SUBSEQUENT EVENTS |
12 Months Ended |
|---|---|
Dec. 31, 2019 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | SUBSEQUENT EVENTS Internalization and Acquisition of PRO
On February 24, 2020, the Company entered into a definitive agreement with SecurCare, and, among others, Arlen Nordhagen, the Company's executive chairman and former chief executive officer, who owns approximately 53% of SecurCare's outstanding shares, to merge SecurCare into a wholly owned subsidiary of the Company. On the same day, the Company entered into a definitive agreement with DLAN Corporation ("DLAN") to merge DLAN into another wholly owned subsidiary of the Company. DLAN is an entity controlled by Mr. Nordhagen that was formed solely to hold OP units and DownREIT OP units, and it is owned by Mr. Nordhagen's spouse, Wendy Nordhagen, and David Lamb, who is a key person of another existing PRO of the Company.
As a result of the SecurCare merger, SecurCare's property management platform and related intellectual property will be internalized by the Company, and the Company will no longer pay any supervisory and administrative fees or reimbursements to SecurCare. In addition, distributions on the series of subordinated performance units related to SecurCare's managed portfolio (the "Series SC subordinated performance units") will be discontinued.
As part of the internalization, most of SecurCare's employees and other key persons will be offered employment by the Company and will continue managing SecurCare's portfolio of properties under the brand SecurCare as members of the Company's existing property management platform. Under the terms of the Company's facilities portfolio management agreement with SecurCare, in connection with a retirement event leading to the internalization of SecurCare's property management platform, SecurCare is entitled to receive OP units in exchange for its property management platform and related intellectual property based on a contractual formula. The Company has determined that SecurCare would be entitled to receive 384,020 OP units as part of the internalization transaction. The Company expects that the acquisition of SecurCare's property management platform and related intellectual property will be accounted for as a business combination, whereby the Company will allocate the total purchase price to the estimated fair value of tangible and intangible assets acquired, and liabilities assumed.
Immediately prior to the completion of the mergers, giving effect to the OP units that SecurCare owns or would be entitled to receive as part of the internalization and the conversion of 2,015,808 of the Series SC subordinated performance units into 6,769,083 OP units in connection with a retirement event leading to the internalization of SecurCare's property management platform, SecurCare and DLAN will own, or have the right to receive, an aggregate of 8,187,052 OP units. While OP units are economically equivalent to and exchangeable for common shares on a one-to-one basis, in the SecurCare and DLAN mergers, the Company expects to issue 8,105,192 common shares to the owners of SecurCare and DLAN, which represents a 1% discount to the number OP units that each of SecurCare and DLAN will own or be entitled to receive as set forth above immediately prior to the mergers. Of the total number of common shares expected to be issued to the owners of SecurCare, approximately 4.1 million common shares are expected to be issued to Mr. Nordhagen.
Although the Company currently expects to complete the transactions described above during the second quarter of 2020, they are subject to customary closing conditions, and there is no assurance that the transactions will be consummated at all or at the time or pursuant to the terms currently contemplated.
Self Storage Property Acquisitions
In January and February 2020, the Company acquired 34 self storage properties for approximately $205.8 million. Consideration for these acquisitions included approximately $200.6 million of net cash, the assumption of $0.9 million of other working capital liabilities and OP equity of approximately $4.3 million (consisting of the issuance of 73,329 OP Units, 28,894 LTIP units and 13,105 subordinated performance units). In connection with these acquisitions, the Company reimbursed the PROs for $0.2 million of due diligence costs related to the self storage properties sourced by the PROs.
In February 2020, the 2016 Joint Venture acquired two self storage properties for approximately $12.1 million. The 2016 Joint Venture financed the acquisitions with capital contributions from the 2016 Joint Venture members, of which the Company contributed $3.0 million.
Subordinated Performance Unit To OP Unit Conversions
Subordinated performance units are convertible into OP units after a year lock-out period and then generally (i) at the holder’s election only upon the achievement of certain performance thresholds relating to the
properties to which such subordinated performance units relate (a "voluntary conversion") or (ii) at the Company's election upon a retirement event of a PRO that holds such subordinated performance units or upon certain qualifying terminations.
Following such lock-out period, a holder of subordinated performance units in the Company's operating partnership may elect a voluntary conversion one time each year prior to December 1st to convert a pre-determined portion of such subordinated performance units into OP units in the Company's operating partnership, with such conversion effective January 1st of the following year with each subordinated performance unit being converted into the number of OP units determined by dividing the average cash available for distribution, or CAD, per unit on the series of specific subordinated performance units over the -year period prior to conversion by 110% of the CAD per unit on the OP units determined over the same period. CAD per unit on the series of specific subordinated performance units and OP units is determined by the Company based generally upon the application of the provisions of the operating partnership agreement applicable to the distributions of operating cash flow and capital transactions proceeds.
During the year ended December 31, 2019, the Company received notices requesting the conversion of 332,738 subordinated performance units. Effective January 1, 2020, the Company issued 445,701 OP units in satisfaction of such conversion requests.
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