Investment in Storage Facilities and Intangible Assets

3 Months Ended

Mar. 31, 2018

Investment in Storage Facilities and Intangible Assets

5. INVESTMENT IN STORAGE FACILITIES AND INTANGIBLE ASSETS

The following summarizes our activity in storage facilities during the three months ended March 31, 2018:

(dollars in thousands)
Cost:
Beginning balance	$	4,321,410
Improvements and equipment additions		3,497
Net increase in construction in progress		5,336
Dispositions		(1,984	)
Ending balance	$	4,328,259
Accumulated Depreciation:
Beginning balance	$	624,314
Additions during the period		24,731
Dispositions		(1,915	)
Ending balance	$	647,130

We did not acquire any self-storage facilities during the three months ended March 31, 2018.

The Company measures the fair value of in-place customer lease intangible assets based on the Company’s experience with customer turnover and the 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). The Company measures the value of trade names, which have an indefinite life and are not amortized, by calculating discounted cash flows utilizing the relief from royalty method.

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

(Dollars in thousands)	Mar. 31, 2018			Dec. 31, 2017
In-place customer leases	$	75,241		$	75,241
Accumulated amortization		(75,241	)		(75,241	)
Net carrying value at the end of period		—			—

Amortization expense related to in-place customer leases was $12.8 million for the three months ended March 31, 2017. The Company did not record any amortization expense during the three months ended March 31, 2018 as all in-place customer leases were fully amortized at the beginning of the period.

Change in Useful Life Estimates

As part of the Company’s capital improvement efforts during 2017 and 2018, 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 an increase in depreciation expense of approximately $0.3 million during the three month period ended March 31, 2018. The Company estimates that the change in estimated useful lives of buildings identified for replacement as of March 31, 2018 will have minimal additional impact on depreciation expense during the remainder of 2018.

The accelerated depreciation resulting from the events discussed above reduced both basic and diluted earnings per share/unit by approximately $0.01 for the three month period ended March 31, 2018.