Business Context and Reporting Period
On February 1, 2017, Strategic Storage Trust II, Inc. (the "Registrant") completed the acquisition of a portfolio of five self-storage properties located in the Greater Toronto Area, Canada (the "Toronto Portfolio"). The transaction was executed via a merger with Strategic Storage Toronto Properties REIT, Inc. ("SS Toronto"), a subsidiary of the Registrant's sponsor. The filing date is February 7, 2017.
Key Financial Metrics and Transaction Details
- Assets Acquired: 5 properties totaling 460,400 rentable square feet and 4,010 units.
- Consideration Paid:
- Cash: Approximately $7.3 million USD.
- Equity: Approximately 483,197 Class A Units of Strategic Storage Operating Partnership II, L.P. (SSOPII).
- Debt Assumed: Approximately $50.1 million CAD (approx. $38.5 million USD as of Feb 1, 2017) in outstanding debt.
- Debt Repayment: The Registrant paid approximately $33.1 million USD to an affiliate of Extra Space Storage, Inc. to repay outstanding debt and accrued interest owed by SS Toronto.
- Guarantees: The Registrant guaranteed obligations of SS Toronto up to $52.5 million CAD.
Material Changes and Property Overview
The acquisition expands the Registrant's footprint into the Canadian market. The physical occupancy rates of the acquired properties as of January 31, 2017, varied significantly:
| Property | Units | Net Rentable Area (sq ft) | Physical Occupancy % |
|---|---|---|---|
| Dufferin | 1,070 | 122,700 | 89% |
| Mavis | 800 | 99,900 | 88% |
| Brewster | 770 | 90,600 | 85% |
| Granite | 760 | 80,700 | 62% |
| Centennial | 610 | 66,500 | 11% |
| Total | 4,010 | 460,400 | N/A |
The filing does not provide revenue, profit, or cash flow metrics for the acquired portfolio or the Registrant's consolidated results for the period.
Outlook, Risks, and Unusual Items
- Management Commentary: A Special Committee of independent directors approved the transaction, determining it was fair, reasonable, and in the best interests of the Registrant.
- Financial Statements: Audited financial statements for the acquired real estate are not yet available. The Registrant intends to file required financial statements by April 7, 2017, via an amendment to this Form 8-K.
- Related Party Transaction: The equity consideration was issued to Strategic 1031, LLC (a subsidiary of the Sponsor) and SS Toronto REIT Advisors, Inc. (an affiliate of the Sponsor).
- Risk Factors: The Centennial Property has a notably low physical occupancy rate of 11% as of the acquisition date.
Key Facts for Investor Verification
- Verify the pro forma financial impact of the acquisition once the April 7, 2017 amendment is filed.
- Monitor the occupancy growth trajectory of the Centennial Property (11% occupancy) and Granite Property (62% occupancy).
- Confirm the exact USD value of the assumed debt ($38.5 million) given the volatility of the CAD/USD exchange rate.
- Review the terms of the $52.5 million CAD guarantee provided by the Registrant for SS Toronto loans.