Quarterly report pursuant to Section 13 or 15(d)

Investment in Storage Facilities and Intangible Assets

v3.20.2
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:

 

(dollars in thousands)

 

 

 

 

Cost:

 

 

 

 

Beginning balance

 

$

4,749,473

 

Acquisition of storage facilities

 

 

122,623

 

Improvements and equipment additions

 

 

21,093

 

Net increase in construction in progress

 

 

5,388

 

Dispositions

 

 

(201

)

Ending balance

 

$

4,898,376

 

Accumulated Depreciation:

 

 

 

 

Beginning balance

 

$

756,333

 

Additions during the period

 

 

54,498

 

Dispositions

 

 

(122

)

Ending balance

 

$

810,709

 

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:

 

(dollars in thousands)

 

 

 

 

 

 

 

 

Consideration paid

 

 

Acquisition Date Fair Value

 

States

 

Number

of

Properties

 

 

Date of

Acquisition

 

Purchase

Price

 

 

Cash

Paid

 

 

Mortgage

Assumed

 

 

Net Other

Liabilities

(Assets)

Assumed

 

 

Land

 

 

Building,

Equipment,

and

Improvements

 

 

Construction in Progress

 

 

In-Place

Customers

Leases

 

CA

 

 

6

 

 

3/9/2020

 

$

124,298

 

 

$

124,204

 

 

$

 

 

$

94

 

 

$

20,307

 

 

$

101,734

 

 

$

582

 

 

$

1,675

 

Total acquired in 2020

 

 

6

 

 

 

 

$

124,298

 

 

$

124,204

 

 

$

 

 

$

94

 

 

$

20,307

 

 

$

101,734

 

 

$

582

 

 

$

1,675

 

 

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:

 

(Dollars in thousands)

 

June 30,

2020

 

 

December 31,

2019

 

In-place customer leases

 

$

80,416

 

 

$

78,741

 

Accumulated amortization

 

 

(78,585

)

 

 

(75,832

)

Net carrying value at the end of period

 

$

1,831

 

 

$

2,909

 

 

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.