Annual report pursuant to Section 13 and 15(d)

Investment in Joint Ventures

v3.10.0.1
Investment in Joint Ventures
12 Months Ended
Dec. 31, 2018
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, 2018

 

Carrying value

of investment

at Dec. 31, 2017

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

 

 

57

 

 

20%

 

 

$85.8 million

 

$85.1 million

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

 

 

30

 

 

15%

 

 

$13.4 million

 

$13.3 million

191 III Holdings LLC (“191 III”)3

 

 

6

 

 

20%

 

 

$9.3   million

 

$9.4   million

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

 

 

3

 

 

20%

 

 

$3.5   million

 

$3.6   million

Life Storage-HIERS Storage LLC (“HIERS”)5

 

 

12

 

 

20%

 

 

$9.3   million

 

N/A

Iskalo Office Holdings, LLC (“Iskalo”)6

 

N/A

 

 

49%

 

 

($0.4   million)

 

($0.4   million)

Urban Box Coralway Storage, LLC (“Urban Box”)7

 

 

1

 

 

85%

 

 

$4.4   million

 

$4.1   million

SNL/Orix 1200 McDonald Ave., LLC (“McDonald”)8

 

 

1

 

 

5%

 

 

$2.8   million

 

$2.7   million

SNL Orix Merrick, LLC (“Merrick”)9

 

 

1

 

 

5%

 

 

$2.5   million

 

$2.5   million

Review Avenue Partners, LLC (“RAP”)10

 

 

1

 

 

40%

 

 

$11.0 million

 

$11.5 million

N 32nd Street Self Storage, LLC (“N32”)11

 

 

1

 

 

46%

 

 

$1.2   million

 

$1.3   million

NYX Don Mills Storage LP ("Don Mills")12

 

  1

 

 

17%

 

 

$1.0   million

 

N/A

NYX Sheridan Storage LP ("Sheridan")13

 

 

1

 

 

38.3%

 

 

$0.7   million

 

N/A

NYX Appleby Storage LP ("Appleby")14

 

 

1

 

 

37.5%

 

 

$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). During 2017, Sovran HHF acquired 18 self-storage facilities for a total of $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 2018, the Company contributed $3.0 million as its share of capital to the joint venture and received $5.7 million of distributions from Sovran HHF. As of December 31, 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 2018, the Company contributed $0.4 million as its share of capital to the joint venture and received $2.0 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 2018, the Company contributed $0.2 million as its share of capital to the joint venture and received $0.5 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 2018, the Company received $0.2 million of distributions from SERS.

5

In December 2018, the Company executed a joint venture agreement, Life Storage-HIERS Storage LLC (“HIERS”), with an unrelated third-party with the purpose of acquiring and operating self-storage facilities. HIERS owns self-storage facilities in Arizona (2), Florida (1), North Carolina (1), Texas (7), and Virginia (1). HIERS acquired these self-storage facilities from the Company in 2018 for a total of $91.3 million. In connection with the acquisition of these self-storage facilities, HIERS entered into $45.4 million of mortgage debt which is secured by the self-storage facilities acquired. In connection with these transactions, the Company contributed $9.3 million to the joint venture in 2018, which includes a $9.1 million equity investment received as a result of the sale of the 12 self-storage facilities to HIERS in 2018.

6

Iskalo owns the building that houses the Company’s headquarters and other tenants. The Company paid rent to Iskalo of $1.2 million during each of the years ended December 31, 2018, 2017, and 2016. During the year ended December 31, 2018, the Company received $0.3 million of distributions from Iskalo.

7

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

8

McDonald owns a self-storage facility in New York. McDonald has entered into a non-recourse mortgage loan with $10.7 million of principal outstanding at December 31, 2018. During 2018, the Company contributed $0.1 million as its share of capital to the joint venture.

9

Merrick owns a self-storage facility in New York. Merrick has entered into a non-recourse mortgage loan with $11.9 million of principal outstanding at December 31, 2018. During 2018, the Company contributed $0.1 million as its share of capital to the joint venture.

10

RAP owns a self-storage facility in New York and has entered into a non-recourse mortgage loan with $29.5 million of principal outstanding at December 31, 2018. During 2018, the Company contributed $0.4 million as its share of capital to the joint venture. In January 2019, the Company acquired the remaining 60% ownership interest in RAP for $46.4 million which included the payoff of the non-recourse mortgage loan and the payment of $0.7 million of transfer taxes.

11

N32 owns a self-storage property in Arizona and has entered into a non-recourse mortgage loan with $6.1 million of principal outstanding at December 31, 2018.

12

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 2018 and contributed $1.0 million of common capital to Don Mills during 2018 as the Company’s share of the initial capital investment in the joint venture.

13

Sheridan is developing a self-storage facility in Ontario, Canada which is expected to be completed by 2021. The Company entered into the Sheridan joint venture during 2018 and contributed $0.7 million of common capital to Sheridan during 2018 as the Company’s share of the initial capital investment in the joint venture.

14

Appleby is developing a self-storage facility in Ontario, Canada which is expected to be completed by 2021. The Company entered into the Appleby joint venture during 2018 and contributed $1.0 million of common capital to Appleby during 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 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, HIERS, Urban Box, McDonald, Merrick, RAP and N32. These fees, which are included in other operating income in the consolidated statements of operations, totaled $7.8 million, $6.6 million and $4.9 million in 2018, 2017 and 2016 respectively.

 

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

 

(dollars in thousands)

Venture

 

Year Ended

December 31,

2018

 

 

Year Ended

December 31,

2017

 

 

Year Ended

December 31,

2016

 

Sovran HHF

 

$

3,285

 

 

$

2,517

 

 

$

2,033

 

Sovran HHF II

 

 

1,686

 

 

 

1,530

 

 

 

1,403

 

191 III

 

 

89

 

 

 

13

 

 

 

 

SERS

 

 

16

 

 

 

(12

)

 

 

 

HIERS

 

 

23

 

 

 

 

 

 

 

RAP

 

 

(860

)

 

 

(967

)

 

 

 

Merrick

 

 

(43

)

 

 

 

 

 

 

McDonald

 

 

(24

)

 

 

 

 

 

 

Urban Box

 

 

(195

)

 

 

 

 

 

15

 

N32

 

 

(81

)

 

 

 

 

 

 

Iskalo

 

 

226

 

 

 

233

 

 

 

214

 

 

 

$

4,122

 

 

$

3,314

 

 

$

3,665

 

 

A summary of the combined unconsolidated joint ventures’ financial statements as of and for the year ended December 31, 2018 is as follows: 

 

(dollars in thousands)

 

 

 

 

Balance Sheet Data:

 

 

 

 

Investment in storage facilities, net

 

$

1,193,499

 

Investment in office building, net

 

 

4,621

 

Other assets

 

 

19,381

 

Total Assets

 

$

1,217,501

 

Due to the Company

 

$

1,006

 

Mortgages payable

 

 

525,299

 

Other liabilities

 

 

8,218

 

Total Liabilities

 

$

534,523

 

Unaffiliated partners’ equity

 

 

537,514

 

Company equity

 

 

145,464

 

Total Partners’ Equity

 

 

682,978

 

Total Liabilities and Partners’ Equity

 

$

1,217,501

 

Income Statement Data:

 

 

 

 

Total revenues

 

$

113,667

 

Property operating expenses

 

 

(33,794

)

Administrative, management and call center fees

 

 

(9,038

)

Depreciation and amortization of customer list

 

 

(25,674

)

Amortization of financing fees

 

 

(1,103

)

Income tax expense

 

 

(302

)

Interest expense

 

 

(18,930

)

Net income

 

$

24,826

 

 

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, 2018 are as follows:

 

 

 

Year ended December 31,

 

(dollars in thousands)

 

2018

 

 

2017

 

 

2016

 

Operating activities

 

 

 

 

 

 

 

 

 

 

 

 

Other operating income (management fees and acquisition fee income)

 

$

7,848

 

 

$

8,090

 

 

$

4,891

 

General and administrative expenses (corporate office rent)

 

 

1,188

 

 

 

1,192

 

 

 

1,214

 

Equity in income of joint ventures

 

 

4,122

 

 

 

3,314

 

 

 

3,665

 

Distributions from unconsolidated joint ventures

 

 

8,561

 

 

 

7,055

 

 

 

5,207

 

Receipts from (advances to) joint ventures, net

 

 

391

 

 

 

(174

)

 

 

(294

)

Investing activities

 

 

 

 

 

 

 

 

 

 

 

 

Investment in unconsolidated joint ventures

 

 

(7,718

)

 

 

(69,911

)

 

 

(6,438

)