, other than through an independent contractor, as long as our income from the services does not exceed 1% of our income from the related property. Finally, we may own up to 100% of the stock of one or more taxable REIT subsidiaries, which may provide non-customary services to our tenants without tainting our rents from the related properties. We have not performed, and do not intend to perform, any services other than customary ones for our tenants, other than services provided through independent contractors or taxable REIT subsidiaries.

Tenants may be required to pay, in addition to base rent, reimbursements for certain amounts we are obligated to pay to third parties (such as a lessee’s proportionate share of a property’s operational or capital expenses), penalties for nonpayment or late payment of rent or additions to rent. These and other similar payments should qualify as “rents from real property.” To the extent they do not, they should be treated as interest that qualifies for the 95% gross income test.

If a portion of the rent we receive from a property does not qualify as “rents from real property” because the rent attributable to personal property exceeds 15% of the total rent for a taxable year, the portion of the rent attributable to personal property will not be qualifying income for purposes of either the 75% or 95% gross income

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test. Thus, if rent attributable to personal property, plus any other income that is nonqualifying income for purposes of the 95% gross income test, during a taxable year exceeds 5% of our gross income during the year, we would lose our REIT status, unless we qualified for certain statutory relief provisions. By contrast, in the following circumstances, none of the rent from a lease of property would qualify as “rents from real property”: (1) the rent is considered based on the income or profits of the tenant; (2) the lessee is a related party tenant or fails to qualify for the exception to the related-party tenant rule for qualifying taxable REIT subsidiaries; or (3) we furnish non-customary services to the tenants of the property, or manage or operate the property, other than through a qualifying independent contractor or a taxable REIT subsidiary. In any of these circumstances, we could lose our REIT status, unless we qualified for certain statutory relief provisions, because we would be unable to satisfy either the 75% or 95% gross income test.

Interest. The term “interest” generally does not include any amount received or accrued, directly or indirectly, if the determination of the amount depends in whole or in part on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term “interest” solely because it is based on a fixed percentage or percentages of receipts or sales. Furthermore, to the extent that interest from a loan that is based on the profit or net cash proceeds from the sale of the property securing the loan constitutes a “shared appreciation provision,” income attributable to such participation feature will be treated as gain from the sale of the secured property.

Prohibited Transactions. A REIT will incur a 100% tax on the net income derived from any sale or other disposition of property, other than foreclosure property, that the REIT holds primarily for sale to customers in the ordinary course of a trade or business. Whether a REIT holds an asset “primarily for sale to customers in the ordinary course of a trade or business” depends, however, on the facts and circumstances in effect from time to time, including those related to a particular asset. A safe harbor to the characterization of the sale of property by a REIT as a prohibited transaction and the 100% prohibited transaction tax is available if the following requirements are met:

·the REIT has held the property for not less than four years (or, for sales made after July 30, 2008, two years);

·the aggregate expenditures made by the REIT, or any partner of the REIT, during the four-year period (or, for sales made after July 30, 2008, two-year period) preceding the date of the sale that are includable in the basis of the property do not exceed 30% of the selling price of the property;

·either (1) during the year in question, the REIT did not make more than seven sales of property other than foreclosure property or sales to which Section 1033 of the Code applies, (2) the aggregate adjusted bases of all such properties sold by the REIT during the year did not exceed 10% of the aggregate bases of all of the assets of the REIT at the beginning of the year or (3) for sales made after July 30, 2008, the aggregate fair market value of all such properties sold by the REIT during the year did not exceed 10% of the aggregate fair market value of all of the assets of the REIT at the beginning of the year;

·in the case of property not acquired through foreclosure or lease termination, the REIT has held the property for at least four years (or, for sales made after July 30, 2008, two years) for the production of rental income; and

·if the REIT has made more than seven sales of non-foreclosure property during the taxable year, substantially all of the marketing and development expenditures with respect to the property were made through an independent contractor from whom the REIT derives no income.

We intend to hold properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing, owning and operating properties, and to make occasional sales of properties as are consistent with our investment objective.  We cannot assure you; however, that we can comply with the safe-harbor provisions that would prevent the imposition of the 100% tax or that we will avoid owning property that may be characterized as property held “primarily for sale to customers in the ordinary course of a trade or business.” The 100% tax does not apply to gains from the sale of property that is held through a taxable REIT subsidiary or other

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taxable corporation, although such income will be subject to tax in the hands of that corporation at regular corporate tax rates. We may, therefore, form or acquire a taxable REIT subsidiary to hold and dispose of those properties we conclude may not fall within the safe-harbor provisions.

Foreclosure Property. We will be subject to tax at the maximum corporate rate on any net income from foreclosure property, other than income that otherwise would be qualifying income for purposes of the 75% gross income test.  “Foreclosure property” is any real property, including interests in real property, and any personal property incident to such real property:

·that is acquired by a REIT as the result of the REIT having bid on such property at foreclosure, or having otherwise reduced such property to ownership or possession by agreement or process of law, after there was a default or default was imminent on a lease of such property or on indebtedness that such property secured;

·for which the related loan or leased property was acquired by the REIT at a time when the default was not imminent or anticipated; and

·for which the REIT makes a proper election to treat the property as foreclosure property.

A REIT will not be considered to have foreclosed on a property where the REIT takes control of the property as a mortgagee-in-possession and cannot receive any profit or sustain any loss except as a creditor of the mortgagor. Property generally ceases to be foreclosure property at the end of the third taxable year following the taxable year in which the REIT acquired the property (or longer if an extension is granted by the Secretary of the Treasury). This period (as extended, if applicable) terminates, and foreclosure property ceases to be foreclosure property on the first day:

·on which a lease is entered into for the property that, by its terms, will give rise to income that does not qualify for purposes of the 75% gross income test, or any amount is received or accrued, directly or indirectly, pursuant to a lease entered into on or after such day that will give rise to income that does not qualify for purposes of the 75% gross income test;

·on which any construction takes place on the property, other than completion of a building or, any other improvement, where more than 10% of the construction was completed before default became imminent; or

·which is more than 90 days after the day on which the REIT acquired the property and the property is used in a trade or business which is conducted by the REIT, other than through an independent contractor from whom the REIT itself does not derive or receive any income.

Any gain from the sale of property for which a foreclosure property election has been made will not be subject to the 100% tax on gains from prohibited transactions described above, even if the property is held primarily for sale to customers in the ordinary course of a trade or business.  Income and gain from foreclosure property are qualifying income for the 75% and 95% gross income tests.

Hedging Transactions. From time to time, we enter into hedging transactions with respect to our assets or liabilities. Our hedging activities may include entering into interest rate swaps, caps, and floors, options to purchase such items, and futures and forward contracts. For hedging transactions entered into on or before July 30, 2008, income and gain from “hedging transactions” will be excluded from gross income for purposes of the 95% gross income test, but not the 75% gross income test. For hedging transactions entered into after July 30, 2008, income and gain from “hedging transactions” will be excluded from gross income for purposes of both the 75% and 95% gross income tests. A “hedging transaction” means either (1) any transaction entered into in the normal course of our trade or business primarily to manage the risk of interest rate, price changes, or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, to acquire or carry real estate assets or (2) for transactions entered into after July 30, 2008, any transaction entered into primarily to manage the risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the

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75% or 95% gross income test (or any property which generates such income or gain). We will be required to clearly identify any such hedging transaction before the close of the day on which it was acquired, originated, or entered into and to satisfy other identification requirements. No assurance can be given that our hedging activities will not give rise to income that does not qualify for purposes of either or both of the gross income tests, and will not adversely affect our ability to satisfy the REIT qualification requirements.

Foreign Currency Gain. Certain foreign currency gains recognized after July 30, 2008 will be excluded from gross income for purposes of one or both of the gross income tests. “Real estate foreign exchange gain” will be excluded from gross income for purposes of the 75% gross income test. Real estate foreign exchange gain generally includes foreign currency gain attributable to any item of income or gain that is qualifying income for purposes of the 75% gross income test, foreign currency gain attributable to the acquisition or ownership of (or becoming or being the obligor under) obligations secured by mortgages on real property or on interest in real property and certain foreign currency gain attributable to certain “qualified business units” of a REIT. “Passive foreign exchange gain” will be excluded from gross income for purposes of the 95% gross income test. Passive foreign exchange gain generally includes real estate foreign exchange gain as described above, and also includes foreign currency gain attributable to any item of income or gain that is qualifying income for purposes of the 95% gross income test and foreign currency gain attributable to the acquisition or ownership of (or becoming or being the obligor under) obligations secured by mortgages on real property or on interest in real property. Because passive foreign exchange gain includes real estate foreign exchange gain, real estate foreign exchange gain is excluded from gross income for purposes of both the 75% and 95% gross income test. These exclusions for real estate foreign exchange gain and passive foreign exchange gain do not apply to foreign currency gain derived from dealing, or engaging in substantial and regular trading, in securities. Such gain is treated as nonqualifying income for purposes of both the 75% and 95% gross income tests.

Failure to Satisfy Gross Income Tests. If we fail to satisfy one or both of the gross income tests for any taxable year, we nevertheless may qualify as a REIT for that year if we qualify for relief under certain provisions of the federal income tax laws. Those relief provisions will be available if:

·our failure to meet those tests is due to reasonable cause and not to willful neglect; and

·following such failure for any taxable year, a schedule of the sources of our income is filed with the Internal Revenue Service in accordance with regulations prescribed by the Secretary of the Treasury.

We cannot predict, however, whether any failure to meet these tests will qualify for the relief provisions. As discussed above in “Taxation of the Company as a REIT,” even if the relief provisions apply, we would incur a 100% tax on the gross income attributable to the greater of (1) the amount by which we fail the 75% gross income test, or (2) the excess of 95% of our gross income over the amount of gross income qualifying under the 95% gross income test, multiplied, in either case, by a fraction intended to reflect our profitability.

Asset Tests. To maintain our qualification as a REIT, we also must satisfy the following asset tests at the end of each quarter of each taxable year.

First, at least 75% of the value of our total assets must consist of:

·cash or cash items, including certain receivables;

·government securities;

·interests in real property, including leaseholds and options to acquire real property and leaseholds;

·interests in mortgages on real property (including certain mortgage-backed securities);

·stock in other REITs; and

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·investments in stock or debt instruments during the one year period following our receipt of new capital that we raise through equity offerings or public offerings of debt with at least a five year term.

Second, of our investments not included in the 75% asset class, the value of our interest in any one issuer’s securities may not exceed 5% of the value of our total assets, or the “5% asset test”.

Third, of our investments not included in the 75% asset class, we may not own more than 10% of the voting power or value of any one issuer’s outstanding securities, or the “10% vote test” and “10% value test”, respectively.

Fourth, no more than 20% of the value of our total assets (or, beginning with our 2009 taxable year, 25% of the value of our total assets) may consist of the securities of one or more taxable REIT subsidiaries..

For purposes of the 5% asset test, the 10% vote test and 10% value test, the term “securities” does not include stock in another REIT, equity or debt securities of a qualified REIT subsidiary or taxable REIT subsidiary, mortgage loans that constitute real estate assets, or equity interests in a partnership. The term “securities,” however, generally includes debt securities issued by a partnership or another REIT, except that for purposes of the 10% value test, the term “securities” does not include:

·“Straight debt” securities, which is defined as a written unconditional promise to pay on demand or on a specified date a sum certain in money if (i) the debt is not convertible, directly or indirectly, into stock, and (ii) the interest rate and interest payment dates are not contingent on profits, the borrower’s discretion, or similar factors. “Straight debt” securities do not include any securities issued by a partnership or a corporation in which we or any controlled taxable REIT subsidiary hold non-”straight debt” securities that have an aggregate value of more than 1% of the issuer’s outstanding securities. However, “straight debt” securities include debt subject to the following contingencies: (1) a contingency relating to the time of payment of interest or principal, as long as either (i) there is no change to the effective yield of the debt obligation, other than a change to the annual yield that does not exceed the greater of 0.25% or 5% of the annual yield, or (ii) neither the aggregate issue price nor the aggregate face amount of the issuer’s debt obligations held by us exceeds $1 million and no more than 12 months of unaccrued interest on the debt obligations can be required to be prepaid; and (2) a contingency relating to the time or amount of payment upon a default or prepayment of a debt obligation, as long as the contingency is consistent with customary commercial practice.

·Any loan to an individual or an estate.

·Any “section 467 rental agreement,” other than an agreement with a related party tenant.

·Any obligation to pay “rents from real property.”

·Certain securities issued by governmental entities.

·Any security issued by a REIT.

·Any debt instrument issued by an entity treated as a partnership for federal income tax purposes in which we are a partner to the extent of our proportionate interest in the debt and equity securities of the partnership.

·Any debt instrument issued by an entity treated as a partnership for federal income tax purposes not described in the preceding bullet points if at least 75% of the partnership’s gross income, excluding income from prohibited transactions, is qualifying income for purposes of the 75% gross income test described above in “Requirements for Qualification—Gross Income Tests.” For purposes of the 10% value test, our proportionate share of the assets of a partnership is our

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proportionate interest in any securities issued by the partnership, without regard to the securities described in the last two bullet points above.

Failure to Satisfy Asset Tests.  We will monitor the status of our assets for purposes of the various asset tests and will manage our portfolio in order to comply at all times with such tests. If we fail to satisfy the asset tests at the end of a calendar quarter, we would not lose our REIT status if:

·we satisfied the asset tests at the end of the preceding calendar quarter; and

·the discrepancy between the value of our assets and the asset test requirements arose from changes in the market values of our assets and was not wholly or partly caused by the acquisition of one or more non-qualifying assets.

If the failure to satisfy the asset tests results from an acquisition of securities or other property during a quarter, the failure can be cured by disposition of sufficient nonqualifying assets within 30 days after the close of that quarter.  We intend to maintain adequate records of the value of our assets to ensure compliance with the asset tests, and to take such other action within 30 days after the close of any quarter as may be required to cure any noncompliance.  However, there can be no assurance that such other action will always be successful.  If we fail to cure any noncompliance with the asset tests within such time period, our status as a REIT would be lost.

In the event that, at the end of any calendar quarter, we violate the 5% asset test, the 10% vote test or the 10% value test described above, we will not lose our REIT status if (i) the failure is de minimis (up to the lesser of 1% of our assets or $10 million) and (ii) we dispose of assets or otherwise comply with the asset tests within six months after the last day of the quarter in which we identify such failure. In the event the failure to meet the asset test is more than de minimis, we will not lose our REIT status if (i) the failure was due to reasonable cause and not to willful neglect, (ii) we file a description of each asset causing the failure with the Internal Revenue Service, (iii) we dispose of assets or otherwise comply with the asset tests within six months after the last day of the quarter in which we identify the failure, and (iv) we pay a tax equal to the greater of $50,000 or 35% of the net income from the nonqualifying assets during the period in which we failed to satisfy the asset tests.

Annual Distribution Requirements. Each taxable year, we must distribute dividends, other than capital gain dividends and deemed distributions of retained capital gain, to our shareholders in an aggregate amount not less than the sum of

·90% of our “REIT taxable income,” computed without regard to the dividends paid deduction and our net capital gain or loss, and

·90% of our after-tax net income, if any, from foreclosure property, minus

·the sum of certain items of non-cash income.

Generally, we must pay such distributions in the taxable year to which they relate, or in the following taxable year if either (a) we declare the distribution before we timely file our federal income tax return for the year and pay the distribution on or before the first regular dividend payment date after such declaration or (b) we declare the distribution in October, November, or December of the taxable year, payable to shareholders of record on a specified day in any such month, and we actually pay the dividend before the end of January of the following year. In both instances, these distributions relate to our prior taxable year for purposes of the 90% distribution requirement.

In order for distributions to be counted towards our distribution requirement, and to provide a tax deduction to us, they must not be “preferential dividends.” A dividend is not a preferential dividend if it is pro rata among all outstanding shares within a particular class, and is in accordance with the preferences among our different classes of shares as set forth in our organizational documents.

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To the extent that we distribute at least 90%, but less than 100%, of our net taxable income, we will be subject to tax at ordinary corporate tax rates on the retained portion. In addition, we may elect to retain, rather than distribute, our net long-term capital gains and pay tax on such gains. In this case, we would elect to have our shareholders include their proportionate share of such undistributed long-term capital gains in their income and receive a corresponding credit for their proportionate share of the tax paid by us. Our shareholders would then increase their adjusted basis in our shares by the difference between the amount included in their long-term capital gains and the tax deemed paid with respect to their shares.

If we fail to distribute during a calendar year, or by the end of January of the following calendar year in the case of distributions with declaration and record dates falling in the last three months of the calendar year, at least the sum of:

·85% of our REIT ordinary income for the year,

·95% of our REIT capital gain income for the year, and

·any undistributed taxable income from prior periods, we will incur a 4% nondeductible excise tax on the excess of such required distribution over the amounts we actually distributed. If we so elect, we will be treated as having distributed any such retained amount for purposes of the 4% nondeductible excise tax described above.

It is possible that, from time to time, we may experience timing differences between the actual receipt of income and actual payment of deductible expenses and the inclusion of that income and deduction of such expenses in arriving at our REIT taxable income. For example, because we may deduct capital losses only to the extent of our capital gains, our REIT taxable income may exceed our economic income.   Further, it is possible that, from time to time, we may be allocated a share of net capital gain from a partnership in which we own an interest attributable to the sale of depreciated property that exceeds our allocable share of cash attributable to that sale. Although several types of non-cash income are excluded in determining the annual distribution requirement, we will incur corporate income tax and the 4% nondeductible excise tax with respect to those non-cash income items if we do not distribute those items on a current basis. As a result of the foregoing, we may have less cash than is necessary to distribute all of our taxable income and thereby avoid corporate income tax and the 4% nondeductible excise tax imposed on certain undistributed income. In such a situation, we may issue additional common or preferred shares, we may borrow or may cause the operating partnership to arrange for short-term or possibly long-term borrowing to permit the payment of required distributions, or we may pay dividends in the form of taxable in-kind distributions of property, including potentially, our shares.

Under certain circumstances, we may be able to correct a failure to meet the distribution requirement for a year by paying “deficiency dividends” to our shareholders in a later year. We may include such deficiency dividends in our deduction for dividends paid for the earlier year. Although we may be able to avoid income tax on amounts distributed as deficiency dividends, we will be required to pay interest to the Internal Revenue Service based upon the amount of any deduction we take for deficiency dividends.

Recordkeeping Requirements. We must maintain certain records in order to qualify as a REIT. In addition, to avoid paying a penalty, we must request on an annual basis information from our shareholders designed to disclose the actual ownership of our outstanding common shares.

Failure to Qualify. If we were to fail to qualify as a REIT in any taxable year and no relief provision applied, we would have the following consequences: We would be subject to federal income tax and any applicable alternative minimum tax at regular corporate rates applicable to regular C corporations on our taxable income, determined without reduction for amounts distributed to shareholders. We would not be required to make any distributions to shareholders. Unless we qualified for relief under specific statutory provisions, we would not be permitted to elect taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT.

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If we fail to satisfy one or more requirements for REIT qualification, other than the gross income tests and the asset tests, we could avoid disqualification if our failure is due to reasonable cause and not to willful neglect and we pay a penalty of $50,000 for each such failure. In addition, there are relief provisions for a failure of the gross income tests and asset tests, as described in “Requirements for Qualification — Gross Income Tests” and “Requirements for Qualification — Asset Tests.” It is not possible to state whether in all circumstances the Company would be entitled to such statutory relief.

State and Local Taxes. We may be subject to taxation by various states and localities, including those in which we transact business or own property. The state and local tax treatment in such jurisdictions may differ from the federal income tax treatment described above.

Tax Aspects of Investments in the Operating Partnership and Subsidiary Partnerships

Tax Aspects of Our Investments in the Operating Partnership. The following discussion summarizes certain federal income tax considerations applicable to our direct or indirect investment in our operating partnership and any subsidiary partnerships or limited liability companies we form or acquire that are treated as partnerships for federal income tax purposes, each individually referred to as a “Partnership” and, collectively, as “Partnerships.” The following discussion does not address state or local tax laws or any federal tax laws other than income tax laws.

Classification as Partnerships. We are required to include in our income our distributive share of each Partnership’s income and to deduct our distributive share of each Partnership’s losses but only if such Partnership is classified for federal income tax purposes as a partnership (or an entity that is disregarded for federal income tax purposes if the entity has only one owner or member), rather than as a corporation or an association taxable as a corporation.

An organization with at least two owners or members will be classified as a partnership, rather than as a corporation, for federal income tax purposes if it:

·is treated as a partnership under the Treasury regulations relating to entity classification (the “check-the-box regulations”); and

·is not a “publicly traded” partnership.

Under the check-the-box regulations, an unincorporated entity with at least two owners or members may elect to be classified either as an association taxable as a corporation or as a partnership. If such an entity does not make an election, it generally will be treated as a partnership for federal income tax purposes. We intend that each Partnership will be classified as a partnership for federal income tax purposes (or else a disregarded entity where there are not at least two separate beneficial owners).

A publicly traded partnership is a partnership whose interests are traded on an established securities market or are readily tradable on a secondary market (or a substantial equivalent). A publicly traded partnership is generally treated as a corporation for federal income tax purposes, but will not be so treated if, for each taxable year beginning after December 31, 1987 in which it was classified as a publicly traded partnership, at least 90% of the partnership’s gross income consisted of specified passive income, including real property rents (which includes rents that would be qualifying income for purposes of the 75% gross income test, with certain modifications that make it easier for the rents to qualify for the 90% passive income exception), gains from the sale or other disposition of real property, interest, and dividends (the “90% passive income exception”).

Treasury regulations, referred to as PTP regulations, provide limited safe harbors from treatment as a publicly traded partnership. Pursuant to one of those safe harbors (the “private placement exclusion”), interests in a partnership will not be treated as readily tradable on a secondary market or the substantial equivalent thereof if (1) all interests in the partnership were issued in a transaction or transactions that were not required to be registered under the Securities Act of 1933, as amended, and (2) the partnership does not have more than 100 partners at any time during the partnership’s taxable year. For the determination of the number of partners in a partnership, a person owning an interest in a partnership, grantor trust, or S corporation that owns an interest in the partnership is treated

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as a partner in the partnership only if (1) substantially all of the value of the owner’s interest in the entity is attributable to the entity’s direct or indirect interest in the partnership and (2) a principal purpose of the use of the entity is to permit the partnership to satisfy the 100-partner limitation. The Company believes that each Partnership should qualify for the private placement exclusion.

We have not requested, and do not intend to request, a ruling from the Internal Revenue Service that the Partnerships will be classified as partnerships (or disregarded entities, if the entity has only one owner or member) for federal income tax purposes.  If for any reason a Partnership were taxable as a corporation, rather than as a partnership, for federal income tax purposes, we may not be able to qualify as a REIT, unless we qualify for certain relief provisions. See “Requirements for Qualification — Gross Income Tests” and “Requirements for Qualification — Asset Tests.” In addition, any change in a Partnership’s status for tax purposes might be treated as a taxable event, in which case we might incur tax liability without any related cash distribution. See “Requirements for Qualification — Annual Distribution Requirements.” Further, items of income and deduction of such Partnership would not pass through to its partners, and its partners would be treated as shareholders for tax purposes. Consequently, such Partnership would be required to pay income tax at corporate rates on its net income, and distributions to its partners would constitute dividends that would not be deductible in computing such Partnership’s taxable income.

Partners, Not the Partnerships, Subject to Tax. A partnership is not a taxable entity for federal income tax purposes. We will therefore take into account our allocable share of each Partnership’s income, gains, losses, deductions, and credits for each taxable year of the Partnership ending with or within our taxable year, even if we receive no distribution from the Partnership for that year or a distribution less than our share of taxable income. Similarly, even if we receive a distribution, it may not be taxable if the distribution does not exceed our adjusted tax basis in our interest in the Partnership.

Partnership Allocations. Although a partnership agreement generally will determine the allocation of income and losses among partners, allocations will be disregarded for tax purposes if they do not comply with the provisions of the federal income tax laws governing partnership allocations. If an allocation is not recognized for federal income tax purposes, the item subject to the allocation will be reallocated in accordance with the partners’ interests in the partnership, which will be determined by taking into account all of the facts and circumstances relating to the economic arrangement of the partners with respect to such item.

Tax Allocations With Respect to Contributed Properties. Income, gain, loss, and deduction attributable to (a) appreciated or depreciated property that is contributed to a partnership in exchange for an interest in the partnership or (b) property revalued on the books of a partnership must be allocated in a manner such that the contributing partner is charged with, or benefits from, respectively, the unrealized gain or unrealized loss associated with the property at the time of the contribution. The amount of such unrealized gain or unrealized loss, referred to as “built-in gain” or “built-in loss,” is generally equal to the difference between the fair market value of the contributed or revalued property at the time of contribution or revaluation and the adjusted tax basis of such property at that time, referred to as a book-tax difference. Such allocations are solely for federal income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the partners. The U.S. Treasury Department has issued regulations requiring partnerships to use a “reasonable method” for allocating items with respect to which there is a book-tax difference and outlining several reasonable allocation methods. Unless we, as general partner, select a different method, our operating partnership will use the traditional method for allocating items with respect to which there is a book-tax difference.  Depending upon the method chosen, (1) our tax depreciation deductions attributable to those properties may be lower than they would have been if the partnership had acquired those properties for cash and (2) in the event of a sale of such properties, we could be allocated gain in excess of our corresponding economic or book gain.  These allocations may cause us to recognize taxable income in excess of cash proceeds received by us, which might adversely affect our ability to comply with the REIT distribution requirements or result in our shareholders recognizing additional dividend income without an increase in distributions.

Depreciation.  Some assets in our Partnerships include appreciated property contributed by its partners.  Assets contributed to a Partnership in a tax-free transaction generally retain the same depreciation method and recovery period as they had in the hands of the partner who contributed them to the partnership.  Accordingly, the

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Partnership’s depreciation deductions for such contributed real property are based on the historic tax depreciation schedules for the properties prior to their contribution to the operating partnership.

Basis in Partnership Interest. Our adjusted tax basis in any partnership interest we own generally will be:

·the amount of cash and the basis of any other property we contribute to the partnership;

·increased by our allocable share of the partnership’s income (including tax-exempt income) and our allocable share of indebtedness of the partnership; and

·reduced, but not below zero, by our allocable share of the partnership’s loss (excluding any non-deductible items), the amount of cash and the basis of property distributed to us, and constructive distributions resulting from a reduction in our share of indebtedness of the partnership.

Loss allocated to us in excess of our basis in a partnership interest will not be taken into account until we again have basis sufficient to absorb the loss. A reduction of our share of partnership indebtedness will be treated as a constructive cash distribution to us, and will reduce our adjusted tax basis. Distributions, including constructive distributions, in excess of the basis of our partnership interest will constitute taxable income to us. Such distributions and constructive distributions normally will be characterized as long-term capital gain.

Sale of a Partnership’s Property. Generally, any gain realized by a Partnership on the sale of property held for more than one year will be long-term capital gain, except for any portion of the gain treated as depreciation or cost recovery recapture. Any gain or loss recognized by a Partnership on the disposition of contributed or revalued properties will be allocated first to the partners who contributed the properties or who were partners at the time of revaluation, to the extent of their built-in gain or loss on those properties for federal income tax purposes. The partners’ built-in gain or loss on contributed or revalued properties is the difference between the partners’ proportionate share of the book value of those properties and the partners’ tax basis allocable to those properties at the time of the contribution or revaluation. Any remaining gain or loss recognized by the Partnership on the disposition of contributed or revalued properties, and any gain or loss recognized by the Partnership on the disposition of other properties, will be allocated among the partners in accordance with their percentage interests in the Partnership.

Our share of any Partnership gain from the sale of inventory or other property held primarily for sale to customers in the ordinary course of the Partnership’s trade or business will be treated as income from a prohibited transaction subject to a 100% tax. Income from a prohibited transaction may have an adverse effect on our ability to satisfy the gross income tests for REIT status. See “Requirements for Qualification — Gross Income Tests.” We do not presently intend to acquire or hold, or to allow any Partnership to acquire or hold, any property that is likely to be treated as inventory or property held primarily for sale to customers in the ordinary course of our, or the Partnership’s, trade or business.

Taxation of Taxable U.S. Shareholders

The term “U.S. shareholder” means a holder of the common shares that, for U.S. federal income tax purposes, is:

·a citizen or resident of the United States;

·a corporation (including an entity treated as a corporation for federal income tax purposes) created or organized under the laws of the United States, any of its states or the District of Columbia;

·an estate whose income is subject to U.S. federal income taxation regardless of its source; or

·any trust if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a U.S. person.

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If a partnership, entity or arrangement treated as a partnership for federal income tax purposes holds our common shares, the federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. If you are a partner in a partnership holding our common shares, you should consult your tax advisor regarding the consequences of the ownership and disposition of our common shares by the partnership

Taxation of U.S. Shareholders on Distributions.  As long as we qualify as a REIT, a taxable “U.S. shareholder” will be required to take into account as ordinary income distributions made out of our current or accumulated earnings and profits that we do not designate as capital gain dividends or retained long-term capital gain. A U.S. shareholder will not qualify for the dividends-received deduction generally available to corporations. Dividends paid to a U.S. shareholder generally will not qualify for the 15% tax rate for “qualified dividend income.” Legislation enacted in 2003 and 2006 reduced the maximum tax rate for qualified dividend income to 15% for tax years 2003 through 2010. Without future congressional action, in 2011 the maximum tax rate on qualified dividend income will revert to the rate then applicable to ordinary income. Qualified dividend income generally includes dividends paid by domestic C corporations and certain qualified foreign corporations to most noncorporate U.S. shareholders. Because a REIT is not generally subject to federal income tax on the portion of its REIT taxable income distributed to its shareholders, our dividends generally will not be eligible for the 15% rate on qualified dividend income. As a result, our ordinary REIT dividends will be taxed at the higher rate applicable to ordinary income. Currently, the highest marginal individual income tax rate on ordinary income is 35%. However, the 15% tax rate for qualified dividend income will apply to our ordinary REIT dividends, if any, that are (i) attributable to dividends received by us from non-REIT corporations, such as our taxable REIT subsidiaries, and (ii) attributable to income upon which we have paid corporate income tax (e.g., to the extent that we distribute less than 100% of our taxable income). In general, to qualify for the reduced tax rate on qualified dividend income, a U.S. shareholder must hold our common shares for more than 60 days during the 121-day period beginning on the date that is 60 days before the date on which our common shares becomes ex-dividend.

We may distribute taxable dividends that are a payable partly in cash and partly in shares of our common stock.  Taxable U.S. shareholders receiving such dividends will be required to include the full amount of the dividends as ordinary income to the extent of our current and accumulated earnings and profits.

Any distribution we declare in October, November, or December of any year that is payable to a U.S. shareholder of record on a specified date in any of those months will be treated as paid by us and received by the U.S. shareholder on December 31 of the year, provided we actually pay the distribution during January of the following calendar year.

Distributions to a U.S. shareholder which we designate as capital gain dividends will generally be treated as long-term capital gain, without regard to the period for which the U.S. shareholder has held its common shares. We generally will designate our capital gain dividends as either 15% or 25% rate distributions. Without future congressional action, in 2011 the maximum tax rate on capital gain dividends will revert to 20%.  A corporate U.S. shareholder, however, may be required to treat up to 20% of certain capital gain dividends as ordinary income.

We may elect to retain and pay income tax on the net long-term capital gain that we receive in a taxable year. In that case, a U.S. shareholder would be taxed on its proportionate share of our undistributed long-term capital gain. The U.S. shareholder would receive a credit or refund for its proportionate share of the tax we paid. The U.S. shareholder would increase the basis in its common shares by the amount of its proportionate share of our undistributed long-term capital gain, minus its share of the tax we paid.

A U.S. shareholder will not incur tax on a distribution in excess of our current and accumulated earnings and profits if the distribution does not exceed the adjusted basis of the U.S. shareholder’s common shares. Instead, the distribution will reduce the adjusted basis of the shares, and any amount in excess of both our current and accumulated earnings and profits and the adjusted basis will be treated as capital gain, long-term if the shares have been held for more than one year, provided the shares are a capital asset in the hands of the U.S. shareholder.

Shareholders may not include in their individual income tax returns any of our net operating losses or capital losses. Instead, these losses are generally carried over by us for potential offset against our future income. Taxable distributions from us and gain from the disposition of common shares will not be treated as passive activity

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income; and, therefore, shareholders generally will not be able to apply any “passive activity losses,” such as losses from certain types of limited partnerships in which the shareholder is a limited partner, against such income. In addition, taxable distributions from us and gain from the disposition of common shares generally will be treated as investment income for purposes of the investment interest limitations. We will notify shareholders after the close of our taxable year as to the portions of the distributions attributable to that year that constitute ordinary income, return of capital, and capital gain.

Taxation of U.S. Shareholders on the Disposition of Common Shares. In general, a U.S. shareholder who is not a dealer in securities must treat any gain or loss realized upon a taxable disposition of our common shares as long-term capital gain or loss if the U.S. shareholder has held the shares for more than one year, and otherwise as short-term capital gain or loss. In general, a U.S. shareholder will realize gain or loss in an amount equal to the difference between the sum of the fair market value of any property and the amount of cash received in such disposition and the U.S. shareholder’s adjusted tax basis. A U.S. shareholder’s adjusted tax basis generally will equal the U.S. shareholder’s acquisition cost, increased by the excess of net capital gains deemed distributed to the U.S. shareholder less tax deemed paid by it and reduced by any returns of capital. However, a U.S. shareholder must treat any loss upon a sale or exchange of common shares held by such shareholder for six months or less as a long-term capital loss to the extent of capital gain dividends and any actual or deemed distributions from us that such U.S. shareholder treats as long-term capital gain. All or a portion of any loss that a U.S. shareholder realizes upon a taxable disposition of common shares may be disallowed if the U.S. shareholder purchases other common shares within 30 days before or after the disposition.

If a U.S. shareholder recognizes a loss upon a subsequent disposition of our shares in an amount that exceeds a prescribed threshold, it is possible that the provisions of Treasury Regulations involving “reportable transactions” could apply, with a resulting requirement to separately disclose the loss generating transactions to the IRS. While these regulations are directed towards “tax shelters,” they are written broadly, and apply to transactions that would not typically be considered tax shelters. Significant penalties apply for failure to comply with these requirements. You should consult your tax advisors concerning any possible disclosure obligation with respect to the receipt or disposition of our shares, or transactions that might be undertaken directly or indirectly by us. Moreover, you should be aware that we and other participants in transactions involving us (including our advisors) might be subject to disclosure or other requirements pursuant to these regulations.

The tax-rate differential between capital gain and ordinary income for non-corporate taxpayers may be significant. A taxpayer generally must hold a capital asset for more than one year for gain or loss derived from its sale or exchange to be treated as long-term capital gain or loss. The highest marginal individual income tax rate is currently 35% (which rate will apply for the period through December 31, 2010). The maximum tax rate on long-term capital gain applicable to U.S. shareholders taxed at individual rates is 15% through December 31, 2010. Without future congressional action, in 2011 the maximum tax rate on long term capital gains will revert to 20%.  The maximum tax rate on long-term capital gain from the sale or exchange of “section 1250 property” (i.e., generally, depreciable real property) is 25% to the extent the gain would have been treated as ordinary income if the property were “section 1245 property” (i.e., generally, depreciable personal property). We generally may designate whether a distribution we designate as capital gain dividends (and any retained capital gain that we are deemed to distribute) is taxable to non-corporate shareholders at a 15% or 25% rate. The characterization of income as capital gain or ordinary income may affect the deductibility of capital losses. A non-corporate taxpayer may deduct capital losses not offset by capital gains against its ordinary income only up to a maximum of $3,000 annually. A non-corporate taxpayer may carry unused capital losses forward indefinitely. A corporate taxpayer must pay tax on its net capital gain at corporate ordinary-income rates. A corporate taxpayer may deduct capital losses only to the extent of capital gains, with unused losses carried back three years and forward five years.

New Health Care Legislation

On March 30, 2010, the President signed into law the Health Care and Reconciliation Act of 2010 (the “Reconciliation Act”).  The Reconciliation Act will require certain U.S. Shareholders who are individuals, estates or trusts and whose income exceeds certain thresholds to pay a 3.8% Medicare tax on, among other things, dividends on and capital gains from the sale or other disposition of shares, subject to certain exceptions.  This tax will apply for taxable years beginning after December 31, 2012.  U.S. shareholders should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of our common shares

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Information Reporting Requirements and Backup Withholding. We will report to our shareholders and to the Internal Revenue Service the amount of distributions we pay during each calendar year and the amount of tax we withhold, if any. A shareholder may be subject to backup withholding at a rate of up to 28% with respect to distributions unless the holder:

·is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact; or

·provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with the applicable requirements of the backup withholding rules.

A shareholder who does not provide us with its correct taxpayer identification number also may be subject to penalties imposed by the Internal Revenue Service.  In addition, we may be required to withhold a portion of capital gain distributions to any shareholders who fail to certify their non-foreign status to us. Backup withholding is not an additional tax.  Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against the shareholder’s income tax liability, provided the required information is furnished to the Internal Revenue Service.

Taxation of Tax-Exempt Shareholders

Tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts and annuities, generally are exempt from federal income taxation. However, they are subject to taxation on their “unrelated business taxable income.” While many investments in real estate generate unrelated business taxable income, the Internal Revenue Service has issued a ruling that dividend distributions from a REIT to an exempt employee pension trust do not constitute unrelated business taxable income so long as the exempt employee pension trust does not otherwise use the shares of the REIT in an unrelated trade or business of the pension trust. Based on that ruling, amounts we distribute to tax-exempt shareholders generally should not constitute unrelated business taxable income. However, if a tax-exempt shareholder were to finance its acquisition of common shares with debt, a portion of the income it received from us would constitute unrelated business taxable income pursuant to the “debt-financed property” rules. Furthermore, social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans that are exempt from taxation under special provisions of the federal income tax laws are subject to different unrelated business taxable income rules, which generally will require them to characterize distributions they receive from us as unrelated business taxable income.

In certain circumstances, a qualified employee pension or profit-sharing trust that owns more than 10% of our shares of beneficial interest (by value) must treat a percentage of the dividends it receives from us as unrelated business taxable income. Such percentage is equal to the gross income we derive from an unrelated trade or business, determined as if we were a pension trust, divided by our total gross income for the year in which we pay the dividends. This rule applies to a pension trust holding more than 10% of our shares only if:

·the percentage of our dividends which the tax-exempt trust must treat as unrelated business taxable income is at least 5%;

·we are a “pension-held REIT, that is, we qualify as a REIT by reason of the modification of the rule requiring that no more than 50% of our shares of beneficial interest be owned by five or fewer individuals that allows the beneficiaries of the pension trust to be treated as holding our shares in proportion to their actuarial interests in the pension trust; and either: (i) one pension trust owns more than 25% of the value of our shares of beneficial interest; or (ii)  one or more pension trusts each individually holding more than 10% of the value of our shares of beneficial interest collectively owns more than 50% of the value of our shares of beneficial interest.

Certain restrictions on ownership and transfer of our shares should generally prevent a tax-exempt entity from owning more than 10% of the value of our shares, or us from becoming a pension-held REIT.

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Tax-exempt U.S. shareholders are urged to consult their tax advisor regarding the U.S. federal, state, local and foreign tax consequences of the acquisition, ownership and disposition of our shares.

Taxation of Non-U.S. Shareholders

The term “non-U.S. shareholder” means a holder of our common shares that is not a U.S. shareholder or a partnership (or an entity treated as a partnership for federal income tax purposes). The rules governing U.S. federal income taxation of non-U.S. shareholders are complex. This section is only a summary of such rules. We urge non-U.S. shareholders to consult their own tax advisors to determine the impact of federal, state, local and foreign income tax laws on ownership of common shares, including any reporting requirements.

Taxation of Distributions.  A non-U.S. shareholder that receives a distribution which is not attributable to gain from our sale or exchange of a “United States real property interest” (“USRPI”) (discussed below) and that we do not designate a capital gain dividend or retained capital gain will recognize ordinary income to the extent that we pay such distribution out of our current or accumulated earnings and profits. A withholding tax equal to 30% of the gross amount of the distribution ordinarily will apply unless an applicable tax treaty reduces or eliminates the tax. However, a non-U.S. shareholder generally will be subject to federal income tax at graduated rates on any distribution treated as effectively connected with the non-U.S. shareholder’s conduct of a U.S. trade or business, in the same manner as U.S. shareholders are taxed on distributions. A corporate non-U.S. shareholder may, in addition, be subject to the 30% branch profits tax with respect to that distribution. We plan to withhold U.S. income tax at the rate of 30% on the gross amount of any distribution paid to a non-U.S. shareholder unless either:

·a lower treaty rate applies and the non-U.S. shareholder files an IRS Form W-8BEN evidencing eligibility for that reduced rate with us; or

·the non-U.S. shareholder files an IRS Form W-8ECI with us claiming that the distribution is effectively connected income.

A non-U.S. shareholder will not incur tax on a distribution in excess of our current and accumulated earnings and profits if the excess portion of such distribution does not exceed the adjusted basis of its common shares. Instead, the excess portion of the distribution will reduce the adjusted basis of such shares. A non-U.S. shareholder will be subject to tax on a distribution that exceeds both our current and accumulated earnings and profits and the adjusted basis of its shares, if the non-U.S. shareholder otherwise would be subject to tax on gain from the sale or disposition of common shares, as described below. Because we generally cannot determine at the time we make a distribution whether the distribution will exceed our current and accumulated earnings and profits, we normally will withhold tax on the entire amount of any distribution at the same rate as we would withhold on a dividend. However, a non-U.S. shareholder may obtain a refund of amounts we withhold if we later determine that a distribution in fact exceeded our current and accumulated earnings and profits.

We may be required to withhold 10% of any distribution that exceeds our current and accumulated earnings and profits. Consequently, although we intend to withhold at a rate of 30% on the entire amount of any distribution, to the extent we do not do so, we may withhold at a rate of 10% on any portion of a distribution not subject to withholding at a rate of 30%.

For any year in which we qualify as a REIT, except as discussed below with respect to 5% or less holders of regularly traded classes of shares, a non-U.S. shareholder will incur tax on distributions attributable to gain from our sale or exchange of a USRPI under the Foreign Investment in Real Property Tax Act of 1980, or “FIRPTA”. A USRPI includes certain interests in real property and shares in corporations at least 50% of whose assets consist of interests in real property. Under FIRPTA, a non-U.S. shareholder is taxed on distributions attributable to gain from sales of USRPIs as if the gain were effectively connected with the conduct of a U.S. business of the non-U.S. shareholder. A non-U.S. shareholder would be taxed on such a distribution at the normal capital gain rates applicable to U.S. shareholders, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of a nonresident alien individual. A non-U.S. corporate shareholder not entitled to treaty relief or exemption also may be subject to the 30% branch profits tax on such a distribution. We must withhold 35% of any

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distribution that we could designate as a capital gain dividend. A non-U.S. shareholder may receive a credit against our tax liability for the amount we withhold.

Capital gain distributions to the holders of our common shares that are attributable to our sale of real property will be treated as ordinary dividends rather than as gain from the sale of a USRPI, as long as (i) our common shares continue to be “regularly traded” on an established securities market in the United States and (ii) the non-U.S. shareholder did not own more than 5% of our common shares any time during the one-year period prior to the distribution. As a result, non-U.S. shareholders owning 5% or less of our common shares generally would be subject to withholding tax on such capital gain distributions in the same manner as they are subject to withholding tax on ordinary dividends. If our common shares cease to be regularly traded on an established securities market in the United States or the non-U.S. shareholder owned more than 5% of our common shares any time during the one-year period prior to the distribution, capital gain distributions that are attributable to our sale of real property would be subject to tax under FIRPTA, as described in the preceding paragraph.

Taxation of Disposition of Shares.  A non-U.S. shareholder generally will not incur tax under FIRPTA with respect to gain on a sale of common shares as long as we are a “domestically-controlled REIT,” which means that at all times non-U.S. persons hold, directly or indirectly, less than 50% in value of the outstanding common shares. We cannot assure you that this test will be met. Further, even if we are a domestically controlled REIT, pursuant to “wash sale” rules under FIRPTA, a non-U.S. shareholder may incur tax under FIRPTA.  The “wash sale” rule applies to the extent such non-U.S. shareholder disposes of our shares during the 30-day period preceding a dividend payment, and such non-U.S. shareholder (or a person related to such non-U.S. shareholder) acquires or enters into a contract or option to acquire our common shares within 61 days of the 1st day of the 30 day period described above, and any portion of such dividend payment would, but for the disposition, be treated as a USRPI capital gain to such non-U.S. shareholder, then such non-U.S. shareholder shall be treated as having USRPI capital gain in an amount that, but for the disposition, would have been treated as USRPI capital gain.

In addition, a non-U.S. shareholder that owned, actually or constructively, 5% or less of the outstanding common shares at all times during a specified testing period will not incur tax under FIRPTA on gain from a sale of common shares if the shares are “regularly traded” on an established securities market. Because our common shares are “regularly traded” on an established securities market, we expect that a non-U.S. shareholder generally will not incur tax under FIRPTA on gain from a sale of common shares unless it owns or has owned more than 5% of the common shares at any time during the five year period to such sale. Any gain subject to tax under FIRPTA will be treated in the same manner as it would be in the hands of U.S. shareholders, subject to alternative minimum tax, but under a special alternative minimum tax in the case of nonresident alien individuals, and the purchaser of the shares could be required to withhold 10% of the purchase price and remit such amount to the Internal Revenue Service.

A non-U.S. shareholder generally will incur tax on gain not subject to FIRPTA if:

·the gain is effectively connected with the conduct of the non-U.S. shareholder’s U.S. trade or business, in which case the non-U.S. shareholder will be subject to the same treatment as U.S. shareholders with respect to the gain; or

·the non-U.S. shareholder is a nonresident alien individual who was present in the U.S. for 183 days or more during the taxable year and has a “tax home” in the United States, in which case the non-U.S. shareholder will incur a 30% tax on capital gains.

Information Reporting and Backup Withholding Applicable to non-U.S. Shareholders.  We must report annually to the IRS and to each non-U.S. shareholder the amount of dividends paid to such holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the non-U.S. shareholder resides under the provisions of an applicable income tax treaty.

Payments of dividends or of proceeds from the disposition of stock made to a non-U.S. shareholder may be subject to information reporting and backup withholding unless such holder establishes an exemption, for example, by properly certifying its non-United States status on an IRS Form W-8 BEN or another appropriate version of IRS

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Form W-8. Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that a non-U.S. shareholder is a United States person.

Backup withholding is not an additional tax.  Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against the shareholder’s income tax liability, provided the required information is furnished to the Internal Revenue Service.

New Legislation Relating to Foreign Accounts

On March 18, 2010 the President signed into law the Hiring Incentives to Restore Employment Act (the “HIRE Act”).  The HIRE act may impose withholding taxes on certain types of payments made to “foreign financial institutions and “non-financial foreign entities” (as defined under these rules). The legislation imposes a 30% withholding tax on dividends on, or gross proceeds from the sale or other disposition of, our common shares paid to a foreign financial institution or to a non-financial foreign entity, unless (i) the foreign financial institution undertakes certain diligence and reporting obligations with respect to certain U.S. account holders or (ii) the non-financial foreign entity either certifies it does not have any substantial U.S. owners or furnishes identifying information regarding each substantial U.S. owner. If the payee is a foreign financial institution, it must enter into an agreement with the United States Treasury requiring, among other things, that it undertake to identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to account holders whose actions prevent it from complying with these reporting and other requirements. The legislation would apply to payments made after December 31, 2012. Prospective investors should consult their tax advisors regarding the possible implications of this legislation on their investment in our common shares.

Legislative or Other Actions Affecting REITs

The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. No assurance can be given as to whether, when, or in what form, the U.S. federal income tax laws applicable to us and our shareholders may be enacted. Changes to the U.S. federal tax laws and interpretations of U.S. federal tax laws could adversely affect an investment in our shares.

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