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INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES

3 Months Ended

Mar. 31, 2020

INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES

INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES

5. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES

The Company’s investments in real estate ventures, in which it holds a common ownership interest, are summarized as follows (in thousands):


		CubeSmart		Number of Stores as of:						Carrying Value of Investment as of:
		Ownership		March 31,			December 31,			March 31,			December 31,
Unconsolidated Real Estate Ventures		Interest		2020			2019			2020			2019
191 IV CUBE Southeast LLC ("HVPSE") ⁽¹⁾		10%		14			—			$	5,568		$	—
191 IV CUBE LLC ("HVP IV") ⁽²⁾		20%		21			21				22,860			23,112
CUBE HHF Northeast Venture LLC ("HHFNE") ⁽³⁾		10%		13			13				1,913			1,998
CUBE HHF Limited Partnership ("HHF") ⁽⁴⁾		50%		35			35				64,833			66,007
				83			69			$	95,174		$	91,117

(1)

On March 19, 2020, the Company invested a 10% ownership interest in a newly-formed real estate venture that acquired 14 self-storage properties located in Florida (2), Georgia (8) and South Carolina (4). HVPSE paid $135.3 million for these stores, of which $7.7 million was allocated to the value of the in-place lease intangible. The acquisition was funded primarily through the venture’s $81.6 million term loan. The remainder of the purchase price was contributed pro-rata by the Company and its unaffiliated joint venture partner. The Company’s total contribution to HVPSE related to this portfolio acquisition was $5.6 million. The loan bears interest at LIBOR plus 1.60% and matures on March 19, 2023 with options to extend the maturity date through March 19, 2025, subject to satisfaction of certain conditions and payment of the extension fees as stipulated in the loan agreement.

(2)

The stores owned by HVP IV are located in Arizona (2), Connecticut (2), Florida (4), Georgia (2), Maryland (1), Minnesota (1), Pennsylvania (1) and Texas (8). The Company’s total contribution to HVP IV in connection with these store acquisitions was $26.3 million. As of March 31, 2020, HVP IV had $82.2 million outstanding on its $107.0 million loan facility, which bears interest at LIBOR plus 1.70% per annum, and matures on May 16, 2021 with options to extend the maturity date through May 16, 2023, subject to satisfaction of certain conditions and payment of the extension fees as stipulated in the loan agreement. As of March 31, 2020, HVP IV also had $55.5 million outstanding under a separate loan that bears interest at LIBOR plus 2.75% per annum, and matures on June 9, 2022 with options to extend the maturity date through June 9, 2024, subject to satisfaction of certain conditions and payment of the extension fees as stipulated in the loan agreement.

(3)

The stores owned by HHFNE are located in Connecticut (3), Massachusetts (6), Rhode Island (2) and Vermont (2). The Company’s total contribution to HHFNE in connection with these store acquisitions was $3.8 million. As of March 31, 2020, HHFNE had an outstanding $45.0 million loan facility, which bears interest at LIBOR plus 1.20% per annum and matures on December 16, 2024.

(4)

The stores owned by HHF are located in North Carolina (1) and Texas (34). As of March 31, 2020, HHF had an outstanding $100.0 million secured loan, which bears interest at 3.59% per annum and matures on April 30, 2021.

On June 5, 2019, HVP III sold 50 stores located in Florida (3), Georgia (4), Michigan (17), North Carolina (3), South Carolina (15) and Tennessee (8), to an unaffiliated third party buyer for an aggregate sales price of $293.5 million. As of the transaction date, HVP III had five mortgage loans with an aggregate outstanding balance of $22.9 million, as well as $179.5 million outstanding on its $185.5 million loan facility, all of which were defeased or repaid in full at the time of the sale. Net proceeds to the venture from the transaction totaled $82.9 million. The venture recorded gains which aggregated to approximately $106.7 million in connection with the sale. Subsequent to the sale, the Company acquired its partner’s 90% ownership interest in HVP III, which at the time of the acquisition, owned the remaining 18 storage properties (see note 4).

Based upon the facts and circumstances at formation of HVPSE, HVP IV, HHFNE and HHF (the “Ventures”), the Company determined that the Ventures are not VIEs in accordance with the accounting standard for the consolidation of VIEs. As a result, the Company used the voting interest model under the accounting standard for consolidation in order to determine whether to consolidate the Ventures. Based upon each member's substantive participating rights over the activities of each entity as stipulated in the operating agreements, the Ventures are not consolidated by the Company and are accounted for under the equity method of accounting (except for HVP III, which was consolidated as of June 6, 2019). The Company’s investments in the Ventures are included in Investment in real estate ventures, at equity on the Company’s consolidated balance sheets and the Company’s earnings from its investments in the Ventures are presented in Equity in earnings (losses) of real estate ventures on the Company’s consolidated statements of operations.

The amounts reflected in the following table are based on the historical financial information of the Ventures.

The following is a summary of the financial position of the Ventures as of March 31, 2020 and December 31, 2019 (in thousands).


		March 31,			December 31,
		2020			2019 ⁽¹⁾
Assets		(in thousands)
Storage properties, net		$	677,226		$	552,791
Other assets			21,120			11,997
Total assets		$	698,346		$	564,788

Liabilities and equity
Other liabilities		$	11,836		$	10,064
Debt			360,950			280,392
Equity
CubeSmart			95,174			91,117
Joint venture partners			230,386			183,215
Total liabilities and equity		$	698,346		$	564,788

(1)

Excludes HVPSE as it acquired its initial assets on March 19, 2020.

The following is a summary of results of operations of the Ventures for the three months ended March 31, 2020 and 2019 (in thousands):


		Three Months Ended March 31,
		2020			2019 ⁽¹⁾

Total revenues		$	14,605		$	23,203
Operating expenses			6,942			10,163
Other expenses			113			142
Interest expense, net			2,720			4,216
Depreciation and amortization			6,423			9,506
Net loss		$	(1,593)		$	(824)
Company’s share of net (loss) income		$	(5)		$	261

(1)

Excludes HVPSE as it acquired its initial assets on March 19, 2020 and includes HVP III as its assets were not sold until June 5, 2019.

Capital Storage Partners, LLC (“Capital Storage”)

On September 5, 2018, the Company invested $5.0 million in exchange for 100% of the Class A Preferred Units of Capital Storage Partners, LLC, a newly formed venture that acquired 22 self-storage properties located in Florida (4), Oklahoma (5) and Texas (13). The Class A Preferred Units earn an 11% cumulative dividend prior to any other distributions. The Company’s investment in Capital Storage and the related dividends are included in Other assets, net on the Company’s consolidated balance sheets and in Other income on the Company’s consolidated statements of operations, respectively.