Investments in Unconsolidated Real Estate Entities

12 Months Ended

Dec. 31, 2019

Equity Method Investments and Joint Ventures [Abstract]

Investments in Unconsolidated Real Estate Entities

INVESTMENTS IN UNCONSOLIDATED REAL ESTATE ENTITIES

Investments in unconsolidated real estate entities and cash distributions in unconsolidated real estate ventures represent the Company's interest in preferred stock of SmartStop Self Storage REIT, Inc. ("SmartStop") and the Company's noncontrolling interest in real estate joint ventures that own stores. The Company accounts for its investment in SmartStop preferred stock, which does not have a readily determinable fair value, at the transaction price less impairment, if any. The Company accounts for its investments in joint ventures using the equity method of accounting. The Company initially records these investments at cost and subsequently adjusts for cash contributions, distributions and net equity in income or loss, which is allocated in accordance with the provisions of the applicable partnership or joint venture agreement.

In these joint ventures, the Company and the joint venture partner generally receive a preferred return on their invested capital. To the extent that cash or profits in excess of these preferred returns are generated through operations or capital transactions, the Company would receive a higher percentage of the excess cash or profits, as applicable, than its equity interest.

The Company separately reports investments with net equity less than zero in cash distributions in unconsolidated real estate ventures in the consolidated balance sheets. The net equity of certain joint ventures is less than zero because distributions have exceeded the Company's investment in and share of income from these joint ventures. This is generally the result of financing distributions, capital events or operating distributions that are usually greater than net income, as net income includes non-cash charges for depreciation and amortization while distributions do not.

Net Investments in unconsolidated real estate entities and cash distributions in unconsolidated real estate ventures consist of the following:

	Number of Stores	Equity Ownership %	Excess Profit % (1)	December 31,
				2019			2018
PRISA Self Storage LLC	85	4%	4%	$	9,133		$	9,334
Storage Portfolio II JV LLC	36	10%	30%	(4,827		)	(4,233		)
Storage Portfolio I LLC	24	34%	49%	(38,345		)	(38,129		)
VRS Self Storage, LLC	16	45%	54%	17,639			18,281
ESS-NYFL JV LP	11	16%	24%	13,320			—
WICNN JV LLC (3)	10	10%	25%	36,552			26,885
Extra Space Northern Properties Six LLC	10	10%	35%	(2,091		)	(1,700		)
Alan Jathoo JV LLC	9	10%	10%	7,977			8,180
PR EXR Self Storage, LLC	5	25%	40%	59,391			19,841
ESS Bristol Investments LLC	8	10%	28%	3,046			2,331
GFN JV, LLC (3)	5	10%	30%	12,168			10,586
Extra Space West Two LLC (4)	—	5%	40%	—			3,818
Extra Space West One LLC (4)	—	5%	40%	—			(1,038		)
Other minority owned stores	22	10-50%	19-50%	28,827			25,973
SmartStop Self Storage REIT, Inc. Preferred Stock (2)	n/a	n/a	n/a	150,000			—
Net Investments in and Cash distributions in unconsolidated real estate entities	241			$	292,790		$	80,129

(1) Includes pro-rata equity ownership share and promoted interest.

(2) In October 2019, the Company invested $150,000 in shares of newly issued convertible preferred stock of SmartStop, with an additional commitment to purchase up to $50,000 of the preferred shares over the 12 months after the original purchase. The dividend rate for the preferred shares is 6.25% per annum, subject to increase after five years. The preferred shares are generally not redeemable for five years, except in the case of a change of control or initial listing of SmartStop. Dividend income from this investment is included on the management fees and other income line on the Company's consolidated statements of operations.

(3) The Company had $31,500 and $10,335 of preferred equity in the WICNN JV LLC and GFN JV, LLC joint ventures, respectively, as of December 31, 2019. The Company earns an 8.0% return on its preferred equity in these joint ventures, which has priority over other distributions.

(4) In January 2019, the Company purchased its joint venture partners' interests in the Extra Space West One LLC and Extra Space West Two LLC joint ventures, which owned a total of 12 stores. The Company paid $172,505 of cash to acquire the equity interests, and subsequent to this acquisition, the Company owned 100.0% of the joint ventures and the related stores.

In accordance with ASC 810, the Company reviews all of its joint venture relationships annually to ensure that there are no entities that require consolidation. As of December 31, 2019, there were no previously unconsolidated entities that were required to be consolidated as a result of this review.

The Company has entered into several new unconsolidated real estate ventures. The Company accounts for its investment in the following ventures under the equity method of accounting. Information about these new real estate ventures is summarized as follows:

	Number of Stores	Equity ownership %	Total initial investment
For the Year Ended December 31, 2019	16	10.0%-50.0%	$	19,663
For the Year Ended December 31, 2018	28	10.0% -50.0%	$	63,723
For the Year Ended December 31, 2017	39	10.0% - 25.0%	$	13,341

During the year ended December 31, 2019, the Company contributed a total of $104,338 to its joint ventures (new and existing) for the purchase of 15 operating stores and nine stores acquired at the issuance of certificate of occupancy.

On April 30, 2018, the Company acquired its partner's interest in the WCOT Self Storage LLC joint venture. The Company paid cash of $115,797 and assumed a loan of $87,500. The 14 properties owned by this joint venture became wholly-owned properties of the Company subsequent to this acquisition.

Equity in earnings of unconsolidated real estate ventures consists of the following:

	For the Year Ended December 31,
	2019			2018			2017
Equity in earnings of PRISA Self Storage LLC	$	2,327		$	2,338		$	2,430
Equity in earnings of Storage Portfolio II JV LLC	291			79			33
Equity in earnings of Storage Portfolio I LLC	1,809			1,886			2,684
Equity in earnings of VRS Self Storage, LLC	3,583			3,640			3,562
Equity in earnings of ESS-NYFL JV LLC	(96		)	—			—
Equity in earnings of WICNN JV LLC	1,373			622			—
Equity in earnings of Extra Space Northern Properties Six LLC	1,091			1,014			918
Equity in earnings of Alan Jathoo JV LLC	(47		)	(12		)	—
Equity in earnings of Bristol Investments LLC	(262		)	(152		)	—
Equity in earnings of GFN JV, LLC	450			22			—
Equity in earnings of PR EXR Self Storage, LLC	(443		)	(75		)	(105		)
Equity in earnings of WCOT Self Storage LLC	—			359			1,033
Equity in earnings of Extra Space West Two LLC	—			1,042			1,210
Equity in earnings of Extra Space West One LLC	—			2,526			2,502
Equity in earnings of other minority owned stores	1,198			1,163			1,064
	$	11,274		$	14,452		$	15,331

Equity in earnings of certain of our joint ventures includes the amortization of the Company’s excess purchase price of $27,867 of these equity investments over its original basis. The excess basis is amortized over 40 years.

The Company provides management services to certain joint ventures for a fee. Management fee revenues for affiliated real estate joint ventures for the years ended December 31, 2019, 2018 and 2017 were $14,624, $14,123 and $12,650, respectively.