Business Context and Reporting Period
SmartStop Self Storage REIT, Inc. filed this Form 8-K on April 20, 2020, to disclose the Board of Directors' determination of the Estimated Per Share Net Asset Value (NAV) for its Class A and Class T common stock. The valuation is calculated as of December 31, 2019, a date selected prior to the emergence of the COVID-19 pandemic in the United States. The filing is intended to assist broker-dealers in meeting FINRA Rule 2231 obligations regarding customer account statements.
Key Financial Metrics
The filing provides a detailed breakdown of assets, liabilities, and the resulting NAV per share as of December 31, 2019, compared to March 31, 2019.
| Metric | Dec 31, 2019 | Mar 31, 2019 |
|---|---|---|
| Estimated Per Share NAV (Class A & T) | $10.40 | $10.66 |
| Total Assets | $1,615,853,750 | $1,426,567,007 |
| Real Estate Properties | $1,462,770,744 | $1,401,326,048 |
| Cash and Restricted Cash | $68,571,123 | $19,886,772 |
| Managed REIT Platform | $79,000,000 | $0 |
| Total Liabilities | $756,170,084 | $801,754,747 |
| Debt (Secured Notes Payable) | $719,769,887 | $775,218,482 |
| Net Asset Value (Total) | $859,683,666 | $624,812,260 |
| Preferred Equity | $150,000,000 | $0 |
| Net Asset Value to Common | $709,683,666 | $624,812,260 |
Valuation Methodology: The valuation was performed by Robert A. Stanger & Co., Inc. using an income approach (direct capitalization) for 114 properties, with a weighted average capitalization rate of 5.12%. The Managed REIT Platform was valued at $79 million based on projected EBITDA multiples.
Material Changes Versus Prior Period
- NAV Decline: The Estimated Per Share NAV decreased from $10.66 (March 31, 2019) to $10.40 (December 31, 2019).
- Asset Growth: Total assets increased by approximately $189 million, driven by a $61 million increase in real estate property values and a $48 million increase in cash balances.
- New Assets: The portfolio now includes a $79 million valuation for the "Managed REIT Platform" (advisory and management businesses), which was not present in the March 2019 valuation.
- Liability Reduction: Total liabilities decreased by approximately $45 million, primarily due to a reduction in debt principal from $775 million to $720 million.
- Preferred Equity: $150 million in Preferred Equity was introduced in the December 2019 calculation, reducing the Net Asset Value attributable to common shareholders relative to total NAV.
Outlook, Risks, and Management Commentary
COVID-19 Impact: The filing explicitly states that the valuation was calculated prior to the emergence of COVID-19 in the U.S. Management notes that while they are monitoring the pandemic's effect on the self-storage industry, they cannot currently quantify the potential impact on the Estimated Per Share NAV or operations.
Valuation Limitations: The Estimated Per Share NAV is not audited, does not represent fair value under GAAP, and is not a liquidation value. It does not reflect a portfolio premium or discount, nor does it account for disposition costs.
Sensitivity Analysis:
- Capitalization Rates: A 25 basis point increase in cap rates would lower the NAV to $9.39; a 25 basis point decrease would raise it to $11.52.
- Interest Rates: A 25 basis point increase in market interest rates for debt would lower the NAV to $10.33; a decrease would raise it to $10.48.
Distribution Reinvestment Plan: The Board approved a share price of $10.40 for the purchase of shares under the Distribution Reinvestment Plan, effective for payments beginning in May 2020.
Key Facts for Investor Verification
- Valuation Date: Confirm that the $10.40 NAV reflects conditions as of December 31, 2019, and does not account for economic impacts from the COVID-19 pandemic occurring in early 2020.
- Third-Party Appraisal: Verify the independence and methodology of Robert A. Stanger & Co., Inc., the firm engaged to appraise 114 properties and the Managed REIT Platform.
- Liquidity vs. NAV: Understand that the Estimated Per Share NAV is not a guaranteed resale price; shares are not listed on a national exchange, and liquidity may be limited.
- Debt Valuation: Note that the fair value of secured notes payable ($732 million estimated by Stanger) differs from the carrying value ($720 million) due to mark-to-market adjustments.
- Preferred Equity: Recognize that $150 million in Preferred Equity is deducted from total NAV to determine the value available to common shareholders.