Business Context and Reporting Period
Company: SmartStop Self Storage REIT, Inc. (formerly Strategic Storage Trust II, Inc.)
Filing Date: June 28, 2019 (Reported July 1, 2019)
Event: The company executed a "Self Administration Transaction" to transition from an externally managed REIT to a self-managed entity. This involved acquiring the self-storage advisory, asset management, property management, and tenant insurance joint venture interests from its former sponsor, SmartStop Asset Management, LLC ("SAM").
Key Financial Metrics and Transaction Consideration
This filing details a material definitive agreement and asset acquisition rather than periodic financial performance. Key transaction values include:
- Consideration for Self Storage Platform:
- Cash: $769,126
- Debt Assumption: $15,000,000
- Equity: 8,698,956 Class A-1 Units and 3,283,302 Class A-2 Units of the Operating Partnership.
- Acquisition of Corporate Headquarters (10 Terrace Rd):
- Total Price: $6,500,000
- Debt Assumption: ~$4,200,000
- Cash: ~$2,300,000
- Workforce Acquired: Approximately 350 on-site employees, regional managers, and the current executive management team.
Note: The filing states that audited or unaudited financial statements for the acquired business are not available at this time and will be filed by September 14, 2019.
Material Changes Versus Prior Period
- Management Structure: The company is no longer sponsored by SAM. It is now self-managed and has internal capabilities to originate and manage investment products.
- Corporate Name: Changed from "Strategic Storage Trust II, Inc." to "SmartStop Self Storage REIT, Inc."
- Executive Leadership Changes:
- H. Michael Schwartz: Resigned as CEO; appointed Executive Chairman.
- Michael S. McClure: Resigned as President; appointed CEO.
- Wayne Johnson: Retained as CIO; appointed President.
- James Barry: Resigned as SVP-Finance; appointed CFO and Treasurer.
- New Appointments: Michael O. Terjung (Chief Accounting Officer), Nicholas M. Look (General Counsel/Secretary), Gerald Valle (SVP-Self Storage Operations).
- Resignations: Matt F. Lopez (CFO/Treasurer) and James L. Berg (Secretary).
- Operating Partnership Agreement: Removed obligations for subordinated incentive distributions previously payable to the Former External Advisor. Created new Class A-1 and Class A-2 units with specific earn-out and lock-up provisions.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Future Obligations:
- Earn-Out Mechanism: Class A-2 Units will convert to Class A-1 Units based on incremental Assets Under Management (AUM) milestones of $300M, $500M, and $700M. Conversion is based on a $10.66 exchange ratio relative to stock price.
- Lock-Up Period: Class A-1 Units cannot be redeemed or exchanged for common stock until June 28, 2021.
- Administrative Services: An ongoing agreement with SAM provides for mutual reimbursement of operational services (IT, HR, marketing, etc.) and rent allocation for the Ladera Office.
Risks and Contingencies:
- Severance Plan: A new Executive Severance and Change of Control Plan was adopted. It provides for significant payouts (up to 3.0x salary + bonus for CEO/Chairman) in the event of termination without cause or following a change of control.
- Financial Reporting: The company has not yet filed financial statements for the acquired business, creating a temporary gap in full consolidated financial visibility.
Key Facts for Investor Verification
- Verify the valuation of the acquired "Self Storage Platform" assets against the $15M debt assumption and equity issuance.
- Monitor the upcoming filing (due September 14, 2019) for financial statements of the acquired business to assess historical profitability and cash flow.
- Review the specific terms of the Class A-2 Unit earn-out to understand potential future dilution if AUM targets are met.
- Assess the impact of the new Executive Severance Plan on future compensation expenses and potential change-of-control liabilities.
- Confirm the operational integration of the 350 acquired employees and the transition of management duties.