Business Context and Reporting Period
This Form 8-K filing by Strategic Storage Trust II, Inc. (a non-listed REIT) dated April 13, 2017, discloses the Board of Directors' approval of an estimated Net Asset Value (NAV) per share as of December 31, 2016. The valuation was conducted to assist broker-dealers with FINRA reporting and fiduciaries with ERISA obligations. The process was overseen by the Nominating and Corporate Governance Committee and executed by independent valuation firm Duff & Phelps, LLC.
Key Financial Metrics
Estimated Value Per Share (as of Dec 31, 2016): $10.22 for both Class A and Class T shares.
Total Assets: $873,830,690
Total Liabilities: $323,898,061
Net Asset Value (NAV): $549,932,629
Debt Profile: Mortgage debt principal balance was $321,356,434. The fair value of this debt was estimated at approximately $316.5 million.
Liquidity: Cash and restricted cash totaled $18,034,805.
Share Count: Approximately 53.8 million equity interests outstanding (including Class A, Class T, OP Units, and unvested restricted stock).
Material Changes Versus Prior Period
Compared to the estimated value per share of $10.09 as of December 31, 2015, the 2016 valuation represents an increase to $10.22.
- Asset Growth: Total assets increased from $241.9 million in 2015 to $873.8 million in 2016, driven primarily by the acquisition of 46 properties (44 self-storage facilities and 2 land parcels) during 2016 valued at approximately $581.5 million.
- Debt Expansion: Mortgage debt increased significantly from $22.4 million in 2015 to $321.4 million in 2016 to fund acquisitions.
- Appreciation: The 33 properties acquired prior to 2016 were appraised at $267.5 million, representing a 64% increase over their aggregate purchase price of $162.7 million.
Guidance, Outlook, and Valuation Methodology
The filing does not provide forward-looking financial guidance or earnings projections. Instead, it details the valuation methodology and assumptions used to derive the $10.22 per share estimate.
- Methodology: Duff & Phelps utilized the income capitalization approach (direct capitalization for stabilized properties; discounted cash flow for non-stabilized) and the sales comparison approach.
- Key Assumptions:
- Overall capitalization rates ranged from 4.75% to 6.50% (weighted average 5.49%).
- Terminal capitalization rates ranged from 5.25% to 6.25% (weighted average 5.73%).
- Discount rates ranged from 6.25% to 7.25% (weighted average 6.62%).
- Annual rent growth rates ranged from 0.00% to 5.00% (weighted average 2.46%).
- Sensitivity Analysis: A 50 basis point decrease in capitalization and discount rates would increase the appraised property value to approximately $291.7 million. Conversely, a 50 basis point increase would decrease the value to approximately $246.6 million.
- Distribution Reinvestment Plan: The Board approved a share price of $10.22 for the Distribution Reinvestment Plan effective for payments beginning in May 2017.
- Risks and Limitations: The estimated value is not a GAAP fair value, nor a liquidation value. It does not guarantee that shares can be resold at this price or that the company will trade at this value on an exchange. The valuation is subject to market fluctuations and the accuracy of underlying assumptions.
Investor Verification Checklist
- Verify the independence and qualifications of Duff & Phelps, LLC, the third-party valuation firm.
- Review the specific capitalization rates and discount rates applied to the portfolio to assess sensitivity to interest rate changes.
- Confirm the terms of the $321.4 million in mortgage debt, including maturity dates and interest rate structures.
- Understand that the $10.22 value is an estimate for reporting purposes and does not represent a guaranteed market price or liquidation value.
- Examine the 64% appreciation on pre-2016 properties to understand the basis for the valuation increase.