Investment in Storage Facilities and Intangible Assets
|6 Months Ended|
Jun. 30, 2020
|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 six months ended June 30, 2020:
The Company acquired six self-storage facilities during the six months ended June 30, 2020. The acquisition of these facilities was accounted for as an asset acquisition. 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 2020 have been assigned as follows:
These six facilities, purchased in the first quarter of 2020, were acquired from 191 III Life Storage Holdings LLC (“191 III”), an unconsolidated joint venture in which the Company holds a 20% ownership interest. In accordance with ASC Topic 970, “Real Estate – General,” the Company recorded its equity in the profit from the sale as a reduction in the purchase price allocated to land and depreciable fixed assets. In addition to the $124.2 million cash payment for these six self-storage facilities, the Company also received $8.4 million as a return on the Company’s investment in 191 III as discussed further in Note 10.
Non-cash investing activities during the six months ended June 30, 2020 include the assumption of net other liabilities totaling $0.1 million.
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 $1.5 million and $2.8 million for the three and six months ended June 30, 2020, respectively, and $0.5 million and $0.9 million for the three and six months ended June 30, 2019, respectively.
Change in Useful Life Estimates
As part of the Company’s capital improvement efforts during 2018, 2019, and 2020, 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 $0.1 million and $0.8 million during the three and six months ended June 30, 2019, respectively. There was no related impact on depreciation expense during the three and six months ended June 30, 2020. The Company estimates that due to buildings recently identified for replacement, the change in estimated useful lives of buildings identified for replacement as of June 30, 2020 will result an increase in depreciation expense of approximately $2.2 million during the remainder of 2020.
The accelerated depreciation resulting from the events discussed above reduced both basic and diluted earnings per share/unit by less than $0.01 and by approximately $0.02 for the three and six months ended June 30, 2019, 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