Investments in Unconsolidated Real Estate Entities

9 Months Ended

Sep. 30, 2023

Equity Method Investments and Joint Ventures [Abstract]

Investments in Unconsolidated Real Estate Entities

The following table sets forth our equity in earnings of the Unconsolidated Real Estate Entities (amounts in thousands):


	Equity in Earnings of Unconsolidated Real Estate Entities for the
	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Shurgard	$	7,227	$	4,594	$	22,787	$	19,533
PSB	—		3,586		—		80,596
Total	$	7,227	$	8,180	$	22,787	$	100,129

Investment in Shurgard

Our investment in Shurgard was $278.1 million and $275.8 million as of September 30, 2023 and December 31, 2022, respectively.

Throughout all periods presented, we effectively owned 31,268,459 Shurgard common shares, representing a 35% equity interest in Shurgard.

Based upon the closing price at September 30, 2023 (€37.50 per share of Shurgard common stock, at 1.057 exchange rate of U.S. Dollars to the Euro), the shares we owned had a market value of approximately $1.2 billion.

Our equity in earnings of Shurgard comprised our equity share of Shurgard’s net income, less amortization of the Shurgard Basis Differential (defined below). During the nine months ended September 30, 2023 and 2022, we received $2.8 million and $2.6 million of trademark license fees that Shurgard pays to us for the use of the Shurgard® trademark, respectively. We eliminated $1.0 million and $0.9 million of intra-entity profits and losses for the nine months ended September 30, 2023 and 2022, respectively, representing our equity share of the trademark license fees. We classify the remaining license fees we receive from Shurgard as interest and other income on our income statement.

During the nine months ended September 30, 2023 and 2022, we received cash dividend distributions from Shurgard totaling $19.8 million and $37.8 million, respectively. Approximately $3.2 million and $13.7 million of total cash distributions from Shurgard during the nine months ended September 30, 2023 and 2022, respectively, represented distributions in excess of cumulative equity in earnings from Shurgard, which was classified within cash flows from investing activities in the Consolidated Statements of Cash Flows.

At September 30, 2023, our investment in Shurgard’s real estate assets exceeded our pro-rata share of the underlying amounts on Shurgard’s balance sheet by approximately $63.2 million ($67.8 million at December 31, 2022). This differential (the “Shurgard Basis Differential”) includes our basis adjustments in Shurgard’s real estate assets net of related deferred income taxes. The Shurgard Basis Differential is being amortized as a reduction to equity in earnings of the Unconsolidated Real Estate Entities. Such amortization totaled approximately $4.6 million and $9.0 million during the nine months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023 and 2022, we translated the book value of our investment in Shurgard from Euro to U.S. Dollars and recorded $0.8 million and $42.9 million other comprehensive loss during the nine months ended September 30, 2023 and 2022, respectively.

Investment in PSB

On July 20, 2022, in connection with the closing of the merger of PS Business Parks, Inc. (“PSB”) with affiliates of Blackstone Real Estate (“Blackstone”), we completed the sale of our 41% common equity interest in PSB in its entirety. At the close of the merger transaction, we received a total of $2.7 billion of cash proceeds and recognized a gain of $2.1 billion during the third quarter of 2022.

During the nine months ended September 30, 2022, we received cash distributions from PSB totaling $109.5 million, which were classified within cash flows from operating activities in the Consolidated Statements of Cash flows. Since the sale of PSB in July 2022, we no longer recognize equity in earnings or receive cash distributions from PSB.