| Basis Of Presentation And Summary Of Significant Accounting Policies | 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation We have prepared the accompanying interim financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) as set forth in the Accounting Standards Codification of the Financial Accounting Standards Board (“FASB”), and in conformity with the rules and regulations of the Securities and Exchange Commission (“SEC”). In our opinion, the interim financial statements presented herein reflect all adjustments, primarily of a normal recurring nature, that are necessary to fairly present the interim financial statements. Because they do not include all of the disclosures required by GAAP for complete annual financial statements, these interim financial statements should be read together with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Certain amounts previously reported in our June 30, 2020 financial statements have been reclassified to conform to the June 30, 2021 presentation, including revenues and cost operations from our third party management activities of $ 3.7 million and $ 3.6 million, respectively, for the three months ended June 30, 2020, and $ 6.6 million and $ 6.2 million, respectively, for the six months ended June 30, 2020, previously reported within interest and other income. This reclassification had no impact on our balance sheet, statements of comprehensive income, statements of equity, or cash flows as of and for the three and six months ended June 30, 2020. Additionally, we corrected our prior period financial statement presentation of share-based compensation expense and dividends paid on restricted share units (“RSUs”) between general and administrative expense and self-storage cost of operations. As a result, we revised our statements of income for the three and six months ended June 30, 2020 with an increase in self-storage cost of operations of $ 3.1 million and $ 6.3 million, respectively, and a corresponding decrease to general and administrative expenses. This immaterial correction had no impact on our total expenses or net income. The correction also had no impact on our balance sheet, statements of comprehensive income, statements of equity, or cash flows as of and for the three and six months ended June 30, 2020. Summary of Significant Accounting Policies Consolidation and Equity Method of Accounting We consider entities to be Variable Interest Entities (“VIEs”) when they have insufficient equity to finance their activities without additional subordinated financial support provided by other parties, or the equity holders as a group do not have a controlling financial interest. We consolidate VIEs when we have (i) the power to direct the activities most significantly impacting economic performance, and (ii) either the obligation to absorb losses or the right to receive benefits from the VIE. At June 30, 2021, we were the primary beneficiary of, and therefore fully consolidated, three limited liability companies that are considered VIEs, which owned 48 self-storage properties acquired on April 28, 2021 known as the ezStorage portfolio. The net book value of the assets owned by these VIEs was approximately $ 1.8 billion as of June 30, 2021, which was included in real estate facilities on our Balance Sheet. The title of these 48 properties is expected to be reverted to us in the remainder of 2021. We consolidate all other entities when we control them through voting shares or contractual rights. The entities we consolidate, for the period in which the reference applies, are referred to collectively as the “Subsidiaries,” and we eliminate intercompany transactions and balances. We account for our investments in entities that we do not consolidate but have significant influence over using the equity method of accounting. These entities, for the periods in which the reference applies, are referred to collectively as the “Unconsolidated Real Estate Entities,” for which we eliminate intra-entity profits and losses and amortize any differences between the cost of our investment and the underlying equity in net assets against equity in earnings as if the Unconsolidated Real Estate Entity were a consolidated subsidiary. Equity in earnings of unconsolidated real estate entities presented on our income statements represents our pro-rata share of the earnings of the Unconsolidated Real Estate Entities. The dividends we receive from the Unconsolidated Real Estate Entities are reflected on our statements of cash flows as “distributions from cumulative equity in earnings of unconsolidated real estate entities” to the extent of our cumulative equity in earnings, with any excess classified as “distributions in excess of cumulative equity in earnings from unconsolidated real estate entities.” Collectively, at June 30, 2021, the Company and the Subsidiaries own 2,649 self-storage facilities and four commercial facilities in the U.S. At June 30, 2021, the Unconsolidated Real Estate Entities are comprised of PSB and Shurgard. Use of Estimates The financial statements and accompanying notes reflect our estimates and assumptions. Actual results could differ from those estimates and assumptions. Income Taxes We have elected to be treated as a REIT, as defined in the Internal Revenue Code of 1986, as amended (the “Code”). For each taxable year in which we qualify for taxation as a REIT, we will not be subject to U.S. federal corporate income tax on our “REIT taxable income” (generally, taxable income subject to specified adjustments, including a deduction for dividends paid and excluding our net capital gain) that is distributed to our shareholders. We believe we have met these REIT requirements for all periods presented herein. Accordingly, we have recorded no U.S. federal corporate income tax expense related to our REIT taxable income. Our tenant reinsurance, merchandise and third party management operations are subject to corporate income tax and such taxes are included in ancillary cost of operations. We also incur income and other taxes in certain states, which are included in general and administrative expense. We recognize tax benefits of uncertain income tax positions that are subject to audit only if we believe it is more likely than not that the position would ultimately be sustained assuming the relevant taxing authorities had full knowledge of the relevant facts and circumstances of our positions. As of June 30, 2021, we had no tax benefits that were not recognized. Real Estate Facilities Real estate facilities are recorded at cost. We capitalize all costs incurred to acquire, develop, construct, renovate and improve facilities, including interest and property taxes incurred during the construction period. The costs of demolition of existing facilities associated with a renovation are expensed as incurred. We allocate the net acquisition cost of acquired real estate facilities to the underlying land, buildings, and identified intangible assets based upon their respective individual estimated fair values. Costs associated with dispositions of real estate, as well as repairs and maintenance costs, are expensed as incurred. We depreciate buildings and improvements on a straight-line basis over estimated useful lives ranging generally between 5 to 25 years. When we sell a full or partial interest in a real estate facility without retaining a controlling interest following sale, we recognize a gain or loss on sale as if 100 % of the property was sold at fair value. If we retain a controlling interest following the sale, we record a noncontrolling interest for the book value of the partial interest sold, and recognize additional paid-in capital for the difference between the consideration received and the partial interest at book value. Other Assets Other assets primarily consist of right-of-use assets, prepaid costs and expenses, restricted cash, reinsurance premium receivables and rent receivables from our tenants (net of an allowance for uncollectible amounts). Accrued and Other Liabilities Accrued and other liabilities consist primarily of property tax accruals, trade and construction payables, rents prepaid by our tenants, lease liabilities, accrued tenant reinsurance losses and accrued payroll. We believe the fair value of our accrued and other liabilities approximates book value, due primarily to the short period until repayment. We disclose the nature of significant unaccrued losses that are reasonably possible of occurring and, if estimable, a range of exposure. Cash Equivalents, Restricted Cash, Marketable Securities and Other Financial Instruments Cash equivalents represent highly liquid financial instruments such as money market funds with daily liquidity or short-term commercial paper or treasury securities maturing within three months of acquisition. Cash and equivalents which are restricted from general corporate use are included in other assets. We believe that the book value of all such financial instruments for all periods presented approximates fair value, due to the short period to maturity. Fair Value As used herein, the term “fair value” is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Because our estimates of fair value involve considerable judgment, including determination of the factors that market participants would consider in negotiating exchange values, such estimates may be limited in their ability to reflect what would actually be realized in an actual market exchange. We estimate the fair value of our cash and equivalents, marketable securities, other assets, debt, and other liabilities by discounting the related future cash flows at a rate based upon quoted interest rates for securities that have similar characteristics such as credit quality and time to maturity. Such quoted interest rates are referred to generally as “Level 2” inputs. We use significant judgment to estimate fair values of investments in real estate, goodwill, and other intangible assets. In estimating their values, we consider significant unobservable inputs such as market prices of land, market capitalization rates, expected returns, earnings multiples, projected levels of earnings, costs of construction, and functional depreciation. These inputs are referred to generally as “Level 3” inputs. Currency and Credit Risk Financial instruments that are exposed to credit risk consist primarily of cash and equivalents, certain portions of other assets including rents receivable from our tenants (net of an allowance for uncollectible receivables based upon expected losses in the portfolio) and restricted cash. Cash equivalents we invest in are either money market funds with a rating of at least AAA by Standard & Poor’s, commercial paper that is rated A1 by Standard & Poor’s or deposits with highly rated commercial banks. At June 30, 2021, due primarily to our investment in Shurgard (Note 4) and our notes payable denominated in Euros (Note 6), our operating results and financial position are affected by fluctuations in currency exchange rates between the Euro, and to a lesser extent, other European currencies, against the U.S. Dollar. Goodwill and Other Intangible Assets Intangible assets are comprised of goodwill, the “Shurgard” trade name, and finite-lived assets. Goodwill totaled $ 165.8 million at June 30, 2021 ($ 165.8 million at December 31, 2020). The “Shurgard” trade name, which is used by Shurgard pursuant to a fee-based licensing agreement, has a book value of $ 18.8 million at June 30, 2021 and December 31, 2020. Goodwill and the “Shurgard” trade name have indefinite lives and are not amortized. Our finite-lived assets are comprised primarily of (i) acquired customers in place amortized relative to the benefit of the customers in place, with such amortization reflected as depreciation and amortization expense on our income statement and (ii) property tax abatements acquired and amortized relative to the reduction in property tax paid, with such amortization reflected as self-storage cost of operations on our income statement. At June 30, 2021, these intangibles had a net book value of $ 80.9 million ($ 20.1 million at December 31, 2020). Accumulated amortization totaled $ 38.7 million at June 30, 2021 ($ 27.3 million at December 31, 2020). A total of $ 19.6 million and $ 25.7 million in amortization expense was recorded in the three and six months ended June 30, 2021, respectively, and $ 4.3 million and $ 9.0 million in the same periods in 2020. The estimated future amortization expense for our finite-lived intangible assets at June 30, 2021 is approximately $ 35.5 million in the remainder of 2021, $ 31.3 million in 2022 and $ 14.1 million thereafter. During the six months ended June 30, 2021, intangibles increased $ 86.5 million in connection with the acquisition of self-storage facilities (Note 3). Evaluation of Asset Impairment We evaluate our real estate and finite-lived intangible assets for impairment each quarter. If there are indicators of impairment and we determine that the asset is not recoverable from future undiscounted cash flows to be received through the asset’s remaining life (or, if earlier, the expected disposal date), we record an impairment charge to the extent the carrying amount exceeds the asset’s estimated fair value or net proceeds from expected disposal. We evaluate our investments in unconsolidated real estate entities for impairment on a quarterly basis. We record an impairment charge to the extent the carrying amount exceeds estimated fair value, when we believe any such shortfall is other than temporary. We evaluate goodwill for impairment annually and whenever relevant events, circumstances and other related factors indicate that fair value of the related reporting unit may be less than the carrying amount. If we determine that the fair value of the reporting unit exceeds the aggregate carrying amount, no impairment charge is recorded. Otherwise, we record an impairment charge to the extent the carrying amount of the goodwill exceeds the amount that would be allocated to goodwill if the reporting unit were acquired for estimated fair value. We evaluate other indefinite-lived intangible assets, such as the “Shurgard” trade name for impairment at least annually and whenever relevant events, circumstances and other related factors indicate that the fair value is less than the carrying amount. When we conclude that it is likely that the asset is not impaired, we do not record an impairment charge and no further analysis is performed. Otherwise, we record an impairment charge to the extent the carrying amount exceeds the asset’s estimated fair value. No impairments were recorded in any of our evaluations for any period presented herein. Revenue and Expense Recognition Revenues from self-storage facilities, which are primarily composed of rental income earned pursuant to month-to-month leases, as well as associated late charges and administrative fees, are recognized as earned. Promotional discounts reduce rental income over the promotional period, which is generally one month. Ancillary revenues are recognized when earned. We accrue for property tax expense based upon actual amounts billed and, in some circumstances, estimates when bills or assessments have not been received from the taxing authorities. If these estimates are incorrect, the timing and amount of expense recognition could be incorrect. Cost of operations (including advertising expenditures), general and administrative expense, and interest expense are expensed as incurred. Foreign Currency Exchange Translation The local currency (primarily the Euro) is the functional currency for our interests in foreign operations. The related balance sheet amounts are translated into U.S. Dollars at the exchange rates at the respective financial statement date, while amounts on our statements of income are translated at the average exchange rates during the respective period. Cumulative translation adjustments, to the extent not included in cumulative net income, are included in equity as a component of accumulated other comprehensive income (loss). When financial instruments denominated in a currency other than the U.S. Dollar are expected to be settled in cash in the foreseeable future, the impact of changes in the U.S. Dollar equivalent are reflected in current earnings. The Euro was translated at exchange rates of approximately 1.188 U.S. Dollars per Euro at June 30, 2021 ( 1.226 at December 31, 2020), and average exchange rates of 1.205 and 1.101 for the three months ended June 30, 2021 and 2020, respectively, and average exchange rates of 1.205 and 1.102 for the six months ended June 30, 2021 and 2020, respectively. Comprehensive Income Total comprehensive income represents net income, adjusted for changes in other comprehensive income (loss) for the applicable period, which are comprised primarily of foreign currency translation gains and losses on our investment in Shurgard. Net Income per Common Share Net income is allocated to (i) noncontrolling interests based upon their share of the net income of the Subsidiaries and (ii) preferred shareholders, to the extent redemption cost exceeds the related original net issuance proceeds (an “preferred share redemption charge”), with the remaining net income allocated to each of our equity securities based upon the dividends declared or accumulated during the period, combined with participation rights in undistributed earnings. Basic and diluted net income per common share are each calculated based upon net income allocable to common shareholders presented on the face of our income statement, divided by (i) in the case of basic net income per common share, weighted average common shares, and (ii) in the case of diluted income per share, weighted average common shares adjusted for the impact, if dilutive, of stock options outstanding (Note 10). The following table reconciles from basic to diluted common shares outstanding (amounts in thousands): Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Weighted average common shares and equivalents outstanding: Basic weighted average common shares outstanding 174,824 174,493 174,718 174,470 Net effect of dilutive stock options - based on treasury stock method 723 82 476 126 Diluted weighted average common shares outstanding 175,547 174,575 175,194 174,596 |
