Business Context and Reporting Period
SmartStop Self Storage REIT, Inc. filed a Form 8-K on February 24, 2022, announcing the entry into a definitive Agreement and Plan of Merger with Strategic Storage Growth Trust II, Inc. (SSGT II), an entity sponsored by an indirect subsidiary of SmartStop. The transaction involves the acquisition of SSGT II's real estate portfolio through a merger with a wholly-owned subsidiary of SmartStop. The merger is expected to close during the first half of 2022, subject to SSGT II stockholder approval and other customary conditions.
Key Financial Metrics and Transaction Terms
This filing details a material definitive agreement rather than periodic financial results. Consequently, revenue, profit, cash flow, and margin data for SmartStop are not provided in this document. Key transaction metrics include:
- Exchange Ratio: Each share of SSGT II common stock will be converted into 0.9118 shares of SmartStop Class A Common Stock.
- Assets Acquired: As of December 31, 2021, SSGT II owned 10 wholly-owned self-storage facilities in seven states comprising approximately 7,740 units and 853,900 net rentable square feet.
- Joint Ventures: SSGT II holds a 50% equity interest in three unconsolidated real estate ventures in Ontario, Canada (one operating, two under development).
- Occupancy: The wholly-owned portfolio had a physical occupancy rate of 93.8% as of December 31, 2021.
- Termination Fees: SSGT II must pay SmartStop $2.6 million if the merger is terminated due to a superior proposal during the "Go Shop" period, or $5.2 million under certain other termination circumstances.
Material Changes and Portfolio Details
The filing outlines the specific assets being consolidated into SmartStop. The SSGT II portfolio includes facilities in Sacramento, Phoenix, Houston, Milwaukee, Mill Creek, Homestead, Lutz, St. Petersburg, Las Vegas, and Olympia. Additionally, the Company will obtain SSGT II's rights to acquire a property in San Gabriel, California. Concurrently with the merger agreement, SSGT II terminated its advisory agreement with SS Growth Advisor II, LLC, an indirect subsidiary of SmartStop, effective immediately prior to the merger closing, with no payment due to the advisor.
SSGT II Wholly-Owned Portfolio (as of Dec 31, 2021)
| Property | Units | Sq. Ft. (Net) | % of Total | Occupancy % |
|---|---|---|---|---|
| Sacramento, CA | 1,080 | 108,000 | 12.7% | 94.4% |
| Phoenix, AZ | 590 | 64,100 | 7.5% | 93.5% |
| Houston, TX | 640 | 74,700 | 8.7% | 94.2% |
| Milwaukee, WI | 780 | 83,400 | 9.8% | 90.3% |
| Mill Creek, WA | 660 | 65,400 | 7.7% | 95.7% |
| Homestead, FL | 800 | 96,200 | 11.3% | 96.5% |
| Lutz, FL | 790 | 87,300 | 10.2% | 94.7% |
| St. Petersburg, FL | 790 | 74,400 | 8.7% | 96.6% |
| Las Vegas, NV | 950 | 107,900 | 12.6% | 90.0% |
| Olympia, WA | 660 | 92,500 | 10.8% | 93.6% |
| Total | 7,740 | 853,900 | 100% | 93.8% |
Guidance, Outlook, and Risks
The merger is subject to several conditions, including the affirmative vote of a majority of SSGT II stockholders, the effectiveness of a Form S-4 registration statement, and the absence of a material adverse effect on either party. The transaction is not subject to a financing condition or SmartStop stockholder approval. A "Go Shop" period allows SSGT II to solicit alternative proposals until March 26, 2022. Risks include the failure to obtain stockholder approval, termination of the agreement, disruption of management attention, and potential difficulties in retaining key personnel or maintaining operating results during the transaction process.
Investor Verification Checklist
- Verify the final exchange ratio of 0.9118 SmartStop shares for each SSGT II share in the upcoming proxy statement/prospectus.
- Confirm the status of the "Go Shop" period and whether any superior acquisition proposals have been received by March 26, 2022.
- Review the Form S-4 registration statement for detailed financial information regarding SSGT II and the pro forma impact on SmartStop.
- Monitor the SSGT II stockholder vote to ensure the requisite majority approval is obtained.
- Assess the development timeline for the Aurora, Ontario joint venture property, estimated for completion in the first half of 2023.