Extra Space Storage Inc. current report, 15 June 2015

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Business Context and Reporting Period

Company: Extra Space Storage Inc.
Filing Type: Form 8-K (Current Report)
Date: June 15, 2015
Event: Entry into a Material Definitive Agreement to acquire SmartStop Self Storage, Inc. ("SmartStop") via a merger.

Key Financial Metrics and Transaction Terms

This filing details a proposed acquisition rather than periodic financial results. Key transaction metrics include:

  • Merger Consideration: $13.75 per share in cash for each outstanding share of SmartStop common stock.
  • Partnership Unit Conversion: SmartStop OP units convert to $13.75 in cash, or 0.2031 Extra Space OP units for accredited investors electing equity.
  • Termination Fees: $38.0 million payable by SmartStop under specific conditions (e.g., superior proposal or board recommendation change).
  • Transaction Expense Reimbursement: Up to $3.0 million payable by SmartStop if stockholder approval is not obtained and no superior proposal was announced.
  • Excluded Assets Sale: Approximately $120.0 million aggregate sales price for non-complementary assets (non-traded REIT platform and specific properties).
  • Financing for Excluded Assets: Extra Space Storage subsidiary to loan Strategic 1031, LLC up to $118.0 million at 7% annual interest.

Material Changes and Transaction Structure

The filing announces a definitive Agreement and Plan of Merger involving a two-step process:

  1. Company Merger: SmartStop merges into a wholly-owned subsidiary of Extra Space Storage (Merger Sub I).
  2. Partnership Merger: SmartStop OP merges into a subsidiary of Extra Space Storage LP (Merger Sub II).

Asset Divestiture: Concurrently, SmartStop agreed to sell "Excluded Assets" to Strategic 1031, LLC (controlled by SmartStop's CEO) to remove non-complementary holdings prior to or at the closing of the merger.

Guidance, Risks, and Conditions

Closing Conditions:

  • Approval by a majority of SmartStop stockholders.
  • Absence of governmental orders prohibiting the transaction.
  • Accuracy of representations and warranties.
  • No material adverse effect on SmartStop.
  • Completion of the sale of Excluded Assets.

Risks and Contingencies:

  • Termination Deadlines: The agreement may be terminated if not consummated by March 31, 2016.
  • Forward-Looking Statements: Completion is not guaranteed and depends on regulatory approvals, stockholder votes, and the absence of material adverse effects.
  • Operational Risks: Potential impact on retaining key personnel and maintaining customer relationships during the transaction period.

Management Commentary: The Extra Space Storage board unanimously approved the merger. SmartStop is restricted from soliciting alternative proposals, subject to a "fiduciary out" allowing termination for a superior proposal upon payment of the termination fee.

Investor Verification Checklist

  • Verify the final approval status of the merger by SmartStop stockholders.
  • Confirm the successful closing of the $120.0 million sale of Excluded Assets to Strategic 1031, LLC.
  • Monitor for any regulatory approvals or governmental orders that could block the transaction.
  • Review the terms of the $118.0 million loan facility provided to Strategic 1031, LLC for the asset purchase.
  • Check for any announcements of superior acquisition proposals that could trigger the $38.0 million termination fee.