Business Context and Reporting Period
Company: Strategic Storage Trust II, Inc. (filing on behalf of Smartstop Self Storage REIT, Inc. context)
Filing Date: November 3, 2014 (Form 8-K)
Event: The Registrant, through its Operating Partnership, closed on the acquisition of a portfolio of five self-storage facilities in North Carolina and South Carolina (the "Raleigh/Myrtle Beach Portfolio") and entered into a preferred equity investment agreement.
Key Financial Metrics and Transaction Details
Acquisition Metrics
- Total Purchase Price: Approximately $22.1 million (plus closing costs and fees).
- Assets Acquired: 5 facilities totaling 354,200 net square feet and 2,490 units.
- Acquisition Fees: Approximately $0.4 million paid to the Registrant's advisor.
- Management Fees: One-time fee of $3,750 per property; ongoing fee of 6% of gross monthly revenues.
Debt and Liquidity
- Debt Assumed: Approximately $12.6 million principal balance (Raleigh/Myrtle Beach Loan Assumption).
- Loan Terms: Fixed interest rate of 5.73%, maturing September 2023. Prepayment lockout for the first two years.
- Guaranty Requirements: Registrant and SmartStop must collectively maintain a net worth of at least $6.0 million and aggregate liquidity of at least $2.0 million (excluding the portfolio and preferred equity).
Capital Structure and Equity
- Preferred Equity Facility: Up to $65 million available from SSTI Preferred Investor, LLC.
- Initial Tranche: Approximately $6.5 million invested on November 3, 2014.
- Use of Proceeds: $5.0 million funded the acquisition; $1.5 million paid investor expenses.
- Units Issued: Approximately 260,000 Preferred Units (liquidation preference of $25.00 per unit).
- Distribution Rate: One-month LIBOR plus 6.5% per annum (Current Distributions) plus an additional 4.35% (through March 31, 2017) or 6.35% (thereafter), which may be deferred.
Material Changes and Unusual Items
The filing reports a material expansion of the company's asset base through the acquisition of the Raleigh/Myrtle Beach Portfolio. This transaction was funded via a mix of new preferred equity, debt assumption, and funds from a public offering. The filing does not provide comparative revenue, profit, or cash flow metrics for the prior period as this is a current report on a specific transaction rather than a periodic financial statement.
Guidance, Risks, and Contingencies
Management Commentary and Outlook
Proceeds from the preferred equity facility are designated solely for investments in self-storage properties. The company intends to file financial statements for the acquired real estate by January 16, 2015, as they were not available at the time of filing.
Risks and Covenants
- Protective Provisions: The Preferred Units holder has veto rights over issuing senior/junior securities, altering organizational documents, engaging in a Change of Control, or paying distributions on junior equity (with REIT preservation exceptions).
- Events of Default: Include material breaches of covenants, bankruptcy, acceleration of indebtedness over $5 million, or failure to qualify as a REIT.
- Repurchase Obligations: The Operating Partnership may be required to repurchase Preferred Units upon specific events, including a Change of Control or failure to maintain REIT status.
Investor Verification Checklist
- Verify the pro forma impact of the $12.6 million debt assumption and the preferred equity distribution obligations on future cash flows.
- Confirm the status of the remaining $58.5 million of the preferred equity facility and the timeline for subsequent tranches.
- Review the upcoming financial statements for the acquired properties (due by January 16, 2015) to assess historical performance and occupancy rates.
- Monitor compliance with the $6.0 million net worth and $2.0 million liquidity covenants required under the loan guaranty.
- Assess the impact of the 6% management fee on the net operating income of the new portfolio.