Investments in Unconsolidated Real Estate Entities

9 Months Ended

Sep. 30, 2021

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 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 condensed 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 ventures and cash distributions in unconsolidated real estate ventures consist of the following:

	Number of Stores	Equity Ownership %	Excess Profit % (1)	September 30,		December 31,
				2021		2020
PR EXR Self Storage, LLC	5	25%	40%	$	59,633	$	60,092
WICNN JV LLC (2)	—	10%	35%	—		36,032
ESS-CA TIVS JV LP (3)	16	55%	60%	33,543		—
GFN JV, LLC (2)	—	10%	30%	—		18,397
ESS-NYFL JV LP	11	16%	24%	11,959		12,211
PRISA Self Storage LLC	85	4%	4%	8,694		8,815
Alan Jathoo JV LLC	9	10%	10%	7,651		7,780
Storage Portfolio IV JV LLC	15	10%	30%	20,528		—
Storage Portfolio III JV LLC	5	10%	30%	5,613		5,726
ESS Bristol Investments LLC	8	10%	30%	2,715		2,810
Extra Space Northern Properties Six LLC	10	10%	35%	(2,855)		(2,541)
Storage Portfolio II JV LLC	36	10%	30%	(5,954)		(5,441)
VRS Self Storage, LLC	16	45%	54%	(14,570)		17,186
Storage Portfolio I LLC	24	34%	49%	(39,817)		(39,144)
Other minority owned stores	17	10-50%	19-50%	23,429		28,395
SmartStop Self Storage REIT, Inc. Preferred Stock (4)	n/a	n/a	n/a	200,000		200,000
Net Investments in and Cash distributions in unconsolidated real estate entities	257			$	310,569	$	350,318

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

(2) In June 2021, the WICNN JV LLC and GFN JV, LLC joint ventures sold all 17 of the stores owned by the joint ventures to a third party. Subsequent to the sales, these joint ventures were dissolved. As a result of these transactions, the Company recorded a gain of $5,739, which is included in Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of joint venture partner's interest in the Company's condensed consolidated statements of operations.

(3) The Company sold 16 operating stores to this newly formed joint venture in March 2021. The Company received cash of $132,759 and an interest in the new joint venture valued at $33,878. This joint venture is unconsolidated and the Company accounts for its investment under the equity method of accounting as the Company does not have voting control but does exercise significant influence over the joint venture.

(4) The Company invested in shares of convertible preferred stock of SmartStop. 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 equity in earnings and dividend income from unconsolidated real estate entities line on the Company's condensed consolidated statements of operations.

During the nine months ended September 30, 2021, the Company contributed a total of $20,834 of cash to its joint ventures, including its pro-rata portion of the purchase price of 15 operating stores and other capital contributions related to cash flow requirements for lease up stores.

In June 2021, the Company sold its interest in two unconsolidated joint ventures to its joint venture partner. The Company received proceeds of $1,888 in cash, and recorded a gain of $525 which is included in Equity in earnings of unconsolidated real estate ventures - gain on sale of real estate assets and purchase of joint venture partner's interest in the Company's condensed consolidated statements of operations. The Company also purchased its joint venture partners' interests in two unconsolidated joint ventures.