| Investment in Joint Ventures |
10. INVESTMENT IN JOINT VENTURES
A summary of the Company’s unconsolidated joint ventures is as follows:
|
Venture
|
|
Number of
Properties at
June 30,
2020
|
|
|
Company
common
ownership
interest at
June 30,
2020
|
|
|
Carrying value
of investment
at June 30,
2020
|
|
|
Carrying value of
investment at
December 31,
2019
|
|
|
Sovran HHF Storage Holdings LLC (“Sovran HHF”)1
|
|
57
|
|
|
20%
|
|
|
$81.6 million
|
|
|
$83.1 million
|
|
|
Sovran HHF Storage Holdings II LLC (“Sovran HHF II”)
|
|
30
|
|
|
15%
|
|
|
$14.0 million
|
|
|
$13.9 million
|
|
|
191 III Life Storage Holdings LLC (“191 III”)2
|
|
|
—
|
|
|
20%
|
|
|
|
—
|
|
|
$8.9 million
|
|
|
Life Storage-SERS Storage LLC (“SERS”)
|
|
3
|
|
|
20%
|
|
|
$3.0 million
|
|
|
$3.2 million
|
|
|
Life Storage-HIERS Storage LLC (“HIERS”)3
|
|
17
|
|
|
20%
|
|
|
$14.5 million
|
|
|
$14.9 million
|
|
|
Iskalo Office Holdings, LLC (“Iskalo”)4
|
|
N/A
|
|
|
49%
|
|
|
($0.3 million)
|
|
|
($0.4 million)
|
|
|
Bluebird Sanford Storage LP ("Sanford")5
|
|
1
|
|
|
15%
|
|
|
$0.3 million
|
|
|
$0.3 million
|
|
|
Bluebird Ingram Storage LP ("Ingram")6
|
|
1
|
|
|
15%
|
|
|
$1.1 million
|
|
|
$1.2 million
|
|
|
Life Storage Spacemax, LLC ("Spacemax")7
|
|
6
|
|
|
40%
|
|
|
$16.9 million
|
|
|
$16.1 million
|
|
|
Life Storage Virtus, LLC ("Virtus")8
|
|
1
|
|
|
20%
|
|
|
$1.6 million
|
|
|
|
—
|
|
|
Joint ventures with properties in development stage9
|
|
5
|
|
|
Various
|
|
|
$2.9 million
|
|
|
$3.1 million
|
|
|
Other unconsolidated joint ventures (6 joint ventures)
|
|
6
|
|
|
Various
|
|
|
$11.8 million
|
|
|
$10.3 million
|
|
|
1
|
As of June 30, 2020, 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
|
191 III owned six self-storage facilities in California. The Company acquired these six self-storage facilities and related assets from 191 III in March 2020 for total contractual consideration of $124.2 million, which is net of the Company’s share of 191 III’s gain resulting from the transaction. In connection with this transaction, the non-recourse mortgage loan previously entered into by 191 III was settled. See Note 5 for additional information regarding this transaction. As 191 no longer operates any self-storage facilities subsequent to the sale of the six self-storage facilities to the Company, the Company received a distribution of $8.4 million in March 2020 as the Company’s return of its remaining investment in 191 III. 191 III is expected to be dissolved later in 2020.
|
|
3
|
In November 2019, HIERS acquired five self-storage facilities for a total of $56.3 million. In connection with the acquisition of these self-storage facilities, HIERS entered into $27.6 million of mortgage debt which is secured by the self-storage facilities acquired. During 2019, the Company contributed $5.7 million as is its share of capital to fund the acquisition of these five self-storage facilities.
|
|
4
|
Iskalo owns the building that houses the Company’s headquarters. The Company paid rent to Iskalo of $0.6 million during each of the six months ended June 30, 2020 and 2019.
|
|
5
|
In March 2019, the Company executed a joint venture agreement, Bluebird Sanford Storage LP, with an unrelated third-party with the purpose of acquiring and operating a self-storage facility. During 2019, Sanford acquired a self-storage facility for a total of $4.9 million. In connection with this acquisition, Sanford entered into $3.2 million of non-recourse mortgage debt. During 2019, the Company contributed $0.3 million to Sanford as the Company’s share of the initial capital investment in the joint venture.
|
|
6
|
In March 2019, the Company executed a joint venture agreement, Bluebird Ingram Storage, LP, with an unrelated third-party with the purpose of acquiring, further developing, and operating a self-storage facility. During 2019, Ingram acquired a self-storage facility for a total of $20.7 million. In connection with this acquisition, Ingram entered into $17.6 million of non-recourse mortgage debt. During 2019, the Company contributed $1.3 million to Ingram as the Company’s share of the initial capital investment in the joint venture.
|
|
7
|
In August 2019, the Company executed a joint venture agreement, Life Storage Spacemax, LLC, with an unrelated third-party with the purpose of acquiring and operating self-storage facilities. During 2019, Spacemax acquired six self-storage facilities for a total of $82.7 million. In connection with this acquisition, Spacemax entered into $42.0 million of non-recourse mortgage debt. During 2019, the Company contributed $16.3 million to Spacemax as the Company’s share of the initial capital investment in the joint venture.
|
|
8
|
In February 2020, the Company executed a joint venture agreement, Life Storage Virtus, LLC, with an unrelated third-party with the purpose of acquiring and operating a self-storage facility. During the first quarter of 2020, Virtus acquired a self-storage facility for a total of $21.7 million. In connection with this acquisition, Virtus entered into $14.0 million of non-recourse mortgage debt. During 2020, the Company contributed $1.7 million to Virtus as the Company’s share of the initial capital investment in the joint venture.
|
|
9
|
The Company has entered into five separate joint ventures, two of which are developing self-storage facilities in Ontario, Canada, and three of which are developing self-storage facilities in the New York City market. The Company has contributed an aggregate total of $2.9 million as its share of capital to these joint ventures.
|
Based on the facts and circumstances of each of the Company’s joint ventures, the Company has determined that only one of the joint ventures is a variable interest entity (“VIE”) in accordance with ASC 810, “Consolidation.” As the Company does not have the power to direct the activities of the joint venture that is considered a VIE, the VIE joint venture is not consolidated by the Company. The Company used the voting model under ASC 810 for all joint ventures not considered a VIE 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.
As property manager of the self-storage facilities owned by each of the operational joint ventures, the Company earns management and/or call center fees based on a percentage of joint venture gross revenues. These fees earned from joint ventures, which are included in other operating income in the consolidated statements of operations, totaled $1.9 million and $2.2 million for the three months ended June 30, 2020 and 2019, respectively, and $4.5 million and $4.3 million for the six months ended June 30, 2020 and 2019, respectively.
The Company’s share of the unconsolidated joint ventures’ income (loss) is as follows:
|
(dollars in thousands)
Venture
|
|
Three Months
Ended
June 30, 2020
|
|
|
Three Months
Ended
June 30, 2019
|
|
|
Six Months
Ended
June 30, 2020
|
|
|
Six Months
Ended
June 30, 2019
|
|
|
Sovran HHF
|
|
$
|
861
|
|
|
$
|
880
|
|
|
$
|
1,783
|
|
|
$
|
1,709
|
|
|
Sovran HHF II
|
|
|
446
|
|
|
|
477
|
|
|
|
901
|
|
|
|
890
|
|
|
Other unconsolidated joint ventures
|
|
|
(337
|
)
|
|
|
(247
|
)
|
|
|
(598
|
)
|
|
|
(678
|
)
|
|
|
|
$
|
970
|
|
|
$
|
1,110
|
|
|
$
|
2,086
|
|
|
$
|
1,921
|
|
A summary of the combined unconsolidated joint ventures’ financial statements as of and for the six months ended June 30, 2020 is as follows:
|
(dollars in thousands)
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
Investment in storage facilities, net
|
|
$
|
1,235,973
|
|
|
Investment in office building, net
|
|
|
4,246
|
|
|
Other assets
|
|
|
27,432
|
|
|
Total Assets
|
|
$
|
1,267,651
|
|
|
Due to the Company
|
|
$
|
796
|
|
|
Mortgages payable
|
|
|
544,321
|
|
|
Other liabilities
|
|
|
23,068
|
|
|
Total Liabilities
|
|
$
|
568,185
|
|
|
Unaffiliated partners’ equity
|
|
|
552,062
|
|
|
Company equity
|
|
|
147,404
|
|
|
Total Partners’ Equity
|
|
|
699,466
|
|
|
Total Liabilities and Partners’ Equity
|
|
$
|
1,267,651
|
|
|
Income Statement Data:
|
|
|
|
|
|
Total revenues
|
|
$
|
66,337
|
|
|
Property operating expenses
|
|
|
(20,367
|
)
|
|
Administrative, management and call center fees
|
|
|
(5,112
|
)
|
|
Gain on disposal of self-storage facilities
|
|
|
33,038
|
|
|
Depreciation and amortization of customer list
|
|
|
(15,706
|
)
|
|
Amortization of financing fees
|
|
|
(402
|
)
|
|
Income tax expense
|
|
|
(162
|
)
|
|
Interest expense
|
|
|
(12,055
|
)
|
|
Net income
|
|
$
|
45,571
|
|
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, our share of capital required for the development of properties under construction, and our share of the payoff of secured debt held by these joint ventures.
|