Quarterly report pursuant to Section 13 or 15(d)

INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES

v3.10.0.1
INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES
 9 Months Ended
Sep. 30, 2018
Equity Method Investments and Joint Ventures [Abstract]  
INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES
INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES
2018 Joint Venture
During the three months ended September 30, 2018, a wholly owned subsidiary of the Company (the "NSA Member") entered into a limited liability company agreement (the "JV Agreement") of NSA HHF JV, LLC (the "2018 Joint Venture") with an affiliate of Heitman America Real Estate REIT LLC (the "JV Investor" and, together with the NSA Member, the "Members") and the 2018 Joint Venture acquired from Simply Self Storage, which is a portfolio company of a private real estate fund managed by Brookfield Asset Management, two REITs that own a portfolio of self storage properties (the "Portfolio") for an aggregate purchase price of approximately $1.325 billion in cash consisting of 112 self storage properties containing approximately 8.2 million rentable square feet, configured in over 68,000 storage units and located across 17 states and Puerto Rico.
In September, the 2018 Joint Venture completed its acquisition of the Portfolio. Immediately following the acquisition, the 2018 Joint Venture distributed the six self storage properties in the Portfolio located in Puerto Rico and a single self storage property in the Portfolio located in Ohio to the Company in exchange for a $64.2 million cash contribution from the Company. The 103 properties from the Portfolio that remain in the 2018 Joint Venture post-closing (two of the properties acquired in the Portfolio were combined with other properties in the Portfolio for operational efficiency) contain approximately 7.6 million rentable square feet configured in approximately 63,000 storage units.
The 2018 Joint Venture was capitalized with approximately $639.7 million in equity (approximately $159.9 million from the NSA Member in exchange for a 25% ownership interest in the 2018 Joint Venture and approximately $479.8 million from the JV Investor in exchange for a 75% ownership interest in the 2018 Joint Venture) and proceeds from a $643.0 million interest-only debt financing with an interest rate of 4.34% per annum and a maturity of 10 years secured by a first mortgage lien on each property currently held by the 2018 Joint Venture.
A subsidiary of the Company is acting as the non-member manager of the 2018 Joint Venture (the "NSA Manager"). The NSA Manager directs, manages and controls the day-to-day operations and affairs of the 2018 Joint Venture but may not cause the 2018 Joint Venture to make certain major decisions involving the business of the 2018 Joint Venture without the consent of both Members, including the approval of annual budgets, sales and acquisitions of properties, financings, and certain actions relating to bankruptcy.
The Company's investment in the 2018 Joint Venture is accounted for using the equity method of accounting and is included in investment in unconsolidated real estate ventures in the Company’s condensed consolidated balance sheets. The Company’s earnings from its investment in the 2018 Joint Venture are presented in equity in earnings (losses) of unconsolidated real estate ventures on the Company’s condensed consolidated statements of operations.
2016 Joint Venture
As of September 30, 2018, the Company's unconsolidated real estate venture, formed in September 2016 with a state pension fund advised by Heitman Capital Management LLC (the "2016 Joint Venture"), owned and operated a portfolio of 73 properties containing approximately 4.9 million rentable square feet, configured in approximately 40,000 storage units and located across 14 states.
The 2016 Joint Venture acquired three self storage properties and an expansion project at an existing property for $28.5 million during the nine months ended September 30, 2018. The 2016 Joint Venture financed these acquisitions with capital contributions from the 2016 Joint Venture members, of which the Company contributed $7.3 million for its 25% proportionate share. During the nine months ended September 30, 2018, the 2016 Joint Venture also sold to an unrelated third party one self storage property for a gross sales price of $9.3 million.
The following table presents the combined condensed financial position of the Company's unconsolidated real estate ventures as of September 30, 2018 and December 31, 2017 (in thousands):
 
September 30, 2018
 
December 31, 2017
ASSETS
 
 
 
Self storage properties, net
$
1,911,714

 
$
655,973

Other assets
57,687

 
8,397

Total assets
$
1,969,401

 
$
664,370

LIABILITIES AND EQUITY
 
 
 
Debt financing
$
956,193

 
$
317,359

Other liabilities
17,825

 
4,855

Equity
995,383

 
342,156

Total liabilities and equity
$
1,969,401

 
$
664,370

 
 
 
 

The following table presents the combined condensed operating information of the Company's unconsolidated real estate ventures for the three and nine months ended September 30, 2018 and 2017 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Total revenue
$
23,090

 
$
14,494

 
$
53,092

 
$
40,060

Property operating expenses
6,766

 
4,989

 
17,059

 
13,489

Net operating income
16,324

 
9,505

 
36,033

 
26,571

Supervisory, administrative and other expenses
(1,594
)
 
(1,034
)
 
(3,723
)
 
(2,873
)
Depreciation and amortization
(7,801
)
 
(8,168
)
 
(18,835
)
 
(23,333
)
Interest expense
(4,836
)
 
(2,880
)
 
(10,663
)
 
(8,508
)
Loss on sale of self storage properties
(820
)
 
—

 
(820
)
 
—

Acquisition and other expenses
(307
)
 
(269
)
 
(844
)
 
(902
)
Net income (loss)
$
966

 
$
(2,846
)
 
$
1,148

 
$
(9,045
)
 
 
 
 
 
 
 
 

The combined condensed operating information in the table above only includes information for the 2018 Joint Venture following the acquisition of the Portfolio in September 2018.