Item 1. Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Life Storage, Inc. (the “Parent Company”) and Life Storage LP (the “Operating Partnership”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
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 99.5% ownership interest therein as of September 30, 2020. 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 September 30, 2020, we had an ownership interest in and/or managed 905 self-storage properties in 30 states and Ontario, Canada. Among our 905 self-storage properties are 93 properties that we manage for unconsolidated joint ventures (see Note 10) and 224 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. Prior to July 2, 2020, the Company owned 60% of Warehouse Anywhere LLC. On July 2, 2020, the Company acquired the remaining ownership interest in Warehouse Anywhere LLC for cash payment of $2.0 million along with potential for the sellers to receive additional future payment based on the 2023 results of Warehouse Anywhere LLC. At the date of acquisition and at September 30, 2020, the Company estimates this potential future payment to be approximately $0.3 million based on the projected 2023 results of Warehouse Anywhere LLC. 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 interest 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 243,966 and 246,466 noncontrolling redeemable Operating Partnership Units outstanding at September 30, 2020 and December 31, 2019, respectively. These unitholders are entitled to receive distributions per unit equivalent to the dividends declared per share on the Parent Company’s common stock. The Operating Partnership is obligated to redeem each of these limited partnership units in the Operating Partnership 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 these 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). The offset to the adjustment to the carrying amount of the noncontrolling interests 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, noncontrolling interests are reflected at redemption value at September 30, 2020 and December 31, 2019, equal to the number of 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.
12
The following is a reconciliation of the Parent Company’s noncontrolling redeemable Operating Partnership Units and the Operating Partnership’s limited partners’ redeemable capital interest for the period:
(dollars in thousands)
|
|
Nine Months
Ended
September 30, 2020
|
|
Beginning balance
|
|
$
|
26,307
|
|
Net income attributable to noncontrolling interest in the
Operating Partnership
|
|
|
576
|
|
Redemption of units
|
|
|
(265
|
)
|
Distributions
|
|
|
(785
|
)
|
Adjustment to redemption value
|
|
|
15
|
|
Ending balance
|
|
$
|
25,848
|
|
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
September 30,
2020
|
|
|
Three Months
Ended
September 30,
2019
|
|
|
Nine Months
Ended
September 30,
2020
|
|
|
Nine Months
Ended
September 30,
2019
|
|
Rental income
|
|
$
|
135,965
|
|
|
$
|
128,565
|
|
|
$
|
393,701
|
|
|
$
|
381,625
|
|
Management and acquisition fee income
|
|
|
4,518
|
|
|
|
3,809
|
|
|
|
13,107
|
|
|
|
10,156
|
|
Revenues related to tenant reinsurance
|
|
|
11,616
|
|
|
|
9,170
|
|
|
|
32,508
|
|
|
|
23,948
|
|
Other
|
|
|
4,211
|
|
|
|
4,090
|
|
|
|
10,950
|
|
|
|
11,457
|
|
Total operating revenues
|
|
$
|
156,310
|
|
|
$
|
145,634
|
|
|
$
|
450,266
|
|
|
$
|
427,186
|
|
Management and acquisition fee income and revenues related to tenant reinsurance are included in other operating income in the consolidated statements of operations.
During the nine months ended September 30, 2020, approximately 19% and 13% of the Company’s revenue was derived from self-storage facilities in the states of Texas and Florida, respectively.
Commencing April 1, 2019, the Company launched a tenant self-storage insurance program whereby a captive wholly owned subsidiary of the Company reinsures certain risks relating to property stored by its tenants. In connection with this program, the Company’s prior arrangement with a third-party insurer was terminated. The change in tenant insurance programs resulted in an increase to both tenant reinsurance revenues and related expenses for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 as a result of the differences in the accounting for the two programs.
3. STOCK BASED COMPENSATION
The Company accounts for stock-based compensation under the provisions of ASC Topic 718, “Compensation - Stock Compensation.” The Company recognizes compensation cost in its financial statements for all share-based payments granted, modified, or settled during the period.
For awards with graded vesting, compensation cost is recognized on a straight-line basis over the related vesting period.
For the three months ended September 30, 2020 and 2019, the Company recorded compensation expense of $1,107,000 and $955,000, respectively, related to amortization of non-vested stock grants and performance-based awards. For the nine months ended September 30, 2020 and 2019, the Company recorded compensation expense of $3,380,000 and $3,284,000, respectively, related to amortization of non-vested stock grants and performance-based awards.
No stock options were exercised by employees or directors during the three and nine months ended September 30, 2020 and 2019. During the three months ended September 30, 2020 and 2019, 379 and 375 shares of non-vested stock, respectively, vested. During the nine months ended September 30, 2020 and 2019, 17,775 and 23,948 shares of non-vested stock, respectively, vested.
During the nine months ended September 30, 2020, the Company issued 16,415 shares of non-vested stock to employees and directors which vest over periods ranging from one to five years. The per-share fair market value on the date of grant of the non-vested stock
13
issued during the nine months ended September 30, 2020 ranged from $87.59 to $108.20, resulting in an aggregate fair value of $1.5 million.
During the nine months ended September 30, 2020, the Company granted performance-based awards that entitle recipients to earn up to 7,294 shares of Company stock if certain performance criteria are achieved over a three-year period. The Company estimated the aggregate fair value of the awards on the grant date to be $0.4 million.
4. CASH AND RESTRICTED CASH
Restricted cash represents amounts required to be placed in escrow by banks with whom the Company has mortgages and amounts required to be placed into escrow related to the Company’s tenant reinsurance program. Restricted cash is included in other assets in the consolidated balance sheets. The following table provides a reconciliation of cash and restricted cash reported within the consolidated statement of cash flows:
(Dollars in thousands)
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
September 30,
2019
|
|
Cash
|
|
$
|
110,247
|
|
|
$
|
17,458
|
|
|
$
|
16,371
|
|
Restricted cash
|
|
|
5,007
|
|
|
|
4,098
|
|
|
|
5,130
|
|
Total cash and restricted cash
|
|
$
|
115,254
|
|
|
$
|
21,556
|
|
|
$
|
21,501
|
|
5. INVESTMENT IN STORAGE FACILITIES AND INTANGIBLE ASSETS
The following summarizes our activity in storage facilities during the nine months ended September 30, 2020:
(dollars in thousands)
|
|
|
|
|
Cost:
|
|
|
|
|
Beginning balance
|
|
$
|
4,749,473
|
|
Acquisition of storage facilities
|
|
|
413,022
|
|
Improvements and equipment additions
|
|
|
43,888
|
|
Net decrease in construction in progress
|
|
|
(5,884
|
)
|
Dispositions
|
|
|
(247
|
)
|
Ending balance
|
|
$
|
5,200,252
|
|
Accumulated Depreciation:
|
|
|
|
|
Beginning balance
|
|
$
|
756,333
|
|
Additions during the period
|
|
|
86,424
|
|
Dispositions
|
|
|
(165
|
)
|
Ending balance
|
|
$
|
842,592
|
|
The Company acquired 31 self-storage facilities during the nine months ended September 30, 2020. The acquisitions of these facilities were accounted for as asset acquisitions. The costs of the facilities, including closing costs, were allocated to land, building, equipment and improvements, and in-place customer leases based upon their relative fair values.
The purchase prices of the facilities acquired in 2020 have been assigned as follows:
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Consideration paid
|
|
|
Acquisition Date Fair Value
|
|
States
|
|
Number
of
Properties
|
|
|
Date of
Acquisition
|
|
Purchase
Price
|
|
|
Cash
Paid
|
|
|
Mortgage
Assumed
|
|
|
Net Other
Liabilities
(Assets)
Assumed
|
|
|
Land
|
|
|
Building,
Equipment,
and
Improvements
|
|
|
Construction in Progress
|
|
|
In-Place
Customers
Leases
|
|
CA
|
|
|
6
|
|
|
3/9/2020
|
|
$
|
124,298
|
|
|
$
|
124,204
|
|
|
$
|
—
|
|
|
$
|
94
|
|
|
$
|
20,307
|
|
|
$
|
101,734
|
|
|
$
|
582
|
|
|
$
|
1,675
|
|
FL, GA, NJ, OH, PA, TX
|
|
|
25
|
|
|
9/29/2020
|
|
|
295,310
|
|
|
|
293,726
|
|
|
|
—
|
|
|
|
1,584
|
|
|
|
32,555
|
|
|
|
257,844
|
|
|
|
—
|
|
|
|
4,911
|
|
Total acquired in 2020
|
|
|
31
|
|
|
|
|
$
|
419,608
|
|
|
$
|
417,930
|
|
|
$
|
—
|
|
|
$
|
1,678
|
|
|
$
|
52,862
|
|
|
$
|
359,578
|
|
|
$
|
582
|
|
|
$
|
6,586
|
|
The six facilities purchased in the first quarter of 2020 were acquired from 191 III Life Storage Holdings LLC (“191 III”), an unconsolidated joint venture in which the Company holds a 20% ownership interest. Seventeen of the 25 facilities purchased in the third quarter of 2020 were acquired from Sovran HHF Storage Holdings LLC (“Sovran HHF”) and eight of the 25 facilities purchased in the third quarter of 2020 were acquired from Sovran HHF Storage Holdings II LLC (“Sovran HHF II”), unconsolidated joint ventures in which the Company holds 20% and 15% ownership interests, respectively. In accordance with ASC Topic 970, “Real Estate – General,” the Company recorded its equity in the profit from the sales of these self-storage facilities as a reduction in the
14
respective purchase price allocated to land and depreciable fixed assets. In addition to the $124.2 million cash payment for the six self-storage facilities acquired from 191 III, the Company also recognized $8.4 million as a return on the Company’s investment in 191 III as discussed further in Note 10. In addition to the $293.7 million cash payments combined for the 25 self-storage facilities acquired from Sovran HHF and Sovran HHF II, the Company also recognized $32.7 million as a return on the Company’s investment in Sovran HHF and Sovran HHF II as discussed further in Note 10.
Non-cash investing activities during the nine months ended September 30, 2020 include the assumption of net other liabilities totaling $1.7 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 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)
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
In-place customer leases
|
|
$
|
85,327
|
|
|
$
|
78,741
|
|
Accumulated amortization
|
|
|
(79,642
|
)
|
|
|
(75,832
|
)
|
Net carrying value at the end of period
|
|
$
|
5,685
|
|
|
$
|
2,909
|
|
Amortization expense related to in-place customer leases was $1.1 million and $3.8 million for the three and nine months ended September 30, 2020, respectively, and $0.8 million and $1.7 million for the three and nine months ended September 30, 2019, respectively.
Change in Useful Life Estimates
As part of the Company’s capital improvement efforts during 2018, 2019, and 2020, 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 $4.4 million during both the three and nine months ended September 30, 2020 and $0.3 million and $1.1 million during the three and nine months ended September 30, 2019, respectively. The Company estimates that due to buildings recently identified for replacement, the change in estimated useful lives of buildings identified for replacement as of September 30, 2020 will result an increase in depreciation expense of approximately $1.1 million during the remainder of 2020 and an additional $1.1 million during the first quarter of 2021.
The accelerated depreciation resulting from the events discussed above reduced both basic and diluted earnings per share/unit by approximately $0.09 for both the three and nine months ended September 30, 2020 and by less than $0.01 and by approximately $0.02 for the three and nine months ended September 30, 2019, respectively.
6. UNSECURED LINE OF CREDIT AND TERM NOTES
Borrowings outstanding on our unsecured line of credit and term notes are as follows:
(Dollars in thousands)
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Revolving line of credit borrowings
|
|
$
|
—
|
|
|
$
|
65,000
|
|
|
|
|
|
|
|
|
|
|
Term note due August 5, 2021
|
|
|
100,000
|
|
|
|
100,000
|
|
Term note due April 8, 2024
|
|
|
175,000
|
|
|
|
175,000
|
|
Senior term note due July 1, 2026
|
|
|
600,000
|
|
|
|
600,000
|
|
Senior term note due December 15, 2027
|
|
|
450,000
|
|
|
|
450,000
|
|
Term note due July 21, 2028
|
|
|
200,000
|
|
|
|
200,000
|
|
Senior term note due June 15, 2029
|
|
|
350,000
|
|
|
|
350,000
|
|
Senior term note due October 15, 2030
|
|
|
400,000
|
|
|
|
—
|
|
Total term note principal balance outstanding
|
|
$
|
2,275,000
|
|
|
$
|
1,875,000
|
|
Less: unamortized debt issuance costs
|
|
|
(13,277
|
)
|
|
|
(11,146
|
)
|
Less: unamortized senior term note discount
|
|
|
(6,940
|
)
|
|
|
(5,583
|
)
|
Term notes payable
|
|
$
|
2,254,783
|
|
|
$
|
1,858,271
|
|
15
The Company’s unsecured amended credit agreement includes a revolving credit facility with a limit of $500 million with a maturity date of March 10, 2023 and initially included a term note in the principal amount of $100 million. Such credit agreement provides for interest on the revolving credit facility at a variable annual rate equal to LIBOR plus a margin based on the Company’s credit rating (at September 30, 2020 the margin is 0.95%), interest on term notes at a variable annual rate equal to LIBOR plus a margin based on the Company’s credit rating (at September 30, 2020 the margin is 1.00%), and requires an annual facility fee on the revolving credit facility which varies based upon the Company’s credit rating (at September 30, 2020 the facility fee is 0.15%). The interest rate on the Company’s revolving credit facility at September 30, 2020 was approximately 1.13% (2.75% at December 31, 2019) and the interest rate on any term notes at September 30, 2020 was approximately 1.18% (2.80% at December 31, 2019). The $100 million principal on the term note was paid off in 2019 in conjunction with the issuance of the 2029 Senior Notes which are discussed further below. At September 30, 2020 there was $499.9 million available on the unsecured line of credit. The Company has the option under this credit facility to increase the total aggregate borrowing capacity of the facilities to $900 million.
On September 23, 2020, the Operating Partnership issued $400 million in aggregate principal amount of 2.200% unsecured senior notes due October 15, 2030 (the “2030 Senior Notes”). The 2030 Senior Notes were issued at 0.476% discount to par value. Interest on the 2030 Senior Notes is payable semi-annually in arrears on each April 15 and October 15, commencing with April 15, 2021. Proceeds received upon issuance, net of discount to par of $1.9 million and underwriting and other offering expenses of $3.5 million, totaled $394.6 million.
On June 3, 2019, the Operating Partnership issued $350 million in aggregate principal amount of 4.000% unsecured senior notes due June 15, 2029 (the “2029 Senior Notes”). The 2029 Senior Notes were issued at a 0.524% discount to par value. Interest on the 2029 Senior Notes is payable semi-annually in arrears on each June 15 and December 15. Proceeds received upon issuance, net of discount to par of $1.8 million and underwriting discount and other offering expenses of $3.1 million, totaled $345.1 million.
On December 7, 2017, the Operating Partnership issued $450 million in aggregate principal amount of 3.875% unsecured senior notes due December 15, 2027 (the “2027 Senior Notes”). The 2027 Senior Notes were issued at a 0.477% discount to par value. Interest on the 2027 Senior Notes is payable semi-annually in arrears on each June 15 and December 15. Proceeds received upon issuance, net of discount to par of $2.1 million and underwriting discount and other offering expenses of $4.0 million, totaled $443.9 million.
On June 20, 2016, the Operating Partnership issued $600 million in aggregate principal amount of 3.50% unsecured senior notes due July 1, 2026 (the “2026 Senior Notes”). The 2026 Senior Notes were issued at a 0.553% discount to par value. Interest on the 2026 Senior Notes is payable semi-annually in arrears on each January 1 and July 1. Proceeds received upon issuance, net of discount to par of $3.3 million and underwriting discount and other offering expenses of $5.5 million, totaled $591.2 million.
The 2030 Senior Notes, the 2029 Senior Notes, the 2027 Senior Notes and the 2026 Senior Notes are all fully and unconditionally guaranteed by the Parent Company. The indenture under which the 2030 Senior Notes, the 2029 Senior Notes, the 2027 Senior Notes and the 2026 Senior Notes were issued restricts the ability of the Company and its subsidiaries to incur debt unless the Company and its consolidated subsidiaries comply with a leverage ratio not to exceed 60% and an interest coverage ratio of more than 1.5:1 on all outstanding debt, after giving effect to the incurrence of the debt. The indenture also restricts the ability of the Company and its subsidiaries to incur secured debt unless the Company and its consolidated subsidiaries comply with a secured debt leverage ratio not to exceed 40% after giving effect to the incurrence of the debt. The indenture also contains other financial and customary covenants, including a covenant not to own unencumbered assets with a value less than 150% of the unsecured indebtedness of the Company and its consolidated subsidiaries. At September 30, 2020, the Company was in compliance with such covenants.
On July 21, 2016, the Company entered into a $200 million term note maturing July 21, 2028 bearing interest at a fixed rate of 3.67%.
On April 8, 2014, the Company entered into a $175 million term note maturing April 8, 2024 bearing interest at a fixed rate of 4.533%. The interest rate on the term note increases to 6.283% if the Company is not rated by at least one rating agency or if the Company’s credit rating is downgraded.
In 2011, the Company entered into a $100 million term note maturing August 5, 2021 bearing interest at a fixed rate of 5.54%. The interest rate on the term note increases to 7.29% if the notes are not rated by at least one rating agency, the credit rating on the notes is downgraded or if the Company’s credit rating is downgraded. On October 9, 2020, the Company paid off this $100 million term note in addition to making a make-whole payment of $4.0 million required as a result of paying off the term note prior to its maturity.
The line of credit and term notes require the Company to meet certain financial covenants, measured on a quarterly basis, including prescribed leverage, fixed charge coverage, minimum net worth, limitations on additional indebtedness and limitations on dividend payouts. At September 30, 2020, the Company was in compliance with such covenants.
We believe that if operating results remain consistent with historical levels and levels of other debt and liabilities remain consistent with amounts outstanding at September 30, 2020, the entire availability on the line of credit could be drawn without violating our debt covenants.
The Company’s fixed rate term notes contain a provision that allows for the noteholders to call the debt upon a change of control of the Company at an amount that includes a make whole premium based on rates in effect on the date of the change of control.
16
Deferred debt issuance costs and the discount on the outstanding term notes are both presented as reductions of term notes in the accompanying consolidated balance sheets at September 30, 2020 and December 31, 2019. Amortization expense related to deferred debt issuance costs was $0.6 million for each of the three months ended September 30, 2020 and 2019, and $1.8 million and $1.7 million for the nine months ended September 30, 2020 and 2019, respectively, and is included in interest expense in the consolidated statements of operations.
7. MORTGAGES PAYABLE AND DEBT MATURITIES
Mortgages payable at September 30, 2020 and December 31, 2019 consist of the following:
(dollars in thousands)
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
4.98% mortgage note due January 1, 2021, secured by one
self-storage facility with an aggregate net book value of $9.3
million, principal and interest paid monthly
(effective interest rate 5.26%)
|
|
$
|
2,763
|
|
|
$
|
2,807
|
|
4.065% mortgage note due April 1, 2023, secured by one self-
storage facility with an aggregate net book value of $7.2
million, principal and interest paid monthly
(effective interest rate 4.34%)
|
|
|
3,858
|
|
|
|
3,932
|
|
5.26% mortgage note due November 1, 2023, secured by one
self-storage facility with an aggregate net book value of $7.9
million, principal and interest paid monthly
(effective interest rate 5.61%)
|
|
|
3,747
|
|
|
|
3,800
|
|
4.4625% mortgage notes due December 6, 2024, secured by
three self-storage facilities with an aggregate net book value
of $55.0 million, principal and interest paid monthly
(effective interest rate 3.19%)
|
|
|
22,749
|
|
|
|
22,942
|
|
5.99% mortgage note due May 1, 2026, secured by one self-
storage facility with an aggregate net book value of $6.4
million, principal and interest paid monthly
(effective interest rate 6.38%)
|
|
|
1,235
|
|
|
|
1,370
|
|
Total mortgages payable
|
|
$
|
34,352
|
|
|
$
|
34,851
|
|
17
The table below summarizes the Company’s debt obligations at September 30, 2020. The estimated fair value of financial instruments is subjective in nature and is dependent on a number of important assumptions, including discount rates and relevant comparable market information associated with each financial instrument. The fair value of the fixed rate term notes and mortgage notes were estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. These assumptions are considered Level 2 inputs within the fair value hierarchy as described in Note 9. The carrying values of our variable rate debt instruments approximate their fair values as such debt instruments bear interest at current market rates that approximate market participant rates. This is considered a Level 2 input within the fair value hierarchy. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented below are not necessarily indicative of the amounts the Company would realize in a current market exchange.
|
|
|
|
|
|
Expected Maturity Date Including Discount
|
|
|
|
|
|
(dollars in thousands)
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair Value
|
|
Line of credit - variable rate
LIBOR + 0.95% (1.13% at
September 30, 2020)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Notes Payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term note - fixed rate 5.54%
|
|
|
—
|
|
|
$
|
100,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
100,000
|
|
|
$
|
104,332
|
|
Term note - fixed rate 4.533%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
175,000
|
|
|
|
—
|
|
|
$
|
175,000
|
|
|
$
|
197,640
|
|
Term note - fixed rate 3.50%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
600,000
|
|
|
$
|
600,000
|
|
|
$
|
674,845
|
|
Term note - fixed rate 3.875%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
450,000
|
|
|
$
|
450,000
|
|
|
$
|
514,557
|
|
Term note - fixed rate 3.67%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
200,000
|
|
|
$
|
200,000
|
|
|
$
|
224,265
|
|
Term note - fixed rate 4.00%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
|
$
|
399,957
|
|
Term note - fixed rate 2.20%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
400,000
|
|
|
$
|
400,000
|
|
|
$
|
398,566
|
|
Mortgage note - fixed rate 4.98%
|
|
$
|
15
|
|
|
$
|
2,748
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
2,763
|
|
|
$
|
2,769
|
|
Mortgage note - fixed rate 4.065%
|
|
$
|
26
|
|
|
$
|
104
|
|
|
$
|
108
|
|
|
$
|
3,620
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
3,858
|
|
|
$
|
3,826
|
|
Mortgage note - fixed rate 5.26%
|
|
$
|
19
|
|
|
$
|
78
|
|
|
$
|
83
|
|
|
$
|
3,567
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
3,747
|
|
|
$
|
3,839
|
|
Mortgage notes - fixed rate 4.4625%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
22,749
|
|
|
|
—
|
|
|
$
|
22,749
|
|
|
$
|
21,619
|
|
Mortgage note - fixed rate 5.99%
|
|
$
|
46
|
|
|
$
|
192
|
|
|
$
|
203
|
|
|
$
|
216
|
|
|
$
|
229
|
|
|
$
|
349
|
|
|
$
|
1,235
|
|
|
$
|
1,286
|
|
Total
|
|
$
|
106
|
|
|
$
|
103,122
|
|
|
$
|
394
|
|
|
$
|
7,403
|
|
|
$
|
197,978
|
|
|
$
|
2,000,349
|
|
|
$
|
2,309,352
|
|
|
|
|
|
8. DERIVATIVE FINANCIAL INSTRUMENTS
In 2015 and 2016, the Company entered into forward starting interest rate swap agreements to hedge the risk of changes in the interest-related cash flows associated with the potential issuance of fixed rate long-term debt. These interest rate swaps qualify and have been designated as hedges of the amount of future cash flows related to interest payments on this fixed rate long-term debt. In conjunction with the issuance of the 2026 Senior Notes (see Note 6), the Company terminated these hedges and settled the forward starting swap agreements for approximately $9.2 million. The $9.2 million has been deferred in Accumulated Other Comprehensive Loss (“AOCL”) and is being amortized as additional interest expense over the ten-year term of the 2026 Senior Notes or until such time as interest payments on the 2026 Senior Notes are no longer probable. Such amortization is included in amortization of debt issuance costs and bond discount in the consolidated statements of cash flows.
The changes in AOCL for the three and nine months ended September 30, 2020 and 2019 are summarized as follows:
(dollars in thousands)
|
|
Three Months
Ended
September 30, 2020
|
|
|
Three Months
Ended
September 30, 2019
|
|
|
Nine Months
Ended
September 30, 2020
|
|
|
Nine Months
Ended
September 30, 2019
|
|
Accumulated other comprehensive loss beginning
of period
|
|
$
|
(5,500
|
)
|
|
$
|
(6,417
|
)
|
|
$
|
(5,958
|
)
|
|
$
|
(6,875
|
)
|
Realized loss reclassified from accumulated other
comprehensive loss to interest expense
|
|
|
230
|
|
|
|
229
|
|
|
|
688
|
|
|
|
687
|
|
Accumulated other comprehensive loss end of period
|
|
$
|
(5,270
|
)
|
|
$
|
(6,188
|
)
|
|
$
|
(5,270
|
)
|
|
$
|
(6,188
|
)
|
18
9. FAIR VALUE MEASUREMENTS
The Company applies the provisions of ASC Topic 820 “Fair Value Measurements and Disclosures” in determining the fair value of its financial and nonfinancial assets and liabilities. ASC Topic 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Refer to Note 7 for presentation of the fair values of debt obligations which are disclosed at fair value on a recurring basis.
There are no assets or liabilities carried at fair value measured on a recurring basis on the consolidated balance sheets as of September 30, 2020 and December 31, 2019.
10. INVESTMENT IN JOINT VENTURES
A summary of the Company’s unconsolidated joint ventures is as follows:
Venture
|
|
Number of
Properties at
September 30,
2020
|
|
|
Company
common
ownership
interest at
September 30,
2020
|
|
|
Carrying value
of investment
at September 30,
2020
|
|
|
Carrying value of
investment at
December 31,
2019
|
|
Sovran HHF Storage Holdings LLC (“Sovran HHF”)1
|
|
36
|
|
|
20%
|
|
|
$61.3 million
|
|
|
$83.1 million
|
|
Sovran HHF Storage Holdings II LLC (“Sovran HHF II”)2
|
|
22
|
|
|
15%
|
|
|
$27.3 million
|
|
|
$13.9 million
|
|
191 III Life Storage Holdings LLC (“191 III”)3
|
|
|
—
|
|
|
20%
|
|
|
|
—
|
|
|
$8.9 million
|
|
Life Storage-SERS Storage LLC (“SERS”)
|
|
3
|
|
|
20%
|
|
|
$3.0 million
|
|
|
$3.2 million
|
|
Life Storage-HIERS Storage LLC (“HIERS”)4
|
|
17
|
|
|
20%
|
|
|
$14.4 million
|
|
|
$14.9 million
|
|
Iskalo Office Holdings, LLC (“Iskalo”)5
|
|
N/A
|
|
|
49%
|
|
|
($0.3 million)
|
|
|
($0.4 million)
|
|
Bluebird Sanford Storage LP ("Sanford")6
|
|
1
|
|
|
15%
|
|
|
$0.3 million
|
|
|
$0.3 million
|
|
Bluebird Ingram Storage LP ("Ingram")7
|
|
1
|
|
|
15%
|
|
|
$1.1 million
|
|
|
$1.2 million
|
|
Life Storage Spacemax, LLC ("Spacemax")8
|
|
6
|
|
|
40%
|
|
|
$16.8 million
|
|
|
$16.1 million
|
|
Life Storage Virtus, LLC ("Virtus")9
|
|
1
|
|
|
20%
|
|
|
$1.5 million
|
|
|
|
—
|
|
Joint ventures with properties in development stage10
|
|
5
|
|
|
Various
|
|
|
$6.4 million
|
|
|
$3.1 million
|
|
Other unconsolidated joint ventures (6 joint ventures)
|
|
6
|
|
|
Various
|
|
|
$10.0 million
|
|
|
$10.3 million
|
|
1
|
In September 2020, the Company acquired 17 self-storage facilities and related assets from Sovran HHF for total consideration of $175.2 million, which is net of the Company’s share of Sovran HHF’s gain resulting from the transaction. In connection with this transaction, non-recourse loans with principal balances totaling $34.0 million were settled. Also in September 2020, Sovran HHF sold four self-storage facilities to an unrelated third-party for total consideration of $42.3 million, resulting in a gain on sale of $2.1 million. As of September 30, 2020, the carrying value of the Company’s investment in Sovran HHF exceeds its share of the underlying equity in net assets of Sovran HHF by approximately $1.7 million as a result of the capitalization of certain acquisition related costs in 2008. This difference is included in the carrying value of the investment.
|
2
|
In September 2020, the Company acquired eight self-storage facilities and related assets from Sovran HHF II for total consideration of $120.2 million, which is net of the Company’s share of Sovran HHF II’s gain resulting from the transaction. In connection with this transaction, $35.8 million of cash has been placed into escrow until non-recourse loans related to these properties are able to be paid which is expected to occur in 2021. Also in connection with this transaction, the Company made a $12.7 million contribution to Sovran HHF II.
|
3
|
191 III owned six self-storage facilities in California. The Company acquired these six self-storage facilities and related assets from 191 III in March 2020 for total contractual consideration of $124.2 million, which is net of the Company’s share of 191 III’s gain resulting from the transaction. In connection with this transaction, the non-recourse mortgage loan previously entered into by 191 III was settled. See Note 5 for additional information regarding this transaction. As 191 III no longer operates any self-storage facilities subsequent to the sale of the six self-storage facilities to the Company, the Company received a distribution of $8.4 million in March 2020 as the Company’s return of its remaining investment in 191 III. 191 III is expected to be dissolved later in 2020.
|
19
4
|
In November 2019, HIERS acquired five self-storage facilities for a total of $56.3 million. In connection with the acquisition of these self-storage facilities, HIERS entered into $27.6 million of mortgage debt which is secured by the self-storage facilities acquired. During 2019, the Company contributed $5.7 million as is its share of capital to fund the acquisition of these five self-storage facilities.
|
5
|
Iskalo owns the building that houses the Company’s headquarters. The Company paid rent to Iskalo of $0.9 million during each of the nine months ended September 30, 2020 and 2019.
|
6
|
In March 2019, the Company executed a joint venture agreement, Bluebird Sanford Storage LP, with an unrelated third-party with the purpose of acquiring and operating a self-storage facility. During 2019, Sanford acquired a self-storage facility for a total of $4.9 million. In connection with this acquisition, Sanford entered into $3.2 million of non-recourse mortgage debt. During 2019, the Company contributed $0.3 million to Sanford as the Company’s share of the initial capital investment in the joint venture.
|
7
|
In March 2019, the Company executed a joint venture agreement, Bluebird Ingram Storage, LP, with an unrelated third-party with the purpose of acquiring, further developing, and operating a self-storage facility. During 2019, Ingram acquired a self-storage facility for a total of $20.7 million. In connection with this acquisition, Ingram entered into $17.6 million of non-recourse mortgage debt. During 2019, the Company contributed $1.3 million to Ingram as the Company’s share of the initial capital investment in the joint venture.
|
8
|
In August 2019, the Company executed a joint venture agreement, Life Storage Spacemax, LLC, with an unrelated third-party with the purpose of acquiring and operating self-storage facilities. During 2019, Spacemax acquired six self-storage facilities for a total of $82.7 million. In connection with this acquisition, Spacemax entered into $42.0 million of non-recourse mortgage debt. During 2019, the Company contributed $16.3 million to Spacemax as the Company’s share of the initial capital investment in the joint venture.
|
9
|
In February 2020, the Company executed a joint venture agreement, Life Storage Virtus, LLC, with an unrelated third-party with the purpose of acquiring and operating a self-storage facility. During the first quarter of 2020, Virtus acquired a self-storage facility for a total of $21.7 million. In connection with this acquisition, Virtus entered into $14.0 million of non-recourse mortgage debt. During 2020, the Company contributed $1.7 million to Virtus as the Company’s share of the initial capital investment in the joint venture.
|
10
|
The Company has entered into five separate joint ventures, two of which are developing self-storage facilities in Ontario, Canada, and three of which are developing self-storage facilities in the New York City market. The Company has contributed an aggregate total of $6.4 million as its share of capital to these joint ventures.
|
Based on the facts and circumstances of each of the Company’s joint ventures, the Company has determined that only one of the joint ventures is a variable interest entity (“VIE”) in accordance with ASC 810, “Consolidation.” As the Company does not have the power to direct the activities of the joint venture that is considered a VIE, the VIE joint venture is not consolidated by the Company. The Company used the voting model under ASC 810 for all joint ventures not considered a VIE to determine whether or not to consolidate the joint ventures. Based upon each member’s substantive participation rights over the activities as stipulated in the joint venture agreements, none of the joint ventures are consolidated by the Company. Due to the Company’s significant influence over the operations of each of the joint ventures, all joint ventures are accounted for under the equity method of accounting.
The carrying values of the Company’s investments in joint ventures are assessed for other-than-temporary impairment on a periodic basis and no such impairments have been recorded on any of the Company’s investments in joint ventures.
As property manager of the self-storage facilities owned by each of the operational joint ventures, the Company earns management and/or call center fees based on a percentage of joint venture gross revenues. These fees earned from joint ventures, which are included in other operating income in the consolidated statements of operations, totaled $2.2 million and $2.2 million for the three months ended September 30, 2020 and 2019, respectively, and $6.7 million and $6.4 million for the nine months ended September 30, 2020 and 2019, respectively.
The Company’s share of the unconsolidated joint ventures’ income (loss) is as follows:
(dollars in thousands)
Venture
|
|
Three Months
Ended
September 30, 2020
|
|
|
Three Months
Ended
September 30, 2019
|
|
|
Nine Months
Ended
September 30, 2020
|
|
|
Nine Months
Ended
September 30, 2019
|
|
Sovran HHF
|
|
$
|
1,320
|
|
|
$
|
934
|
|
|
$
|
3,103
|
|
|
$
|
2,643
|
|
Sovran HHF II
|
|
|
642
|
|
|
|
474
|
|
|
|
1,543
|
|
|
|
1,364
|
|
Other unconsolidated joint ventures
|
|
|
(133
|
)
|
|
|
(233
|
)
|
|
|
(731
|
)
|
|
|
(912
|
)
|
|
|
$
|
1,829
|
|
|
$
|
1,175
|
|
|
$
|
3,915
|
|
|
$
|
3,095
|
|
20
A summary of the combined unconsolidated joint ventures’ financial statements as of and for the nine months ended September 30, 2020 is as follows:
(dollars in thousands)
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
Investment in storage facilities, net
|
|
$
|
1,083,191
|
|
Investment in office building, net
|
|
|
4,109
|
|
Other assets
|
|
|
68,834
|
|
Total Assets
|
|
$
|
1,156,134
|
|
Due to the Company
|
|
$
|
3,223
|
|
Mortgages payable
|
|
|
525,713
|
|
Other liabilities
|
|
|
24,761
|
|
Total Liabilities
|
|
$
|
553,697
|
|
Unaffiliated partners’ equity
|
|
|
459,105
|
|
Company equity
|
|
|
143,332
|
|
Total Partners’ Equity
|
|
|
602,437
|
|
Total Liabilities and Partners’ Equity
|
|
$
|
1,156,134
|
|
Income Statement Data:
|
|
|
|
|
Total revenues
|
|
$
|
99,902
|
|
Property operating expenses
|
|
|
(31,102
|
)
|
Administrative, management and call center fees
|
|
|
(5,547
|
)
|
Gain on disposal of self-storage facilities
|
|
|
217,607
|
|
Depreciation and amortization of customer list
|
|
|
(23,383
|
)
|
Amortization of financing fees
|
|
|
(590
|
)
|
Income tax expense
|
|
|
(235
|
)
|
Interest expense
|
|
|
(17,638
|
)
|
Net income
|
|
$
|
239,014
|
|
The Company does not guarantee the debt of any of its equity method investees.
We do not expect to have material future cash outlays relating to these joint ventures outside our share of capital required for future acquisitions of properties, our share of capital required for the development of properties under construction, and our share of the payoff of secured debt held by these joint ventures.
11. INCOME TAXES
The Company qualifies as a REIT under the Internal Revenue Code of 1986, as amended, and will generally not be subject to corporate income taxes to the extent it distributes its taxable income to its shareholders and complies with certain other requirements.
The Company has elected to treat certain of its subsidiaries as taxable REIT subsidiaries. In general, the Company’s taxable REIT subsidiaries may perform additional services for tenants and generally may engage in certain real estate or non-real estate related business. A taxable REIT subsidiary is subject to corporate federal and state income taxes. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities.
The Company recorded federal and state income tax expense of $1.0 million and $0.5 million for the three months ended September 30, 2020 and 2019, respectively. The Company recorded federal and state income tax expense of $2.6 million and $1.7 million for the nine months ended September 30, 2020 and 2019, respectively. These income tax expenses are included in general and administrative expenses in the consolidated statements of operations. At September 30, 2020 and 2019, there were no material unrecognized tax benefits. Interest and penalties relating to uncertain tax positions will be recognized in income tax expense when incurred. As of September 30, 2020 and 2019, the Company had no interest or penalties related to uncertain tax positions. Income taxes payable by the Company and the net deferred tax liabilities of our taxable REIT subsidiaries are classified within accounts payable and accrued liabilities in the consolidated balance sheets, while prepaid income taxes are classified within prepaid expense. As of September 30, 2020, the Company’s taxable REIT subsidiaries have deferred tax assets totaling $0.3 million and a deferred tax liability of $2.4 million. As of December 31, 2019, the Company’s taxable REIT subsidiaries have deferred tax assets of $1.6 million and a deferred tax liability of $2.4 million. The tax years 2016-2019 remain open to examination by the major taxing jurisdictions to which the Company is subject.
21
The Tax Cuts and Jobs Act (the “TCJA”) was enacted on December 20, 2017. The TCJA significantly changed the U.S. federal income tax laws applicable to businesses and their owners, including REITs and their shareholders. Under the TCJA, the corporate income tax rate is reduced from a maximum rate of 35% to a flat 21% rate. The reduced corporate income tax rate, which is effective for taxable years beginning after December 31, 2017, applies to income earned by our taxable REIT subsidiaries.
12. EARNINGS PER SHARE AND EARNINGS PER UNIT
The Company reports earnings per share and earnings per unit data in accordance ASC Topic 260, “Earnings Per Share.” Under ASC Topic 260-10, unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and shall be included in the computation of earnings-per-share pursuant to the two-class method. The Parent Company and the Operating Partnership have calculated their basic and diluted earnings per share/unit using the two-class method.
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per common share utilizing the two-class method.
(in thousands except per share data)
|
|
Three Months
Ended
September 30, 2020
|
|
|
Three Months
Ended
September 30, 2019
|
|
|
Nine Months
Ended
September 30, 2020
|
|
|
Nine Months
Ended
September 30, 2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders
|
|
$
|
37,095
|
|
|
$
|
140,002
|
|
|
$
|
109,984
|
|
|
$
|
215,198
|
|
Net income attributable to unvested restricted shares
|
|
|
(66
|
)
|
|
|
(272
|
)
|
|
|
(65
|
)
|
|
|
(136
|
)
|
Net income attributable to outstanding common shares
|
|
$
|
37,029
|
|
|
$
|
139,730
|
|
|
$
|
109,919
|
|
|
$
|
215,062
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share – weighted
average shares
|
|
|
47,224
|
|
|
|
46,586
|
|
|
|
46,915
|
|
|
|
46,578
|
|
Effect of Dilutive Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and non-vested stock
|
|
|
76
|
|
|
|
71
|
|
|
|
71
|
|
|
|
64
|
|
Denominator for diluted earnings per share – adjusted
weighted average shares and assumed conversion
|
|
|
47,300
|
|
|
|
46,657
|
|
|
|
46,986
|
|
|
|
46,642
|
|
Basic earnings per common share attributable to
common shareholders
|
|
$
|
0.78
|
|
|
$
|
3.00
|
|
|
$
|
2.34
|
|
|
$
|
4.62
|
|
Diluted earnings per common share attributable to
common shareholders
|
|
$
|
0.78
|
|
|
$
|
2.99
|
|
|
$
|
2.34
|
|
|
$
|
4.61
|
|
Earnings Per Unit
The following table sets forth the computation of basic and diluted earnings per common unit utilizing the two-class method.
(in thousands except per unit data)
|
|
Three Months
Ended
September 30, 2020
|
|
|
Three Months
Ended
September 30, 2019
|
|
|
Nine Months
Ended
September 30, 2020
|
|
|
Nine Months
Ended
September 30, 2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common unitholders
|
|
$
|
37,095
|
|
|
$
|
140,002
|
|
|
$
|
109,984
|
|
|
$
|
215,198
|
|
Net income attributable to unvested restricted units
|
|
|
(66
|
)
|
|
|
(272
|
)
|
|
|
(65
|
)
|
|
|
(136
|
)
|
Net income attributable to outstanding units
|
|
$
|
37,029
|
|
|
$
|
139,730
|
|
|
$
|
109,919
|
|
|
$
|
215,062
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per unit – weighted
average units
|
|
|
47,224
|
|
|
|
46,586
|
|
|
|
46,915
|
|
|
|
46,578
|
|
Effect of Dilutive Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and non-vested stock
|
|
|
76
|
|
|
|
71
|
|
|
|
71
|
|
|
|
64
|
|
Denominator for diluted earnings per unit – adjusted
weighted average units and assumed conversion
|
|
|
47,300
|
|
|
|
46,657
|
|
|
|
46,986
|
|
|
|
46,642
|
|
Basic earnings per common unit attributable to
common unitholders
|
|
$
|
0.78
|
|
|
$
|
3.00
|
|
|
$
|
2.34
|
|
|
$
|
4.62
|
|
Diluted earnings per common unit attributable to
common unitholders
|
|
$
|
0.78
|
|
|
$
|
2.99
|
|
|
$
|
2.34
|
|
|
$
|
4.61
|
|
22
Not included in the effect of dilutive securities above for both earnings per share and earnings per unit are 92,123 unvested restricted shares for the three months ended September 30, 2020, and 73,816 unvested restricted shares for the three months ended September 30, 2019, because their effect would be antidilutive. Not included in the effect of dilutive securities above for both earnings per share and earnings per unit are 102,714 unvested restricted shares for the nine months ended September 30, 2020, and 76,565 unvested restricted shares for the nine months ended September 30, 2019, because their effect would be antidilutive.
13. SHAREHOLDERS’ EQUITY
The following is a reconciliation of the changes in the Parent Company’s total shareholders’ equity for the nine months ended September 30, 2020:
(dollars in thousands)
|
|
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Dividends in
Excess of
Net Income
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Total
Shareholders’
Equity
|
|
Balance December 31, 2019
|
|
$
|
467
|
|
|
$
|
2,376,723
|
|
|
$
|
(238,338
|
)
|
|
$
|
(5,958
|
)
|
|
$
|
2,132,894
|
|
Net proceeds from issuance of common stock
|
|
|
2
|
|
|
|
21,464
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,466
|
|
Earned portion of non-vested stock
|
|
|
—
|
|
|
|
1,124
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,124
|
|
Adjustment to redemption value on
noncontrolling redeemable Operating
Partnership units
|
|
|
—
|
|
|
|
—
|
|
|
|
5,542
|
|
|
|
—
|
|
|
|
5,542
|
|
Net income attributable to common shareholders
|
|
|
—
|
|
|
|
—
|
|
|
|
36,433
|
|
|
|
—
|
|
|
|
36,433
|
|
Amortization of terminated hedge included in
AOCL
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
229
|
|
|
|
229
|
|
Dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
(49,969
|
)
|
|
|
—
|
|
|
|
(49,969
|
)
|
Balance March 31, 2020
|
|
|
469
|
|
|
|
2,399,311
|
|
|
|
(246,332
|
)
|
|
|
(5,729
|
)
|
|
|
2,147,719
|
|
Earned portion of non-vested stock
|
|
|
—
|
|
|
|
1,071
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,071
|
|
Adjustment to redemption value on
noncontrolling redeemable Operating
Partnership units
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,609
|
)
|
|
|
—
|
|
|
|
(2,609
|
)
|
Net income attributable to common shareholders
|
|
|
—
|
|
|
|
—
|
|
|
|
36,457
|
|
|
|
—
|
|
|
|
36,457
|
|
Amortization of terminated hedge included in
AOCL
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
229
|
|
|
|
229
|
|
Dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
(50,186
|
)
|
|
|
—
|
|
|
|
(50,186
|
)
|
Balance June 30, 2020
|
|
|
469
|
|
|
|
2,400,382
|
|
|
|
(262,670
|
)
|
|
|
(5,500
|
)
|
|
|
2,132,681
|
|
Net proceeds from issuance of common stock
|
|
|
13
|
|
|
|
134,213
|
|
|
|
—
|
|
|
|
—
|
|
|
|
134,226
|
|
Earned portion of non-vested stock
|
|
|
—
|
|
|
|
1,107
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,107
|
|
Adjustment to redemption value on
noncontrolling redeemable Operating
Partnership units
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,948
|
)
|
|
|
—
|
|
|
|
(2,948
|
)
|
Purchases of equity in consolidated subsidiary from
noncontrolling interests
|
|
|
—
|
|
|
|
(2,300
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,300
|
)
|
Net income attributable to common shareholders
|
|
|
—
|
|
|
|
—
|
|
|
|
37,095
|
|
|
|
—
|
|
|
|
37,095
|
|
Amortization of terminated hedge included in
AOCL
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
230
|
|
|
|
230
|
|
Dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
(50,203
|
)
|
|
|
—
|
|
|
|
(50,203
|
)
|
Balance September 30, 2020
|
|
$
|
482
|
|
|
$
|
2,533,402
|
|
|
$
|
(278,726
|
)
|
|
$
|
(5,270
|
)
|
|
$
|
2,249,888
|
|
23
The following is a reconciliation of the changes in the Parent Company’s total shareholders’ equity for the nine months ended September 30, 2019:
(dollars in thousands)
|
|
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Dividends in
Excess of
Net Income
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Total
Shareholders’
Equity
|
|
Balance December 31, 2018
|
|
$
|
466
|
|
|
$
|
2,372,157
|
|
|
$
|
(308,011
|
)
|
|
$
|
(6,875
|
)
|
|
$
|
2,057,737
|
|
Earned portion of non-vested stock
|
|
|
—
|
|
|
|
1,396
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,396
|
|
Adjustment to redemption value on
noncontrolling redeemable Operating
Partnership units
|
|
|
—
|
|
|
|
—
|
|
|
|
(294
|
)
|
|
|
—
|
|
|
|
(294
|
)
|
Net income attributable to common shareholders
|
|
|
—
|
|
|
|
—
|
|
|
|
34,454
|
|
|
|
—
|
|
|
|
34,454
|
|
Amortization of terminated hedge included in
AOCL
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
229
|
|
|
|
229
|
|
Dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
(46,631
|
)
|
|
|
—
|
|
|
|
(46,631
|
)
|
Balance March 31, 2019
|
|
|
466
|
|
|
|
2,373,553
|
|
|
|
(320,482
|
)
|
|
|
(6,646
|
)
|
|
|
2,046,891
|
|
Issuance of non-vested stock
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
Earned portion of non-vested stock
|
|
|
—
|
|
|
|
839
|
|
|
|
—
|
|
|
|
—
|
|
|
|
839
|
|
Adjustment to redemption value on
noncontrolling redeemable Operating
Partnership units
|
|
|
—
|
|
|
|
—
|
|
|
|
(150
|
)
|
|
|
—
|
|
|
|
(150
|
)
|
Net income attributable to common shareholders
|
|
|
—
|
|
|
|
—
|
|
|
|
40,742
|
|
|
|
—
|
|
|
|
40,742
|
|
Amortization of terminated hedge included in
AOCL
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
229
|
|
|
|
229
|
|
Dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
(46,632
|
)
|
|
|
—
|
|
|
|
(46,632
|
)
|
Balance June 30, 2019
|
|
|
467
|
|
|
|
2,374,392
|
|
|
|
(326,522
|
)
|
|
|
(6,417
|
)
|
|
|
2,041,920
|
|
Exercise of stock options
|
|
|
—
|
|
|
|
469
|
|
|
|
—
|
|
|
|
—
|
|
|
|
469
|
|
Earned portion of non-vested stock
|
|
|
—
|
|
|
|
955
|
|
|
|
—
|
|
|
|
—
|
|
|
|
955
|
|
Adjustment to redemption value on
noncontrolling redeemable Operating
Partnership units
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,606
|
)
|
|
|
—
|
|
|
|
(1,606
|
)
|
Net income attributable to common shareholders
|
|
|
—
|
|
|
|
—
|
|
|
|
140,002
|
|
|
|
—
|
|
|
|
140,002
|
|
Amortization of terminated hedge included in
AOCL
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
229
|
|
|
|
229
|
|
Dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
(46,651
|
)
|
|
|
—
|
|
|
|
(46,651
|
)
|
Balance September 30, 2019
|
|
$
|
467
|
|
|
$
|
2,375,816
|
|
|
$
|
(234,777
|
)
|
|
$
|
(6,188
|
)
|
|
$
|
2,135,318
|
|
On June 14, 2018, the Company entered into a continuous equity offering program (“Equity Program”) with multiple sales agents, pursuant to which the Company may sell up to $300 million in aggregate offering price of shares of the Company’s common stock. Actual sales under this continuous equity offering program will depend on a variety of factors and conditions, including, but not limited to, market conditions, the trading price of the Company’s common stock, and determinations of the appropriate sources of funding for the Company. The Company expects to offer, sell and issue shares of common stock under this equity program from time to time based on various factors and conditions, although the Company is under no obligation to sell any shares under this equity program.
During the nine-month period ended September 30, 2020, the Company issued 1,475,949 shares of common stock under the Equity Program at a weighted average issue price of $106.64 per share, generating net proceeds of $155.8 million after deducting $1.6 million of sales commissions paid to the sales agents, as well as other expenses of $0.2 million. The Company used such proceeds primarily to fund a portion of the acquisition of the 31 storage facilities during the nine months ended September 30, 2020.
During the nine months ended September 30, 2019, the Company did not issue any shares of common stock under the Equity Program.
24
On August 2, 2017, the Company’s Board of Directors authorized the repurchase of up to $200 million of the Company’s outstanding common shares (“Buyback Program”). The Buyback Program allows the Company to purchase shares of its common stock in accordance with applicable securities laws on the open market, through privately negotiated transactions, or through other methods of acquiring shares. The Buyback Program may be suspended or discontinued at any time. The Company did not repurchase any outstanding common shares under the Buyback Program during the nine months ended September 30, 2020 or during 2019.
In 2013, the Company implemented a Dividend Reinvestment Plan which was suspended by the Company’s Board of Directors in 2017. As a result, the Company did not issue any shares under the Dividend Reinvestment Plan during the nine months ended September 30, 2020 and 2019.
14. PARTNERS’ CAPITAL
The following is a reconciliation of the changes in total partners’ capital for the nine months ended September 30, 2020:
(dollars in thousands)
|
|
Life Storage
Holdings, Inc.
General
Partner
|
|
|
Life Storage,
Inc. Limited
Partner
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Total
Controlling
Partners’
Capital
|
|
Balance December 31, 2019
|
|
$
|
21,594
|
|
|
$
|
2,117,258
|
|
|
$
|
(5,958
|
)
|
|
$
|
2,132,894
|
|
Net proceeds from issuance of Operating Partnership Units
|
|
|
212
|
|
|
|
21,254
|
|
|
|
—
|
|
|
|
21,466
|
|
Earned portion of non-vested stock
|
|
|
11
|
|
|
|
1,113
|
|
|
|
—
|
|
|
|
1,124
|
|
Adjustment to redemption value on noncontrolling
redeemable Operating Partnership Units
|
|
|
—
|
|
|
|
5,542
|
|
|
|
—
|
|
|
|
5,542
|
|
Net income attributable to common unitholders
|
|
|
366
|
|
|
|
36,067
|
|
|
|
—
|
|
|
|
36,433
|
|
Amortization of terminated hedge included in AOCL
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
229
|
|
|
|
229
|
|
Distributions
|
|
|
(502
|
)
|
|
|
(49,467
|
)
|
|
|
—
|
|
|
|
(49,969
|
)
|
Balance March 31, 2020
|
|
|
21,683
|
|
|
|
2,131,765
|
|
|
|
(5,729
|
)
|
|
|
2,147,719
|
|
Earned portion of non-vested stock
|
|
|
11
|
|
|
|
1,060
|
|
|
|
—
|
|
|
|
1,071
|
|
Adjustment to redemption value on noncontrolling
redeemable Operating Partnership Units
|
|
|
—
|
|
|
|
(2,609
|
)
|
|
|
—
|
|
|
|
(2,609
|
)
|
Net income attributable to common unitholders
|
|
|
366
|
|
|
|
36,091
|
|
|
|
—
|
|
|
|
36,457
|
|
Amortization of terminated hedge included in AOCL
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
229
|
|
|
|
229
|
|
Distributions
|
|
|
(504
|
)
|
|
|
(49,682
|
)
|
|
|
—
|
|
|
|
(50,186
|
)
|
Balance June 30, 2020
|
|
|
21,558
|
|
|
|
2,116,623
|
|
|
|
(5,500
|
)
|
|
|
2,132,681
|
|
Net proceeds from issuance of Operating Partnership Units
|
|
|
1,342
|
|
|
|
132,884
|
|
|
|
—
|
|
|
|
134,226
|
|
Earned portion of non-vested stock
|
|
|
12
|
|
|
|
1,095
|
|
|
|
—
|
|
|
|
1,107
|
|
Adjustment to redemption value on noncontrolling
redeemable Operating Partnership Units
|
|
|
—
|
|
|
|
(2,948
|
)
|
|
|
—
|
|
|
|
(2,948
|
)
|
Purchases of equity in consolidated subsidiary from
noncontrolling interests
|
|
|
(23
|
)
|
|
|
(2,277
|
)
|
|
|
—
|
|
|
|
(2,300
|
)
|
Net income attributable to common unitholders
|
|
|
373
|
|
|
|
36,722
|
|
|
|
—
|
|
|
|
37,095
|
|
Amortization of terminated hedge included in AOCL
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
230
|
|
|
|
230
|
|
Distributions
|
|
|
(505
|
)
|
|
|
(49,698
|
)
|
|
|
—
|
|
|
|
(50,203
|
)
|
Balance September 30, 2020
|
|
$
|
22,759
|
|
|
$
|
2,232,399
|
|
|
$
|
(5,270
|
)
|
|
$
|
2,249,888
|
|
25
The following is a reconciliation of the changes in total partners’ capital for the nine months ended September 30, 2019:
(dollars in thousands)
|
|
Life Storage
Holdings, Inc.
General
Partner
|
|
|
Life Storage,
Inc. Limited
Partner
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Total
Controlling
Partners’
Capital
|
|
Balance December 31, 2018
|
|
$
|
20,816
|
|
|
$
|
2,043,796
|
|
|
$
|
(6,875
|
)
|
|
$
|
2,057,737
|
|
Earned portion of non-vested stock
|
|
|
14
|
|
|
|
1,382
|
|
|
|
—
|
|
|
|
1,396
|
|
Adjustment to redemption value on noncontrolling
redeemable Operating Partnership Units
|
|
|
—
|
|
|
|
(294
|
)
|
|
|
—
|
|
|
|
(294
|
)
|
Net income attributable to common unitholders
|
|
|
347
|
|
|
|
34,107
|
|
|
|
—
|
|
|
|
34,454
|
|
Amortization of terminated hedge included in AOCL
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
229
|
|
|
|
229
|
|
Distributions
|
|
|
(469
|
)
|
|
|
(46,162
|
)
|
|
|
—
|
|
|
|
(46,631
|
)
|
Balance March 31, 2019
|
|
|
20,710
|
|
|
|
2,032,827
|
|
|
|
(6,646
|
)
|
|
|
2,046,891
|
|
Earned portion of non-vested stock
|
|
|
9
|
|
|
|
831
|
|
|
|
—
|
|
|
|
840
|
|
Adjustment to redemption value on noncontrolling
redeemable Operating Partnership Units
|
|
|
—
|
|
|
|
(150
|
)
|
|
|
—
|
|
|
|
(150
|
)
|
Net income attributable to common unitholders
|
|
|
409
|
|
|
|
40,333
|
|
|
|
—
|
|
|
|
40,742
|
|
Amortization of terminated hedge included in AOCL
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
229
|
|
|
|
229
|
|
Distributions
|
|
|
(469
|
)
|
|
|
(46,163
|
)
|
|
|
—
|
|
|
|
(46,632
|
)
|
Balance June 30, 2019
|
|
|
20,661
|
|
|
|
2,027,676
|
|
|
|
(6,417
|
)
|
|
|
2,041,920
|
|
Exercise of stock options
|
|
|
4
|
|
|
|
465
|
|
|
|
—
|
|
|
|
469
|
|
Earned portion of non-vested stock
|
|
|
10
|
|
|
|
945
|
|
|
|
—
|
|
|
|
955
|
|
Carrying value less than redemption value on
redeemed noncontrolling interest
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
Adjustment to redemption value on noncontrolling
redeemable Operating Partnership Units
|
|
|
—
|
|
|
|
(1,606
|
)
|
|
|
—
|
|
|
|
(1,606
|
)
|
Net income attributable to common unitholders
|
|
|
1,408
|
|
|
|
138,594
|
|
|
|
—
|
|
|
|
140,002
|
|
Amortization of terminated hedge included in AOCL
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
229
|
|
|
|
229
|
|
Distributions
|
|
|
(469
|
)
|
|
|
(46,182
|
)
|
|
|
—
|
|
|
|
(46,651
|
)
|
Balance September 30, 2019
|
|
$
|
21,615
|
|
|
$
|
2,119,891
|
|
|
$
|
(6,188
|
)
|
|
$
|
2,135,318
|
|
15. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326)” which makes significant changes to the accounting for credit losses on financial instruments and related disclosures about them. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods with those annual periods, and is therefore effective for the Company as of January 1, 2020. The adoption of ASU 2016-13 did not have a material impact to the Company on the date of adoption.
In August 2018, the FASB Issued ASU 2018-15, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which provides guidance to assist entities in accounting for implementation, setup, and other upfront costs (collectively referred to as implementation costs) incurred by entities that are a customer in a hosting arrangement that is a service contract. The amendments in this update are effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. The adoption of ASU 2018-15 on January 1, 2020 did not have a material impact on the Company, though treatment of certain costs related to future cloud computing arrangements could be affected.
16. COMMITMENT AND CONTINGENCIES
The Company’s lease population is comprised of leases for land and/or buildings in which certain of the Company’s self-storage facilities operate, as well as leases of corporate office space. All leases where the Company is the lessee qualify as operating leases and the Company does not have any financing leases as of September 30, 2020. At September 30, 2020 and December 31, 2019, the Company’s aggregate right-of-use assets total $20.6 million and $20.2 million, respectively, and are included in other assets on the consolidated balance sheet. The related lease liabilities at September 30, 2020 and December 31, 2019 total $20.2 million and $19.9 million, respectively, and are included in accounts payable and accrued liabilities on the consolidated balance sheet.
26
Expenses related to operating leases totaled $0.5 million and $0.6 million for the three months ended September 30, 2020 and 2019, respectively, and $1.6 million and $1.9 million for the nine months ended September 30, 2020 and 2019, respectively. At September 30, 2020, the weighted average remaining lease term and weighted average discount rate for the Company’s operating leases were 11.7 years and 4.66%, respectively.
At September 30, 2020, the Company has approximately $26.6 million of operating lease commitments, excluding variable consideration. The undiscounted future minimum lease payments are summarized by year in the table below:
(in thousands)
|
|
|
|
|
2020
|
|
$
|
449
|
|
2021
|
|
|
2,388
|
|
2022
|
|
|
2,388
|
|
2023
|
|
|
2,388
|
|
2024
|
|
|
2,374
|
|
Thereafter
|
|
|
16,583
|
|
Total
|
|
$
|
26,570
|
|
The difference between the amounts included in the table above and the aggregate lease liability recorded in the accompanying consolidated balance sheet at September 30, 2020 is the result of the impact of the discount rate on future minimum lease payments.
At September 30, 2020, the Company was under contract to acquire three self-storage facilities for an aggregate purchase price of $37.9 million. On November 5, 2020, the Company completed the acquisition of one of these self-storage facilities for a purchase price of $13.7 million. The purchases of the remaining two facilities are subject to customary conditions to closing, and there is no assurance that these facilities will be acquired.
At March 31, 2020, the Company was under contract to sell one of its self-storage facilities for $19.0 million. The sale of this self-storage facility did not occur and the Company is no longer under contract to sell this self-storage facility at September 30, 2020.
At September 30, 2020, the Company has signed contracts in place with third-party contractors for expansion and enhancements at its existing facilities. The Company expects to pay $16.0 million under these contracts in 2020 and 2021.
17. SUBSEQUENT EVENTS
On October 1, 2020, the Company declared a quarterly dividend of $1.07 per common share. The dividend was paid on October 26, 2020 to shareholders of record on October 13, 2020. The total dividend paid amounted to $52.0 million.
As further discussed in Note 6, the Company paid off a $100 million term note on October 9, 2020.
Subsequent to September 30, 2020, the Company entered into contracts to acquire five self-storage facilities for an aggregate purchase price of $59.6 million. The purchases of these facilities are subject to customary conditions to closing, and there is no assurance that these facilities will be acquired.
As discussed in Note 16, on November 5, 2020, the Company acquired a self-storage facility for a purchase price of $13.7 million.
27