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INVESTMENT ACTIVITY

3 Months Ended

Mar. 31, 2022

4. INVESTMENT ACTIVITY

2022 Acquisitions

During the three months ended March 31, 2022, the Company acquired one store located in Maryland for a purchase price of $32.0 million. In connection with this transaction, which was accounted for as an asset acquisition, the Company allocated the purchase price and acquisition-related costs to the tangible and intangible assets acquired based on fair value. Intangible assets consisted of in-place leases, which aggregated to $1.3 million at the time of the acquisition and prior to amortization of such amounts. The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during the three months March 31, 2022 was approximately $0.2 million.

Additionally, on February 2, 2022, the Company acquired land underlying a wholly-owned store located in Bronx, New York for $7.5 million. The land was previously subject to a ground lease in which the Company served as lessee. As a result of the transaction, which was accounted for as an asset acquisition, the Company was released from its obligations under the ground lease, and the right-of-use asset and lease liability totaling $4.1 million and $5.0 million, respectively, were removed from the Company’s consolidated balance sheets.

As of March 31, 2022, the Company had made a deposit of $0.2 million associated with one store that was under contract to be acquired for an acquisition price of $20.0 million. The deposit is reflected in Other assets, net on the Company’s consolidated balance sheets.

2022 Dispositions

During the three months ended March 31, 2022, the Company sold the Los Angeles Athletic Club, which it purchased in December 2021 as part of the LAACO acquisition, for $44.0 million. No gain or loss was recognized in conjunction with the sale.

LAACO Acquisition

On December 9, 2021, the Company acquired all outstanding partnership units of LAACO, the owner of the Storage West Assets and, as a result, LAACO became a wholly-owned subsidiary of the Company. The 57 Storage West Assets are located in Arizona (17), California (20), Nevada (13) and Texas (7). Through its acquisition of LAACO, the Company also acquired a 50% interest in two separate unconsolidated joint ventures, each of which own one storage property in California (see note 5). In addition, through this acquisition, the Company also acquired the Club Operations, which included the Los Angeles Athletic Club (consisting of athletic facilities, food and beverage operations and a hotel) and the California Yacht Club (the “CYC”) (consisting of sports facilities, food and beverage operations and a marina). During the three months ended March 31, 2022, the Company sold the Los Angeles Athletic Club (see above). As of March 31, 2022, the CYC is classified as held for sale on the Company’s consolidated balance sheets.

The following summarizes the relevant components contemplated in the acquisition of LAACO:


	Amount
	(in thousands)
Costs contemplated:
Capitalized costs:
LAACO partnership units ⁽¹⁾	$	1,648,426
Long-term debt assumed and repaid at closing		40,880
Payments to LAACO management (capitalized) ⁽²⁾		16,807
Other transaction costs ⁽³⁾		13,407
Total capitalized costs	$	1,719,520
Payments and anticipated payments to LAACO management (expensed) ⁽²⁾		25,144
Total costs contemplated	$	1,744,664

Estimated fair value of Club Operations	$	46,800

(1)

Represents the acquisition of all 167,557 outstanding partnership units for $9,838 per unit.

(2)

Upon the acquisition of LAACO, the Company assumed severance obligations payable to certain employees pursuant to pre-existing agreements. Based on the specific details of the arrangements, $16.8 million in costs were capitalized to the basis of the acquired properties while $25.1 million were considered post-combination compensation expenses. Of this $25.1 million, $14.8 million was included in the component of other income (expense) designated as other for the year ended December 31, 2021, $9.2 million was included in the component of other income (expense) designated as other for the three months ended March 31, 2022, with the remainder expected to be expensed during the three months ended June 30, 2022.

(3)

Includes consulting fees, legal fees, and other costs.

The Company accounted for the acquisition of LAACO as an asset acquisition. As a result, the capitalized costs noted above were allocated to LAACO’s real estate assets, intangible assets and real estate venture investments on a relative fair value basis. All other assets acquired and liabilities assumed were recorded at fair value. The following summarizes the accounting for the LAACO acquisition:


	Amount
	(in thousands)
Storage properties	$	1,517,243
Cash and cash equivalents		18,291
Investment in real estate ventures, at equity		35,737
Assets held for sale		50,435
Other assets, net		143,599
Accounts payable, accrued expenses and other liabilities		(38,350)
Deferred revenue		(3,764)
Security deposits		(36)
Liabilities held for sale		(3,635)
Total	$	1,719,520

Intangible assets (included above in Other assets, net) consisted of in-place leases, which aggregated to $109.7 million at the time of the acquisition and prior to amortization of such amounts. The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during the three months ended March 31, 2022 was approximately $27.4 million.

Other 2021 Acquisitions

During the year ended December 31, 2021, the Company also acquired eight additional stores located in Florida (1), Georgia (1), Illinois (1), Maryland (1), Nevada (1), New Jersey (1) and Pennsylvania (2) for an aggregate purchase price of approximately $140.8 million. In addition, a consolidated joint venture in which the Company holds a 50% interest acquired a store in Minnesota for a purchase price of $12.0 million (see note 13). In connection with these transactions, which were accounted for as asset acquisitions, the Company allocated the purchase price and acquisition-related costs to the tangible and intangible assets acquired based on fair value. Intangible assets consisted of in-place leases, which aggregated to $11.9 million at the time of the acquisitions and prior to amortization of such amounts. The estimated life of these in-place leases is 12 months and the amortization expense that was recognized during the three months ended March 31, 2022 was approximately $3.0 million. No amortization expense related to these stores was recognized during the three months ended March 31, 2021.

2021 Dispositions

During the year ended December 31, 2021, the Company sold five properties located in Colorado (1), Nevada (1), North Carolina (2) and Texas (1) for an aggregate sales price of $43.8 million. In conjunction with the sales, the Company recorded gains that totaled $32.7 million.

Assets Held for Sale

As of March 31, 2022, the Company determined that the CYC met the criteria to be classified as held for sale. Accordingly, the assets and liabilities associated with the CYC have been categorized as held for sale within the Company’s March 31, 2022 consolidated balance sheets. As of March 31, 2022, the estimated fair value less selling costs of the CYC was greater than the carrying value of the CYC, and therefore no loss has been recorded in the current period.

Development Activity

As of March 31, 2022, the Company had investments in joint ventures to develop three self-storage properties located in New York (2) and Virginia (1). Construction for all projects is expected to be completed by the first quarter of 2023 (see note 13). As of March 31, 2022, development costs incurred to date for these projects totaled $74.8 million. Total construction costs for these projects are expected to be $97.3 million. These costs are capitalized to construction in progress while the projects are under development and are reflected in Storage properties on the Company’s consolidated balance sheets.

The Company has completed the construction and opened for operation the following stores during the period beginning on January 1, 2021 through March 31, 2022. The costs associated with the construction of these stores are capitalized to land, building and improvements, as well as equipment and are reflected in Storage properties on the Company’s consolidated balance sheets.


			CubeSmart
	Number of		Ownership	Total
Store Location	Stores	Date Opened	Interest	Construction Costs
				(in thousands)

Newton, MA ⁽¹⁾	1	Q4 2021	100%	$	20,800
East Meadow, NY ⁽²⁾	1	Q2 2021	100%		25,900
King of Prussia, PA	1	Q2 2021	70%		22,800
Arlington, VA ⁽³⁾	1	Q1 2021	90%		26,400
	4			$	95,900

(1)

During the fourth quarter of 2021, the Company, through a joint venture in which it owned a 90% interest that was previously consolidated, completed the construction of this store and it was opened for operation. On December 14, 2021, the Company acquired the 10% interest of the noncontrolling member in the venture that

owned the store for $3.4 million. Prior to this transaction, the noncontrolling member’s interest in the venture was reported in Noncontrolling interests in subsidiaries on the consolidated balance sheets. Since the Company retained its controlling interest in the venture and the store is now wholly owned, this transaction was accounted for as an equity transaction. The carrying amount of the noncontrolling interest was reduced to zero to reflect the purchase and the difference between the purchase price paid by the Company and the carrying amount of the noncontrolling interest of $2.7 million was recorded as an adjustment to equity attributable to the Company, with no gain or loss recorded. The $13.2 million related party loan extended by the Company to the venture that owned the store was repaid in conjunction with the Company’s acquisition of the noncontrolling member’s ownership interest.

(2)

This store was previously owned by a consolidated joint venture, in which the Company held a 51% ownership interest. On June 29, 2021, the noncontrolling member in the venture that owned the store put its 49% interest in the venture to the Company for $6.6 million in cash consideration.

(3)

This store is located adjacent to an existing consolidated joint venture store. Given their proximity to each other, the stores have been combined in our store count, as well as for operational and reporting purposes (see note 13).