Quarterly report pursuant to Section 13 or 15(d)

Investment in Joint Ventures

v3.10.0.1
Investment in Joint Ventures
9 Months Ended
Sep. 30, 2018
Equity Method Investments And Joint Ventures [Abstract]  
Investment in Joint Ventures

10. INVESTMENT IN JOINT VENTURES

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

 

Venture

 

Number of

Properties at

September 30, 2018

 

Company common

ownership interest at September 30, 2018

 

 

Carrying value

of investment

at September 30, 2018

 

Carrying value

of investment

at December 31, 2017

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

 

57

 

20%

 

 

$86.2  million

 

$85.1  million

Sovran HHF Storage Holdings II LLC (“Sovran

   HHF II”)2

 

30

 

15%

 

 

$13.1  million

 

$13.3  million

191 III Holdings LLC (“191 III”)3

 

6

 

20%

 

 

$9.2    million

 

$9.4    million

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

 

3

 

20%

 

 

$3.6    million

 

$3.6    million

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%

 

 

$4.5    million

 

$4.1    million

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

 

1

 

5%

 

 

$2.8    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%

 

 

$11.1  million

 

$11.5  million

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

 

1

 

46%

 

 

$1.3    million

 

$1.3    million

NYX Don Mills Storage LP ("Don Mills")11

 

1

 

17%

 

 

$1.0    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 nine months ended September 30, 2018, the Company contributed $2.9 million as its share of capital to the joint venture. During the nine months ended September 30, 2018, the Company received $4.2 million of distributions from Sovran HHF. As of September 30, 2018, 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 nine months ended September 30, 2018, the Company received $1.5 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 nine months ended September 30, 2018, the Company contributed 0.1 million as its share of capital to the joint venture. During the nine months ended September 30, 2018, the Company received $0.3 million of distributions from 191 III.

4

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 the nine months ended September 30, 2018, the Company received distributions of $0.1 million from SERS.

5

Iskalo owns the building that houses the Company’s headquarters and other tenants. The Company paid rent to Iskalo of $0.9 million during each of the nine months ended September 30, 2018 and 2017. During the nine months ended September 30, 2018, the Company received $0.2 million of distributions from Iskalo.

6

Urban Box owns a self-storage facility in Florida. During the nine months ended September 30, 2018, the Company contributed $0.5 million to Urban Box as its share of capital to the joint venture.

7

McDonald owns a self-storage facility in New York. McDonald has entered into a non-recourse mortgage loan with $11.1 million of principal outstanding at September 30, 2018.  During the nine months ended September 30, 2018, the Company contributed $0.1 million to McDonald as its share of capital to the joint venture.

8

Merrick owns a self-storage facility in New York. Merrick has entered into a non-recourse mortgage loan with $12.1 million of principal outstanding at September 30, 2018.  During the nine months ended September 30, 2018, the Company contributed $0.1 million to Merrick as its share of capital to the joint venture.

9

RAP owns a self-storage facility in New York. The Company contributed $0.3 million of common capital to RAP during the nine months ended September 30, 2018.

10

N32 owns a self-storage facility in Arizona.  

11

Don Mills is developing a self-storage facility in Ontario, Canada which is expected to be completed in 2020. The Company entered into the Don Mills joint venture during the second quarter of 2018 and contributed $1.0 million of common capital to Don Mills during the nine months ended September 30, 2018 as the Company’s share of the initial capital investment in the joint venture.

Based on the facts and circumstances of each of the Company’s joint ventures, the Company has determined that none of the joint ventures is 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 is 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 property manager of the self-storage facilities owned by HHF, HHF II, 191 III, SERS, Urban Box, McDonald, Merrick, RAP and N32. These fees, which are included in other operating income in the consolidated statements of operations, totaled $2.0 million and $1.9 million for the three months ended September 30, 2018 and 2017, respectively, and $5.8 million and $4.8 million for the nine months ended September 30, 2018 and 2017, respectively.

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

 

(dollars in thousands)

Venture

 

Three Months

Ended

September 30, 2018

 

 

Three Months

Ended

September 30, 2017

 

 

Nine Months

Ended

September 30, 2018

 

 

Nine Months

Ended

September 30, 2017

 

Sovran HHF

 

$

828

 

 

$

588

 

 

$

2,257

 

 

$

1,750

 

Sovran HHF II

 

 

436

 

 

 

398

 

 

 

1,235

 

 

 

1,100

 

191 III

 

 

7

 

 

 

(14

)

 

 

43

 

 

 

12

 

SERS

 

 

20

 

 

 

(43

)

 

 

107

 

 

 

(43

)

RAP

 

 

(215

)

 

 

(248

)

 

 

(648

)

 

 

(749

)

Merrick

 

 

(6

)

 

 

 

 

 

(38

)

 

 

 

McDonald

 

 

(10

)

 

 

 

 

 

(10

)

 

 

 

Urban Box

 

 

(19

)

 

 

 

 

 

(19

)

 

 

 

N32

 

 

(48

)

 

 

 

 

 

(48

)

 

 

 

Iskalo

 

 

53

 

 

 

71

 

 

 

187

 

 

 

189

 

 

 

$

1,046

 

 

$

752

 

 

$

3,066

 

 

$

2,259

 

 

A summary of the unconsolidated joint ventures’ financial statements as of and for the nine months ended September 30, 2018 is as follows:

 

(dollars in thousands)

 

 

 

 

Balance Sheet  Data:

 

 

 

 

Investment in storage facilities, net

 

$

1,074,916

 

Investment in office building, net

 

 

4,669

 

Other assets

 

 

19,554

 

Total Assets

 

$

1,099,139

 

Due to the Company

 

$

742

 

Mortgages payable

 

 

458,690

 

Other liabilities

 

 

7,043

 

Total Liabilities

 

$

466,475

 

Unaffiliated partners’ equity

 

 

497,724

 

Company equity

 

 

134,940

 

Total Partners’ Equity

 

 

632,664

 

Total Liabilities and Partners’ Equity

 

$

1,099,139

 

Income Statement Data:

 

 

 

 

Total revenues

 

$

84,591

 

Property operating expenses

 

 

(26,249

)

Administrative, management and call center fees

 

 

(6,640

)

Depreciation and amortization of customer list

 

 

(19,096

)

Amortization of financing fees

 

 

(731

)

Income tax expense

 

 

(232

)

Interest expense

 

 

(13,284

)

Net income

 

$

18,359

 

 

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 of our share of capital for future acquisitions of properties and our share of the payoff of secured debt held by these joint ventures.