Investment in Storage Facilities and Intangible Assets
|3 Months Ended|
Mar. 31, 2019
|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 three months ended March 31, 2019:
The Company acquired two self-storage facilities during the three months ended March 31, 2019. 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 2019 have been assigned as follows:
The facility purchased in New York was acquired as the result of the Company’s acquisition of the remaining 60% ownership interest in Review Avenue Partners, LLC (“RAP”). Prior to this acquisition, RAP was a joint venture between the Company and an otherwise unrelated third-party which had been accounted for by the Company using the equity method of accounting (see Note 10 for additional information on RAP). The purchase price for this acquisition includes the carrying value of the Company’s equity investment in RAP of $10.7 million at the time of the acquisition. The facility acquired in Florida was purchased from an unrelated third-party.
The $55.6 million of cash paid for the facilities acquired in 2019 includes $0.2 million of deposits that were paid in 2018, when one of these facilities was originally under contract. In addition to the Company’s equity investment in RAP at carrying value, non-cash investing activities during 2019 include the assumption of net other liabilities totaling $132,000.
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 $0.3 million for the three months ended March 31, 2019. The Company did not record any amortization expense during the three months ended March 31, 2018 as all in-place customer leases were fully amortized at the beginning of the period.
Change in Useful Life Estimates
As part of the Company’s capital improvement efforts during 2017, 2018 and 2019, 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 $0.7 million and $0.3 million during the three month periods ended March 31, 2019 and 2018, respectively. The Company estimates that the change in estimated useful lives of buildings identified for replacement as of March 31, 2019 will have minimal additional impact on depreciation expense during the remainder of 2019.
The accelerated depreciation resulting from the events discussed above reduced both basic and diluted earnings per share/unit by approximately $0.02 and $0.01 for the three month periods ended March 31, 2019 and 2018, 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