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:
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:
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:
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.
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.
The entire disclosure for certain real estate investment financial statements, real estate investment trust operating support agreements, real estate owned, retail land sales, time share transactions, as well as other real estate related disclosures.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef