Business Context and Reporting Period
Company: Strategic Storage Trust II, Inc. (Registrant)
Filing Date: January 24, 2019 (Form 8-K)
Event: The Registrant completed the acquisition of Strategic Storage Growth Trust, Inc. (SSGT) and its operating partnership via merger. Concurrently, the Registrant secured approximately $525 million in new financing ("Merger Financings") to fund the transaction and repay existing debt.
Key Financial Metrics
Acquisition Details
- Total Purchase Price: Approximately $350 million (includes assumed/repaid debt; excludes transaction costs).
- Merger Consideration: $12.00 per share of SSGT common stock in cash.
- Assets Acquired: 28 operating self-storage facilities in 10 U.S. states and Greater Toronto, Canada, plus one development property.
- Portfolio Size: Approximately 19,840 units and 2.2 million net rentable square feet.
- Physical Occupancy: 76.7% as of December 31, 2018 (includes several lease-up properties).
Debt and Liquidity
- Total New Financing: Approximately $525 million.
- CMBS SASB Loan: $235 million ($180M mortgage + $55M mezzanine) on 29 properties. Interest rate: LIBOR + 3% (approx. 5.5%); Maturity: Feb 2022.
- CMBS Loan: $104 million on 10 properties. Interest rate: Fixed 5%; Maturity: Feb 2029.
- Secured Loan: Up to $96.4 million on 16 properties. Initial draw: $89.2 million. Interest rate: LIBOR + 2.5% (swapped to approx. 5.1%); Maturity: Jan 2022.
- Senior Term Loan: Up to $87.7 million. Initial draw: $72.0 million. Interest rate: LIBOR + 4.25% (swapped to approx. 6.85%); Maturity: Jan 2022.
Note: This filing does not provide consolidated revenue, profit, or cash flow metrics for the Registrant or the acquired entity.
Material Changes
- Portfolio Expansion: Immediate addition of 28 operating facilities and one development site to the Registrant's portfolio.
- Capital Structure: Significant increase in debt load via the $525 million Merger Financings, replacing prior debt obligations of SSGT and refinancing existing Registrant debt.
- Geographic Footprint: Expansion into new markets including Canada (Toronto) and additional U.S. states.
Outlook, Risks, and Contingencies
- Lease-Up Risk: Several acquired properties (e.g., Stoney Creek, Hualapai Way, Eastlake) had physical occupancy below 50% as of December 31, 2018, indicating near-term revenue ramp-up requirements.
- Development Timeline: The Torbarrie property in Toronto is under construction with expected completion in H2 2019. A facility in Gilbert, Arizona, is expected to close in Q2 2019.
- Debt Covenants: New loans impose strict financial covenants, including total leverage ratios, tangible net worth, liquidity requirements, and fixed charge coverage ratios.
- Interest Rate Hedging: The Registrant has entered into interest rate caps and swaps to fix rates on variable debt portions through 2020 or 2022.
- Financial Reporting: Pro forma financial information and audited financial statements for the acquired business will be filed within 71 days of this report.
Investor Verification Checklist
- Verify the pro forma financial impact of the merger once filed (within 71 days).
- Monitor the lease-up progress of the 8 identified properties with occupancy below 50%.
- Review the specific leverage and liquidity covenants in the new loan agreements to assess refinancing risk at maturity (2022).
- Confirm the timeline and capital requirements for the completion of the Toronto and Arizona development projects.
- Assess the impact of the $350 million cash outflow on the Registrant's remaining liquidity.