Quarterly report pursuant to Section 13 or 15(d)

Organization

v3.22.1
Organization
3 Months Ended
Mar. 31, 2022
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization

2. ORGANIZATION

The Parent Company operates as a self-administered and self-managed real estate investment trust (a “REIT”) that owns and operates self-storage properties. All of the Parent Company’s assets are owned by, and all its operations are conducted through, the Operating Partnership. Life Storage Holdings, Inc., a wholly-owned subsidiary of the Parent Company (“Holdings”), is the sole general partner of the Operating Partnership; the Parent Company is a limited partner of the Operating Partnership and, through its ownership of Holdings and its limited partnership interest, controls the operations of the Operating Partnership, holding a 98.1% ownership interest therein as of March 31, 2022, assuming the conversion of all preferred operating partnership units at that date. The remaining ownership interests in the Operating Partnership (the “Units”) are held by certain former owners of assets acquired by the Operating Partnership. The Parent Company, the Operating Partnership and their consolidated subsidiaries are collectively referred to in this report as the “Company.” In addition, terms such as “we,” “us,” or “our” used in this report may refer to the Company, the Parent Company and/or the Operating Partnership.

At March 31, 2022, we had an ownership interest in and/or managed 1,105 self-storage properties in 36 states. Among our 1,105 self-storage properties are 117 properties that we manage for unconsolidated joint ventures (see Note 10) and 261 properties that we manage and in which we have no ownership interest.

We consolidate all wholly owned subsidiaries. Partially owned entities, including joint ventures, are consolidated when we control the entity. Our consolidated financial statements include the accounts of the Parent Company, the Operating Partnership, Life Storage Solutions, LLC (one of the Parent Company’s taxable REIT subsidiaries), Warehouse Anywhere LLC, and all other wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. Investments in joint ventures that we do not control but over which we have significant influence are accounted for using the equity method.

Included in the Parent Company’s consolidated balance sheets are noncontrolling redeemable Operating Partnership Units and included in the Operating Partnership’s consolidated balance sheets are limited partners’ redeemable capital interests at redemption value. These interests are presented in the “mezzanine” section of the consolidated balance sheets because they do not meet the functional definition of a liability or equity under current accounting literature. These represent the outside ownership interests of the limited partners in the Operating Partnership. There were 960,208 and 960,708 common noncontrolling redeemable Operating Partnership Units outstanding at March 31, 2022 and December 31, 2021, respectively, and 3,590,603 preferred noncontrolling redeemable Operating Partnership Units outstanding at both March 31, 2022 and December 31, 2021. The preferred noncontrolling redeemable Operating Partnership Units rank senior to all other partnership interests with respect to distributions and liquidation.

The common unitholders are entitled to receive distributions per unit equivalent to the dividends declared per share on the Parent Company’s common stock. The preferred unitholders are entitled to receive a fixed priority return of 4.5% and the preferred noncontrolling redeemable Operating Partnership Units are convertible at the option of the unitholders after the earlier of (i) the first anniversary of the date of issuance, (ii) the date of death of an initial holder who is a natural person or (iii) the sale, lease or conveyance of all or substantially all of the assets of the Operating Partnership, into common noncontrolling redeemable Operating Partnership Units. Upon any such conversion, each preferred noncontrolling redeemable Operating Partnership Unit being converted shall be convertible into a number of common Operating Partnership Units equal to the quotient of (i) the stated value of the preferred noncontrolling redeemable Operating Partnership Units being converted (such stated value being $25.00 per preferred noncontrolling redeemable Operating Partnership Unit) plus any accrued and unpaid distributions, divided by (ii) the average closing price of the Parent Company's common stock over the 90 consecutive trading days ending the trading day preceding the date of conversion. The Operating Partnership is obligated to redeem each of the common noncontrolling redeemable Operating Partnership Units at the request of the holder thereof for cash equal to the fair market value of a share of the Parent Company’s common stock based on a

10-day average of the daily market price, at the time of such redemption, provided that the Company, at its option, may elect to acquire any such Unit presented for redemption for one common share or cash.

The Company accounts for the noncontrolling redeemable Operating Partnership Units under the provisions of Accounting Standards Codification (ASC) Topic 480-10-S99. The application of the ASC Topic 480-10-S99 accounting model requires the noncontrolling interest to follow normal noncontrolling interest accounting and then be marked to redemption value at the end of each reporting period if higher (but never adjusted below that normal noncontrolling interest accounting amount) for the common noncontrolling redeemable Operating Partnership Units. The offset to the adjustment to the carrying amount of the common noncontrolling redeemable Operating Partnership Units is reflected in the Company’s dividends in excess of net income and in the Operating Partnership’s general partner and limited partners capital balances. Accordingly, in the accompanying consolidated balance sheets, common noncontrolling redeemable Operating Partnership Units are reflected at redemption value at March 31, 2022 and December 31, 2021, equal to the number of common noncontrolling interest units outstanding multiplied by the fair market value of the Parent Company’s common stock at that date. Redemption value exceeded the value determined under the Company’s historical basis of accounting at those dates. ASC Topic 480-10-S99 requires the preferred noncontrolling redeemable Operating Partnership Units to be valued at fair value as of the date of issuance and to continue to be recorded at the value determined at initial measurement plus any accrued distributions.

The following is a reconciliation of the Parent Company’s common noncontrolling redeemable Operating Partnership Units and the Operating Partnership’s limited partners’ redeemable common capital interest for the period:

 

(dollars in thousands)

 

Three Months
Ended
March 31, 2022

 

Beginning balance

 

$

142,892

 

Net income attributable to noncontrolling common
   interests in the Operating Partnership

 

 

847

 

Redemption of units

 

 

(75

)

Distributions

 

 

(960

)

Adjustment to redemption value

 

 

(10,924

)

Ending balance

 

$

131,780

 

 

The following is a reconciliation of the Parent Company’s preferred noncontrolling redeemable Operating Partnership Units and the Operating Partnership’s limited partners’ redeemable preferred capital interest for the period:

 

(dollars in thousands)

 

Three Months
Ended
March 31, 2022

 

Beginning balance

 

$

90,783

 

Net income attributable to noncontrolling preferred
   interests in the Operating Partnership

 

 

996

 

Distributions

 

 

(1,018

)

Ending balance

 

$

90,761

 

 

Subsequent to March 31, 2021, due to growth in the Company's tenant reinsurance program, tenant reinsurance revenues and expenses are presented separately on the consolidated statements of operations. The March 31, 2021 consolidated statements of operations have been revised accordingly to comply with this presentation. Prior to this change in presentation, such tenant reinsurance revenues and expenses were included in other income and expenses were included in other income and property operations and maintenance expense, respectively, in the Company's consolidated statements of operations. The disaggregated revenues of the Company presented in accordance with ASC Topic 606 “Revenue from Contracts with Customers” are as follows:

 

(dollars in thousands)

 

Three Months
Ended
March 31,
2022

 

 

Three Months
Ended
March 31,
2021

 

Rental income

 

$

205,509

 

 

$

150,283

 

Revenues related to tenant reinsurance

 

 

17,267

 

 

 

12,619

 

Management and acquisition fee income

 

 

5,856

 

 

 

4,590

 

Other

 

 

4,858

 

 

 

4,395

 

Total operating revenues

 

$

233,490

 

 

$

171,887

 

 

Management and acquisition fee income is included in other operating income in the consolidated statements of operations.

 

During the three months ended March 31, 2022, approximately 16% and 15% of the Company’s revenue was derived from self-storage facilities in the states of Texas and Florida, respectively.