Annual report pursuant to Section 13 and 15(d)

Investment in Joint Ventures

v3.22.0.1
Investment in Joint Ventures
12 Months Ended
Dec. 31, 2021
Equity Method Investments And Joint Ventures [Abstract]  
Investment in Joint Ventures

11. INVESTMENT IN JOINT VENTURES

A summary of the Company’s unconsolidated joint ventures is as follows:

 

Venture

 

Number of
Properties at December 31, 2021

 

 

Company
common
ownership
interest

 

Carrying value
of investment
at December 31, 2021

 

 

Carrying value
of investment
at December 31, 2020

 

Sovran HHF Storage Holdings LLC (“Sovran HHF”)1

 

 

36

 

 

20%

 

$58.7  million

 

 

$60.5  million

 

Sovran HHF Storage Holdings II LLC (“Sovran HHF II”)2

 

 

22

 

 

15%

 

($2.4    million)

 

 

$27.3  million

 

Life Storage-SERS Storage LLC (“SERS”)3

 

 

 

 

20%

 

 

 

 

$3.0    million

 

Life Storage-HIERS Storage LLC (“HIERS”)4

 

 

17

 

 

20%

 

$13.9  million

 

 

$14.3  million

 

191 V Life Storage Holdings LLC ("191 V")5

 

 

17

 

 

20%

 

$27.4  million

 

 

 

 

GII Life Storage Holdings LLC ("GII")6

 

 

13

 

 

35%

 

$51.5  million

 

 

 

 

Iskalo Office Holdings, LLC (“Iskalo”)7

 

N/A

 

 

49%

 

($2.4   million)

 

 

($2.5    million)

 

Life Storage Spacemax, LLC ("Spacemax")8

 

 

6

 

 

40%

 

$14.5  million

 

 

$16.7  million

 

Life Storage Virtus, LLC ("Virtus")9

 

 

1

 

 

20%

 

$1.3   million

 

 

$1.5   million

 

SNL Orix Merrick, LLC ("Merrick")10

 

 

 

 

5%

 

 

 

 

$2.5   million

 

Life Storage 898 McDonald LLC ("McDonald")11

 

 

1

 

 

86%

 

$30.0  million

 

 

$2.7   million

 

Life Storage ArrowMark Venture LLC ("ArrowMark Venture")12

 

N/A

 

 

50%

 

$1.5   million

 

 

 

 

Joint ventures with properties in development stage13

 

 

4

 

 

Various

 

$8.2  million

 

 

$7.4   million

 

Other unconsolidated joint ventures (7 joint ventures)

 

 

7

 

 

Various

 

$6.1   million

 

 

$7.1   million

 

 

1.
In September 2020, the Company acquired 17 self-storage facilities and related assets from Sovran HHF for total consideration of $175.2 million, which is net of the Company’s share of Sovran HHF’s gain resulting from the transaction. In connection with this transaction, non-recourse loans with principal balances totaling $34.0 million were settled. Also in September 2020, Sovran HHF sold four self-storage facilities to an unrelated third-party for total consideration of $42.3 million, resulting in a gain on sale of $2.1 million. As of December 31, 2021, 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.
In September 2020, the Company acquired eight self-storage facilities and related assets from Sovran HHF II for total consideration of $120.2 million, which is net of the Company’s share of Sovran HHF II’s gain resulting from the transaction. In connection with this transaction, $35.8 million of non-recourse loans related to these properties were settled in April 2021. Also in connection with this transaction, the Company made a $12.7 million contribution to Sovran HHF II. On April 1, 2021, Sovran HHF II paid off $69.1 million in existing nonrecourse mortgage debt and entered into $110 million of new nonrecourse mortgage debt which matures in 2029. As a result of the net proceeds from these transactions, the Company received a distribution of $31.6 million from Sovran HHF II. This distribution is included in return of investment in unconsolidated joint ventures on the 2021 consolidated statement of cash flows.
3.
In September 2021, the Company acquired three self-storage facilities and related assets from SERS for total consideration of $51.7 million which is net of the Company's share of SERS's gain resulting from the transaction. In connection with this transaction, all non-recourse loans held by SERS were settled. See Note 4 for additional information regarding this transaction. As SERS no longer operates any self-storage facilities subsequent to the sale of the three self-storage facilities to the Company, the Company received a distribution of $2.8 million in September 2021 as the Company's return of its remaining investment in SERS. SERS is expected to be dissolved in 2022.
4.
In 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 nonrecourse 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.
5.
In May 2021, the Company executed a joint venture agreement, 191 V Life Storage Holdings LLC, with an unrelated third-party with the purpose of acquiring and operating self-storage facilities. In June 2021, 191 V acquired 17 self-storage facilities for a total of $320 million, at which time 191 V entered into $184 million of nonrecourse mortgage debt which matures in 2026. During 2021, the Company contributed $28.7 million to 191 V as the Company's share of the initial capital investment in the joint venture.
6.
In November 2021, the Company executed a joint venture agreement, GII Life Storage Holdings LLC, with an unrelated third-party with the purpose of acquiring and operating self-storage facilities. In December 2021, GII acquired 13 self-storage facilities for a total of $290.6 million, at which time GII entered into $145.3 million of nonrecourse mortgage debt which matures in 2029. During 2021, the Company contributed $52.0 million to GII as the Company's share of the initial capital investment in the joint venture.
7.
Iskalo owns the building that houses the Company’s headquarters. The Company paid rent to Iskalo of $1.5 million, $1.3 million, and $1.2 million during 2021, 2020, and 2019, respectively.
8.
In 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 nonrecourse mortgage debt. During 2020, the Company contributed $16.3 million to Spacemax as the Company's share of the initial capital investment in the joint venture.
9.
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.
10.
In March 2021, the Company acquired a self-storage facility and related assets from Merrick for total consideration of $47.9 million which is net of the Company's share of Merrick's gain resulting from the transaction. In connection with this transaction, all non-recourse loans held by Merrick were settled.
11.
In September 2021, the Company made an additional investment of $27.3 million in McDonald (formerly SNL/Orix 1200 McDonald Ave., LLC) which increased the Company's ownership interest in McDonald from 5% to 86%.
12.
In October 2021, the Company executed a joint venture agreement, Life Storage ArrowMark Venture LLC with the purpose of arranging and originating mortgage loans to owners of self-storage facilities throughout the United States. During 2021, the Company contributed $1.6 million to ArrowMark Venture as the Company's share of the funding of two mortgage loans to third-parties in 2021.
13.
The Company has entered into four separate joint ventures, one of which is developing a self-storage facility in Ontario, Canada, two of which are developing self-storage facilities in the New York City market, and one of which is developing a self-storage facility in the Tucson, AZ market. The Company has contributed an aggregate total of $8.2 million as its share of capital to these joint ventures.

In addition to the joint venture activity in the preceding table, 191 III Holdings LLC ("191 III"), an unconsolidated joint venture in which the Company held a 20% ownership interest, owned six self-storage facilities in California. The Company acquired these six self-storage facilities from 191 III in 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 4 for additional information regarding this transaction. As 191 III 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 2020 as the Company’s return of its remaining investment in 191 III. 191 III is expected to be dissolved in 2022.

Additionally, in 2020, the Company acquired the remaining 15% ownership of Urban Box Coralway Storage, LLC ("Urban Box"), a previously unconsolidated joint venture, for cash payment of $7.8 million which included the payoff of a $7.1 million mortgage loan previously entered into by Urban Box. The Company’s investment in Urban Box had historically been accounted for by the Company using the equity method of accounting. As a result of this transaction, the Company now owns 100% of Urban Box and has consolidated Urban Box in accordance with ASC 810, “Consolidation” since the date that the remaining 15% ownership interest was acquired. The allocated purchase price of Urban Box also includes the carrying value of the Company’s investment in Urban Box which totaled $3.4 million (see Note 4 for additional information on the accounting for this acquisition).

Based on the facts and circumstances of each of the Company’s joint ventures, the Company has determined that none of the joint ventures at December 31, 2021 are a variable interest entity (“VIE”) in accordance with ASC 810, “Consolidation.” The Company used the voting model under ASC 810 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 evaluated under the voting model are consolidated by the Company. Due to the Company’s significant influence over the operations of each of the joint ventures, all above 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 $8.2 million, $8.5 million and $8.9 million in 2021, 2020 and 2019, respectively.

 

The Company’s share of the unconsolidated joint ventures’ income (loss) is as follows:

 

(dollars in thousands)
Venture

 

Year Ended
December 31,
2021

 

 

Year Ended
December 31,
2020

 

 

Year Ended
December 31,
2019

 

Sovran HHF

 

$

3,270

 

 

$

3,743

 

 

$

3,747

 

Sovran HHF II

 

 

1,627

 

 

 

1,884

 

 

 

1,870

 

Other unconsolidated joint ventures

 

 

799

 

 

 

(789

)

 

 

(1,051

)

 

 

$

5,696

 

 

$

4,838

 

 

$

4,566

 

 

A summary of the combined unconsolidated joint ventures’ financial statements as of and for the year ended December 31, 2021 is as follows:

 

(dollars in thousands)

 

 

 

Balance Sheet Data:

 

 

 

Investment in storage facilities, net

 

$

1,650,866

 

Investment in office building, net

 

 

4,172

 

Other assets

 

 

29,153

 

Total Assets

 

$

1,684,191

 

Due to the Company

 

$

333

 

Mortgages payable

 

 

872,574

 

Other liabilities

 

 

15,432

 

Total Liabilities

 

$

888,339

 

Unaffiliated partners’ equity

 

 

587,619

 

Company equity

 

 

208,233

 

Total Partners’ Equity

 

 

795,852

 

Total Liabilities and Partners’ Equity

 

$

1,684,191

 

Income Statement Data:

 

 

 

Total revenues

 

$

126,426

 

Property operating expenses

 

 

(39,180

)

Administrative, management and call center fees

 

 

(9,531

)

Gain on sale of self-storage facilities

 

 

53,391

 

Depreciation and amortization of customer list

 

 

(29,914

)

Amortization of financing fees

 

 

(976

)

Income tax expense

 

 

(217

)

Interest expense

 

 

(21,279

)

Net income

 

$

78,720

 

 

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 self-storage facilities, our share of capital for the origination of nonrecourse loans by the ArrowMark Venture joint venture, 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.

A summary of our revenues, expenses and cash flows arising from the off-balance sheet arrangements with unconsolidated joint ventures for the three years ended December 31, 2021 are as follows:

 

 

 

Year ended December 31,

 

(dollars in thousands)

 

2021

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

 

Other operating income (management fees and acquisition fee income)

 

$

10,017

 

 

$

8,694

 

 

$

9,298

 

General and administrative expenses (corporate office rent)

 

 

1,494

 

 

 

1,269

 

 

 

1,198

 

Equity in income of joint ventures

 

 

5,696

 

 

 

4,838

 

 

 

4,566

 

Distributions from unconsolidated joint ventures

 

 

13,866

 

 

 

14,098

 

 

 

10,165

 

Receipts from (advances to) joint ventures, net

 

 

731

 

 

 

(95

)

 

 

(81

)

Investing activities

 

 

 

 

 

 

 

 

 

Investment in unconsolidated joint ventures

 

 

(113,465

)

 

 

(26,383

)

 

 

(25,659

)

Return of investment in unconsolidated joint ventures

 

 

37,584

 

 

 

28,008