NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited financial statements of Life Storage, Inc.,
formerly known as Sovran Self Storage, Inc., (the Parent Company) and Life Storage LP, formerly known as Sovran Acquisition Limited Partnership, (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, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
Reclassification:
Certain amounts from the 2015 financial statements have been reclassified to conform with the current year presentation as
described in Note 5.
Effective August 15, 2016, the Parent Company changed its name from Sovran Self
Storage, Inc. to Life Storage, Inc. and the Operating Partnership changed its name from Sovran Acquisition Limited Partnership to Life Storage LP. Also, consistent with these name changes, and in connection
with the rebranding of our storage facilities from Uncle Bobs Self Storage
®
to Life Storage
®
, the name
of the general partner of the Operating Partnership has been changed from Sovran Holdings, Inc. to Life Storage Holdings, Inc. and the name of the Parent Companys taxable REIT subsidiary changed from Uncle
Bobs Management, LLC to Life Storage Solutions, LLC.
The Parent Company operates as a self-administered and self-managed real
estate investment trust (a REIT) that owns and operates self-storage facilities throughout the United States. All of the Parent Companys 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 99.6% ownership interest therein as of September 30, 2016. 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.
12
At September 30, 2016, we had an ownership interest in, and/or managed 657 self-storage properties in 29
states under the names Uncle Bobs Self Storage
®
and Life Storage
®
. Among our 657 self-storage properties are 39 properties that
we manage for an unconsolidated joint venture (Sovran HHF Storage Holdings LLC) of which we are a 20% owner, 30 properties that we manage for an unconsolidated joint venture (Sovran HHF Storage Holdings II LLC) of which we are a 15% owner, and 26
properties that we manage and have no ownership interest. Approximately 39.0% of the Companys revenue is derived from stores in the states of Texas and Florida. In addition, approximately 9.9% of the Companys revenue is derived from the
Houston, Texas market.
We consolidate all wholly-owned subsidiaries. Partially owned subsidiaries and 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 (the Parent Companys taxable REIT subsidiary), Warehouse Anywhere LLC (an entity owned 60% by
Life Storage Solutions, LLC), and all other wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated. Investments in joint ventures that we do not control but for which we have significant influence over are
accounted for using the equity method.
Included in the Parent Companys consolidated balance sheets are noncontrolling redeemable operating
partnership units and included in the Operating Partnerships consolidated balance sheets are limited partners redeemable capital interest at redemption value. These interests are presented in the mezzanine section of the
consolidated balance sheet 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. At
September 30, 2016, there were 196,008 noncontrolling redeemable operating partnership Units outstanding (168,866 at December 31, 2015). These unitholders are entitled to receive distributions per unit equivalent to the dividends declared
per share on the Parent Companys 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 Companys common stock, 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 EITF D-98,
Classification and Measurement of Redeemable Securities
which was codified in FASB ASC Topic 480-10-S99. The application of the FASB 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 Companys dividends in excess of net income and in the Operating Partnerships general
partner and limited partners capital balances. Accordingly, in the accompanying consolidated balance sheets, noncontrolling interests are reflected at redemption value at September 30, 2016 and December 31, 2015, equal to the number of
noncontrolling interest units outstanding multiplied by the fair market value of the Parent Companys common stock at that date. Redemption value exceeded the value determined under the Companys historical basis of accounting at those
dates.
13
The following is a reconciliation of the Parent Companys noncontrolling redeemable Operating Partnership
Units for the period:
|
|
|
|
|
(dollars in thousands)
|
|
Nine Months
Ended
Sep. 30, 2016
|
|
Beginning balance noncontrolling redeemable Operating Partnership Units
|
|
$
|
18,171
|
|
Issuance of Operating Partnership Units
|
|
|
7,767
|
|
Redemption of Operating Partnership Units
|
|
|
(4,795
|
)
|
Net income attributable to noncontrolling interest in the Operating Partnership
|
|
|
317
|
|
Distributions
|
|
|
(557
|
)
|
Adjustment to redemption value
|
|
|
(2,907
|
)
|
|
|
|
|
|
Ending balance noncontrolling redeemable Operating Partnership Units
|
|
$
|
17,996
|
|
|
|
|
|
|
The following is a reconciliation of the Operating Partnerships limited partners redeemable capital interest for
the period:
|
|
|
|
|
(dollars in thousands)
|
|
Nine Months
Ended
Sep. 30, 2016
|
|
Beginning balance Limited Partners Redeemable Capital Interest
|
|
$
|
18,171
|
|
Issuance of Limited Partners Redeemable Capital Interest Units
|
|
|
7,767
|
|
Redemption of Limited Partners Redeemable Capital Interest Units
|
|
|
(4,795
|
)
|
Net income attributable to Limited Partners Redeemable Capital Interest
|
|
|
317
|
|
Distributions
|
|
|
(557
|
)
|
Adjustment to redemption value
|
|
|
(2,907
|
)
|
|
|
|
|
|
Ending balance Limited Partners Redeemable Capital Interest
|
|
$
|
17,996
|
|
|
|
|
|
|
In 2016 the Operating Partnership issued 69,005 Units with a fair market value of $7.8 million to acquire self-storage
properties. The fair value of the Units on the date of issuance was determined based upon the fair market value of the Parent Companys common stock on that date.
3.
|
STOCK BASED COMPENSATION
|
The Company accounts for stock-based compensation under the provisions of ASC
Topic 718,
CompensationStock 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, 2016 and 2015,
the Company recorded compensation expense (included in general and administrative expense) of $4,000 and $46,000, respectively, related to stock options and $1,758,000 and $1,552,000, respectively, related to amortization of non-vested stock grants
and performance-based awards. For the nine months ended September 30, 2016 and 2015, the Company recorded compensation expense of $85,000 and $163,000, respectively, related to stock options and $5,515,000 and $4,743,000, respectively, related
to amortization of non-vested stock grants and performance-based awards.
14
During the three months ended September 30, 2016 and 2015, employees and directors exercised 0 and 1,900
stock options respectively, and 29,205 and 31,078 shares of non-vested stock, respectively, vested. During the nine months ended September 30, 2016 and 2015, employees and directors exercised 0 and 16,900 stock options respectively, and 40,086
and 42,307 shares of non-vested stock, respectively, vested.
4.
|
INVESTMENT IN STORAGE FACILITIES AND INTANGIBLE ASSETS
|
The following summarizes our activity in storage
facilities during the nine months ended September 30, 2016.
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Cost:
|
|
|
|
|
Beginning balance
|
|
$
|
2,491,702
|
|
Acquisition of storage facilities
|
|
|
1,695,752
|
|
Improvements and equipment additions
|
|
|
38,282
|
|
Additions to consolidated subsidiary
|
|
|
2,164
|
|
Net increase in construction in progress
|
|
|
4,919
|
|
Dispositions
|
|
|
(30,130
|
)
|
|
|
|
|
|
Ending balance
|
|
$
|
4,202,689
|
|
|
|
|
|
|
Accumulated Depreciation:
|
|
|
|
|
Beginning balance
|
|
$
|
465,195
|
|
Additions during the period
|
|
|
59,587
|
|
Dispositions
|
|
|
(11,066
|
)
|
|
|
|
|
|
Ending balance
|
|
$
|
513,716
|
|
|
|
|
|
|
On July 15, 2016, the Company acquired all of the outstanding partnership interests in LifeStorage, LP, a Delaware
limited partnership (LS). Pursuant to the acquisition, the Company acquired 83 self-storage properties throughout the country, including the following markets: Chicago, Illinois; Las Vegas, Nevada; Sacramento, California; Austin, Texas;
and Los Angeles, California. Pursuant to the terms of the Agreement and Plan of Merger dated as of May 18, 2016 by and among LS, the Operating Partnership, Solar Lunar Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary
of the Operating Partnership, and Fortis Advisors LLC, a Delaware limited liability company, as Sellers Representative, the Company paid aggregate consideration of approximately $1.3 billion, of which $482 million was paid to discharge
existing indebtedness of LS (including prepayment penalties and defeasance costs totaling $15.5 million). The merger was funded with the existing cash that was generated primarily from the proceeds from the Companys May 2016 common stock
offering and the 2026 Senior Notes offering, and draws on the Companys line of credit totaling $482 million.
15
Including the LS acquisition, the Company acquired 120 facilities during the nine months ended
September 30, 2016. The acquisition of two stores that were acquired at certificate of occupancy were accounted for as asset acquisitions. The cost of these stores, including closing costs, was assigned to land, building, equipment and
improvements components based upon their relative fair values. The assets and liabilities of the other 118 storage facilities acquired in 2016, which primarily consist of tangible and intangible assets, are measured at fair value on the date of
acquisition in accordance with the principles of FASB ASC Topic 820,
Fair Value Measurements and Disclosures
and were accounted for as business combinations in accordance with the
principles of FASB ASC Topic 805
Business Combinations. The purchase price of the 120 facilities acquired in 2016 has been preliminarily assigned as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
|
Mortgage
Assumed
|
|
|
Net Other
Liabilities
(Assets)
Assumed
|
|
|
Land
|
|
|
Building,
Equipment,
and
Improvements
|
|
|
In-Place
Customers
Leases
|
|
|
Trade
Name
|
|
|
Closing
Costs
Expensed
|
|
FL
|
|
|
4
|
|
|
|
1/6/2016
|
|
|
$
|
20,350
|
|
|
$
|
20,246
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
104
|
|
|
$
|
6,646
|
|
|
$
|
13,339
|
|
|
$
|
365
|
|
|
$
|
|
|
|
$
|
389
|
|
CA
|
|
|
4
|
|
|
|
1/21/2016
|
|
|
|
78,750
|
|
|
|
78,562
|
|
|
|
|
|
|
|
|
|
|
|
188
|
|
|
|
27,876
|
|
|
|
49,860
|
|
|
|
1,014
|
|
|
|
|
|
|
|
349
|
|
NH
|
|
|
5
|
|
|
|
1/21/2016
|
|
|
|
54,225
|
|
|
|
53,941
|
|
|
|
|
|
|
|
|
|
|
|
284
|
|
|
|
12,902
|
|
|
|
40,428
|
|
|
|
895
|
|
|
|
|
|
|
|
596
|
|
MA
|
|
|
1
|
|
|
|
1/21/2016
|
|
|
|
11,375
|
|
|
|
11,350
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
4,874
|
|
|
|
6,335
|
|
|
|
166
|
|
|
|
|
|
|
|
69
|
|
TX
|
|
|
3
|
|
|
|
1/21/2016
|
|
|
|
42,050
|
|
|
|
41,894
|
|
|
|
|
|
|
|
|
|
|
|
156
|
|
|
|
23,487
|
|
|
|
18,000
|
|
|
|
563
|
|
|
|
|
|
|
|
263
|
|
AZ
|
|
|
1
|
|
|
|
2/1/2016
|
|
|
|
9,275
|
|
|
|
9,261
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
988
|
|
|
|
8,224
|
|
|
|
63
|
|
|
|
|
|
|
|
124
|
|
FL
|
|
|
1
|
|
|
|
2/12/2016
|
|
|
|
11,274
|
|
|
|
11,270
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
2,294
|
|
|
|
8,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PA
|
|
|
1
|
|
|
|
2/17/2016
|
|
|
|
5,750
|
|
|
|
5,732
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
1,768
|
|
|
|
3,879
|
|
|
|
103
|
|
|
|
|
|
|
|
152
|
|
CO
|
|
|
1
|
|
|
|
2/29/2016
|
|
|
|
12,600
|
|
|
|
12,549
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
4,528
|
|
|
|
7,915
|
|
|
|
157
|
|
|
|
|
|
|
|
176
|
|
CA
|
|
|
3
|
|
|
|
3/16/2016
|
|
|
|
68,832
|
|
|
|
63,965
|
|
|
|
4,472
|
|
|
|
|
|
|
|
395
|
|
|
|
22,647
|
|
|
|
45,371
|
|
|
|
814
|
|
|
|
|
|
|
|
277
|
|
CA
|
|
|
1
|
|
|
|
3/17/2016
|
|
|
|
17,320
|
|
|
|
17,278
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
6,728
|
|
|
|
10,339
|
|
|
|
253
|
|
|
|
|
|
|
|
120
|
|
CA
|
|
|
1
|
|
|
|
4/11/2016
|
|
|
|
36,750
|
|
|
|
33,346
|
|
|
|
3,295
|
|
|
|
|
|
|
|
109
|
|
|
|
17,445
|
|
|
|
18,840
|
|
|
|
465
|
|
|
|
|
|
|
|
129
|
|
CT
|
|
|
2
|
|
|
|
4/14/2016
|
|
|
|
17,313
|
|
|
|
17,152
|
|
|
|
|
|
|
|
|
|
|
|
161
|
|
|
|
6,142
|
|
|
|
10,904
|
|
|
|
267
|
|
|
|
|
|
|
|
180
|
|
NY
|
|
|
2
|
|
|
|
4/26/2016
|
|
|
|
24,312
|
|
|
|
20,143
|
|
|
|
|
|
|
|
4,249
|
|
|
|
(80
|
)
|
|
|
5,710
|
|
|
|
18,201
|
|
|
|
401
|
|
|
|
|
|
|
|
348
|
|
FL
|
|
|
1
|
|
|
|
5/2/2016
|
|
|
|
8,100
|
|
|
|
4,006
|
|
|
|
|
|
|
|
4,036
|
|
|
|
58
|
|
|
|
3,018
|
|
|
|
4,922
|
|
|
|
160
|
|
|
|
|
|
|
|
149
|
|
TX
|
|
|
1
|
|
|
|
5/5/2016
|
|
|
|
10,800
|
|
|
|
10,708
|
|
|
|
|
|
|
|
|
|
|
|
92
|
|
|
|
2,333
|
|
|
|
8,302
|
|
|
|
165
|
|
|
|
|
|
|
|
121
|
|
NY
|
|
|
2
|
|
|
|
5/19/2016
|
|
|
|
8,400
|
|
|
|
8,366
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
714
|
|
|
|
7,521
|
|
|
|
165
|
|
|
|
|
|
|
|
188
|
|
CA, CO, FL, IL, MS, NV, TX, UT, WI
|
|
|
83
|
|
|
|
7/15/2016
|
|
|
|
1,299,989
|
|
|
|
1,335,332
|
|
|
|
|
|
|
|
|
|
|
|
(35,343
|
)
|
|
|
150,620
|
|
|
|
1,085,979
|
|
|
|
46,890
|
|
|
|
16,500
|
|
|
|
25,328
|
|
SC
|
|
|
1
|
|
|
|
7/29/2016
|
|
|
|
8,620
|
|
|
|
8,617
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
920
|
|
|
|
7,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CO
|
|
|
1
|
|
|
|
8/4/2016
|
|
|
|
8,900
|
|
|
|
8,831
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
|
|
5,062
|
|
|
|
3,679
|
|
|
|
159
|
|
|
|
|
|
|
|
107
|
|
FL
|
|
|
1
|
|
|
|
9/27/2016
|
|
|
|
10,500
|
|
|
|
10,407
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
2,809
|
|
|
|
7,523
|
|
|
|
168
|
|
|
|
|
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquired 2016
|
|
|
120
|
|
|
|
|
|
|
$
|
1,765,485
|
|
|
$
|
1,782,956
|
|
|
$
|
7,767
|
|
|
$
|
8,285
|
|
|
$
|
(33,523
|
)
|
|
$
|
309,511
|
|
|
$
|
1,386,241
|
|
|
$
|
53,233
|
|
|
$
|
16,500
|
|
|
$
|
29,297
|
|
All of the properties acquired were purchased from unrelated third parties. The operating results of the facilities acquired
have been included in the Companys operations since the respective acquisition dates. The $1,783.0 million of cash paid for the properties acquired during 2016 includes payment for cash acquired of $40.8 million and $4.0 million of deposits
that were paid in 2015 when certain of these properties originally went under contract. Both of these amounts are excluded from total cash payments for the acquisition of storage facilities in the consolidated statement of cash flows.
Non-cash investing activities during 2016 include the issuance of $7.8 million in Operating Partnership Units, the assumption of two mortgages with
outstanding balances of $8.3 million, and the assumption of net other liabilities of $7.3 million.
The Company measures the fair value of in-place
customer lease intangible assets based on the Companys 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.
16
In-place customer leases are included in other assets on the Companys consolidated balance sheets as
follows:
|
|
|
|
|
|
|
|
|
|
|
Sep. 30,
|
|
|
Dec. 31,
|
|
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
In-place customer leases
|
|
$
|
75,454
|
|
|
$
|
22,320
|
|
Accumulated amortization
|
|
|
(37,410
|
)
|
|
|
(21,017
|
)
|
|
|
|
|
|
|
|
|
|
Net carrying value at the end of period
|
|
$
|
38,044
|
|
|
$
|
1,303
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to in-place customer leases was $13.5 million and $0.7 million for the three months ended
September 30, 2016 and 2015, respectively and was $16.5 million and $2.7 million for the nine months ended September 30, 2016 and 2015, respectively. The Company expects to record $29.9 million and $24.7 million of amortization expense for
the years ended December 31, 2016 and 2017, respectively.
During the nine months ended September 30, 2016, the Company acquired 120 properties.
The following pro forma information is based on the combined historical financial statements of the Company and the 120 properties acquired during the nine months ended September 30, 2016 as if the acquisitions had all occurred as of
January 1, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands, except per share data)
|
|
Three
Months
Ended
Sep. 30,
2016
|
|
|
Three
Months
Ended
Sep. 30,
2015
|
|
|
Nine
Months
Ended
Sep. 30,
2016
|
|
|
Nine
Months
Ended
Sep. 30,
2015
|
|
Total revenues
|
|
$
|
131,421
|
|
|
$
|
120,905
|
|
|
$
|
383,991
|
|
|
$
|
342,973
|
|
Net income attributable to common shareholders
|
|
$
|
34,946
|
|
|
$
|
17,613
|
|
|
$
|
121,262
|
|
|
$
|
37,764
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.76
|
|
|
$
|
0.38
|
|
|
$
|
2.63
|
|
|
$
|
0.82
|
|
Diluted
|
|
$
|
0.75
|
|
|
$
|
0.38
|
|
|
$
|
2.62
|
|
|
$
|
0.81
|
|
The above pro forma information includes the results of eight stores acquired by LS in 2016 and 17 stores acquired by LS in in
2015. These stores therefore were not owned by LS for the entire pro forma periods and results prior to LS ownership are not included in the above pro forma information. The above pro forma information also includes increases in amortization of
in-place customer leases totaling $13.3 million and $39.9 million for the three and nine month periods ending September 30, 2015, respectively. As noted above, in-place customer leases are amortized over their estimated future benefit period of
12 months. Material, nonrecurring pro forma adjustments directly attributable to the business combinations and included in the above pro forma financial information include reductions to interest expense related to acquisition bridge financing
totaling $7.3 million for the nine months ended September 30, 2016 and reductions to acquisition costs totaling $25.2 million and $29.3 million for the three and nine months ended September 30, 2016, respectively.
The following table summarizes the revenues and earnings since the acquisition dates that are included in the Companys consolidated statements of
operations for the nine months ended September 30, 2016 related to the 120 properties acquired during the three and nine months ended September 30, 2016.
17
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Three Months
Ended
September 30,
2016
|
|
|
Nine Months
Ended
September 30,
2016
|
|
Total revenues
|
|
$
|
26,990
|
|
|
$
|
38,711
|
|
Net loss attributable to common shareholders
|
|
$
|
(37,356
|
)
|
|
$
|
(39,954
|
)
|
The above net losses attributable to common shareholders were primarily due to amortization of in-place customer leases
acquired and the acquisition costs incurred in connection with the 2016 acquisitions.
Property Dispositions
During 2016 the Company sold eight non-strategic properties with a carrying value of $18.8 million and received cash proceeds of $34.1 million, resulting in a
$15.3 million gain on sale. During 2015 the Company sold three non-strategic properties purchased in 2014 and 2015 with a carrying value of $5.1 million and received cash proceeds of $4.6 million, resulting in a $0.5 million loss on sale. The
following table summarizes the revenues and expenses up to the dates of sale of the 11 properties sold in 2016 and 2015 that are included in the Companys consolidated statements of operations for 2016 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Three Months
Ended
September 30,
2016
|
|
|
Three Months
Ended
September 30,
2015
|
|
|
Nine Months
Ended
September 30,
2016
|
|
|
Nine Months
Ended
September 30,
2015
|
|
Total operating revenues
|
|
$
|
|
|
|
$
|
1,249
|
|
|
$
|
2,324
|
|
|
$
|
3,508
|
|
Property operations and maintenance expense
|
|
|
|
|
|
|
(377
|
)
|
|
|
(614
|
)
|
|
|
(1,022
|
)
|
Real estate tax expense
|
|
|
|
|
|
|
(72
|
)
|
|
|
(98
|
)
|
|
|
(210
|
)
|
Depreciation and amortization expense
|
|
|
|
|
|
|
(197
|
)
|
|
|
(359
|
)
|
|
|
(547
|
)
|
Gain (loss) on sale of storage facilities
|
|
|
|
|
|
|
|
|
|
|
15,270
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
603
|
|
|
$
|
16,523
|
|
|
$
|
1,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Signage Useful Life Estimates
The change in name of the Companys storage facilities from Uncle Bobs Self Storage
®
to
Life Storage
®
as discussed in Note 2 will require replacement of signage at all existing storage facilities which are currently included in investment in storage facilities, net on the
consolidated balance sheets. The replacement of this signage is being completed at various times based on market and is expected to be completed in the first half of 2017. The Company has reassessed the estimated useful lives of the existing signage
which resulted in an increase in depreciation expense of approximately $4 million in the third quarter of 2016 as depreciation was accelerated over the new useful lives. The Company estimates that this change will result in additional increases in
depreciation expense of approximately $4 million in the fourth quarter of 2016 and approximately $1 million in 2017 as a result of the replacement of this existing Uncle Bobs Self Storage
®
signage.
The accelerated depreciation reduced basic earnings per share/unit by approximately
$0.10 and $0.11 for the three and nine months ended September 30, 2016, respectively, and reduced diluted earnings per share/unit by approximately $0.10 for the three and nine months ended September 30, 2016.
18
5.
|
UNSECURED LINE OF CREDIT AND TERM NOTES
|
Borrowings outstanding on our unsecured line of credit and term
notes are as follows:
|
|
|
|
|
|
|
|
|
|
|
Sep. 30,
|
|
|
Dec. 31,
|
|
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
Revolving line of credit borrowings
|
|
$
|
240,000
|
|
|
$
|
79,000
|
|
|
|
|
Term note due April 26, 2016
|
|
|
|
|
|
|
150,000
|
|
Term note due June 4, 2020
|
|
|
325,000
|
|
|
|
325,000
|
|
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
|
|
|
|
|
|
Term note due July 21, 2028
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total term note principal balance outstanding
|
|
|
1,400,000
|
|
|
|
750,000
|
|
Less: unamortized debt issuance costs
|
|
|
(9,646
|
)
|
|
|
(3,350
|
)
|
Less: unamortized senior term note discount
|
|
|
(3,235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term notes payable
|
|
$
|
1,387,119
|
|
|
$
|
746,650
|
|
|
|
|
|
|
|
|
|
|
In January 2016, the Company exercised the expansion feature on its existing amended unsecured credit agreement and increased
the revolving credit limit from $300 million to $500 million. The interest rate on the revolving credit facility bears interest at a variable annual rate equal to LIBOR plus a margin based on the Companys credit rating (at September 30,
2016 the margin is 1.10%), and requires an annual 0.15% facility fee. The amended agreement also reduced the interest rate on the $325 million unsecured term note issued under this credit agreement maturing June 4, 2020, with the term note
bearing interest at LIBOR plus a margin based on the Companys credit rating (at September 30, 2016 the margin is 1.15%). The interest rate at September 30, 2016 on the Companys line of credit was approximately 1.62% (1.72% at
December 31, 2015). At September 30, 2016, there was $260 million available on the unsecured line of credit. The revolving line of credit has a maturity date of December 10, 2019.
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%. The proceeds
from this term note were used to repay a portion of the then outstanding balance on the Companys line of credit.
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 Companys
credit rating is downgraded. The proceeds from this term note were used to repay the $115 million outstanding on the Companys line of credit at April 8, 2014, with the excess proceeds used for acquisitions.
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 Companys credit rating is downgraded. The proceeds from this term note were used to fund
acquisitions and investments in unconsolidated joint ventures.
19
The Company has maintained a $150 million unsecured term note maturing April 26, 2016 bearing interest at
6.38%. The Company used a draw on the line of credit to pay off the balance of this note on April 26, 2016.
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, 2016, the Company was in compliance with its debt 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, 2016 the entire availability on the line of credit could be drawn without violating our debt covenants.
On May 17, 2016, the Company entered into two senior unsecured acquisition bridge facilities (the Bridge Facilities) totaling $1,675 million
with the Companys third-party advisors to the LS acquisition (see Note 4). In consideration for the bridge financing commitments, the Company paid fees totaling $7.3 million which are included as interest expense acquisition bridge
financing commitment fee in the consolidated statements of operations for the nine month period ending September 30, 2016. The Bridge Facilities commitments were terminated on June 29, 2016.
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 January 1 and July 1, beginning on January 1, 2017. The 2026
Senior Notes are fully and unconditionally guaranteed by the Parent Company. 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
indenture under which 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. As of September 30, 2016, the Company was in compliance with all of the financial covenants under the 2026 Senior Notes.
During April 2015, the FASB issued ASU No. 2015-03, InterestImputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance
Costs, which amends the requirements for the presentation of debt issuance costs and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that
debt liability, consistent with debt discounts. ASU No. 2015-03 is effective for fiscal years, beginning after December 15, 2015 and interim periods within those fiscal years, with retrospective application required. Consistent with the
guidance in ASU No. 2015-03 there are $3.4 million of debt issuance costs that have been presented as a reduction of term notes in our accompanying consolidated balance sheets at December 31, 2015 that were previously classified in other
assets prior to the adoption of ASU No. 2015-03. The implementation of this accounting standards update had no effect on our results of operations or cash flows.
20
In August 2015, the FASB issued Accounting Standards Update 2015-15, Imputation of Interest (Subtopic
835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (ASU 2015-15). ASU 2015-15 codifies an SEC staff announcement that entities are permitted to defer and present debt
issuance costs related to line-of-credit arrangements as assets. ASU No. 2015-15 is effective for fiscal years, beginning after December 15, 2015 and interim periods within those fiscal years. The implementation of this update did not
result in any changes to our consolidated financial statements.
The Companys 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. At this time no change in control is planned or anticipated.
6.
|
MORTGAGES PAYABLE AND DEBT MATURITIES
|
Mortgages payable at September 30, 2016 and
December 31, 2015 consist of the following:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
4.065% mortgage note due April 1, 2023, secured by one self-storage facility with an
aggregate net book value of $7.6 million, principal and interest paid monthly (effective interest rate 4.26%)
|
|
$
|
4,229
|
|
|
$
|
|
|
5.26% mortgage note due November 1, 2023, secured by one self-storage facility with an
aggregate net book value of $8.2 million, principal and interest paid monthly (effective interest rate 5.52%)
|
|
|
4,018
|
|
|
|
|
|
5.99% mortgage note due May 1, 2026, secured by one self-storage facility with an aggregate
net book value of $4.3 million, principal and interest paid monthly (effective interest rate 6.25%)
|
|
|
1,887
|
|
|
|
1,993
|
|
|
|
|
|
|
|
|
|
|
Total mortgages payable
|
|
$
|
10,134
|
|
|
$
|
1,993
|
|
|
|
|
|
|
|
|
|
|
The table below summarizes the Companys debt obligations and interest rate derivatives at September 30, 2016. 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 8. The carrying values of our variable rate debt instruments approximate their fair values as these 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.
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date Including Discount
|
|
|
|
|
(dollars in thousands)
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair
Value
|
|
Line of credit - variable rate LIBOR + 1.10% (1.62% at September 30, 2016)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
240,000
|
|
|
|
|
|
|
|
|
|
|
$
|
240,000
|
|
|
$
|
240,000
|
|
Notes Payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term note - variable rate LIBOR+1.15%
(1.68% at September 30, 2016)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
325,000
|
|
|
|
|
|
|
$
|
325,000
|
|
|
$
|
325,000
|
|
Term note - fixed rate 5.54%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
113,250
|
|
Term note - fixed rate 4.533%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
175,000
|
|
|
$
|
175,000
|
|
|
$
|
192,387
|
|
Term note - fixed rate 3.50%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
600,000
|
|
|
$
|
600,000
|
|
|
$
|
616,281
|
|
Term note - fixed rate 3.67%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
200,000
|
|
|
$
|
200,000
|
|
|
$
|
204,294
|
|
Mortgage note - fixed rate 4.065%
|
|
$
|
22
|
|
|
$
|
88
|
|
|
$
|
92
|
|
|
$
|
96
|
|
|
$
|
99
|
|
|
$
|
3,832
|
|
|
$
|
4,229
|
|
|
$
|
4,205
|
|
Mortgage note - fixed rate 5.26%
|
|
$
|
15
|
|
|
$
|
63
|
|
|
$
|
67
|
|
|
$
|
71
|
|
|
$
|
74
|
|
|
$
|
3,728
|
|
|
$
|
4,018
|
|
|
$
|
4,276
|
|
Mortgage note - fixed rate 5.99%
|
|
$
|
35
|
|
|
$
|
151
|
|
|
$
|
160
|
|
|
$
|
170
|
|
|
$
|
181
|
|
|
$
|
1,190
|
|
|
$
|
1,887
|
|
|
$
|
2,031
|
|
Interest rate derivatives - liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,248
|
|
7.
|
DERIVATIVE FINANCIAL INSTRUMENTS
|
Interest rate swaps are used to adjust the proportion of total debt
that is subject to variable interest rates. The interest rate swaps require the Company to pay an amount equal to a specific fixed rate of interest times a notional principal amount and to receive in return an amount equal to a variable rate of
interest times the same notional amount. The notional amounts are not exchanged. Forward starting interest rate swaps are also used by the Company to hedge the risk of changes in the interest-related cash outflows associated with the potential
issuance of long-term debt. No other cash payments are made unless the contract is terminated prior to its maturity, in which case the contract would likely be settled for an amount equal to its fair value. The Company enters into interest rate
swaps with a number of major financial institutions to minimize counterparty credit risk.
The interest rate swaps qualify and are designated as hedges of
the amount of future cash flows related to interest payments on variable rate debt. Therefore, the interest rate swaps are recorded in the consolidated balance sheet at fair value and the related gains or losses are deferred in shareholders
equity or partners capital as Accumulated Other Comprehensive Loss (AOCL). These deferred gains and losses are recognized in interest expense during the period or periods in which the related interest payments affect earnings.
However, to the extent that the interest rate swaps are not perfectly effective in offsetting the change in value of the interest payments being hedged, the ineffective portion of these contracts is recognized in earnings immediately.
Ineffectiveness was de minimis for the three and nine months ended September 30, 2016, and 2015.
The Company has interest rate swap agreements in
effect at September 30, 2016 as detailed below to effectively convert a total of $325 million of variable-rate debt to fixed-rate debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Effective
Date
|
|
|
Expiration
Date
|
|
|
Fixed Rate
Paid
|
|
|
Floating
Rate Received
|
|
$125 Million
|
|
|
9/1/2011
|
|
|
|
8/1/18
|
|
|
|
2.3700
|
%
|
|
|
1 month LIBOR
|
|
$100 Million
|
|
|
12/30/11
|
|
|
|
12/29/17
|
|
|
|
1.6125
|
%
|
|
|
1 month LIBOR
|
|
$100 Million
|
|
|
9/4/13
|
|
|
|
9/4/18
|
|
|
|
1.3710
|
%
|
|
|
1 month LIBOR
|
|
$100 Million
|
|
|
12/29/17
|
|
|
|
11/29/19
|
|
|
|
3.9680
|
%
|
|
|
1 month LIBOR
|
|
$125 Million
|
|
|
8/1/18
|
|
|
|
6/1/20
|
|
|
|
4.1930
|
%
|
|
|
1 month LIBOR
|
|
22
In the fourth quarter of 2015, the Company entered into forward starting interest rate swap agreements with a
total notional value of $50 million. In the first quarter of 2016, the Company entered into additional forward starting interest rate swap agreements with a total notional value of $100 million. These forward starting interest rate swap agreements
were entered into to hedge the risk of changes in the interest-related cash flows associated with the potential issuance of fixed rate long-term debt. In conjunction with the issuance of the $600 million 2026 Senior Notes (see Note 5), the Company
settled the forward starting swap agreements for a loss of approximately $9.2 million. The loss was recorded as accumulated other comprehensive loss and is being amortized as additional interest expense over the ten-year term of the $600 million
2026 Senior Notes. Consistent with the Companys accounting policy, the cash outflow related to the settlement of the forward starting swap agreements is reflected as a financing activity in the consolidated statements of cash flows.
The interest rate swap agreements are the only derivative instruments, as defined by FASB ASC Topic 815
Derivatives and Hedging
, held by
the Company. During the three months ended September 30, 2016 and 2015, the net reclassification from AOCL to interest expense was $1.2 million and $1.2 million, respectively, based on payments made under the swap agreements. During the nine
months ended September 30, 2016 and 2015, the net reclassification from AOCL to interest expense was $3.5 million and $3.9 million, respectively, based on payments made under the swap agreements. Reclassification of amounts included in AOCL at
September 30, 2016 to interest expense will be approximately $4.3 million for the 12 months ended September 30, 2017. Payments made under the interest rate swap agreements will be reclassified to interest expense as settlements occur or as
payments under the 2026 Senior Notes are made. The fair value of the swap agreements, including accrued interest, was a liability of $19.2 million at September 30, 2016, and an asset of $550,000 and a liability of $15.3 million at
December 31, 2015.
The Companys agreements with its interest rate swap counterparties contain provisions pursuant to which the Company could
be declared in default of its derivative obligations if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender. The interest rate swap agreements also incorporate
other loan covenants of the Company. Failure to comply with the loan covenant provisions would result in the Company being in default on the interest rate swap agreements. As of September 30, 2016, the Company had not posted any collateral
related to the interest rate swap agreements. If the Company had breached any of these provisions as of September 30, 2016, it could have been required to settle its obligations under the agreements at their net termination cost of $19.2
million.
23
The changes in AOCL for the three and nine months ended September 30, 2016 and September 30, 2015 are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Three Months
Ended
September 30,
2016
|
|
|
Three Months
Ended
September 30,
2015
|
|
|
Nine Months
Ended
September 30,
2016
|
|
|
Nine Months
Ended
September 30,
2015
|
|
Accumulated other comprehensive loss beginning of period
|
|
$
|
(30,863
|
)
|
|
$
|
(14,571
|
)
|
|
$
|
(14,415
|
)
|
|
$
|
(13,005
|
)
|
Realized loss reclassified from accumulated other comprehensive loss to interest expense
|
|
|
1,398
|
|
|
|
1,226
|
|
|
|
3,755
|
|
|
|
3,944
|
|
Unrealized gain (loss) from changes in the fair value of the effective portion of the interest
rate swaps
|
|
|
1,533
|
|
|
|
(5,763
|
)
|
|
|
(17,272
|
)
|
|
|
(10,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss included in other comprehensive loss
|
|
|
2,931
|
|
|
|
(4,537
|
)
|
|
|
(13,517
|
)
|
|
|
(6,103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss end of period
|
|
$
|
(27,932
|
)
|
|
$
|
(19,108
|
)
|
|
$
|
(27,932
|
)
|
|
$
|
(19,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
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 liabilitys classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Refer to Note 6 for presentation of the fair values of debt obligations which are disclosed at fair value on a recurring basis.
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2016 and
December 31, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
(Liability)
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(19,248
|
)
|
|
|
|
|
|
$
|
(19,248
|
)
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
550
|
|
|
|
|
|
|
$
|
550
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(15,343
|
)
|
|
|
|
|
|
$
|
(15,343
|
)
|
|
|
|
|
Interest rate swaps are over the counter securities with no quoted readily available Level 1 inputs, and therefore are
measured at fair value using inputs that are directly observable in active markets and are classified within Level 2 of the valuation hierarchy, using the income approach.
24
During 2016, assets and liabilities measured at fair value on a non-recurring basis included the assets acquired
and liabilities assumed in connection with the acquisition of 120 storage facilities (see note 4), including the LS acquisition. To determine the fair value of land, the Company used prices per acre derived from observed transactions involving
comparable land in similar locations, which is considered a Level 2 input. To determine the fair value of buildings, equipment and improvements, the Company used current replacement cost based on information derived from construction industry data
by geographic region which is considered a Level 2 input. The replacement cost is then adjusted for the age, condition, and economic obsolescence associated with these assets, which are considered Level 3 inputs. The fair value of in-place customer
leases is based on the rent lost due to the amount of time required to replace existing customers and the cost to replace in-place tenants which are based on the Companys historical experience with turnover at its facilities and on market
rental rates and estimated downtime required to replace the in-place leases, all of which are Level 3 inputs. The average downtime is based upon estimated demand information including the number of potential customers exhibited in historical
property interest data. The fair value of trade names is based on royalty payments avoided had the trade name been owned by a third party which is determined using market royalty rates. Other assets acquired and liabilities assumed in the
acquisitions consist primarily of prepaid or accrued real estate taxes and deferred revenues from advance monthly rentals paid by customers. The fair values of these assets and liabilities are based on their carrying values as they typically turn
over within one year from the acquisition date and these are Level 3 inputs.
9.
|
INVESTMENT IN JOINT VENTURES
|
The Company has a 20% ownership interest in Sovran HHF Storage Holdings
LLC (Sovran HHF), a joint venture that was formed in May 2008 to acquire self-storage properties that are managed by the Company. The carrying value of the Companys investment at September 30, 2016 and December 31, 2015
was $43.8 million and $44.6 million, respectively. Twenty-five properties were acquired by Sovran HHF in 2008 for approximately $171.5 million and 14 additional properties were acquired by Sovran HHF in 2014 for $187.2 million. In 2008, the Company
contributed $18.6 million to the joint venture as its share of capital required to fund the acquisitions. In 2012 the Company contributed an additional $1.2 million to the joint venture. In 2013 the Company received a return of capital distribution
of $3.4 million as part of the refinancing of Sovran HHF. In 2014 the Company contributed an additional $28.6 million in cash to the joint venture as its share of capital required to fund acquisitions. In 2015 the Company contributed an additional
$0.4 million in cash to the joint venture as its share of capital required to fund certain capital expenditures and property taxes related to 2014 acquisitions. As of September 30, 2016, the carrying value of the Companys 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, which is assessed for other-than-temporary impairment on a periodic basis. No other-than-temporary impairments have been recorded on this investment.
The Company has a 15% ownership interest in Sovran HHF Storage Holdings II LLC (Sovran HHF II), a joint venture that was formed in 2011 to acquire
self-storage properties that are managed by the Company. The carrying value of the Companys investment at September 30, 2016 and December 31, 2015 was $13.6 million and $13.9 million, respectively. Twenty properties were acquired by
Sovran HHF II during 2011 for approximately $166.1 million. During 2011, the Company contributed $12.8 million to the joint venture as its share of capital required to fund the acquisitions. Ten additional properties were acquired by Sovran HHF II
during 2012 for approximately $29 million. During 2012, the Company contributed $2.4 million to the joint venture as its share of capital required to fund the acquisitions. In 2015 the Company contributed an additional $1.7 million in cash to the
joint venture as its share of capital required to fund the payoff of a mortgage note. The carrying value of this investment is assessed for other-than-temporary impairment on a periodic basis and no such impairments have been recorded on this
investment.
25
As manager of Sovran HHF and Sovran HHF II, the Company earns a management and call center fee of 7% of gross
revenues which totaled $1.3 million and $1.3 million for the three months ended September 30, 2016 and 2015, respectively. The management and call center fees earned by the Company for the nine months ended September 30, 2016 and 2015,
totaled $3.8 million and $3.6 million, respectively.
The Companys share of Sovran HHF and Sovran HHF IIs income for the three months ended
September 30, 2016 and 2015 was $0.8 million and $0.9 million, respectively. The Companys share of Sovran HHF and Sovran HHF IIs income for the nine months ended September 30, 2016 and 2015 was $2.6 million and $2.3 million,
respectively.
The Company has a 49% ownership interest in Iskalo Office Holdings, LLC, which owns the building that houses the Companys
headquarters and other tenants. The carrying value of the Companys investment is a liability of $0.4 million and $0.5 million at September 30, 2016 and December 31, 2015, respectively, and is included in accounts payable and accrued
liabilities in the accompanying consolidated balance sheets. For the three months ended September 30, 2016, and 2015, the Companys share of Iskalo Office Holdings, LLCs income was $45,000 and $58,000, respectively. For the nine
months ended September 30, 2016, and 2015, the Companys share of Iskalo Office Holdings, LLCs income was $158,000 and $162,000, respectively. The Company paid rent to Iskalo Office Holdings, LLC of $0.9 million and $0.8 million
during the nine months ended September 30, 2016 and 2015, respectively.
The Company holds an 85% equity interest in Urban Box Coralway Storage, LLC
(Urban Box), a joint venture with an unrelated third party. Urban Box was formed in 2015 and is currently developing a self-storage property in Florida. During 2015, the Company contributed $4.0 million to Urban Box as its share of
capital to develop the property, which primarily consists of the acquisition of land in 2015. Urban Box has entered into a non-recourse mortgage loan in order to finance the future development costs. The Company and the other joint venture member
have participation rights which require the agreement of both members in order to implement the activities of Urban Box which are most significant to its economic performance. Accordingly, the interest is recorded using the equity method.
The Company will perform property management services for Urban Box in exchange for a management fee based on 6% of property revenues. There were no
management fees in 2016 or 2015.
The Company holds a 5% equity interest in SNL/Orix 1200 McDonald Ave., LLC (McDonald), a joint venture with
an unrelated third party. The joint venture for McDonald was executed in 2016 and is currently developing a self-storage property in New York. During 2016, the Company contributed $0.4 million of common capital and $2.3 million of preferred capital
to McDonald as its share of capital to develop the property. McDonald entered into a non-recourse mortgage loan in order to finance the future development costs. In accordance with the terms of the McDonald joint venture agreement, the Company has
the ability to assert influence over certain business matters. Accordingly, the interest is recorded using the equity method.
26
The Company will perform property management services for McDonald in exchange for a management fee based on
property revenues. There were no management fees in 2016 or 2015.
The Company holds a 5% equity interest in SNL Orix Merrick, LLC (Merrick),
a joint venture with an unrelated third party. The joint venture for Merrick was executed in 2016 and is currently developing a self-storage property in New York. During 2016, the Company contributed $0.4 million of common capital and $2.1 million
of preferred capital to Merrick as its share of capital to develop the property. Merrick will enter into a non-recourse mortgage loan in order to finance the future development costs. In accordance with the terms of the Merrick joint venture
agreement, the Company has the ability to assert influence over certain business matters. Accordingly, the interest is recorded using the equity method.
The Company will perform property management services for Merrick in exchange for a management fee based on property revenues. There were no management fees
in 2016 or 2015.
A summary of the unconsolidated joint ventures financial statements as of and for the nine months ended September 30, 2016 is
as follows:
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
Investment in storage facilities, net
|
|
$
|
534,541
|
|
Investment in office building, net
|
|
|
5,000
|
|
Other assets
|
|
|
17,928
|
|
|
|
|
|
|
Total Assets
|
|
$
|
557,469
|
|
|
|
|
|
|
Due to the Company
|
|
$
|
767
|
|
Mortgages payable
|
|
|
222,434
|
|
Other liabilities
|
|
|
9,177
|
|
|
|
|
|
|
Total Liabilities
|
|
|
232,378
|
|
Unaffiliated partners equity
|
|
|
260,581
|
|
Company equity
|
|
|
64,510
|
|
|
|
|
|
|
Total Partners Equity
|
|
|
325,091
|
|
|
|
|
|
|
Total Liabilities and Partners Equity
|
|
$
|
557,469
|
|
|
|
|
|
|
Income Statement Data
:
|
|
|
|
|
Total revenues
|
|
$
|
55,533
|
|
Property operating expenses
|
|
|
(17,922
|
)
|
Administrative, management and call center fees
|
|
|
(4,046
|
)
|
Depreciation and amortization of customer list
|
|
|
(10,179
|
)
|
Amortization of financing fees
|
|
|
(265
|
)
|
Income tax expense
|
|
|
(174
|
)
|
Interest expense
|
|
|
(7,730
|
)
|
|
|
|
|
|
Net income
|
|
$
|
15,217
|
|
|
|
|
|
|
The Company does not guarantee the debt of Sovran HHF, Sovran HHF II, Iskalo Office Holdings, LLC, Urban Box, McDonald, or
Merrick.
We do not expect to have material future cash outlays relating to these joint ventures outside our share of capital for future acquisitions of
properties.
27
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 one of its subsidiaries as a taxable REIT subsidiary. In general, the Companys taxable REIT subsidiary 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.
For the three months ended September 30, 2016 and 2015,
the Company recorded federal and state income tax expense of $0.2 million and $0.6 million, respectively. For the nine months ended September 30, 2016 and 2015, the Company recorded federal and state income tax expense of $0.9 million and $1.7
million, respectively. At September 30, 2016 and 2015, 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,
2016 and 2015, the Company had no interest or penalties related to uncertain tax positions. Net income taxes payable and the deferred tax liability of our taxable REIT subsidiary are classified within accounts payable and accrued liabilities in the
consolidated balance sheets. As of September 30, 2016, the Companys taxable REIT subsidiary has a deferred tax liability of $1.3 million. The tax years 2013-2015 remain open to examination by the major taxing jurisdictions to which the
Company is subject.
11.
|
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
. Effective January 1, 2009, FASB ASC Topic 260 was updated for the issuance of FASB Staff Position (FSP) EITF 03-6-1,
Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating Securities
, or FSP EITF 03-6-1, with transition guidance included in FASB ASC Topic 260-10-65-2. Under FSP EITF 03-6-1, 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.
28
The following table sets forth the computation of basic and diluted earnings per common share utilizing the
two-class method.
(Loss) Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands except per share data)
|
|
Three Months
Ended
Sep. 30, 2016
|
|
|
Three Months
Ended
Sep. 30, 2015
|
|
|
Nine Months
Ended
Sep. 30, 2016
|
|
|
Nine Months
Ended
Sep. 30, 2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common shareholders
|
|
$
|
(4,738
|
)
|
|
$
|
31,504
|
|
|
$
|
67,058
|
|
|
$
|
82,487
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic (loss) earnings per share weighted average shares
|
|
|
46,139
|
|
|
|
35,700
|
|
|
|
42,177
|
|
|
|
35,136
|
|
Effect of Dilutive Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and non-vested stock
|
|
|
|
|
|
|
217
|
|
|
|
238
|
|
|
|
222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted (loss) earnings per share adjusted weighted average shares and
assumed conversion
|
|
|
46,139
|
|
|
|
35,917
|
|
|
|
42,415
|
|
|
|
35,358
|
|
Basic (loss) earnings per common share attributable to common shareholders
|
|
$
|
(0.10
|
)
|
|
$
|
0.88
|
|
|
$
|
1.59
|
|
|
$
|
2.35
|
|
Diluted (loss) earnings per common share attributable to common shareholders
|
|
$
|
(0.10
|
)
|
|
$
|
0.88
|
|
|
$
|
1.58
|
|
|
$
|
2.33
|
|
(Loss) 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
Sep. 30, 2016
|
|
|
Three Months
Ended
Sep. 30, 2015
|
|
|
Nine Months
Ended
Sep. 30, 2016
|
|
|
Nine Months
Ended
Sep. 30, 2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common unitholders
|
|
$
|
(4,738
|
)
|
|
$
|
31,504
|
|
|
$
|
67,058
|
|
|
$
|
82,487
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic (loss) earnings per unit weighted average units
|
|
|
46,139
|
|
|
|
35,700
|
|
|
|
42,177
|
|
|
|
35,136
|
|
Effect of Dilutive Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and non-vested stock
|
|
|
|
|
|
|
217
|
|
|
|
238
|
|
|
|
222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted (loss) earnings per unit adjusted weighted average units and
assumed conversion
|
|
|
46,139
|
|
|
|
35,917
|
|
|
|
42,415
|
|
|
|
35,358
|
|
Basic (loss) earnings per common unit attributable to common unitholders
|
|
$
|
(0.10
|
)
|
|
$
|
0.88
|
|
|
$
|
1.59
|
|
|
$
|
2.35
|
|
Diluted (loss) earnings per common unit attributable to common unitholders
|
|
$
|
(0.10
|
)
|
|
$
|
0.88
|
|
|
$
|
1.58
|
|
|
$
|
2.33
|
|
29
Not included in the effect of dilutive securities above for both earnings per share and earnings per unit are
95,706 stock options and 270,298 unvested restricted shares for the three months ended September 30, 2016, and 11,000 stock options and 139,518 unvested restricted shares for the three months ended September 30, 2015, because their effect
would be antidilutive. Not included in the effect of dilutive securities above are 110,757 unvested restricted shares for the nine months ended September 30, 2016, and 7,333 stock options and 157,383 unvested restricted shares for the nine
months ended September 30, 2015, because their effect would be antidilutive.
The following is a reconciliation of the changes in the Parent Companys
total shareholders equity for the period:
|
|
|
|
|
(dollars in thousands)
|
|
Nine Months
Ended
September 30, 2016
|
|
Beginning balance of total shareholders equity
|
|
$
|
1,202,315
|
|
Net proceeds from the issuance of common stock
|
|
|
944,872
|
|
Conversion of operating partnership units to common shares
|
|
|
4,795
|
|
Exercise of stock options
|
|
|
|
|
Earned portion of non-vested stock
|
|
|
5,515
|
|
Stock option expense
|
|
|
85
|
|
Deferred compensationdirectors
|
|
|
68
|
|
Adjustment to redemption value on noncontrolling redeemable Operating Partnership units
|
|
|
2,907
|
|
Net income attributable to common shareholders
|
|
|
67,058
|
|
Amortization of terminated hedge included in AOCL
|
|
|
229
|
|
Change in fair value of derivatives
|
|
|
(13,746
|
)
|
Dividends
|
|
|
(112,688
|
)
|
|
|
|
|
|
Ending balance of total shareholders equity
|
|
$
|
2,101,410
|
|
|
|
|
|
|
On January 20, 2016, the Company completed the public offering of 2,645,000 shares of its common stock at $105.75 per
share. Net proceeds to the Company after deducting underwriting discounts and commissions and offering expenses were approximately $269.7 million. The Company used the net proceeds from the offering to repay a portion of the indebtedness then
outstanding on the Companys unsecured line of credit.
On May 25, 2016, the Company completed the public offering of 6,900,000 shares of its
common stock at $100.00 per share. Net proceeds to the Company after deducting underwriting discounts and commissions and offering expenses were approximately $665.4 million. The Company initially used the net proceeds from the offering to repay the
indebtedness then outstanding on the Companys unsecured line of credit. The proceeds from this offering and the proceeds from the 2026 Senior Notes (see Note 5) were used, along with draws on the Companys revolving line of credit, to
fund the purchase of LS on July 15, 2016 (see Note 4).
On May 12, 2014, the Company entered into a continuous equity offering program
(Equity Program) with Wells Fargo Securities, LLC (Wells Fargo), Jefferies LLC (Jefferies), SunTrust Robinson Humphrey, Inc. (SunTrust), Piper Jaffray & Co. (Piper), HSBC
Securities (USA) Inc. (HSBC), and BB&T Capital Markets, a division of BB&T Securities, LLC (BB&T), pursuant to which the Company may sell from time to time up to $225 million in aggregate offering price of shares
of the Companys common stock. Actual sales under the Equity Program will depend on a variety of factors and conditions, including, but not limited to, market conditions, the trading price of the Companys common stock, and determinations
of the appropriate sources of funding for the Company. The Company expects to continue to offer, sell, and issue shares of common stock under the Equity Program from time to time based on various factors and conditions, although the Company is under
no obligation to sell any shares under the Equity Program.
30
During the nine months ended September 30, 2016, the Company did not issue any shares of common stock under
the Equity Program. As of September 30, 2016, the Company had $59.3 million available for issuance under the Equity Program.
During the nine months
ended September 30, 2015, the Company issued 499,911 shares of common stock under the Equity Program at a weighted average issue price of $94.29 per share, generating net proceeds of $46.5 million after deducting $0.6 million of sales
commissions paid to Jefferies and Piper.
In 2013, the Company implemented a Dividend Reinvestment Plan. The Company issued 94,050 and 105,876 shares
under the plan during the nine months ended September 30, 2016 and September 30, 2015, respectively.
The following is a reconciliation of the changes in total partners capital
for the period:
|
|
|
|
|
(dollars in thousands)
|
|
Nine Months
Ended
September 30, 2016
|
|
Beginning balance of total controlling partners capital
|
|
$
|
1,202,315
|
|
Net proceeds from the issuance of partnership units
|
|
|
944,872
|
|
Conversion of operating partnership units to common shares
|
|
|
4,795
|
|
Exercise of stock options
|
|
|
|
|
Earned portion of non-vested stock
|
|
|
5,515
|
|
Stock option expense
|
|
|
85
|
|
Deferred compensationdirectors
|
|
|
68
|
|
Adjustment to redemption value on limited partners redeemable capital interests
|
|
|
2,907
|
|
Net income attributable to common unitholders
|
|
|
67,058
|
|
Amortization of terminated hedge included in AOCL
|
|
|
229
|
|
Change in fair value of derivatives
|
|
|
(13,746
|
)
|
Distributions
|
|
|
(112,688
|
)
|
|
|
|
|
|
Ending balance of total controlling partners capital
|
|
$
|
2,101,410
|
|
|
|
|
|
|
14.
|
RECENT ACCOUNTING PRONOUNCEMENTS
|
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts
with Customers, which supersedes the revenue recognition requirements in Revenue Recognition (Topic 605), and requires an entity to recognize revenue in a way that depicts the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15,
2017. The Company has the option to apply the provisions of ASU 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the new guidance recognized at the date of
initial application. The Company has not yet completed its assessment of the impact that the adoption of ASU 2014-09 will have on its consolidated financial statements.
31
In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award
Provide That a Performance Target Could Be Achieved after the Requisite Service Period, which requires a reporting entity to treat a performance target that affects vesting and that could be achieved after the requisite service period as a
performance condition. ASU 2014-12 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. ASU 2014-12 may be adopted either prospectively for share-based
payment awards granted or modified on or after the effective date, or retrospectively, using a modified retrospective approach. The modified retrospective approach would apply to share-based payment awards outstanding as of the beginning of the
earliest annual period presented in the financial statements on adoption, and to all new or modified awards thereafter. The adoption of ASU 2014-12 by the Company did not have a material impact on its consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. This ASU is effective for
annual reporting periods beginning after December 15, 2015 including interim periods within that reporting period. ASU 2015-02 amends the current consolidation model specifically as it relates to variable interest entities
(VIEs) and provides reporting entities with a revised consolidation analysis procedure. The adoption of ASU 2015-02 by the Company did not have a material impact on its consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.
ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 is effective for fiscal years,
and interim reporting periods within those fiscal years, beginning after December 15, 2015. The adoption of ASU 2015-16 by the Company did not have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This guidance revises existing practice related to accounting for leases under
Accounting Standards Codification Topic 840
Leases
(ASC 840) for both lessees and lessors. The new guidance in ASU 2016-02 requires lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than
leases that meet the definition of a short-term lease). The lease liability will be equal to the present value of lease payments and the right-of-use asset will be based on the lease liability, subject to adjustment such as for initial direct costs.
For income statement purposes, the new standard retains a dual model similar to ASC 840, requiring leases to be classified as either operating or finance. For lessees, operating leases will result in straight-line expense (similar to current
accounting by lessees for operating leases under ASC 840) while finance leases will result in a front-loaded expense pattern (similar to current accounting by lessees for capital leases under ASC 840). While the new standard maintains similar
accounting for lessors as under ASC 840, the new standard reflects updates to, among other things, align with certain changes to the lessee model. ASU 2016-02 is effective for fiscal years and interim periods, within those years, beginning after
December 15, 2018. Early adoption is permitted for all entities. The Company has not yet completed its assessment of the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements.
32
In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call
Options in Debt Instruments. ASU 2016-06 simplifies the embedded derivative analysis for debt instruments containing contingent call or put options by removing the requirement to assess whether a contingent event is related to interest rates
or credit risks. The new standard will be effective for us on January 1, 2017. The Company has not yet completed its assessment of the impact that the adoption of ASU 2016-06 will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-07, InvestmentsEquity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity
Method of Accounting. ASU 2016-07 eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an adjustment must be made to the
investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The new standard will be effective for us on
January 1, 2017. The Company has not yet completed its assessment of the impact that the adoption of ASU 2016-07 will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting as part of its simplification initiative,
which involves several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in
this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company has not yet completed its assessment of the impact that the adoption of ASU 2016-09 will have on its
consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments (a Consensus of the Emerging Issues Task Force) in an effort to reduce existing diversity in practice related to the classification of certain cash receipts and cash payments on the statements of cash flows. The
guidance addresses the classification of cash flows related to, among other things, distributions received from equity method investees. The amendments in this update are effective for annual periods beginning after December 15, 2017, and
interim periods within those annual periods. The Company has not yet completed its assessment of the impact that the adoption of ASU 2016-15 will have on its consolidated financial statements.
15.
|
COMMITMENT AND CONTINGENCIES
|
At September 30, 2016, the Company was under contract to acquire
seven self-storage facilities for an aggregate purchase price of approximately $85.6 million. The purchase of these facilities is subject to customary conditions to closing, and there is no assurance that these facilities will be acquired.
On or about August 25, 2014, a putative class action was filed against the Company in the Superior Court of New Jersey Law Division Burlington County.
The action seeks to obtain declaratory, injunctive and monetary relief for a class of consumers based upon alleged violations by the Company of the New Jersey Truth in Customer Contract, Warranty and Notice Act, the New Jersey Consumer Fraud Act and
the New Jersey Insurance Producer Licensing Act. On October 17, 2014, the action was removed from the Superior Court of New Jersey Law Division Burlington County to the United States District Court for the District of New Jersey. The Company
brought a motion to partially dismiss the complaint for failure to state a claim, and on July 16, 2015, the Companys motion was granted in part and denied in part. On October 20, 2016, the complaint was amended to add a claim that the
Companys insurance program violates New Jersey consumer protection laws. The Company intends to vigorously defend the action, and the possibility of any adverse outcome cannot be determined at this time.
33
On October 4, 2016, the Company declared a quarterly dividend of $0.95 per
common share. The dividend was paid on October 26, 2016 to shareholders of record on October 14, 2016. The total dividend paid amounted to $43.9 million.
34