Investment in Storage Facilities and Intangible Assets

12 Months Ended

Dec. 31, 2022

Investment in Storage Facilities and Intangible Assets

4. INVESTMENT IN STORAGE FACILITIES AND INTANGIBLE ASSETS

The following summarizes activity in storage facilities during the years ended December 31, 2022 and December 31, 2021.


(dollars in thousands)	2022			2021
Cost:
Beginning balance	$	7,090,457		$	5,330,323
Acquisition of storage facilities		992,613			1,675,366
Improvements and equipment additions		103,857			59,569
Net (decrease) increase in construction in progress		(1,361	)		25,946
Dispositions		(13,760	)		(747	)
Ending balance	$	8,171,806		$	7,090,457
Accumulated Depreciation:
Beginning balance	$	1,007,650		$	873,178
Additions during the year		172,717			134,773
Dispositions		(9,847	)		(301	)
Ending balance	$	1,170,520		$	1,007,650

The Company acquired 50 self-storage facilities during 2022 and 112 self-storage facilities during 2021. The acquisitions of these facilities were accounted for as asset acquisitions. The cost of these facilities, including closing costs, was assigned to land, buildings, equipment, improvements, construction in progress and in-place customer leases based upon their relative fair values. The operating results of the facilities acquired have been included in the Company’s operations since the respective acquisition dates.

The purchase price of the 50 facilities acquired in 2022 and the 112 facilities acquired in 2021 has been assigned as follows:


(dollars in thousands)						Consideration Paid									Acquisition Date Fair Value
States	Number of Properties		Date of Acquisition	Purchase Price		Cash Paid		Carrying Value of Joint Venture Interest		Value of Operating Partnership Units/ Member Interest Issued		Net Other Liabilities Assumed (Assets Acquired)			Land		Building, Equipment, and Improvements		In-Place Customer Leases
2022
CA		6	1/4/2022	$	165,225		165,160	$	—	$	—	$	65		$	20,321	$	143,243	$	1,661
GA, NC, SC		3	3/11/2022		48,586		48,446		—		—		140			3,926		44,300		360
IL, NC, TX		8	3/15/2022		116,048		115,410		—		—		638			12,292		102,439		1,317
MD		1	3/28/2022		21,651		21,646		—		—		5			1,640		19,856		155
NY		1	4/4/2022		35,802		5,557		30,186		—		59			10,287		25,280		235
FL		3	4/19/2022		52,343		52,060		—		—		283			7,894		43,814		635
GA		1	4/22/2022		16,403		16,390		—		—		13			1,333		14,903		167
MA		1	4/25/2022		20,083		20,087		—		—		(4	)		810		19,041		232
FL		1	5/10/2022		17,218		17,112		—		—		106			3,712		13,306		200
FL		1	5/12/2022		36,452		36,254		—		—		198			5,101		31,079		272
NY		2	5/17/2022		32,487		32,374		—		—		113			1,524		30,594		369
TX		1	5/17/2022		17,097		6,608		—		10,300		189			1,273		15,615		209
FL		1	5/31/2022		22,021		21,880		—		—		141			3,563		18,171		287
CA		1	6/21/2022		12,675		12,641		—		—		34			5,967		6,572		136
NC		1	7/6/2022		20,059		19,970		—		—		89			428		19,428		203
NV		1	8/12/2022		29,113		29,154		—		—		(41	)		2,354		26,512		247
NY		1	8/12/2022		29,000		24,130		—		4,915		(45	)		8,079		20,734		187
CA		1	8/23/2022		10,709		10,690		—		—		19			1,324		9,292		93
AZ		1	8/24/2022		30,550		30,388		—		—		162			3,959		26,255		336
MO		5	9/14/2022		93,103		91,820		—		—		1,283			8,212		83,702		1,189
MA		1	9/21/2022		16,650		16,618		—		—		32			640		15,819		191
FL		1	9/22/2022		17,363		17,233		—		—		130			1,830		15,369		164
AZ, MN		7	10/13/2022		142,405		141,836		—		—		569			13,829		126,991		1,585
Total acquired 2022		50		$	1,003,043	$	953,464	$	30,186	$	15,215	$	4,178		$	120,298	$	872,315	$	10,430


(dollars in thousands)						Consideration Paid							Acquisition Date Fair Value
States	Number of Properties		Date of Acquisition	Purchase Price		Cash Paid		Value of Operating Partnership Units Issued		Net Other Liabilities Assumed (Assets Acquired)			Land		Building, Equipment, and Improvements		In-Place Customer Leases
2021
SC		1	1/4/2021	$	8,070		8,042	$	—	$	28		$	812	$	7,153	$	105
CA		1	1/21/2021		18,287		18,251		—		36			1,322		16,830		135
NY		1	3/4/2021		47,947		47,933		—		14			10,591		37,020		336
FL		8	3/11/2021		85,156		84,586		—		570			13,381		70,538		1,237
AZ		3	3/24/2021		67,089		66,890		—		199			7,129		59,320		632
WA		2	3/25/2021		39,666		39,495		—		171			6,166		33,037		443
FL		1	5/3/2021		16,545		16,497		—		48			1,658		14,739		148
NJ		5	5/12/2021		90,944		90,710		—		234			11,557		78,116		1,271
NC		2	6/1/2021		26,942		26,793		—		149			2,209		24,395		338
TX		4	6/10/2021		44,563		43,952		—		611			9,163		34,746		654
FL		1	6/16/2021		14,344		14,235		—		109			2,601		11,526		217
FL, NH		3	6/22/2021		59,618		59,257		—		361			19,101		39,752		765
NC		1	6/23/2021		14,539		14,468		—		71			657		13,695		187
NH		2	7/29/2021		22,315		22,311		—		4			6,271		15,743		301
FL		1	8/17/2021		14,846		14,740		—		106			2,884		11,789		173
AL, CO, FL, GA, KY, OH, OK, SC, TX		22	8/19/2021		229,982		137,188		91,265		1,529			23,173		203,682		3,127
AZ		1	8/25/2021		17,190		17,187		—		3			1,034		15,974		182
GA		3	9/1/2021		51,707		51,375		—		332			5,570		45,447		690
TX		4	10/1/2021		58,904		25,180		32,841		883			9,407		48,641		856
FL		2	10/20/2021		58,043		57,613		—		430			13,147		44,281		615
GA, NC, SC, TN		7	10/21/2021		129,345		125,778		3,300		267			13,769		114,338		1,238
VA		1	11/16/2021		14,488		14,449		—		39			341		13,963		184
ME		1	12/2/2021		20,100		20,082		—		18			1,669		18,204		227
IL		1	12/8/2021		19,044		18,922		—		122			1,705		17,136		203
FL		1	12/10/2021		12,577		12,540		—		37			2,746		9,661		170
FL, GA, IL		23	12/13/2021		369,487		367,635		—		1,852			47,189		317,719		4,579
FL		1	12/15/2021		14,095		14,056		—		39			2,989		10,924		182
CO		2	12/16/2021		33,087		14,334		18,173		580			3,726		28,940		421
FL		1	12/17/2021		20,596		20,548		—		48			737		19,623		236
CT		6	12/28/2021		76,801		49,666		27,137		(2	)		10,461		65,269		1,071
Total acquired 2021		112		$	1,696,317	$	1,514,713	$	172,716	$	8,888		$	233,165	$	1,442,201	$	20,923

The facility purchased in New York during April 2022 was acquired as a result of the Company's acquisition of the remaining 14.2% ownership interest in Life Storage 898 McDonald LLC ("McDonald"). Prior to this acquisition, McDonald was a joint venture between the Company and an otherwise unrelated third party which had been accounted for by the Company using the equity method of accounting (see Note 11 for additional information on McDonald). The purchase price for this acquisition includes the carrying value of the Company's equity investment in McDonald of $30.2 million at the time of the acquisition.

During August 2022, the Company purchased a self-storage facility in New York from an unrelated joint venture partner for total consideration of $29.0 million, which includes $4.9 million related to the seller's retained interest in the joint venture. The Company owns 83% of this joint venture with the remaining 17% owned by the Company's joint venture partner. Based on the facts and circumstances of the joint venture, the Company determined that the facility should be consolidated in accordance with ASC 810, Consolidation. The assets and liabilities of the property are included in the Company's consolidated balance sheets. Additionally included in the Company's consolidated balance sheets is the joint venture partner's noncontrolling interest, which totals $4.9 million at December 31, 2022. The Company's net investment in the joint venture is $24.1 million at December 31, 2022.

The facility purchased in New York in 2021 was acquired from SNL Orix Merrick ("Merrick"), an unconsolidated joint venture in which the Company held a 5% ownership interest. In accordance with ASC Topic 970, “Real Estate – General,” ("ASC 970") the Company recorded its equity in the profit from the sale of this self-storage facility as a reduction in the respective purchase price allocated to land and depreciable fixed assets. In addition to the $47.9 million cash payment for the self-storage facility acquired from Merrick, the Company also recognized $0.8 million as a return on the Company's investment in Merrick as discussed further in Note 11.

The three facilities purchased in Georgia in September 2021 were acquired from Life Storage-SERS Storage LLC ("SERS"), an unconsolidated joint venture in which the Company held a 20% ownership interest. In accordance with ASC 970, the Company recorded its equity in the profit from the sale of these self-storage facilities as a reduction in the respective purchase price allocated to land and depreciable fixed assets. In addition to the $51.7 million cash payment for the self-storage facilities acquired from SERS, the Company also recognized $8.3 million as a return on the Company's investment in SERS as discussed further in Note 11.

Nine of the facilities acquired in 2022 and 27 of the facilities acquired in 2021 were managed by the Company for third-parties prior to their respective acquisition. The remaining 39 and 81 facilities acquired in 2022 and 2021, respectively, were all acquired from unrelated third-parties.

Non-cash investing activities during 2022 include the Company's equity investment in McDonald at carrying value, the noncontrolling interest in the self-storage facility acquired in New York, the issuance of $10.3 million of common Operating Partnership Units based on the average closing price of the Parent Company's common stock over the 15 consecutive trading days prior to closing on the related self-storage facility acquisition, and the assumption of net other liabilities totaling $4.2 million. Non-cash investing activities during 2021 include the issuance of $89.8 million of preferred Operating Partnership Units valued based upon the terms of the preferred Operating Partnership Units as compared to market rates for similar instruments at the time of acquisition, the issuance of $82.9 million of common Operating Partnership Units based on the average closing price of the Parent Company's common stock for a stated number of days prior to closing on the related self-storage facility acquisitions, and the assumption of net other liabilities totaling $8.9 million. Non-cash investing activities during 2020 include the Company’s equity investment in an unconsolidated joint venture at carrying value, the assumption of a mortgage with an acquisition date fair value of $6.4 million, and the assumption of net other liabilities totaling $1.8 million.

The Company measures the fair value of in-place customer lease intangible assets based on the Company’s experience with customer turnover and the estimated cost to replace the in-place leases. The Company amortizes in-place customer leases on a straight-line basis over 12 months (the estimated future benefit period).

In-place customer leases are included in other assets on the Company’s consolidated balance sheets at December 31 as follows:


(dollars in thousands)	2022			2021
In-place customer leases	$	118,216		$	107,786
Accumulated amortization		(114,005	)		(93,820	)
Net carrying value at the end of period	$	4,211		$	13,966

Amortization expense related to in-place customer leases totaled $20.2 million, $12.4 million, and $5.6 million, during the years ended December 31, 2022, 2021, and 2020, respectively. Amortization expense is expected to be $4.2 million in 2023 based on in-place customer leases at December 31, 2022.

Property Dispositions

No self-storage facilities were sold during 2022, 2021, or 2020.

Change in Useful Life Estimates

As part of the Company’s capital improvement efforts, buildings at certain self-storage facilities were identified for replacement. As a result of the decision to replace these buildings, the Company reassessed the estimated useful lives of the then existing buildings. This useful life reassessment resulted in increases in depreciation expense of approximately $0.2 million, $2.5 million, and $5.8 million in 2022, 2021, and 2020, respectively. The Company estimates that the change in estimated useful lives of buildings identified for replacement as of December 31, 2022 will not have a significant impact on depreciation expense in 2023.

The accelerated depreciation resulting from the events discussed above had minimal impact on basic and diluted earnings per share/unit during 2022 and reduced both basic and diluted earnings per share/unit by approximately $0.03 and $0.08 per share/unit in 2021 and 2020, respectively.