Quarterly report pursuant to Section 13 or 15(d)

Investment in Storage Facilities and Intangible Assets

v3.10.0.1
Investment in Storage Facilities and Intangible Assets
9 Months Ended
Sep. 30, 2018
Real Estate [Abstract]  
Investment in Storage Facilities and Intangible Assets

5. INVESTMENT IN STORAGE FACILITIES AND INTANGIBLE ASSETS

The following summarizes our activity in storage facilities during the nine months ended September 30, 2018:

 

(dollars in thousands)

 

 

 

 

Cost:

 

 

 

 

Beginning balance

 

$

4,321,410

 

Acquisitions of storage facilities

 

 

19,172

 

Improvements and equipment additions

 

 

29,911

 

Net increase in construction in progress

 

 

15,393

 

Dispositions

 

 

(12,299

)

Ending balance

 

$

4,373,587

 

Accumulated  Depreciation:

 

 

 

 

Beginning balance

 

$

624,314

 

Additions during the period

 

 

76,844

 

Dispositions

 

 

(3,188

)

Ending balance

 

$

697,970

 

 

The Company acquired two self-storage facilities during the nine months ended September 30, 2018. The acquisitions of these facilities were accounted for as asset acquisitions.  The costs of the facilities, including closing costs, were allocated to land, building, equipment and improvements, and in-place customer leases based upon their relative fair values.

 

The purchase prices of the facilities acquired in 2018 have been assigned as follows:

 

(dollars in thousands)

 

 

 

 

 

 

 

 

Consideration paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States

 

Number

of

Properties

 

 

Date of

Acquisition

 

Purchase

Price

 

 

Cash

Paid

 

 

Value of

Operating

Partnership

Units

Issued

 

 

Mortgage

Assumed

 

 

Net Other

Liabilities

(Assets)

Assumed

 

 

Land

 

 

Building,

Equipment,

and

Improvements

 

 

In-Place

Customers

Leases

 

 

Closing

Costs

Expensed

 

NH

 

 

1

 

 

9/4/2018

 

$

5,641

 

 

$

5,609

 

 

$

-

 

 

$

-

 

 

$

32

 

 

$

1,256

 

 

$

4,276

 

 

$

109

 

 

$

-

 

CA

 

 

1

 

 

9/18/2018

 

$

13,846

 

 

$

13,800

 

 

$

-

 

 

$

-

 

 

$

46

 

 

$

2,089

 

 

$

11,551

 

 

$

206

 

 

$

-

 

Total acquired

   in 2018

 

 

2

 

 

 

 

$

19,487

 

 

$

19,409

 

 

$

-

 

 

$

-

 

 

$

78

 

 

$

3,345

 

 

$

15,827

 

 

$

315

 

 

$

-

 

All properties were purchased from unrelated third parties.  Non-cash investing activities during the nine months ended September 30, 2018 include the assumption of net other liabilities totaling $78,000.

The Company measures the fair value of in-place customer lease intangible assets based on the Company’s experience with customer turnover and the cost to replace the in-place leases. The Company amortizes in-place customer leases on a straight-line basis over 12 months (the estimated future benefit period). The Company measures the value of trade names, which have an indefinite life and are not amortized, by calculating discounted cash flows utilizing the relief from royalty method.

In-place customer leases are included in other assets on the Company’s consolidated balance sheets as follows:

 

(Dollars in thousands)

 

September 30,

2018

 

 

December 31,

2017

 

In-place customer leases

 

$

75,226

 

 

$

75,241

 

Accumulated amortization

 

 

(74,920

)

 

 

(75,241

)

Net carrying value at the end of period

 

$

306

 

 

$

 

 

Amortization expense related to in-place customer leases was $9,000 and $0.1 million for the three months ended September 30, 2018 and 2017, respectively, and was $9,000 and $24.8 million for the nine months ended September 30, 2018 and 2017, respectively. The Company expects to record $0.1 million and $0.2 million of amortization expense for the years ended December 31, 2018 and December 31, 2019, respectively.

Property Dispositions

During 2018, the Company sold one non-strategic property and received cash of $9.6 million, resulting in a gain on sale of $0.9 million.

Change in Useful Life Estimates

As part of the Company’s capital improvement efforts during 2017 and 2018, buildings at certain self-storage facilities were identified for replacement. As a result of the decision to replace these buildings, the Company reassessed the estimated useful lives of the then existing buildings. This useful life reassessment resulted in an increase in depreciation expense of approximately $2.4 million and $2.8 million, respectively, during the three and nine months ended September 30, 2018 and $2.0 million and $3.6 million, respectively, during the three and nine months ended September 30, 2017. The Company estimates that the change in estimated useful lives of buildings identified for replacement as of September 30, 2018 will result in additional increases in depreciation expense of approximately $0.5 million during the fourth quarter of 2018.

The accelerated depreciation resulting from the events discussed above reduced both basic and diluted earnings per share/unit by approximately $0.04 and $0.05, for the three and nine months ended September 30, 2018, respectively, and by approximately $0.04 and $0.07 for the three and nine months ended September 30, 2017, respectively.