Quarterly report pursuant to Section 13 or 15(d)

Investment in Storage Facilities and Intangible Assets

v3.19.1
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:

 

(dollars in thousands)

 

 

 

 

Cost:

 

 

 

 

Beginning balance

 

$

4,398,939

 

Acquisition of storage facilities

 

 

66,086

 

Improvements and equipment additions

 

 

10,937

 

Net increase in construction in progress

 

 

996

 

Dispositions

 

 

(1,802

)

Ending balance

 

$

4,475,156

 

Accumulated  Depreciation:

 

 

 

 

Beginning balance

 

$

704,681

 

Additions during the period

 

 

25,851

 

Dispositions

 

 

(1,236

)

Ending balance

 

$

729,296

 

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:

 

(dollars in thousands)

 

 

 

 

 

 

 

 

Consideration paid

 

 

Acquisition Date Fair Value

 

 

 

 

 

States

 

Number

of

Properties

 

 

Date of

Acquisition

 

Purchase

Price

 

 

Cash

Paid

 

 

Carrying Value of

Noncontrolling Interest in Joint Venture

 

 

Mortgage

Assumed

 

 

Net Other

Liabilities

(Assets)

Assumed

 

 

Land

 

 

Building,

Equipment,

and

Improvements

 

 

In-Place

Customers

Leases

 

 

Closing

Costs

Expensed

 

NY

 

 

1

 

 

1/16/2019

 

$

57,169

 

 

$

46,402

 

 

$

10,715

 

 

$

 

 

$

52

 

 

$

30,029

 

 

$

26,863

 

 

$

277

 

 

$

 

FL

 

 

1

 

 

3/8/2019

 

 

9,302

 

 

 

9,222

 

 

 

 

 

 

 

 

 

80

 

 

 

1,817

 

 

 

7,377

 

 

 

108

 

 

 

 

Total acquired in 2019

 

 

2

 

 

 

 

$

66,471

 

 

$

55,624

 

 

$

10,715

 

 

$

 

 

$

132

 

 

$

31,846

 

 

$

34,240

 

 

$

385

 

 

 

 

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:

 

(Dollars in thousands)

 

Mar. 31,

2019

 

 

Dec. 31,

2018

 

In-place customer leases

 

$

76,099

 

 

$

75,715

 

Accumulated amortization

 

 

(75,089

)

 

 

(74,744

)

Net carrying value at the end of period

 

 

1,010

 

 

 

971

 

 

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.