Business Context and Reporting Period
On November 10, 2020, SmartStop Self Storage REIT, Inc. (SmartStop) filed a Form 8-K to announce the entry into a definitive Agreement and Plan of Merger with Strategic Storage Trust IV, Inc. (SST IV). The transaction involves SmartStop acquiring SST IV through a merger with a wholly-owned subsidiary, with the surviving entity being the subsidiary. The merger is expected to close during the first half of 2021, subject to SST IV stockholder approval and other customary closing conditions.
Key Financial Metrics and Transaction Terms
This filing details a material definitive agreement rather than periodic financial results. Consequently, specific revenue, profit, cash flow, margin, debt, and liquidity figures for SmartStop or SST IV are not provided in this document. Key transaction metrics include:
- Exchange Ratio: Each share of SST IV Common Stock (Classes A, T, and W) will be converted into the right to receive 2.1875 shares of SmartStop Class A Common Stock.
- Termination Fee: SST IV is required to pay SmartStop a termination fee of $7.2 million under specified circumstances, such as entering into an alternative transaction with a superior proposal.
- Advisory Fees: The existing Advisory Agreement with SST IV's external investment advisor will terminate immediately prior to the merger effective time without any payment to the advisor.
Material Changes and Asset Acquisition
Upon consummation, SmartStop will acquire SST IV's real estate portfolio, representing a significant expansion of its asset base. As of September 30, 2020, the acquired portfolio consisted of:
- Wholly-Owned Facilities: 24 self-storage facilities located in 9 U.S. states, comprising approximately 18,000 units and 2.0 million net rentable square feet. The aggregate physical occupancy was 89% (93% excluding four unstabilized lease-up properties).
- Joint Venture Properties: A 50% equity interest in five unconsolidated real estate ventures in the Greater Toronto Area, Ontario, Canada. These include one operating property and four development parcels, with an estimated total of 4,690 units and 561,000 net rentable square feet upon completion.
- Development Rights: Rights to acquire a development site in San Gabriel, California, and a land tract in Brampton, Ontario (Kingspoint Land).
Outlook, Risks, and Contingencies
The closing of the merger is contingent upon several factors, including the affirmative vote of a majority of SST IV stockholders, the effectiveness of a registration statement on Form S-4, and the absence of a "Material Adverse Effect" on either party. The transaction is not subject to a financing condition or SmartStop stockholder approval.
Management highlighted several risks that could prevent the transaction from closing or alter its terms:
- Failure to obtain requisite stockholder approvals.
- Governmental orders permanently enjoining the transaction.
- Disruption of management's attention from ongoing operations.
- Challenges in retaining key personnel or maintaining customer relationships during the transition.
- Termination rights exist for both parties if the closing does not occur by August 6, 2021, or if a superior proposal is received by SST IV.
Investor Verification Checklist
- Verify the final exchange ratio and treatment of fractional shares in the upcoming proxy statement/prospectus (Form S-4).
- Confirm the status of the four unstabilized SST IV properties (Ocoee, Surprise, Escondido, Punta Gorda) and their impact on pro forma occupancy rates.
- Review the detailed financial statements of SST IV in the proxy statement to assess the quality of the acquired assets and debt levels.
- Monitor the timeline for SST IV stockholder approval and the filing of the Form S-4 registration statement.
- Assess the potential dilution impact on SmartStop existing shareholders based on the 2.1875 share exchange ratio.