Annual report pursuant to Section 13 and 15(d)

RELATED PARTY TRANSACTIONS

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RELATED PARTY TRANSACTIONS
12 Months Ended
Dec. 31, 2021
Related Party Transactions [Abstract]  
RELATED PARTY TRANSACTIONS RELATED PARTY TRANSACTIONS
Supervisory and Administrative Fees
For the self storage properties that are managed by the PROs, the Company has entered into asset management agreements with the PROs to provide leasing, operating, supervisory and administrative services. The asset management agreements generally provide for fees ranging from 5% to 6% of gross revenue for the managed self storage properties. During the years ended December 31, 2021, 2020 and 2019, the Company incurred $20.4 million, $16.4 million and $20.0 million, respectively, for supervisory and administrative fees to the PROs. Such fees are included in general and administrative expenses in the accompanying consolidated statements of operations.
Payroll Services
For the self storage properties that are managed by the PROs, the employees responsible for operation of the self storage properties are generally employees of the PROs who charge the Company for the costs associated with the respective employees. For the years ended December 31, 2021, 2020 and 2019, the Company incurred $27.9 million, $25.9 million and $32.0 million, respectively, for payroll and related costs reimbursable to these PROs. Such costs are included in property operating expenses in the accompanying consolidated statements of operations.
Due Diligence Costs
During the years ended December 31, 2021, 2020 and 2019, the Company incurred $1.7 million, $0.5 million and $0.7 million, respectively, of expenses payable to certain PROs related to self storage property acquisitions sourced by the PROs. These expenses, which are based on the volume of transactions sourced by the PROs, are intended to reimburse the PROs for due diligence costs incurred in the sourcing and underwriting process. For the years ended December 31, 2021, 2020 and 2019 these due diligence costs are capitalized as part of the basis of the acquired self storage properties.
Self Storage Property Acquisitions
During the year ended December 31, 2021, the Company acquired eight self storage properties for $102.7 million from companies in which J. Timothy Warren, a trustee of the Company, was an investor or controlled an entity which was an investor. Of the total consideration paid, 171,439 OP units with a value of $10.2 million were issued to a company controlled by Mr. Warren, but owned by Mr. Warren's adult children, and 31,869 OP units with a value of $2.1 million were issued to an entity owned and controlled by Mr. Warren.
During the year ended December 31, 2020, the Company acquired one self storage property from a company in which an entity controlled by J. Timothy Warren, a trustee of the Company, was an investor. Mr. Warren's adult children held an ownership interest in such investor entity. The total consideration payable by the Company for this property was subject to an earnout payable in three tranches based on the performance of the property over six, 12 and 18 month periods. During 2021, in connection with the 12 month and 18 month tranches of the earnout, the Company paid aggregate consideration totaling approximately $4.1 million, and the interest of Mr. Warren's children was 22,794 OP Units with a value of approximately $1.2 million.
During the year ended December 31, 2020, the Company acquired one self storage property for $7.5 million from an entity that was partially owned by Arlen Nordhagen, the Company's executive chairman and former chief executive officer, and David Cramer, the Company's chief operating officer. Of the total consideration paid, Mr. Nordhagen's and Mr. Cramer's interest was approximately 58,376 OP Units with a value of $1.5 million and 29,689 OP Units with a value $0.7 million, respectively.
During the year ended December 31, 2020, the Company acquired one self storage property for $8.3 million from a company in which an entity controlled by J. Timothy Warren, a trustee of the Company, was an investor. Mr. Warren's adult children held an ownership interest in such entity. Of the total consideration paid, the interest of Mr. Warren's children was approximately 16,620 OP Units with a value of $0.5 million.
Acquisition of Interest in Reinsurance Company and Related Cash Flows
On December 31, 2021, the Company, as acquiror, and Northwest (e.g. Kevin Howard Real Estate, Inc.) and KHJTW, LLC (an entity owned by an affiliate of Northwest and an entity controlled by J. Timothy Warren, a trustee of the Company) entered into a Contribution and Purchase Agreement (the "Contribution Agreement") whereby the Company acquired an ownership interest (approximately 0.54%) in SBOA TI Reinsurance Ltd. (the "Reinsurance Company"), a Cayman Islands exempted company. The Reinsurance Company provides reinsurance for a self storage tenant insurance program issued by a licensed insurance company, whereby tenants of the Company's self storage facilities and tenants of other operators participating in the program can purchase insurance to cover damage or destruction to their personal property while stored at such facilities. The Company is entitled to receive its share of distributions of any profits generated by the Reinsurance Company, depending on actual losses incurred by the program. As part of the transaction, the Company also acquired the rights to the access fees associated with the tenant insurance-related arrangements from Northwest.
The consideration paid for the interest in the Reinsurance Company and the rights to access fees associated with the tenant insurance-related arrangements was $9.5 million, which consisted of $2.9 million of cash and 96,256 OP units totaling $6.6 million. Of the total consideration transferred, a company controlled by Mr. Warren, but owned by Mr. Warren's adult children received 48,128 OP Units totaling approximately $3.3 million. The Contribution Agreement contains customary representations, warranties, covenants and agreements of the Company and the sellers.
The Company allocated the total purchase price to the estimated fair value of the assets acquired, consisting of $0.1 million of equity interest in the Reinsurance Company and $9.4 million as an intangible related to the acquired access fees and rights to control the tenant insurance-related arrangements. These assets are reported in other assets, net in the Company's consolidated balance sheets. The intangible asset is amortized on a straight-line basis over 25 years, which approximates the weighted average remaining useful life of the Northwest-managed properties, and is recorded in depreciation and amortization expense in the Company's consolidated statements of operations.