SmartStop Self Storage REIT, Inc. — 2014 Q2 Form 10-Q
Registrant clarification: The supplied filing is for Strategic Storage Trust II, Inc., not a registrant named SmartStop Self Storage REIT, Inc. The summary below reflects the filing provided. Reporting period ended June 30, 2014; filed August 14, 2014. Financial statements are unaudited.
Business context and reporting period
The company was formed to invest in self-storage facilities. It met the minimum public-offering requirement and commenced formal operations on May 23, 2014. It had acquired no properties and recorded no revenue by June 30. The company had issued 265,287 shares for approximately $2.6 million gross proceeds at period-end; as of August 7, it reported approximately 430,000 shares and $4.3 million gross proceeds.
Financial results and position
| Metric | Six months ended June 30, 2014 | June 30, 2014 balance |
|---|---|---|
| Revenue | $0 | — |
| Operating expenses | $866,991, including $442,739 general and administrative and $424,252 acquisition expenses | — |
| Net loss | $866,991 consolidated; $789,137 attributable to the company | Accumulated deficit: $789,137 |
| Cash and cash equivalents | — | $2,177,838 |
| Total assets | — | $3,158,669 |
| Due to affiliates | — | $2,907,765 |
| Total liabilities | — | $2,920,842 |
| Total equity | — | $236,836 |
| Third-party debt | — | None |
Cash from operating activities was zero: the net loss was offset by an equal increase in amounts due to affiliates. Financing activities provided $1,976,838 net cash, leaving cash up from $201,000 at year-end 2013. The filing reports no operating margin because the company had no revenue; profitability and margins are not meaningful at this pre-acquisition stage.
Changes, distributions, and related-party items
Compared with the prior-year periods, which showed no revenue or expenses, the company incurred startup, offering-related and acquisition costs after commencing operations. The six-month 2014 loss and expenses were also the reported second-quarter amounts; the filing’s 2013 comparison periods were from inception and reported zero activity.
The board declared daily distributions for July 1–September 30, 2014 of $0.00164383561 per share, equivalent to a stated 6% annualized rate assuming a $10 share price. Through June 30, distributions had been funded solely from offering proceeds, not operating cash flow. The company cautioned that distributions may continue to be funded from offering proceeds or borrowing, reducing capital available for investment; distributions may therefore represent a return of capital.
Related-party costs incurred totaled approximately $3.57 million, including $442,739 of expensed operating-cost reimbursements, $424,252 of acquisition expenses, and $971,631 capitalized in other assets. The company reported $2.9 million due to affiliates. Offering costs included approximately $1.6 million of organization and offering costs and $0.3 million of selling commissions and dealer-manager fees by June 30.
Outlook, acquisitions, and risks
Management expected revenue and expenses—including property operating, depreciation, amortization and interest costs—to rise as acquisitions were completed. No earnings or acquisition guidance was provided. The company intended to elect REIT status for 2014 and would generally need to distribute at least 90% of taxable income to qualify.
- Raleigh/Myrtle Beach portfolio: A five-property, approximately $22.1 million acquisition was expected to close in Q3 or Q4 2014, subject to conditions and lender approval to assume an existing $12.8 million loan. The sponsor assigned the purchase agreement to the company on August 14, after quarter-end. Completion was not assured; failure could result in forfeited earnest money and acquisition costs.
- 26-property portfolio: Approved August 13, 2014, with an approximately $128.1 million purchase price, about 14,490 units and 1.504 million rentable square feet. The company expected closings in tranches in Q3 or Q4, funded through offering proceeds and debt or other financing. It was obligated to make an additional earnest-money deposit of approximately $4 million. Completion was not assured.
- Management identified startup and capital-raising risks, uncertainty in finding and acquiring suitable properties, dependence on affiliates, and the possibility that actual results would differ from forward-looking statements. Future distributions depend on investment performance, occupancy, rental rates, financing and other factors.
- Interest-rate risk was identified as a potential primary market risk as borrowings are added; the company had limited financial-market exposure at period-end. No material change to previously disclosed risk factors was reported.
Key facts investors should verify
- Confirm the registrant’s identity: this filing names Strategic Storage Trust II, Inc.
- Track offering proceeds, share issuance and how much is consumed by offering costs, affiliate payables and distributions.
- Verify whether the two announced property portfolios closed, the final purchase prices and financing terms, and any earnest money forfeited.
- Assess whether distributions become supported by property operating cash flow rather than offering proceeds or debt.
- Review related-party fees, reimbursements and the company’s progress toward REIT qualification.