Third Party Platform Acquisition |
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Dec. 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Third Party Platform Acquisition | Note 4. Third Party Platform Acquisition Overview Effective October 1, 2025, pursuant to a contribution agreement (the “Contribution Agreement”), our Operating Partnership acquired Argus Professional Storage Management, LLC (“Argus”), a third-party property management company that (as of October 1, 2025) managed more than 221 operating properties across 27 states consisting of more than approximately 100,000 units and approximately 16.6 million rentable square feet. Immediately after the acquisition closed, Argus was contributed in a non-taxable transaction to our TRS subsidiary, which is 100% owned by our Operating Partnership, where such non-real estate activities are conducted. The total consideration was approximately $23.4 million, composed primarily of $8.7 million in cash, funded in part by a $5.0 million deposit made and outstanding as of September 30, 2025, and the issuance of 328,343 units of limited partnership interests (“OP Units”) in our Operating Partnership valued at approximately $11.9 million and a contingent earnout initially valued at approximately $2.8 million. The potential earnout of up to an additional $11.0 million is based on Third Party Platform revenues generated during fiscal year 2028, with 75% payable in cash and 25% being payable in OP Units, the number of which OP Units to be issued will be determined in accordance with the terms of the Contribution Agreement based on the volume weighted average trading price of our common stock immediately prior to the time such units are to be issued. Through the Contribution Agreement we assumed various amounts of current assets and liabilities, which are subject to working capital adjustments to the consideration otherwise provided and described above. The principal assets acquired were property management contracts and the related customer relationships, covering the management of approximately 221 properties, approximately 400 employees, an operating lease for the corporate headquarters in Tucson, Arizona, rights to other intellectual property and personal property. The Contribution Agreement contains customary representations, warranties, covenants, agreements, and indemnification obligations with respect to the sellers of Argus and us. Fair Value of Consideration Transferred We accounted for the Contribution Agreement discussed above as a business combination under the acquisition method of accounting. During the twelve months ended December 31, 2025, we incurred approximately $1.0 million for , including legal fees and fees and expenses of our other professional and financial advisors related to the acquisition, which are included in acquisition expenses in our consolidated statements of operations. The estimated fair value of the consideration transferred totaled approximately $23.4 million and consisted of the following (in thousands):
(1) The Contribution Agreement required a purchase price adjustment related to the assumption of working capital, covering certain operating assets and liabilities. We assumed a net asset of approximately $0.2 million and such amount was included above as cash consideration. Such amount had been paid to the seller of Argus as of December 31, 2025. Certain components of the working capital adjustment were subject to further adjustment as of December 31, 2025. (2) The maximum amount that may be paid is $8.25 million of earnout consideration to be paid in cash and the remainder of approximately $2.75 million to be paid in the form of OP units, based on revenues generated in 2028. The terms of the earnout require a certain minimum amount of 2028 revenues to be earned and thereafter the earnout is earned pro-rata up to a certain maximum 2028 revenue, such that the maximum potential earnout is $11.0 million. The amount of this liability as of December 31, 2025 was approximately $3.0 million and it was recorded in accounts payable and accrued liabilities in our consolidated balance sheets. The estimated fair value of the OP Units issued was determined using the Company’s closing stock price on the date of the transaction and further adjusted for an illiquidity discount of 6%, given certain illiquid features of our OP Units, based on their terms, in comparison to our common stock. The estimated fair value of the contingent earnout was estimated based on a risk-adjusted forecast and a closed form Black Scholes call option model under a risk neutral framework that incorporates the payoff based on achievement of the requisite revenue thresholds. The portion of the earnout to be issued in OP Units was further adjusted for an illiquidity discount, as discussed immediately above. These fair value measurements are based on significant inputs not observable in the market and thus represent a Level 3 measurement as discussed in Note 2 – Summary of Significant Accounting Policies. The key assumptions used in estimating the fair value of the contingent earnout consideration included (i) forecasted annual revenue during 2028, (ii) selection of risk-adjusted discount rates and (iii) a volatility assumption. Allocation of Consideration The consideration transferred pursuant to the Contribution Agreement was allocated to the assets acquired and liabilities assumed, based upon their estimated fair values as of the acquisition date. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed (in thousands):
(1) Included in this line item were two amounts, (i) an indemnification asset related to an accrued legal settlement of approximately $0.3 million and (ii) an indemnification asset of approximately $0.8 million related to accrued compensation due to Argus employees for prior services, which in accordance with the contribution agreement, was to be reimbursed by the seller of Argus. The corresponding liabilities related to the above were both included in accounts payable and accrued expenses in the table above. In January of 2026, the seller paid and fully satisfied the legal settlement. In October of 2025, the seller reimbursed us for the $0.8 million and we paid such compensation to the employees of Argus. (2) Tax deductible goodwill as of the acquisition date was approximately $5.5 million. The intangible assets acquired primarily consist of an intangible asset related to the management contracts and customer relationships related to the approximately 221 properties that Argus managed as of October 1, 2025. The value of such was determined based on a discounted cash flow valuation of the projected cash flows of the acquired contracts. The deferred tax liability is the result of differences between the GAAP carrying value of certain amortizing assets and the carrying value for tax purposes. The goodwill recognized is supported by several factors, including that Argus brings an established management platform and workforce of the more than 400 self storage professionals which provides for numerous benefits and opportunities, including continued organic growth, growth from new income streams and the ability to offer new services. The results of the acquisition have been included in our consolidated statements of operations since the closing date of the transaction. See Note 11 – Segment Disclosures for more information about the results of operations attributable to the Third Party Platform Acquisition since closing. |
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