Annual report pursuant to Section 13 and 15(d)

Investment in Joint Ventures

v3.8.0.1
Investment in Joint Ventures
12 Months Ended
Dec. 31, 2017
Equity Method Investments And Joint Ventures [Abstract]  
Investment in Joint Ventures

11. INVESTMENT IN JOINT VENTURES

A summary of the Company’s unconsolidated joint ventures is as follows:

 

Venture

 

Number of

Properties

 

 

Company

common

ownership

interest

 

 

Carrying value

of investment

at Dec. 31, 2017

 

Carrying value

of investment

at Dec. 31, 2016

Sovran HHF Storage Holdings LLC (“Sovran HHF”)1

 

 

57

 

 

20%

 

 

$85.1 million

 

$43.8 million

Sovran HHF Storage Holdings II LLC (“Sovran HHF II”)2

 

 

30

 

 

15%

 

 

$13.3 million

 

$13.5 million

191 III Holdings LLC (“191 III”)3

 

 

6

 

 

20%

 

 

$9.4  million

 

$0.7  million

Life Storage-SERS Storage LLC (“SERS”)4

 

 

3

 

 

20%

 

 

$3.6  million

 

N/A

Iskalo Office Holdings, LLC (“Iskalo”)5

 

N/A

 

 

49%

 

 

($0.4  million)

 

($0.4  million)

Urban Box Coralway Storage, LLC (“Urban Box”)6

 

 

1

 

 

85%

 

 

$4.1  million

 

$4.1  million

SNL/Orix 1200 McDonald Ave., LLC (“McDonald”)7

 

 

1

 

 

5%

 

 

$2.7  million

 

$2.7  million

SNL Orix Merrick, LLC (“Merrick”)8

 

 

1

 

 

5%

 

 

$2.5   million

 

$2.5   million

Review Avenue Partners, LLC (“RAP”)9

 

 

1

 

 

40%

 

 

$11.5 million

 

N/A

N 32nd Street Self Storage, LLC (“N32”)10

 

 

1

 

 

46%

 

 

$1.3  million

 

N/A

 

1

Sovran HHF owns self-storage facilities in Arizona (11), Colorado (4), Florida (3), Georgia (1), Kentucky (2), Nevada (5), New Jersey (2), Ohio (6), Pennsylvania (1), Tennessee (2) and Texas (20). In June 2017, Sovran HHF acquired 18 self-storage facilities for $330 million in Arizona, Nevada and Tennessee. In connection with this acquisition, Sovran HHF entered into $135 million of mortgage debt which is secured by 16 of the self-storage facilities acquired. During the year ended December 31, 2017, the Company contributed $39.6 million as its share of capital to fund the acquisition, $3.6 million to fund the repayment of certain mortgages held by the joint venture, and an additional $0.1 million to fund capital projects. During the year ended December 31, 2017, the Company received $4.5 million of distributions from Sovran HHF. As of December 31, 2017, the carrying value of the Company’s investment in Sovran HHF exceeds its share of the underlying equity in net assets of Sovran HHF by approximately $1.7 million as a result of the capitalization of certain acquisition related costs in 2008. This difference is included in the carrying value of the investment.

2

Sovran HHF II owns self-storage facilities in New Jersey (17), Pennsylvania (3), and Texas (10). During the year ended December 31, 2017, the Company received $1.7 million of distributions from Sovran HHF II.

3

191 III owns six self-storage facilities in California. During 2017, 191 III acquired these six self-storage facilities for a total of $104.1 million. In connection with the acquisition of these self-storage facilities, 191 III entered into $57.2 million of mortgage debt which is secured by the self-storage facilities acquired. During 2017 and 2016, the Company contributed $9.3 million and $0.7 million, respectively, as its share of capital to fund these acquisitions. During the year ended December 31, 2017, the Company received $0.5 million of distributions from 191 III.

4

In May 2017, the Company executed a joint venture agreement, Life Storage-SERS Storage LLC (“SERS”), with an unrelated third party with the purpose of acquiring and operating self-storage facilities. SERS owns three self-storage facilities in Georgia. During 2017, SERS acquired these three self-storage facilities for a total of $39.1 million. In connection with the acquisition of these self-storage facilities, SERS entered into $22.0 million of mortgage debt which is secured by the self-storage facilities acquired. During 2017, the Company contributed $3.6 million as its share of capital to fund these acquisitions.

5

Iskalo owns the building that houses the Company’s headquarters and other tenants. The Company paid rent to Iskalo of $1.2 million, $1.2 million and $1.1 million during the years ended December 31, 2017, 2016, and 2015, respectively. During the year ended December 31, 2017, the Company received $0.2 million of distributions from Iskalo.

6

Urban Box is currently developing a self-storage facility in Florida.

7

McDonald is currently developing a self-storage facility in New York. During 2016, the Company contributed $0.4 million of common capital and $2.3 million of preferred capital to McDonald as its share of capital to develop the property. McDonald entered into a non-recourse mortgage loan in order to finance the future development costs, with $6.4 million of principal outstanding at December 31, 2017.

8

Merrick owns a self-storage facility in New York. During 2016, the Company contributed $0.4 million of common capital and $2.1 million of preferred capital to Merrick as its share of capital to develop the property. Merrick has entered into a non-recourse mortgage loan with $9.3 million of principal outstanding at December 31, 2017.

9

In January 2017, the Company executed a joint venture agreement, Review Avenue Partners, LLC (“RAP”), with an unrelated third party. The Company contributed $12.5 million of common capital to RAP during the year ended December 31, 2017. RAP is currently operating a self-storage property in New York.

10

In April 2017, the Company executed a joint venture agreement, N 32nd Street Self Storage, LLC (“N32”), with an unrelated third party. The Company contributed $1.3 million of common capital to N32 during the year ended December 31, 2017. N32 is currently developing a self-storage property in Arizona.

 

Based on the facts and circumstances of each of the Company’s joint ventures, the Company has determined that none of the joint ventures are a variable interest entity (VIE) in accordance with ASC 810, Consolidation. As a result, the Company used the voting model under ASC 810 to determine whether or not to consolidate the joint ventures. Based upon each member’s substantive participation rights over the activities as stipulated in the joint venture agreements, none of the joint ventures are consolidated by the Company. Due to the Company’s significant influence over the operations of each of the joint ventures, all joint ventures are accounted for under the equity method of accounting.

The carrying values of the Company’s investments in joint ventures are assessed for other-than-temporary impairment on a periodic basis and no such impairments have been recorded on any of the Company’s investments in joint ventures.

The Company earns management and/or call center fees ranging from 6% to 7% of joint venture gross revenues as manager of HHF, HHF II, 191 III, SERS, RAP and Merrick. These fees, which are included in other operating income in the consolidated statements of operations, totaled $6.6 million, $4.9 million and $4.9 million in 2017, 2016 and 2015 respectively. The Company will also earn management fees upon commencement of the operation of storage facilities owned by Urban Box, McDonald, and N32.

 

The Company’s share of the unconsolidated joint ventures’ income (loss) is as follows:

 

(dollars in thousands)

Venture

 

Year Ended

December 31, 2017

 

 

Year Ended

December 31, 2016

 

 

Year Ended

December 31, 2015

 

Sovran HHF

 

$

2,517

 

 

$

2,033

 

 

$

1,953

 

Sovran HHF II

 

 

1,530

 

 

 

1,403

 

 

 

1,263

 

191 III

 

 

13

 

 

 

 

 

 

 

SERS

 

 

(12

)

 

 

 

 

 

 

Urban Box

 

 

 

 

 

15

 

 

 

 

RAP

 

 

(967

)

 

 

 

 

 

 

Iskalo

 

 

233

 

 

 

214

 

 

 

189

 

 

 

$

3,314

 

 

$

3,665

 

 

$

3,405

 

 

A summary of the combined unconsolidated joint ventures’ financial statements as of and for the year ended December 31, 2017 is as follows: 

 

(dollars in thousands)

 

 

 

 

Balance Sheet Data:

 

 

 

 

Investment in storage facilities, net

 

$

1,075,101

 

Investment in office building, net

 

 

4,810

 

Other assets

 

 

16,622

 

Total Assets

 

$

1,096,533

 

Due to the Company

 

$

1,397

 

Mortgages payable

 

 

459,028

 

Other liabilities

 

 

10,721

 

Total Liabilities

 

$

471,146

 

Unaffiliated partners’ equity

 

 

492,332

 

Company equity

 

 

133,055

 

Total Partners’ Equity

 

 

625,387

 

Total Liabilities and Partners’ Equity

 

$

1,096,533

 

Income Statement Data:

 

 

 

 

Total revenues

 

$

96,301

 

Property operating expenses

 

 

(31,008

)

Administrative, management and call center fees

 

 

(7,668

)

Depreciation and amortization of customer list

 

 

(21,165

)

Amortization of financing fees

 

 

(810

)

Income tax expense

 

 

(252

)

Interest expense

 

 

(14,571

)

Net income

 

$

20,827

 

 

The Company does not guarantee the debt of any of its equity method investees.

We do not expect to have material future cash outlays relating to these joint ventures outside our share of capital for future acquisitions of properties. A summary of our revenues, expenses and cash flows arising from the off-balance sheet arrangements with unconsolidated joint ventures for the three years ended December 31, 2017 are as follows:

 

 

 

Year ended December 31,

 

(dollars in thousands)

 

2017

 

 

2016

 

 

2015

 

Operating activities

 

 

 

 

 

 

 

 

 

 

 

 

Other operating income (management fees and acquisition fee income)

 

$

8,090

 

 

$

4,891

 

 

$

4,889

 

General and administrative expenses (corporate office rent)

 

 

1,192

 

 

 

1,214

 

 

 

1,053

 

Equity in income of joint ventures

 

 

3,314

 

 

 

3,665

 

 

 

3,405

 

Distributions from unconsolidated joint ventures

 

 

7,055

 

 

 

5,207

 

 

 

4,821

 

Advances to joint ventures

 

 

(174

)

 

 

(294

)

 

 

(346

)

Investing activities

 

 

 

 

 

 

 

 

 

 

 

 

Investment in unconsolidated joint ventures

 

 

(69,911

)

 

 

(6,438

)

 

 

(6,151

)