RELATED PARTY TRANSACTIONS
|9 Months Ended|
Sep. 30, 2019
|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 three months ended September 30, 2019 and 2018, the Company incurred $5.2 million and $4.4 million, respectively, for supervisory and administrative fees to the PROs and during the nine months ended September 30, 2019 and 2018, the Company incurred $14.8 million and $12.6 million, respectively, for supervisory and administrative fees to the PROs. Such fees are included in general and administrative expenses in the accompanying condensed consolidated statements of operations.
For the self storage properties that are managed by the PROs, the employees responsible for operations are employees of the PROs who charge the Company for the costs associated with the respective employees. For the three months ended September 30, 2019 and 2018, the Company incurred $8.1 million and $7.4 million, respectively, for payroll and related costs reimbursable to these PROs and for the nine months ended September 30, 2019 and 2018, the Company incurred $23.8 million and $21.9 million, respectively, for payroll and related costs reimbursable to these PROs. Such costs are included in property operating expenses in the accompanying condensed consolidated statements of operations.
Due Diligence Costs
During the three months ended September 30, 2019 and 2018, the Company incurred $0.1 million and $0.1 million, respectively, of expenses payable to certain PROs related to self storage property acquisitions sourced by the PROs and during the nine months ended September 30, 2019 and 2018, the Company incurred $0.7 million and $0.3 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. These due diligence costs are capitalized as part of the basis of the acquired self storage properties.
Self Storage Property Acquisitions
During the nine months ended September 30, 2019, the Company acquired one self storage property from the 2016 Joint Venture for $4.1 million.
Acquisition of Interest in Reinsurance Company and Related Cash Flows
On June 1, 2019, the Company, as acquiror, and Ground Up Development LLC ("Ground Up"), an affiliate of SecurCare and of the Company's chairman and chief executive officer, Arlen D. Nordhagen, entered into a Contribution and Purchase Agreement (the "Ground Up Contribution Agreement") whereby the Company acquired Ground Up’s ownership interest (approximately 5.5%) 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 will now be 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 previously earned by Ground Up associated with the tenant insurance-related arrangements. For NSA properties managed by SecurCare, in addition to the tenant insurance revenues the Company already receives directly from the program insurer, the Company will now be entitled to receive these additional access fees.
The consideration paid for the interest in the Reinsurance Company was $15.1 million, which consisted of $6.6 million of cash and 285,512 OP units totaling $8.5 million. Of the total consideration transferred, Arlen D. Nordhagen received $2.2 million of cash and 95,170 OP Units totaling approximately $2.8 million. The Ground Up Contribution Agreement contains customary representations, warranties, covenants and agreements of the Company and Ground Up.
The Company allocated the total purchase price to the estimated fair value of the assets acquired, consisting of $0.5 million of equity interest in the Reinsurance Company and $14.6 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 condensed 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 SecurCare-managed properties, and is recorded in depreciation and amortization expense in the Company's condensed consolidated statements of operations.
The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef