UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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As of August 10, 2022, there were
FORM 10-Q
SMARTSTOP SELF STORAGE REIT, INC.
TABLE OF CONTENTS
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Page |
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PART I. |
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Item 1. |
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4 |
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Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021 |
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6 |
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7 |
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8 |
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Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (unaudited) |
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12 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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80 |
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Item 4. |
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81 |
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PART II. |
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82 |
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Item 1. |
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82 |
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Item 1A. |
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82 |
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Item 2. |
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83 |
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Item 3. |
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83 |
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Item 4. |
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83 |
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Item 5. |
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83 |
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Item 6. |
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83 |
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q of SmartStop Self Storage REIT, Inc., other than historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, including known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “seek,” “continue,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the Securities and Exchange Commission. We cannot guarantee the accuracy of any such forward-looking statements contained in this Form 10-Q, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Any such forward-looking statements are subject to risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, including without limitation changes in the political and economic climate, economic conditions and fiscal imbalances in the United States, and other major developments, including wars, natural disasters, epidemics and pandemics, including the outbreak of COVID-19, military actions, and terrorist attacks. The occurrence or severity of any such event or circumstance is difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to realize the plans, strategies and prospects contemplated by such forward-looking statements, including our ability to generate positive cash flow from operations and provide distributions to stockholders, and our ability to find suitable investment properties, may be significantly hindered.
For further information regarding risks and uncertainties associated with our business, and important factors that could cause our actual results to vary materially from those expressed or implied in such forward-looking statements, please refer to the factors listed and described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Risk Factors” sections of the documents we file from time to time with the U.S. Securities and Exchange Commission, including, but not limited to, our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission, as supplemented by the risk factors included in Part II, Item 1A of this Form 10-Q.
3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The information furnished in the accompanying unaudited consolidated balance sheets and related consolidated statements of operations, comprehensive income (loss), equity and cash flows reflects all adjustments (consisting of normal and recurring adjustments) that are, in management’s opinion, necessary for a fair and consistent presentation of the aforementioned consolidated financial statements.
The accompanying consolidated financial statements should be read in conjunction with the notes to our consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report on Form 10-Q. The accompanying consolidated financial statements should also be read in conjunction with our consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021. Our results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the operating results expected for the full year.
4
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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June 30, |
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December 31, |
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ASSETS |
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Real estate facilities: |
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Land |
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$ |
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$ |
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Buildings |
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Site improvements |
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Accumulated depreciation |
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( |
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( |
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Construction in process |
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Real estate facilities, net |
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Cash and cash equivalents |
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Restricted cash |
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Investments in unconsolidated real estate ventures (Note 4) |
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Investments in and advances to Managed REITs |
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Other assets, net |
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Intangible assets, net of accumulated amortization |
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Trademarks, net of accumulated amortization |
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Goodwill |
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Debt issuance costs, net of accumulated amortization |
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Total assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Debt, net |
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$ |
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$ |
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Accounts payable and accrued liabilities |
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Due to affiliates |
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Distributions payable |
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Contingent earnout |
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Deferred tax liabilities |
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Total liabilities |
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(Note 11) |
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Redeemable common stock |
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Preferred stock, $ |
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Series A Convertible Preferred Stock, $ |
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Equity: |
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SmartStop Self Storage REIT, Inc. equity: |
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Class A common stock, $ |
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Class T common stock, $ |
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Additional paid-in capital |
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Distributions |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive income (loss) |
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( |
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Total SmartStop Self Storage REIT, Inc. equity |
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Noncontrolling interests in our Operating Partnership |
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Other noncontrolling interests |
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Total noncontrolling interests |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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See notes to consolidated financial statements.
5
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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2022 |
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2021 |
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2022 |
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2021 |
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Revenues: |
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Self storage rental revenue |
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$ |
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$ |
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$ |
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$ |
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Ancillary operating revenue |
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Managed REIT Platform revenue |
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Reimbursable costs from Managed REITs |
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Total revenues |
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Operating expenses: |
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Property operating expenses |
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Managed REIT Platform expenses |
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Reimbursable costs from Managed REITs |
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General and administrative |
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Depreciation |
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Intangible amortization expense |
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Acquisition expenses |
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Contingent earnout adjustment |
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Write-off of equity interest and preexisting |
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Total operating expenses |
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Gain on equity interests upon acquisition |
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Gain on sale of real estate |
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Income from operations |
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Other income (expense): |
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Interest expense |
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( |
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( |
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( |
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( |
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Net loss on extinguishment of debt |
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( |
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( |
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( |
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Other, net |
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( |
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Net income (loss) |
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( |
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Net (income) loss attributable to |
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( |
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Less: Distributions to preferred stockholders |
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( |
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( |
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( |
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( |
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Net income (loss) attributable to |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Net income (loss) per Class A & Class T share – |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Net income (loss) per Class A & Class T share – |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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Weighted average Class A shares outstanding – |
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Weighted average Class A shares outstanding – |
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Weighted average Class T shares outstanding – |
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Weighted average Class T shares outstanding – |
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See notes to consolidated financial statements.
6
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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2022 |
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2021 |
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2022 |
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2021 |
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Net income (loss) |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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Other comprehensive income (loss): |
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Foreign currency translation adjustment |
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( |
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( |
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Foreign currency hedge contract gains (losses) |
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( |
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( |
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Interest rate swap and cap contract gains |
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Other comprehensive income |
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Comprehensive income (loss) |
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( |
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Comprehensive (income) loss attributable to |
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Comprehensive (income) loss attributable to |
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( |
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( |
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Comprehensive income (loss) attributable to |
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$ |
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$ |
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$ |
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$ |
( |
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See notes to consolidated financial statements.
7
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
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Common Stock |
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Class A |
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Class T |
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Number |
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Common |
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Number |
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Common |
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Additional |
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Distributions |
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Accumulated |
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Accumulated |
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Total |
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Noncontrolling |
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Total |
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Preferred |
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Redeemable |
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Balance as of December 31, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
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$ |
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Gross proceeds from issuance of |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Offering costs |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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( |
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— |
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( |
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— |
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Issuance of Class A-1 Units in our |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Acquisition of noncontrolling |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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— |
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— |
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Changes to redeemable common |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
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— |
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( |
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— |
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Redemptions of common stock |
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( |
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( |
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( |
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( |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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— |
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( |
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Issuance of restricted stock |
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— |
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— |
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— |
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Distributions |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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Distributions to noncontrolling |
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— |
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|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Issuance of shares for distribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||||||
Equity based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Net loss attributable to SmartStop |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Net loss attributable to |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Foreign currency forward contract |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Interest rate swap and cap contract |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Balance as of March 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
See notes to consolidated financial statements.
8
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
|
|
Class A |
|
|
Class T |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
Number |
|
|
Common |
|
|
Number |
|
|
Common |
|
|
Additional |
|
|
Distributions |
|
|
Accumulated |
|
|
Accumulated |
|
|
Total |
|
|
Noncontrolling |
|
|
Total |
|
|
Preferred |
|
|
Redeemable |
|
|||||||||||||
Balance as of March 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
Gross proceeds from issuance of |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Offering costs of SST VI OP |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Deconsolidation of SST VI OP |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Offering costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Changes to redeemable common |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
Redemptions of common stock |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Issuance of restricted stock |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|||||
Distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Distributions to noncontrolling |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Issuance of shares for distribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||||||
Equity based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Net loss attributable to SmartStop |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Net loss attributable to the |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Foreign currency forward contract |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Interest rate swap and cap |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Balance as of June 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
See notes to consolidated financial statements.
9
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
|
|
Class A |
|
|
Class T |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
Number |
|
|
Common |
|
|
Number |
|
|
Common |
|
|
Additional |
|
|
Distributions |
|
|
Accumulated |
|
|
Accumulated |
|
|
Total |
|
|
Noncontrolling |
|
|
Total |
|
|
Preferred |
|
|
Redeemable |
|
|||||||||||||
Balance as of December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
Offering costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Tax withholding (net settlement) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Issuance of Class A-1 Units in our |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Issuance of noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Changes to redeemable common |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
Redemptions of common stock |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Issuance of restricted stock |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Distributions |
|
|
- |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Distributions to noncontrolling |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Issuance of shares for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||||||
Equity based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Net loss attributable to |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Net income attributable to |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Foreign currency hedge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Interest rate hedge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Balance as of March 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||||
See notes to consolidated financial statements.
10
|
|
Common Stock |
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|
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|
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||||||||||||||||||||||
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|
Class A |
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Class T |
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|||||||||||||||||||
|
|
Number |
|
|
Common |
|
|
Number |
|
|
Common |
|
|
Additional |
|
|
Distributions |
|
|
Accumulated |
|
|
Accumulated |
|
|
Total |
|
|
Noncontrolling |
|
|
Total |
|
|
Preferred |
|
|
Redeemable |
|
|||||||||||||
Balance as of March 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||||
Offering costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Issuance of common stock in |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||||
Issuance of OP Units in |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Tax withholding (net |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Changes to redeemable |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of restricted stock |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Distributions to noncontrolling |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Equity based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Net income attributable to |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
Net income attributable to |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Foreign currency hedge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Interest rate hedge |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||||
Balance as of June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||||
See notes to consolidated financial statements.
11
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six Months Ended |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Change in deferred tax liability |
|
|
( |
) |
|
|
( |
) |
Accretion of fair market value adjustment of secured debt |
|
|
( |
) |
|
|
( |
) |
Amortization of debt issuance costs |
|
|
|
|
|
|
||
Equity based compensation expense |
|
|
|
|
|
|
||
Contingent earnout adjustment |
|
|
|
|
|
|
||
Equity in loss of unconsolidated joint ventures |
|
|
|
|
|
|
||
Unrealized foreign currency and derivative gain |
|
|
( |
) |
|
|
( |
) |
Net loss on extinguishment of debt |
|
|
|
|
|
|
||
Gain on equity interests upon acquisition |
|
|
( |
) |
|
|
|
|
Write-off of equity interest and preexisting relationships upon acquisition of control |
|
|
|
|
|
|
||
Gain on deconsolidation of SST VI OP |
|
|
|
|
|
( |
) |
|
Gain on sale of real estate |
|
|
|
|
|
( |
) |
|
Increase (decrease) in cash from changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
||
Other assets, net |
|
|
( |
) |
|
|
|
|
Accounts payable and accrued liabilities |
|
|
( |
) |
|
|
( |
) |
Managed REITs receivables |
|
|
|
|
|
( |
) |
|
Due to affiliates |
|
|
( |
) |
|
|
( |
) |
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
SSGT II Merger, net of cash acquired |
|
|
( |
) |
|
|
|
|
SST IV Merger, net of cash acquired |
|
|
|
|
|
( |
) |
|
Purchase of real estate |
|
|
( |
) |
|
|
( |
) |
Additions to real estate |
|
|
( |
) |
|
|
( |
) |
Investments in unconsolidated real estate entities, net |
|
|
( |
) |
|
|
( |
) |
Deconsolidation of SST VI OP |
|
|
|
|
|
( |
) |
|
Purchase of other investments |
|
|
|
|
|
( |
) |
|
Deposits on acquisition of real estate |
|
|
( |
) |
|
|
|
|
Net proceeds from the sale of real estate |
|
|
|
|
|
|
||
Settlement of foreign currency hedges |
|
|
|
|
|
( |
) |
|
Redemption of preferred equity investment in SSGT II |
|
|
|
|
|
|
||
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Gross proceeds from issuance of non-revolver debt |
|
|
|
|
|
|
||
Repayment of non-revolver debt |
|
|
( |
) |
|
|
( |
) |
Scheduled principal payments on non-revolver debt |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuance of revolver debt |
|
|
|
|
|
|
||
Repayment of revolver debt |
|
|
( |
) |
|
|
|
|
Debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Debt defeasance costs |
|
|
( |
) |
|
|
( |
) |
Offering costs |
|
|
( |
) |
|
|
( |
) |
Redemption of common stock |
|
|
( |
) |
|
|
( |
) |
Gross proceeds from issuance of equity in SST VI OP |
|
|
— |
|
|
|
|
|
Offering costs related to issuance of equity in SST VI OP |
|
|
|
|
|
( |
) |
|
Gross proceeds from issuance of equity in other non controlling interests |
|
|
|
|
|
— |
|
|
Distributions paid to preferred stockholders |
|
|
( |
) |
|
|
( |
) |
Distributions paid to common stockholders |
|
|
( |
) |
|
|
( |
) |
Distributions paid to noncontrolling interest in our OP |
|
|
( |
) |
|
|
( |
) |
Net cash provided by financing activities |
|
|
|
|
|
|
||
Impact of foreign exchange rate changes on cash and restricted cash |
|
|
( |
) |
|
|
|
|
Change in cash, cash equivalents, and restricted cash |
|
|
|
|
|
( |
) |
|
Cash, cash equivalents, and restricted cash beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents, and restricted cash end of period |
|
$ |
|
|
$ |
|
||
12
Supplemental disclosures and non-cash transactions: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of noncash activities: |
|
|
|
|
|
|
||
Issuance of shares pursuant to distribution reinvestment plan |
|
$ |
5,243,398 |
|
|
$ |
8,849,845 |
|
Distributions payable |
|
$ |
|
|
$ |
|
||
Conversion of A-2 Units into A-1 Units |
|
$ |
|
|
$ |
|
||
Deposits applied to the purchase of real estate |
|
$ |
|
|
$ |
|
||
Additions to real estate and construction in process included in |
|
$ |
|
|
$ |
|
||
Debt assumed in Mergers |
|
$ |
|
|
$ |
|
||
Issuance of common stock and OP Units in connection with the mergers |
|
$ |
|
|
$ |
|
||
Redemption of common stock included in accounts payable and |
|
$ |
|
|
$ |
|
||
See notes to consolidated financial statements.
13
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Note 1. Organization
SmartStop Self Storage REIT, Inc., a Maryland corporation (the “Company”), is a self-managed and fully-integrated self storage real estate investment trust (“REIT”), formed on
We acquire, own and operate self storage facilities—including facilities owned by us as well as those owned by the entities sponsored by us. As of June 30, 2022, we owned
As discussed herein, we, through our subsidiaries, currently serve as the sponsor of Strategic Storage Trust VI, Inc., a publicly-registered non-traded REIT (“SST VI”), and Strategic Storage Growth Trust III, Inc., a private company that intends to elect to qualify as a REIT (“SSGT III” and together with SST VI , the "Managed REITs"). We also served as the sponsor of Strategic Storage Trust IV, Inc., a public non-traded REIT (“SST IV”) through March 17, 2021, and Strategic Storage Growth Trust II, Inc., a private REIT (“SSGT II”) through June 1, 2022. Prior to March 17, 2021 and June 1, 2022, SST IV and SSGT II respectively, were also referred to as “Managed REITs.” We operate the properties owned by the Managed REITs, consisting of, as of June 30, 2022,
The square footage, unit count, and occupancy percentage data and related disclosures included in these notes to the consolidated financial statements are outside the scope of our independent registered accounting firm’s review.
Completed Transactions
SSGT II Merger
On June 1, 2022, we closed on our merger with SSGT II (the "SSGT II Merger").
As a result of the SSGT II Merger, we acquired all of the real estate owned by SSGT II, which as of the SSGT II Merger date consisted of (i)
As a result of the SSGT II Merger, approximately
See Note 3 – Real Estate Facilities, for additional information related to the SSGT II Merger.
SST IV Merger
On March 17, 2021, we closed on our merger with SST IV (the “SST IV Merger”). As a result, we acquired all of the real estate owned by SST IV, consisting of (i)
14
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
As a result of the SST IV Merger, approximately
2032 Private Placement Notes
On April 19, 2022, we as guarantor, and SmartStop OP, L.P. (our "Operating Partnership") as issuer, entered into a note purchase agreement (the "Note Purchase Agreement"), pursuant to which we issued $
Credit Facility
On March 17, 2021, we, through our Operating Partnership, entered into a credit facility with KeyBank, National Association as administrative agent, with an initial aggregate commitment of $
On October 7, 2021, we amended the Credit Facility to increase the commitments on the revolving credit facility by $
On April 19, 2022, we amended the Credit Facility to allow for the issuance of the 2032 Private Placement Notes, make conforming changes between the Note Purchase agreement and the Credit Facility, and to transition from London Interbank Offer Rate ("LIBOR") to secured overnight financing rate ("SOFR") for floating rate borrowings.
See Note 5 – Debt, for additional information.
Equity
In November 2016, we filed with the SEC a Registration Statement on Form S-3, which registered up to an additional $
On October 19, 2021, our board of directors, upon recommendation of our Nominating and Corporate Governance Committee, approved an estimated net asset value per share of our common stock of $
As a result of the calculation of our estimated value per share, beginning in October 2021, shares sold pursuant to our distribution reinvestment plan are being sold at the estimated net asset value per share of $
On March 7, 2022, the board of directors approved the suspension of the Company's distribution reinvestment plan and share redemption program. See Note 11 – Commitments and Contingencies of the Notes to the Consolidated Financial Statements contained in this report for additional information.
15
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Prior to the termination of our Primary Offering, Select Capital Corporation, a California corporation (our “Former Dealer Manager”), was responsible for marketing our shares offered pursuant to our Primary Offering. SAM indirectly owns a
Other Corporate History
Our Operating Partnership was formed on
As we accepted subscriptions for shares of our common stock, we transferred all of the net Offering proceeds to our Operating Partnership as capital contributions in exchange for additional units of interest in our Operating Partnership. However, we were deemed to have made capital contributions in the amount of gross proceeds received from investors, and our Operating Partnership was deemed to have simultaneously paid the sales commissions and other costs associated with the Offering. In addition, our Operating Partnership is structured to make distributions with respect to limited partnership units that are equivalent to the distributions made to holders of common stock. Finally, a limited partner in our Operating Partnership may later exchange his or her limited partnership units in our Operating Partnership for shares of our common stock at any time after one year following the date of issuance of their limited partnership units, subject to certain restrictions outlined in our Operating Partnership’s limited partnership agreement.
Our Operating Partnership owns, directly or indirectly through one or more subsidiaries, all of the self storage properties that we own. As of June 30, 2022, we owned approximately
Recent Economic Conditions
Our rental revenue and operating results depend significantly on the demand for self storage space. Since the beginning of the COVID-19 pandemic in late March 2020, our operations were affected by COVID-19 in various ways, including but not limited to, national and local jurisdictions issuing orders causing temporary restrictions on our business in certain markets, temporary shutdowns of certain of our facilities, customer behavior and their comfort levels visiting our facilities, as well as the broader economic impacts of COVID-19. Future governmental orders, broad economic weakness, inflationary pressures, geopolitical events, or other economic events could adversely impact our business, financial condition, liquidity and results of operations. However, the extent and duration to which our operations may be impacted is highly uncertain and cannot be predicted.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC.
Principles of Consolidation
16
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Our financial statements, and the financial statements of our Operating Partnership, including its wholly-owned subsidiaries, are consolidated in the accompanying consolidated financial statements. The portion of these entities not wholly-owned by us is presented as noncontrolling interests. All intercompany accounts and transactions have been eliminated in consolidation.
Strategic Storage Operating Partnership VI, L.P. (“SST VI OP”), the operating partnership of SST VI, and its wholly-owned subsidiaries, were consolidated by us until May 1, 2021. From March 10, 2021 (the date of our initial investment in SST VI OP) until May 1, 2021, the portion not wholly-owned by us was presented as noncontrolling interests, and all intercompany accounts and transactions were eliminated in consolidation during that period.
Consolidation Considerations
Current accounting guidance provides a framework for identifying a variable interest entity (“VIE”) and determining when a company should include the assets, liabilities, noncontrolling interests, and results of activities of a VIE in its consolidated financial statements. In general, a VIE is an entity or other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations. Generally, a VIE should be consolidated if a party with an ownership, contractual, or other financial interest in the VIE (a variable interest holder) has the power to direct the VIE’s most significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities, and noncontrolling interest at fair value and subsequently account for the VIE as if it were consolidated based on majority voting interest.
Our Operating Partnership is deemed to be a VIE and is consolidated by the Company as we are currently the primary beneficiary. Our sole significant asset is our investment in our Operating Partnership; as a result, substantially all of our assets and liabilities represent those assets and liabilities of our Operating Partnership and its wholly-owned subsidiaries.
From March 10, 2021 until May 1, 2021, we were deemed to be the primary beneficiary of SST VI OP, and their operations were therefore consolidated by us. Subsequent to May 1, 2021, we are no longer the primary beneficiary, and their operations are no longer consolidated by us.
On March 1, 2022, Pacific Oak Holding Group, LLC, the parent company of Pacific Oak Capital Markets, LLC, the dealer manager for the public offering of SST VI, became a
As of June 30, 2022 and December 31, 2021, we were not a party to any other contracts/interests that would be deemed to be variable interests in VIEs other than our joint ventures with SmartCentres, which are all accounted for under the equity method of accounting (see Note 4 – Investments in Unconsolidated Real Estate Ventures for additional information), and our Tenant Protection Programs joint ventures with SST VI, SSGT III, SSGT II (through June 1, 2022) which are consolidated.
Equity Investments
Investments in and Advances to Managed REITs
As of June 30, 2022 and December 31, 2021, we owned equity and debt investments with a carrying value of approximately $
17
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
record the interest on the debt investments on the accrual basis and such income is included in other in our consolidated statements of operations.
Also included in Investments in and advances to Managed REITs as of June 30, 2022 and December 31, 2021 are receivables from the Managed REITs of approximately $
Noncontrolling Interest in Consolidated Entities
We account for the noncontrolling interests in our Operating Partnership and the noncontrolling interests in SST VI Advisor and our Tenant Protection Programs joint ventures with SST VI, SSGT III, and SSGT II (prior to the SSGT II Merger on June 1, 2022) in accordance with the related accounting guidance.
Due to our control through our general partnership interest in our Operating Partnership and the limited rights of the limited partners, our Operating Partnership, including its wholly-owned subsidiaries, are consolidated with the Company and the limited partner interests are reflected as noncontrolling interests in the accompanying consolidated balance sheets. We also consolidate our interests in SST VI Advisor as well as the SST VI, SSGT III, and SSGT II (prior to the SSGT II Merger on June 1, 2022) Tenant Protection Programs and present the minority interests as noncontrolling interests in the accompanying consolidated balance sheets. The noncontrolling interests shall be attributed their share of income and losses, even if that attribution results in a deficit noncontrolling interests balance.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions. Management will adjust such estimates when facts and circumstances dictate. Actual results could materially differ from those estimates. The most significant estimates made include the allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed at relative fair value, the ongoing fair value determination of contingent liabilities, the determination if certain entities should be consolidated, the evaluation of potential impairment of indefinite and long-lived assets and goodwill, and the estimated useful lives of real estate assets and intangibles.
Cash and Cash Equivalents
We consider all short-term, highly liquid investments that are readily convertible to cash with a maturity of three months or less at the time of purchase to be cash equivalents.
We may maintain cash and cash equivalents in financial institutions in excess of insured limits, but believe this risk will be mitigated by only investing in or through major financial institutions.
Restricted Cash
Restricted cash consists primarily of impound reserve accounts for property taxes, insurance and capital improvements in connection with the requirements of certain of our loan agreements.
Real Estate Purchase Price Allocation and Treatment of Acquisition Costs
We account for asset acquisitions in accordance with GAAP which requires that we allocate the purchase price of a property to the tangible and intangible assets acquired and the liabilities assumed based on their relative fair values as of the date of acquisition. This guidance requires us to make significant estimates and assumptions, including fair value estimates, which requires the use of significant unobservable inputs as of the acquisition date. We engage third-party valuation specialists to assist in the determination of significant estimates and market-based assumptions used in the valuation models.
The value of the tangible assets, consisting of land and buildings, is determined as if vacant. Substantially all of the leases in place at acquired properties are at market rates, as the majority of the leases are month-to-month contracts. We also consider whether in-place, market leases represent an intangible asset. We recorded approximately $
18
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
June 30, 2022 and 2021, respectively. We do not expect, nor to date have we recorded, intangible assets for the value of customer relationships because we expect we will not have concentrations of significant customers and the average customer turnover will be fairly frequent.
Allocation of purchase price to acquisitions of portfolios of facilities are allocated to the individual facilities based upon an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates which take into account the relative size, age, and location of the individual facility along with current and projected occupancy and rental rate levels or appraised values, if available.
Acquisitions that do not meet the definition of a business, as defined under current GAAP, are accounted for as asset acquisitions. During the six months ended June 30, 2022 and 2021, our property acquisitions, including the SST IV Merger and the SSGT II Merger, did not meet the definition of a business because substantially all of the fair value was concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related intangible assets) or because the acquisitions did not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. As a result, once an acquisition is deemed probable, acquisition related transaction costs are capitalized rather than expensed.
During the three months ended June 30, 2022 and 2021, we expensed approximately $
During the six months ended June 30, 2022 and 2021, we expensed approximately $
Purchase Price Allocation for the Acquisition of a Business
Should the initial accounting for an acquisition that meets the definition of a business be incomplete by the end of a reporting period that falls within the measurement period, we report provisional amounts in our financial statements. During the measurement period, we adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date and we record those adjustments to our consolidated financial statements. We apply those measurement period adjustments in the period in which the provisional amounts are finalized.
Evaluation of Possible Impairment of Real Property Assets
Management monitors events and changes in circumstances that could indicate that the carrying amounts of our real property assets may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of the assets may not be recoverable, we will assess the recoverability of the assets by determining whether the carrying value of the real property assets will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, we will adjust the value of the real property assets to the fair value and recognize an impairment loss. For the three and six months ended June 30, 2022 and 2021,
Goodwill Valuation
We initially recorded goodwill as a result of the Self Administration Transaction (as defined in Note 9 – Related Party Transactions), which occurred in 2019. Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible assets and other intangible assets acquired. Goodwill is allocated to various reporting units, as applicable, and is not amortized. As of each year end, we perform an impairment test for goodwill, and between annual tests, we evaluate the recoverability of goodwill whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be fully recoverable. In our impairment test of goodwill, we perform a quantitative analysis to compare the fair value of each reporting unit to its respective carrying amount. If the carrying amount of goodwill exceeds its fair value, an impairment charge will be recognized. For the three and six months ended June 30, 2022 and 2021,
Trademarks
In connection with the Self Administration Transaction, we recorded the fair value associated with the
19
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Trademarks are based on the value of our brands. Trademarks are valued using the relief from royalty method, which presumes that without ownership of such trademarks, we would have to make a stream of payments to a brand or franchise owner in return for the right to use their name. By virtue of this asset, we avoid any such payments and record the related intangible fair value of our ownership of the brand name.
As of June 30, 2022 and December 31, 2021, $
We qualitatively evaluate whether any triggering events or changes in circumstances have occurred subsequent to our annual impairment test that would indicate an impairment condition may exist. If any change in circumstance or triggering event occurs, and results in a significant impact to our revenue and profitability projections, or any significant assumption in our valuation methods is adversely impacted, the impact could result in a material impairment charge in the future. For the three and six months ended June 30, 2022 and 2021,
Revenue Recognition
Self Storage Operations
Management believes that all of our leases are operating leases. Rental income is recognized in accordance with the terms of the leases, which generally are month-to-month. Revenues from any long-term operating leases are recognized on a straight-line basis over the term of the lease. The excess of rents received over amounts contractually due pursuant to the underlying leases is included in accounts payable and accrued liabilities in our consolidated balance sheets, and contractually due but unpaid rent is included in other assets.
Additionally, we earn ancillary revenue at our self storage facilities in connection with our Tenant Protection Programs and to a lesser extent, through the sale of various moving and packing supplies such as locks and boxes. We recognize such revenue in the Ancillary operating revenue line within our consolidated statements of operations as the services are performed and as the goods are delivered.
Managed REIT Platform
We earn property management and asset management fee revenue, pursuant to the respective property management and advisory agreement contracts, in connection with providing services to the Managed REITs. We have determined under ASC 606 – Revenue from Contracts with Customers (“ASC 606”), that the performance obligation for the property management services and asset management services are satisfied as the services are rendered. While we are compensated for our services on a monthly basis, these services represent a series of distinct daily services in accordance with ASC 606. Such revenue is recorded in the Managed REIT Platform revenue line within our consolidated statements of operations.
The Managed REITs’ advisory agreements also provide for reimbursement to us of our direct and indirect costs of providing administrative and management services to the Managed REITs. These reimbursements include costs incurred in relation to organization and offering services provided to the Managed REITs and the reimbursement of salaries, bonuses, and other expenses related to benefits paid to our employees while performing services for the Managed REITs. The Managed REITs’ property management agreements also provide reimbursement to us for the property manager’s costs of managing the properties. Reimbursable costs include wages and salaries and other expenses that arise in operating, managing and maintaining the Managed REITs’ properties.
Under ASC 606, direct reimbursement of such costs does not represent a separate performance obligation from our obligation to perform property management and asset management services. The reimbursement income is considered variable consideration, and is recognized as the costs are incurred, subject to limitations on the Managed REIT Platform’s ability to incur offering costs or limitations imposed by the advisory agreements. We have elected to separately record such revenue in the Reimbursable costs from Managed REITs line within our consolidated statements of operations.
20
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Additionally, we earn revenue in connection with our Tenant Protection Programs joint ventures with our Managed REITs. We also earn development and construction management revenue from services we provide in connection with the project design, coordination and oversite of development and certain capital improvement projects undertaken by the Managed REITs. We recognize such revenue in the Managed REIT Platform revenue line within our consolidated statements of operations as the services are performed or delivered. See Note 9 – Related Party Transactions, for additional information regarding revenue generated from our Managed REIT Platform.
Allowance for Doubtful Accounts
Tenant accounts receivable is reported net of an allowance for doubtful accounts. Management records this general allowance estimate based upon a review of the current status of accounts receivable. It is reasonably possible that management’s estimate of the allowance will change in the future. As of June 30, 2022 and December 31, 2021, approximately $
Advertising Costs
Advertising costs are expensed in the period in which the cost is incurred and are included in property operating expenses and general and administrative lines within our consolidated statements of operations, depending on the nature of the expense. The Company incurred advertising costs of approximately $
Real Estate Facilities
Depreciation of Real Property Assets
Our management is required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives.
Depreciation of our real property assets is charged to expense on a straight-line basis over the estimated useful lives
as follows:
Description |
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Standard Depreciable Life |
Land |
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|
Buildings |
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Site Improvements |
|
Depreciation of Personal Property Assets
Personal property assets consist primarily of furniture, fixtures and equipment and are depreciated on a straight-line basis over the estimated useful lives, generally ranging from
Intangible Assets
We have allocated a portion of our real estate purchase price to in-place lease intangibles. We amortize in-place lease intangibles on a straight-line basis over the estimated future benefit period. As of June 30, 2022 the gross amount allocated to
21
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
in-place lease intangibles was approximately $
The total estimated future amortization expense of intangible assets related to our self storage properties for the years ending December 31, 2022, 2023, 2024, 2025, 2026 and thereafter is approximately $
In connection with the Self Administration Transaction, we allocated a portion of the consideration to the contracts that we acquired related to the Managed REITs and the customer relationships related to the tenant protection programs (“Tenant Protection Programs”) joint ventures. For these intangibles, we are amortizing such amounts on a straight-line basis over the estimated benefit period of the contracts and customer relationships.
As of June 30, 2022, the gross amount of the intangible assets related to management contracts and one purchase and sale contract, which is not amortized, for a self storage property was approximately $
The total estimated future amortization expense for such intangible assets for the years ending December 31, 2022, 2023, 2024, and thereafter is approximately $
We evaluate whether any triggering events or changes in circumstances have occurred subsequent to our annual impairment test that would indicate an impairment condition may exist. If any change in circumstance or triggering event occurs, and results in a significant impact to our revenue and profitability projections, or any significant assumption in our valuations methods is adversely impacted, the impact could result in a material impairment charge in the future.
Debt Issuance Costs
The net carrying value of costs incurred in connection with obtaining non revolving debt are presented on the balance sheet as a deduction from debt; amounts incurred related to obtaining revolving debt are included in the debt issuance costs line on our consolidated balance sheet (see Note 5 - Debt). Debt issuance costs are amortized using the effective interest method.
As of June 30, 2022 the gross amount of debt issuance costs related to our revolving credit facility totaled approximately $
As of June 30, 2022, the gross amount allocated to debt issuance costs related to non-revolving debt totaled approximately $
22
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Organizational and Offering Costs
Through March 31, 2022, we paid our Former Dealer Manager an ongoing stockholder servicing fee that was payable monthly and
Foreign Currency Translation
For non-U.S. functional currency operations, assets and liabilities are translated to U.S. dollars at current exchange rates. Revenues and expenses are translated at the average rates for the period. All adjustments related to amounts classified as long term net investments are recorded in accumulated other comprehensive income (loss) as a separate component of equity. Transactions denominated in a currency other than the functional currency of the related operation are recorded at rates of exchange in effect at the date of the transaction. Changes in investments not classified as long term are recorded in other income (expense) and represented a loss of approximately $
Redeemable Common Stock
We adopted a share redemption program (“SRP”) that enables stockholders to sell their shares to us in limited circumstances.
We record amounts that are redeemable under the SRP as redeemable common stock in the accompanying consolidated balance sheets since the shares are redeemable at the option of the holder and therefore their redemption is outside our control. The maximum amount redeemable under our SRP is limited to the number of shares we can repurchase with the amount of the net proceeds from the sale of shares under the distribution reinvestment plan. However, accounting guidance states that determinable amounts that can become redeemable should be presented as redeemable when such amount is known. Therefore, the net proceeds from the distribution reinvestment plan are considered to be temporary equity and are presented as redeemable common stock in the accompanying consolidated balance sheets.
In addition, current accounting guidance requires, among other things, that financial instruments that represent a mandatory obligation of us to repurchase shares be classified as liabilities and reported at settlement value. When we determine we have a mandatory obligation to repurchase shares under the SRP, we reclassify such obligations from temporary equity to a liability based upon their respective settlement values.
On August 26, 2019, our board of directors approved a partial suspension of our SRP, effective as of September 27, 2019, so that common shares were redeemable at the option of the holder only in connection with (i) death or disability of a stockholder, (ii) confinement to a long-term care facility, or (iii) other exigent circumstances. In order to preserve cash in light of the uncertainty relating to COVID-19 and its potential impact on our overall financial results, on March 30, 2020, our board of directors approved the complete suspension of our SRP, effective on April 29, 2020. Due to the complete suspension, we were unable to honor redemption requests made during the quarter ended March 31, 2020 or the quarter ended June 30, 2020.
On August 20, 2020, our board of directors determined that it would be in our best interests to partially reinstate the SRP, effective as of September 23, 2020.
23
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
On March 7, 2022, our board of directors approved the complete suspension of the Company's SRP. See Note 11 – Commitments and Contingencies for additional information.
For the year ended December 31, 2021, we received redemption requests totaling approximately $
For the six months ended June 30, 2022, we received redemption requests totaling approximately $
Accounting for Equity Awards
We issue equity based awards generally in two forms: (1) restricted stock awards consisting of shares of our common stock and (2) long-term incentive plan units of our Operating Partnership (“LTIP Units”), both of which may be issued subject to either time based vesting criteria or performance based vesting criteria restrictions. For time based awards granted which contain a graded vesting schedule, compensation cost is recognized as an expense on a straight-line basis over the requisite service period as if the award was, in substance, a single award. For performance based awards, compensation cost is recognized over the requisite service period if and when we determine the performance condition is probable of being achieved. We record the cost of such equity based awards based on the grant date fair value, and have elected to record forfeitures as they occur.
Employee Benefit Plan
The Company terminated its relationship with a professional employer organization and began maintaining its own retirement savings plan in May of 2021 under Section 401(k) of the Internal Revenue Code under which eligible employees can contribute up to
For the three months ended June 30, 2022 and 2021, and for the six months ended June 30, 2022 and 2021, the Company made matching contributions to such plan of approximately $
Fair Value Measurements
Under GAAP, we are required to measure certain financial instruments at fair value on a recurring basis. In addition, we are required to measure other financial instruments and balances at fair value on a non-recurring basis. Fair value is defined by the accounting standard for fair value measurements and disclosures as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels. The following summarizes the three levels of inputs and hierarchy of fair value we use when measuring fair value:
24
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the fair value measurement will fall within the lowest level that is significant to the fair value measurement in its entirety.
The accounting guidance for fair value measurements and disclosures provides a framework for measuring fair value and establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In determining fair value, we will utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment will be necessary to interpret Level 2 and 3 inputs in determining fair value of our financial and non-financial assets and liabilities. Accordingly, there can be no assurance that the fair values we will present will be indicative of amounts that may ultimately be realized upon sale or other disposition of these assets.
Financial and non-financial assets and liabilities measured at fair value on a non-recurring basis in our consolidated financial statements consist of real estate and related liabilities assumed related to our acquisitions along with the assets and liabilities described in Note 3 – Real Estate Facilities. The fair values of these assets and liabilities were determined as of the acquisition dates using widely accepted valuation techniques, including (i) discounted cash flow analysis, which considers, among other things, leasing assumptions, growth rates, discount rates and terminal capitalization rates, (ii) income capitalization approach, which considers prevailing market capitalization rates, and (iii) comparable sales activity. Additionally, certain such assets and liabilities are required to be fair valued periodically or valued pursuant to ongoing fair value requirements and impairment analyses and have been valued subsequently utilizing the same techniques noted above. In general, we consider multiple valuation techniques when measuring fair values. However, in certain circumstances, a single valuation technique may be appropriate. All of the fair values of the assets and liabilities as of the acquisition dates were derived using Level 3 inputs.
The carrying amounts of cash and cash equivalents, restricted cash, other assets, variable-rate debt, accounts payable and accrued liabilities, distributions payable and amounts due to affiliates approximate fair value.
The table below summarizes our fixed rate notes payable at June 30, 2022 and December 31, 2021. The estimated fair value of financial instruments is subjective in nature and is dependent on a number of important assumptions, including discount rates and relevant comparable market information associated with each financial instrument. The fair value of the fixed rate notes payable was estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented below are not necessarily indicative of the amounts we would realize in a current market exchange.
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June 30, 2022 |
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December 31, 2021 |
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Fair Value |
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Carrying Value |
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Fair Value |
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Carrying Value |
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Fixed Rate Secured Debt |
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$ |
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$ |
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$ |
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$ |
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During the six months ended June 30, 2022 and 2021, we held interest rate swaps, interest rate caps, and net investment hedges to hedge our interest rate and foreign currency exposure (See Notes 5 – Debt and 7 – Derivative Instruments). The valuations of these instruments were determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative. The analyses reflect the contractual terms of the derivatives, including the period to maturity, and used observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities. The fair value of the interest rate swaps were determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash payments. Our fair values of our net investment hedges are based on the change in the spot rate at the end of the period as compared with the strike price at inception.
To comply with GAAP, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of derivative contracts for the effect of non-performance risk, we consider the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
25
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Although we had determined that the majority of the inputs used to value our derivatives were within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilized Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counterparties. However, through June 30, 2022, we had assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of our derivatives. As a result, we determined that our derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy.
Derivative Instruments and Hedging Activities
We record all derivatives on our balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. We may enter into derivative contracts that are intended to economically hedge certain of our risks, even though hedge accounting does not apply or we elect not to apply hedge accounting.
For derivatives designated as net investment hedges, the effective portion of changes in the fair value of the derivatives are reported in accumulated other comprehensive income (loss). The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. Amounts are reclassified out of other comprehensive (loss) income into earnings (loss) when the hedged net investment is either sold or substantially liquidated.
Income Taxes
We made an election to be taxed as a Real Estate Investment Trust (“REIT”), under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ended December 31, 2014. To qualify as a REIT, we must continue to meet certain organizational and operational requirements, including a requirement to distribute at least
Even if we continue to qualify for taxation as a REIT, we may be subject to certain state, local, and foreign taxes on our income and property, and federal income and excise taxes on our undistributed income.
We filed an election to treat SmartStop TRS as a taxable REIT subsidiary effective January 1, 2014. We have other TRS Entities for which we have made similar elections. In general, our TRS Entities perform additional services for our customers and provide the advisory and property management services to the Managed REITs and otherwise generally engages in any real estate or non-real estate related business. The TRS Entities are subject to corporate federal and state income tax.
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. As of June 30, 2022, the net deferred tax liability of approximately $
26
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
properties. The $
As of December 31, 2021, the net deferred tax liability of approximately $
The income tax impact for the three months ended June 30, 2022 and 2021 includes a deferred tax benefit of approximately $
The income tax impact for the six months ended June 30, 2022 and 2021 includes a deferred tax benefit of approximately $
At June 30, 2022 and December 31, 2021, there were unrecognized tax benefits of approximately $
As of June 30, 2022 and December 31, 2021, the Company had
Concentration
No single self storage customer represents a significant concentration of our revenues. For the month of June 2022, approximately
Segment Reporting
Our business is composed of
Convertible Preferred Stock
We classify our Series A Convertible Preferred Stock (as defined in Note 6 – Preferred Equity) on our consolidated balance sheets using the guidance in ASC 480‑10‑S99. Our Series A Convertible Preferred Stock can be redeemed by us on or after the fifth anniversary of its issuance, or if certain events occur, such as the listing of our common stock on a national securities exchange, a change in control, or if a redemption would be required to maintain our REIT status. Additionally, if we do not maintain our REIT status the holder can require redemption. As the shares are contingently redeemable, and under certain circumstances not solely within our control, we have classified our Series A Convertible Preferred Stock as temporary equity.
We have analyzed whether the conversion features in our Series A Convertible Preferred Stock should be bifurcated under the guidance in ASC 815‑10 and have determined that bifurcation is not necessary.
Per Share Data
Basic earnings per share attributable to our common stockholders for all periods presented are computed by dividing net income (loss) attributable to our common stockholders by the weighted average number of common shares outstanding during the period, excluding unvested restricted stock.
27
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Diluted earnings per share is computed by including the dilutive effect of the conversion of all potential common stock equivalents (which includes unvested restricted stock, Class A and Class A-1 OP Units, and LTIP Units) and accordingly, adjusting net income to add back any changes in earnings that reduce earnings per common share in the period associated with the convertible security.
The computation of earnings per common share is as follows for the periods presented:
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For the Three Months Ended June 30, |
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For the Six Months Ended June 30, |
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2021 |
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Net income (loss) |
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Net (income) loss attributable to noncontrolling |
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Net income (loss) attributable to SmartStop |
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Less: Distributions to preferred stockholders |
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( |
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( |
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( |
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Less: Distributions to participating securities |
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( |
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( |
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( |
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( |
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Net income (loss) attributable to common |
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( |
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Net income (loss) attributable to common |
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$ |
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$ |
( |
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$ |
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$ |
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Weighted average common shares |
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Average number of common shares |
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|
|
|
|
|
|
|
|
|
|
||||
Unvested LTIP Units |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Unvested Restricted Stock Awards |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Average number of common shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Diluted |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
The following table presents the weighted average Series A Convertible Preferred Stock, Class A and Class A-1 OP Units, unvested LTIP Units, and unvested restricted stock awards, that were excluded from the computation of diluted earnings per share above as their effect would have been antidilutive for the respective periods, and was calculated using the two-class, treasury stock or if-converted method, as applicable:
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
|
Equivalent Shares |
|
|
Equivalent Shares |
|
|
Equivalent Shares |
|
|
Equivalent Shares |
|
||||
Series A Convertible Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Class A and Class A-1 OP Units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unvested LTIP Units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unvested restricted stock awards |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
28
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Recently Adopted Accounting Guidance
In August 2020, the FASB issued ASU 2020-06, "Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)." The new guidance simplifies the accounting for convertible instruments and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity. Additionally, this standard amends the related earnings per share guidance. The guidance in ASU 2020-06 became effective for fiscal years beginning after December 15, 2021. Our adoption of this standard did not have a material impact on the consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)." ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. We elected to apply expedients related to contract modifications, changes in critical terms, and our assessments of effectiveness for designated hedged risks as qualifying changes are made to applicable debt and derivative contracts. Application of these expedients on such qualifying changes maintains the consistency of our presentation of debt and derivative contracts.
Note 3. Real Estate Facilities
Real estate facilities |
|
|
|
|
Balance at December 31, 2021 |
|
$ |
|
|
Facilities acquired through merger with SSGT II |
|
|
|
|
Other facility acquisitions |
|
|
|
|
Impact of foreign exchange rate changes |
|
|
( |
) |
Improvements and additions |
|
|
|
|
Balance at June 30, 2022 |
|
$ |
|
|
Accumulated depreciation |
|
|
|
|
Balance at December 31, 2021 |
|
$ |
( |
) |
Depreciation expense |
|
|
( |
) |
Impact of foreign exchange rate changes |
|
|
|
|
Balance at June 30, 2022 |
|
$ |
( |
) |
29
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
SSGT II Merger
On June 1, 2022, (the "SSGT II Merger Date"), each share of SSGT II’s common stock, $
As a result of the SSGT II Merger, we acquired all of the real estate owned by SSGT II, which as of the SSGT II Merger date consisted of (i)
The following table reconciles the total consideration transferred in the SSGT II Merger:
Fair value of consideration: |
|
|
|
|
Common stock issued |
|
$ |
|
|
Cash(1) |
|
|
|
|
Preexisting investments in and advances to SSGT II(2) |
|
|
|
|
Total consideration |
|
$ |
|
|
(1)
(2)
We issued approximately
These fair value measurements are based on significant inputs not observable in the market and thus represent a Level 3 measurement as discussed in Note 2 – Summary of Significant Accounting Policies. The key assumptions used in estimating the fair value of our common stock included a marketability discount of
30
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Merger:
Assets Acquired: |
|
|
|
|
Land |
|
$ |
|
|
Buildings |
|
|
|
|
Site improvements |
|
|
|
|
Construction in process |
|
|
|
|
Intangible assets (1) |
|
|
|
|
Investments in real estate joint ventures |
|
|
|
|
Cash and cash equivalents, and restricted cash |
|
|
|
|
Other assets |
|
|
|
|
Total assets acquired |
|
$ |
|
|
Liabilities assumed: |
|
|
|
|
Total liabilities assumed (2) |
|
$ |
|
|
Total net assets acquired |
|
$ |
|
|
(1)
(2)
SST IV Merger
On November 10, 2020, we, SST IV Merger Sub, LLC, a Maryland limited liability company and a wholly-owned subsidiary of ours (“SST IV Merger Sub”), and SST IV entered into an agreement and plan of merger (the “SST IV Merger Agreement”). Pursuant to the terms and conditions set forth in the SST IV Merger Agreement, on March 17, 2021 (the “SST IV Merger Date”), we acquired SST IV by way of a merger of SST IV with and into SST IV Merger Sub, with SST IV Merger Sub being the surviving entity.
On the SST IV Merger Date, each share of SST IV common stock outstanding immediately prior to the SST IV Merger Date (other than shares owned by SST IV and its subsidiaries or us and our subsidiaries) was automatically converted into the right to receive 2.1875 Class A Shares (the “SST IV Merger Consideration”). Immediately prior to the SST IV Merger, all shares of SST IV common stock that were subject to vesting and other restrictions also became fully vested and converted into the right to receive the SST IV Merger Consideration.
As a result of the SST IV Merger, we acquired all of the real estate owned by SST IV, consisting of 24 wholly-owned self storage facilities located across nine states and six self storage real estate joint ventures located in the Greater Toronto Area of Ontario, Canada. As of the SST IV Merger Date, the real estate joint ventures consisted of three operating properties and three properties in various stages of development.
Fair value of consideration: |
|
|
|
|
|
Common stock issued |
|
$ |
|
|
|
Cash(1) |
|
|
|
|
|
Other |
|
|
|
|
|
Total consideration |
|
$ |
|
|
|
(1)
31
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
We issued approximately
These fair value measurements are based on significant inputs not observable in the market and thus represent a Level 3 measurement as discussed in Note 2 – Summary of Significant Accounting Policies. The key assumptions used in estimating the fair value of our common stock included a marketability discount of
Merger:
Assets Acquired: |
|
|
|
|
Land |
|
$ |
|
|
Buildings |
|
|
|
|
Site improvements |
|
|
|
|
Construction in process |
|
|
|
|
Intangible assets |
|
|
|
|
Investments in real estate joint ventures |
|
|
|
|
Cash and cash equivalents, and restricted cash |
|
|
|
|
Other assets |
|
|
|
|
Total assets acquired |
|
$ |
|
|
Liabilities assumed: |
|
|
|
|
Debt(1) |
|
$ |
|
|
Accounts payable and other liabilities |
|
|
|
|
Total liabilities assumed |
|
$ |
|
|
Total net assets acquired |
|
$ |
|
|
Self Storage Facility Acquisitions
On February 8, 2022, we purchased a self storage facility located in Algonquin, Illinois (the "Algonquin Property"). The purchase price for the Algonquin Property was approximately $
On May 10, 2022, we purchased a self storage facility located in the city of Sacramento, California (the “Sacramento II Property”). The purchase price for the Sacramento II Property was approximately $
On May 17, 2022, we purchased a self storage facility located in the city of St. Johns, Florida (the “St. Johns Property”). The purchase price for the St. Johns Property was approximately $
32
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
On June 28, 2022, we purchased a self storage facility located in the city of Aurora, Colorado (the “Aurora Property”). The purchase price for the Aurora Property was approximately $
The following table summarizes the purchase price allocation for the real estate related assets acquired during the six months ended June 30, 2022:
Acquisition |
|
Acquisition |
|
Real Estate |
|
|
Intangibles |
|
|
|
Total(1) |
|
|
2022 |
|
|
2022 |
|
|
|||||
Algonquin, IL |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||
Sacramento II, CA |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||
St Johns, FL |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||
SSGT II (4) |
|
|
$ |
|
|
$ |
|
(5) |
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||
Aurora III, CO |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||
33
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Potential Acquisitions
Through the SSGT II Merger we acquired the rights to a purchase and sale agreement with an unaffiliated third party for a self storage facility under development located in the city of San Gabriel, California (the “San Gabriel Property”). The purchase price for the San Gabriel Property is approximately $
On July 14, 2022, one of our subsidiaries executed a purchase and sale agreement with an unaffiliated third party for the acquisition of an existing operating self storage facility located in the city of Oxford, Florida (the “Oxford Property”). The purchase price for the Oxford Property is $
On August 5, 2022, one of our subsidiaries executed a purchase and sale agreement with an unaffiliated third party for the acquisition of an existing operating self storage facility located in the city of Burlington, Ontario (the “Burlington III Property”). The purchase price for the Burlington III Property is $
We may assign the above purchase and sale agreements in part or in full to one of our Managed REITs.
Note 4. Investments in Unconsolidated Real Estate Ventures
As a result of the SST IV Merger, we acquired
We account for these investments using the equity method of accounting and they are stated at cost and adjusted for our share of net earnings or losses and reduced by distributions. Equity in earnings (loss) will generally be recognized based on our ownership interest in the earnings (loss) of each of the unconsolidated investments. For the three months ended June 30, 2022 and 2021 respectively, we recorded net aggregate earnings (loss) of approximately $(
On May 25, 2022, we, as
The following table summarizes our
34
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
JV Property |
|
Date Real Estate Venture Became Operational |
|
Carrying Value |
|
Carrying Value |
|
||
Dupont (1) |
|
|
$ |
|
$ |
|
|||
East York (2) |
|
|
|
|
|
|
|||
Brampton (2) |
|
|
|
|
|
|
|||
Vaughan (2) |
|
|
|
|
|
|
|||
Oshawa (2) |
|
|
|
|
|
|
|||
Scarborough (2) |
|
|
|
|
|
|
|||
Aurora (1) |
|
|
|
|
|
|
|||
Markham (1) |
|
|
|
|
|
|
|||
Kingspoint (2) |
|
|
|
|
|
|
|||
Regent (3) |
|
|
|
|
|
|
|||
|
|
|
|
$ |
|
$ |
|
||
Financing Agreement
We, through our acquisition of the Oshawa, East York, Brampton, Vaughan, and Scarborough joint venture partnerships, also became party to a master mortgage commitment agreement (the “MMCA I”) with SmartCentres Storage Finance LP (the “SmartCentres Lender”) (collectively, the “SmartCentres Loan I”). The SmartCentres Lender is an affiliate of SmartCentres.
On August 18, 2021, the Kingspoint property was added to the MMCA, increasing the available capacity. The SmartCentres Loan I includes an accordion feature such that borrowings pursuant thereto may be increased up to approximately CAD $
On June 1, 2022, in connection with the SSGT II Merger, we assumed another loan with the SmartCentres Lender. SSGT II had previously entered into an arrangement on April 30, 2021, which was subsequently modified on October 22, 2021 (the "MMCA II"), with the SmartCentres Lender in the amount of up to approximately $
As of June 30, 2022 and December 31, 2021, approximately CAD $
The SmartCentres Financings are secured by first mortgages on each of the JV Properties, excluding the Regent Property. Interest on the SmartCentres Financings is a variable annual rate equal to the aggregate of: (i) the BA Equivalent Rate, plus: (ii) a margin based on the External Credit Rating, plus (iii) a margin under the Senior Credit Facility, each as defined and described further in the MMCA I and MMCA II. As of June 30, 2022, the total interest rate was approximately
The SmartCentres Financings, as amended, have a maturity date of
35
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
The borrowings advanced pursuant to the SmartCentres Financings may be prepaid without penalty, subject to certain conditions set forth in the MMCA I and MMCA II.
The SmartCentres Financings contain customary affirmative and negative covenants, agreements, representations, warranties and borrowing conditions (including a loan to value ratio of no greater than
Note 5. Debt
The Company’s debt is summarized as follows:
Loan |
|
June 30, |
|
|
December 31, |
|
|
Interest |
|
|
Maturity |
|||
KeyBank CMBS Loan(1) |
|
$ |
|
|
$ |
|
|
|
% |
|
||||
KeyBank Florida CMBS Loan(2) |
|
|
|
|
|
|
|
|
% |
|
||||
Midland North Carolina CMBS Loan(3) |
|
|
|
|
|
|
|
|
|
|
|
|||
CMBS Loan(4) |
|
|
|
|
|
|
|
|
% |
|
||||
SST IV CMBS Loan(6) |
|
|
|
|
|
|
|
|
% |
|
||||
SST IV TCF Loan(6)(7) |
|
|
|
|
|
|
|
|
|
|
|
|||
Credit Facility Term Loan - USD (6) |
|
|
|
|
|
|
|
|
% |
|
||||
Credit Facility Revolver - USD (6) |
|
|
|
|
|
|
|
|
% |
|
||||
2032 Private Placement Notes (6) |
|
|
|
|
|
- |
|
|
|
% |
|
|||
Oakville III BMO Loan (5)(6) |
|
|
|
|
|
|
|
|
% |
|
||||
Ladera Office Loan |
|
|
|
|
|
|
|
|
% |
|
||||
Premium (discount) on secured debt, net |
|
|
( |
) |
|
|
|
|
|
|
|
|
||
Debt issuance costs, net |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
Total debt |
|
$ |
|
|
$ |
|
|
|
|
|
|
|||
36
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
The weighted average interest rate on our consolidated debt as of June 30, 2022 was approximately
2032 Private Placement Notes
On April 19, 2022, we as guarantor, and our Operating Partnership as issuer, entered into a Note Purchase Agreement which provides for the private placement of $
Interest on the Notes is subject to a potential prospective 75 basis points increase, if, as of March 31, 2023, the ratio of total indebtedness to EBITDA (as defined in the Note Purchase Agreement) (the “Total Leverage Ratio”) of the Company and its subsidiaries, on a consolidated basis, is greater than
We are permitted to prepay at any time all, or from time to time any part of, the Notes, in amounts not less than
The Note Purchase Agreement contains certain customary representations and warranties, affirmative, negative and financial covenants, and events of default that are substantially similar to our existing Credit Facility. The 2032 Private Placement Notes have been issued on a pari passu basis with the Credit Facility, and as such, the Company and certain of its subsidiaries (the "Subsidiary Guarantors") fully and unconditionally guarantee the Operating Partnership's obligations under the 2032 Private Placement Notes. The 2032 Private Placement Notes are initially secured by a pledge of equity interests in the Subsidiary Guarantors on similar terms as the Credit Facility.
The proceeds from the 2032 Private Placement Notes were used primarily to pay off existing debt and to pay off certain existing indebtedness of SSGT II in connection with the SSGT II merger.
Credit Facility
On March 17, 2021, we, through our Operating Partnership (the “Borrower”), entered into a credit facility with KeyBank, National Association, as administrative agent, KeyBanc Capital Markets, LLC, Wells Fargo Securities, Citibank, N.A., and BMO Capital Markets, as joint book runners and joint lead arrangers, and certain other lenders party thereto (the “Credit Facility”).
The initial aggregate amount of the Credit Facility was $
37
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
of (a) up to $
The maturity date of the Credit Facility Revolver is
On October 7, 2021, the Borrower and lenders who were party to the Credit Facility amended the Credit Facility to increase the commitment on the Credit Facility Revolver by $
On April 19, 2022, we amended the Credit Facility (the “Credit Facility Amendment”). The primary purpose of the Credit Facility Amendment was to: (i) allow for the issuance of the 2032 Private Placement Notes, (ii) make conforming changes between the Note Purchase Agreement and the Credit Facility, and (iii) modify the Credit Facility to reflect a transition from LIBOR to SOFR for floating rate borrowings. As of June 30, 2022, advances under the Credit Facility Term Loan bear interest at
The Credit Facility is fully recourse, jointly and severally, to us, our Operating Partnership, and certain of our subsidiaries (the “Subsidiary Guarantors”). In connection with this, we, our Operating Partnership, and our Subsidiary Guarantors executed guarantees in favor of the lenders. The Credit Facility is also cross-defaulted to (i) any recourse debt of ours, our Operating Partnership, or the Subsidiary Guarantors and (ii) any non-recourse debt of ours, our Operating Partnership, or the Subsidiary Guarantors of at least $
The Credit Facility is initially secured by a pledge of equity interests in the Subsidiary Guarantors. However, upon the achievement of certain security interest termination conditions, the pledges shall be released and the Credit Facility shall become unsecured.
The Credit Facility contains certain customary representations and warranties, affirmative, negative and financial covenants, borrowing conditions, and events of default. In particular, the financial covenants imposed include: a maximum leverage ratio, a minimum fixed charge coverage ratio, a minimum tangible net worth, certain limits on both secured debt and secured recourse debt, certain payout ratios of dividends paid to core funds from operations, limits on unhedged variable rate debt, and minimum liquidity. If an event of default occurs and continues, the Borrower is subject to certain actions by the administrative agent, including, without limitation, the acceleration of repayment of all amounts outstanding under the Credit Facility.
As of June 30, 2022, the borrowing base was expanded to include the two properties acquired in May 2022, the
As of June 30, 2022, the Borrower had borrowed approximately $
38
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
SST IV CMBS Loan
On March 17, 2021, in connection with the SST IV Merger, we assumed a $
The amounts outstanding under the SST IV CMBS Loan bear interest at an annual fixed rate equal to
The loan documents for the SST IV CMBS Loan contain: customary affirmative and negative covenants; agreements; representations; warranties and borrowing conditions; reserve requirements and events of default all as set forth in such loan documents. In addition, and pursuant to the terms of the limited recourse guaranty in favor of KeyBank, we serve as a non-recourse guarantor with respect to the SST IV CMBS Loan.
SST IV TCF Loan
On March 17, 2021, in connection with the SST IV Merger, we assumed a term loan with TCF National Bank, a national banking association (“TCF”), as lead arranger and administrative agent for up to $
On April 28, 2022, we paid in full the entire outstanding principal balance on the SST IV TCF Loan.
Oakville III BMO Loan
On April 15, 2021, we purchased the Oakville III Property. We partially financed the Oakville III property acquisition with a loan from Bank of Montreal (the “Oakville III BMO Loan”), which is secured by a first lien on the Oakville III property. The loan is denominated in Canadian dollars and the proceeds from the loan were approximately CAD $
The following table presents the future principal payment requirements on outstanding debt as of June 30, 2022:
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 and thereafter |
|
|
|
|
Total payments |
|
|
|
|
Discount on secured debt |
|
|
( |
) |
Debt issuance costs, net |
|
|
( |
) |
Total |
|
$ |
|
39
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Note 6. Preferred Equity
Series A Convertible Preferred Stock
On October 29, 2019 (the “Commitment Date”), we entered into a preferred stock purchase agreement (the “Purchase Agreement”) with Extra Space Storage LP (the “Investor”), a subsidiary of Extra Space Storage Inc. (NYSE: EXR), pursuant to which the Investor committed to purchase up to $
The shares of Series A Convertible Preferred Stock rank senior to all other shares of our capital stock, including our common stock, with respect to rights to receive dividends and to participate in distributions or payments upon any voluntary or involuntary liquidation, dissolution or winding up of the Company. Dividends payable on each share of Series A Convertible Preferred Stock will initially be equal to a rate of
The holders of Series A Convertible Preferred Stock are not entitled to vote on any matter submitted to a vote of our stockholders, except that in the event that the dividend for the Series A Convertible Preferred Stock has not been paid for at least four quarters (whether or not consecutive), the holders of Series A Convertible Preferred Stock have the right to vote together with our stockholders on any matter submitted to a vote of our stockholders, upon which the holders of the Series A
40
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Convertible Preferred Stock and holders of common stock shall vote together as a single class. The number of votes applicable to a share of Series A Convertible Preferred Stock will be equal to the number of shares of common stock a share of Series A Convertible Preferred Stock could have been converted into as of the record date set for purposes of such stockholder vote.
As of June 30, 2022, there were
Note 7. Derivative Instruments
Interest Rate Derivatives
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we use interest rate swaps and caps as part of our interest rate risk management strategy. The effective portion of the change in the fair value of the derivative that qualifies as a cash flow hedge is recorded in accumulated other comprehensive income (loss) (“AOCI”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt.
We do not use interest rate derivatives for trading or speculative purposes. Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements and other identified risks but we have elected not to apply hedge accounting. Changes in the fair value of interest rate derivatives not designated in hedging relationships are recorded in other income (expense) within our consolidated statements of operations.
41
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Foreign Currency Hedges
Our objectives in using foreign currency derivatives are to add stability to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar and to manage our exposure to exchange rate movements. To accomplish this objective, we use foreign currency forwards and foreign currency options as part of our exchange rate risk management strategy. A foreign currency forward contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future. By entering into the forward contract and holding it to maturity, we are locked into a future currency exchange rate in an amount equal to and for the term of the forward contract. A foreign currency option contract is a commitment by the seller of the option to deliver, solely at the option of the buyer, a certain amount of currency at a certain price on a specific date. For derivatives designated as net investment hedges, the changes in the fair value of the derivatives are reported in accumulated other comprehensive income. Amounts are reclassified out of accumulated other comprehensive income (loss) into earnings when the hedged net investment is either sold or substantially liquidated.
The following table summarizes the terms of our derivative financial instruments as of June 30, 2022:
|
|
Notional |
|
|
Strike |
|
Effective Date |
|
Maturity Date |
|
Interest Rate Derivative: |
|
|
|
|
|
|
|
|
|
|
SOFR Cap |
|
$ |
|
|
|
|
||||
SOFR Cap |
|
|
|
|
|
|
||||
Foreign Currency Forward: |
|
|
|
|
|
|
|
|
|
|
Denominated in CAD |
|
$ |
|
(1) |
|
|
||||
Denominated in CAD |
|
|
|
(1) |
|
|
||||
On February 10, 2021, we rolled a previously existing CAD $
A portion of our gain (loss) from our settled and unsettled foreign currency hedges is recorded net in foreign currency hedge contract gain (loss) in our consolidated statements of comprehensive income (loss), the other portion, a gain of approximately $
The following table summarizes the terms of our derivative financial instruments as of December 31, 2021:
|
|
Notional |
|
|
Strike |
|
Effective Date |
|
Maturity Date |
|
Interest Rate Swap: |
|
|
|
|
|
|
|
|
|
|
LIBOR Swap |
|
$ |
|
|
|
|
||||
Foreign Currency Forward: |
|
|
|
|
|
|
|
|
|
|
Denominated in CAD |
|
$ |
|
(1) |
|
|
||||
Denominated in CAD |
|
|
|
(1) |
|
|
||||
42
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
The following table presents a gross presentation of the fair value of our derivative financial instruments as well as their classification on our consolidated balance sheets as of June 30, 2022 and December 31, 2021:
|
|
Asset/Liability Derivatives |
|
|||||
|
|
Fair Value |
|
|||||
Balance Sheet Location |
|
June 30, |
|
|
December 31, |
|
||
Interest Rate Derivatives |
|
|
|
|
|
|
||
Accounts payable and accrued liabilities |
|
$ |
|
|
$ |
|
||
Other assets |
|
|
|
|
|
|
||
Foreign Currency Hedges |
|
|
|
|
|
|
||
Other assets |
|
$ |
|
|
$ |
|
||
Note 8. Segment Disclosures
We operate in
Management evaluates performance based upon property net operating income (“NOI”). For our self storage operations, NOI is defined as leasing and related revenues, less property level operating expenses. NOI for the Company’s Managed REIT Platform business represents Managed REIT Platform revenues less Managed REIT Platform expenses.
43
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
The following tables summarize information for the reportable segments for the periods presented:
|
|
Three Months Ended June 30, 2022 |
|
|||||||||||||
|
|
|
|
|
Managed REIT |
|
|
Corporate |
|
|
|
|
||||
|
|
Self Storage |
|
|
Platform |
|
|
and Other |
|
|
Total |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Self storage rental revenue |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Ancillary operating revenue |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Managed REIT Platform revenue |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reimbursable costs from Managed REITs |
|
|
— |
|
|
|
1,204,919 |
|
|
|
— |
|
|
|
1,204,919 |
|
Total revenues |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property operating expenses |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Managed REIT Platform expense |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reimbursable costs from Managed REITs |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
General and administrative |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Intangible amortization expense |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Acquisition expenses |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Contingent earnout expense |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Write-off of equity interest and preexisting |
|
|
— |
|
|
|
2,049,682 |
|
|
|
— |
|
|
|
2,049,682 |
|
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on equity interests upon acquisition |
|
|
— |
|
|
|
16,101,237 |
|
|
|
— |
|
|
|
16,101,237 |
|
Income (loss) from operations |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net loss on extinguishment of debt |
|
|
(2,393,475 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,393,475 |
) |
Other, net |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Net income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Six Months Ended June 30, 2022 |
|
|||||||||||||
|
|
|
|
|
Managed REIT |
|
|
Corporate |
|
|
|
|
||||
|
|
Self Storage |
|
|
Platform |
|
|
and Other |
|
|
Total |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Self storage rental revenue |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Ancillary operating revenue |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Managed REIT Platform revenue |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reimbursable costs from Managed REITs |
|
|
— |
|
|
|
2,348,492 |
|
|
|
— |
|
|
|
2,348,492 |
|
Total revenues |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property operating expenses |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Managed REIT Platform expense |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reimbursable costs from Managed REITs |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
General and administrative |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Intangible amortization expense |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Acquisition expenses |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Contingent earnout expense |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Write-off of equity interest and preexisting |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on equity interests upon acquisition |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Income (loss) from operations |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net loss on extinguishment of debt |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Other, net |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
44
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
|
|
Three Months Ended June 30, 2021 |
|
|||||||||||||
|
|
|
|
|
Managed REIT |
|
|
Corporate |
|
|
|
|
||||
|
|
Self Storage |
|
|
Platform |
|
|
and Other |
|
|
Total |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Self storage rental revenue |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Ancillary operating revenue |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Managed REIT Platform revenue |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reimbursable costs from Managed REITs |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total revenues |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property operating expenses |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Managed REIT Platform expense |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reimbursable costs from Managed REITs |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
General and administrative |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Intangible amortization expense |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Acquisition expenses |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Contingent earnout adjustment |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on sale of real estate |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Income (loss) from operations |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Other, net |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Net income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Six Months Ended June 30, 2021 |
|
|||||||||||||
|
|
|
|
|
Managed REIT |
|
|
Corporate |
|
|
|
|
||||
|
|
Self Storage |
|
|
Platform |
|
|
and Other |
|
|
Total |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Self storage rental revenue |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Ancillary operating revenue |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Managed REIT Platform revenue |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reimbursable costs from Managed REITs |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total revenues |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property operating expenses |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Managed REIT Platform expense |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reimbursable costs from Managed REITs |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
General and administrative |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Intangible amortization expense |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Acquisition expenses |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Contingent earnout adjustment |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Write-off of equity interest and preexisting |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on sale of real estate |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Income (loss) from operations |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net loss on extinguishment of debt |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Other, net |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
The following table summarizes our total assets by segment:
Segments |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Self Storage(1) |
|
$ |
|
|
$ |
|
||
Managed REIT Platform(2) |
|
|
|
|
|
|
||
Corporate and Other |
|
|
|
|
|
|
||
Total assets(3) |
|
$ |
|
|
$ |
|
||
45
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Note 9. Related Party Transactions
On June 28, 2019, we, our Operating Partnership and SmartStop TRS entered into a series of transactions, agreements, and amendments to our existing agreements and arrangements with our then-sponsor, SAM, and SmartStop OP Holdings, LLC (“SS OP Holdings”), a subsidiary of SAM, pursuant to which, effective June 28, 2019, we acquired the self storage advisory, asset management and property management businesses and certain joint venture interests of SAM, along with certain other assets of SAM (collectively, the "Self Administration Transaction"). In relation to the Self Administration Transaction, SS OP Holdings received
As a result of the Self Administration Transaction, SAM is no longer our sponsor, and we became self-managed and succeeded to the advisory, asset management and property management businesses and certain joint ventures previously in place for us, SST IV (until the SST IV Merger Date), and SSGT II (until the SSGT II Merger Date), and we acquired the internal capability to originate, structure and manage additional future self storage investment products which would be sponsored by SmartStop REIT Advisors, LLC (“SRA”), our indirect subsidiary. The Former Dealer Manager Agreement and the transfer agent agreement described below were not impacted by the Self Administration Transaction.
Our Chief Executive Officer, who is also the Chairman of our board of directors, holds ownership interests in and is an officer of SAM, our Former Dealer Manager, and other affiliated entities. Previously, certain of our executive officers and another member of our board held ownership interests in and/or were officers of SAM, our Former Dealer Manager, and other affiliated entities. Accordingly, any agreements or transactions we have entered into with such entities may present a conflict of interest. However, none of SAM and its affiliates or our directors or executive officers receive any compensation, fees or reimbursements from our Managed REITs, other than with respect to fees and reimbursements in accordance with the Administrative Services Agreement and the transfer agent agreement, or as otherwise described in this section.
Former Dealer Manager Agreement
In connection with our Primary Offering, our Former Dealer Manager received a sales commission of up to
Affiliated Former Dealer Manager
SAM indirectly owns a
46
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Transfer Agent Agreement
SAM owns
Fees paid to our Transfer Agent include a fixed quarterly fee, one-time account setup fees, monthly open account fees and fees for investor inquiries. In addition, we will reimburse our Transfer Agent for all reasonable expenses or other changes incurred by it in connection with the provision of its services to us, and we will pay our Transfer Agent fees for any additional services we may request from time to time, in accordance with its rates then in effect. Upon the request of our Transfer Agent, we may also advance payment for substantial reasonable out-of-pocket expenditures to be incurred by it.
Pursuant to the terms of the agreements described above, the following table summarizes related party costs incurred and paid by us for the year ended December 31, 2021 and the six months ended June 30, 2022, as well as any related amounts payable as of December 31, 2021 and June 30, 2022:
|
|
Year Ended December 31, 2021 |
|
|
Six Months Ended June 30, 2022 |
|
||||||||||||||||||
|
|
Incurred |
|
|
Paid |
|
|
Payable |
|
|
Incurred |
|
|
Paid |
|
|
Payable |
|
||||||
Expensed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Transfer Agent fees |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Additional paid-in capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Transfer Agent fees |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||||
Stockholder servicing fee(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||||
Stockholder servicing fee - |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Acquisition of Self Storage Platform from SAM and Other Transactions
As a result of the Self Administration Transaction, we acquired the self storage sponsorship platform of SAM. Accordingly, the advisor and property manager entities of SST IV and SSGT II became our indirect subsidiaries, and we became entitled to receive various fees and expense reimbursements under the terms of the SST IV and SSGT II advisory and property management agreements as described below. In addition, we also own the advisor and property manager entities of
47
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
SST VI and SSGT III and are entitled to receive various fees and expense reimbursements under the terms of the SST VI and SSGT III advisory and property management agreements as described below.
Advisory Agreement Fees
Our indirect subsidiaries, Strategic Storage Advisor IV, LLC, the advisor to SST IV (the “SST IV Advisor”), SS Growth Advisor II, LLC, the advisor to SSGT II (the “SSGT II Advisor”), the SST VI Advisor, and the SSGT III Advisor are or were entitled to receive various fees and expense reimbursements under the terms of the SST IV, SSGT II, SST VI, and SSGT III advisory agreements.
SST IV Advisory Agreement
The SST IV Advisor provided acquisition and advisory services to SST IV pursuant to an advisory agreement (the “SST IV Advisory Agreement”) with SST IV up until the SST IV Merger on March 17, 2021.
Effective April 30, 2020, SST IV suspended its offering due to various factors, including the uncertainty relating to the ongoing COVID-19 outbreak and its potential economic impact, the status of fundraising in the non-traded REIT industry due to such uncertainty and the termination of its dealer manager agreement. SST IV’s public offering terminated on September 11, 2020.
The SST IV Advisor received a monthly asset management fee equal to
Effective March 17, 2021, in connection with the SST IV Merger, the SST IV Advisory Agreement was terminated and none of the aforementioned subordinated distributions or fees were paid. As a result of us acquiring SST IV and terminating such contracts, we recorded a write-off of approximately $
As a result of the Self Administration Transaction, we recorded a deferred tax liability, which was the result of the difference between the GAAP carrying value of the SST IV Advisory Agreement and its carrying value for tax purposes. As we reduced the GAAP carrying value of such intangible asset, as noted above, we adjusted the corresponding value of our related deferred tax liability by approximately $
SSGT II Advisory Agreement
The SSGT II Advisor provided acquisition and advisory services to SSGT II pursuant to an advisory agreement (the “SSGT II Advisory Agreement”) with SSGT II up until the SSGT II Merger on June 1, 2022.
Effective as of April 30, 2020, SSGT II suspended its offering due to various factors, including the uncertainty relating to the ongoing COVID-19 outbreak and its potential economic impact, the status of fundraising in the non-traded REIT industry due to such uncertainty and the termination of its dealer manager agreement.
The SSGT II Advisor received a monthly asset management fee equal to
Effective June 1, 2022, in connection with the SSGT II Merger, the SSGT II Advisory Agreement was terminated and pursuant to the SSGT II operating partnership agreement, a subordinated distribution of approximately $
48
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
As a result of the Self Administration Transaction, we recorded a deferred tax liability, which was the result of the difference between the GAAP carrying value of the SSGT II Advisory Agreement and its carrying value for tax purposes. As we reduced the GAAP carrying value of such intangible asset, as noted above, we adjusted the corresponding value of our related deferred tax liability by approximately $
SST VI Advisory Agreement
The SST VI Advisor provides acquisition and advisory services to SST VI pursuant to an advisory agreement (the “SST VI Advisory Agreement”). In connection with the SST VI private placement offering, SST VI was required to reimburse the SST VI Advisor for organization and offering costs from the SST VI private offering pursuant to the SST VI Advisory Agreement.
Pursuant to the SST VI Advisory Agreement, the SST VI Advisor will receive acquisition fees equal to
The SST VI Advisor may also be potentially entitled to a subordinated distribution under SST VI’s operating partnership agreement if SST VI (1) lists its shares of common stock on a national exchange, (2) terminates the SST VI Advisory Agreement, (3) liquidates its portfolio, or (4) merges with another entity or enters into an Extraordinary Transaction, as defined in the SST VI operating partnership agreement.
The SST VI Advisory Agreement provides for reimbursement of the SST VI Advisor’s direct and indirect costs of providing administrative and management services to SST VI. Beginning four fiscal quarters after commencement of SST VI's public offering, which was declared effective March 17, 2022, the SST VI Advisor will be required to pay or reimburse SST VI the amount by which SST VI’s aggregate annual operating expenses, as defined, exceed the greater of 2% of SST VI’s average invested assets or 25% of SST VI’s net income, as defined, unless a majority of SST VI’s independent directors determine that such excess expenses were justified based on unusual and non-recurring factors.
On March 1, 2022, Pacific Oak Holding Group, LLC, became a
Additionally, in connection with the commencement of SST VI's public offering, the SST VI Advisor agreed that it will fund on behalf of SST VI, an amount equal to
SSGT III Advisory Agreement
The SSGT III Advisor provides acquisition and advisory services to SSGT III pursuant to an advisory agreement (the “SSGT III Advisory Agreement”). In connection with the SSGT III private placement offering, SSGT III is required to reimburse the SSGT III Advisor for organization and offering costs from the SSGT III private offering pursuant to the SSGT III Advisory Agreement.
Pursuant to the SSGT III Advisory Agreement, the SSGT III Advisor will receive acquisition fees equal to
The SSGT III Advisor may also be potentially entitled to various subordinated distributions under SSGT III’s operating partnership agreement if SSGT III (1) lists its shares of common stock on a national exchange, (2) terminates the SSGT III Advisory Agreement, (3) liquidates its portfolio, or (4) merges with another entity or enters into an Extraordinary Transaction, as defined in the SSGT III operating partnership agreement.
49
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
The SSGT III Advisory Agreement provides for reimbursement of the SSGT III Advisor’s direct and indirect costs of providing administrative and management services to SSGT III.
Managed REIT Property Management Agreements
Our indirect subsidiaries, Strategic Storage Property Management IV, LLC, SS Growth Property Management II, LLC, Strategic Storage Property Management VI, LLC, and SS Growth Property Management III, LLC, (collectively the “Managed REITs Property Managers”), are entitled to receive fees for their services in managing the properties owned by the Managed REITs pursuant to property management agreements entered into between the owner of the property and the applicable Managed REIT’s Property Manager.
The Managed REITs’ Property Managers will receive a property management fee equal to
The SST IV, SST VI, and SSGT III property managers are or were entitled to a construction management fee equal to
Effective March 17, 2021, in connection with the SST IV Merger, the SST IV property management contracts were terminated. As a result of us acquiring SST IV and terminating such contracts, we recorded a write-off of approximately $
Effective June 1, 2022, in connection with the SSGT II Merger, the SSGT II property management contracts were terminated. As a result of us acquiring SSGT II and terminating such contracts, we recorded a write-off of approximately $
In connection with the Self Administration Transaction, we previously recorded a deferred tax liability, which was the result of the difference between the GAAP carrying value of the SST IV and SSGT II property management contracts and their carrying values for tax purposes. As we reduced the GAAP carrying value of such intangible assets, we adjusted the value of our deferred tax liability on a pro-rata basis, reducing the deferred tax liability by approximately $
50
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Summary of Fees and Revenue Related to the Managed REITs
Pursuant to the terms of the various agreements described above for the Managed REITs, the following summarizes the related party fees for the three months ended June 30, 2022 and 2021:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
Managed REIT Platform Revenues |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Asset Management: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
SST IV(1) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
SSGT II(3) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
SST VI |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property Management: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
SST IV(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
SSGT II(3) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
SST VI |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Tenant Protection Program: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
SST IV(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
SSGT II(3) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
SST VI |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquisition Fees: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
SST VI |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other Managed REIT revenue(2) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Managed REIT Platform Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Reimbursable costs from Managed REITs includes reimbursement of SST IV (until the SST IV Merger Date), SSGT II (until the SSGT II merger date), SST VI and SSGT III's Advisors’ direct and indirect costs of providing administrative and management services to the Managed REITs. Additionally, reimbursable costs includes reimbursement pursuant to the property management agreements for reimbursement of the costs of managing the Managed REITs’ properties, including wages and salaries and other expenses of employees engaged in operating, managing and maintaining such properties.
As of June 30, 2022 and December 31, 2021 we had receivables due from the Managed REITs totaling approximately $
Investment in SST VI OP
On March 10, 2021, SmartStop OP made an investment of $
51
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
On March 11, 2021, SST VI OP, through a wholly-owned subsidiary, used these funds, in part, to acquire its first self storage facility in Phoenix, Arizona for approximately $
On April 16, 2021, in connection with SST VI OP’s investment in a real estate joint venture property located in North York, Ontario Canada, we provided a $
On November 12, 2021, SST VI OP repaid the outstanding balance on the $
On December 30, 2021, in connection with SST VI's acquisition of
The interest rate on the SST VI Mezzanine Loan is a variable rate equal to
Additionally, one of our subsidiaries already had a special limited partnership interest, whereby we would receive a subordinated distribution upon certain returns on equity being met.
For the three and six months ended June 30, 2022, we recorded a loss related to our equity interest in SST VI OP of approximately $
As discussed in Note 2 – Summary of Significant Accounting Policies, due to our equity interest in SST VI OP, we consolidated this investment from March 10, 2021 (the date of our initial investment in SST VI OP) until May 1, 2021.
Administrative Services Agreement
On June 28, 2019, we along with our Operating Partnership, SmartStop TRS and SSA (collectively, the “Company Parties”) entered into an Administrative Services Agreement with SAM (the “Administrative Services Agreement”), which, as amended, requires that the Company Parties will be reimbursed for providing certain operational and administrative services to SAM which may include, without limitation, accounting and financial support, IT support, HR support, advisory services and operations support, and administrative support as set forth in the Administrative Services Agreement and SAM will be reimbursed for providing certain operational and administrative services to the Company Parties which may include, without limitation, due diligence support, marketing, fulfillment and offering support, events support, insurance support, and administrative and facilities support. SAM and the Company Parties will reimburse one another based on the actual costs of providing their respective services. Additionally, SAM will pay the Company Parties an allocation of rent and overhead for the portion it occupies in the Ladera Office. Such agreement has a term of three years and is subject to certain adjustments as defined in the agreement.
For the three and six months ended June 30, 2022, we incurred reimbursements payable to SAM under the Administrative Services Agreement of approximately $
52
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
approximately $
We recorded reimbursements from SAM of approximately $
As of June 30, 2022 and December 31, 2021, a receivable of
Note 10. Equity Based Compensation
Prior to June 15, 2022, we issued equity based compensation pursuant to the Company’s Employee and Director Long-Term Incentive Plan (the “Prior Plan”). On June 15, 2022, our stockholders approved the 2022 Long-Term Incentive Plan (the “Plan”) and we no longer issue equity under the Prior Plan. Pursuant to the Plan, we are able to issue various forms of equity based compensation. Through June 30, 2022, we have generally issued equity based awards in two forms: (1) restricted stock awards consisting of shares of our common stock and (2) long-term incentive plan units of our Operating Partnership (“LTIP Units”).
Through March 2020, we had only issued restricted stock, which shares are subject to a time based vesting period. In April 2020, the Compensation Committee of the board of directors approved awards for our executive officers, which include (1) performance based awards, and (2) time based awards. For both such type of awards, the recipient can choose either LTIP Units or restricted stock consisting of shares of our common stock. Effective June 2022, the recipient of time based awards issued to members of the board of directors were also allowed to choose either LTIP Units or restricted stock shares of our common stock.
The fair value of the restricted stock and the LTIP Units are determined based on an estimated value per share, adjusted for an illiquidity discount due to the illiquid nature of the underlying equity. The fair value of the LTIP Units are further adjusted by applying an additional discount as the LTIP Units are not initially economically equivalent to our restricted stock. For the performance based awards, a fair value was determined for each performance ranking scenario, with stock compensation expense recorded using the fair value of the scenario determined to be probable of achievement.
Time Based Awards
We have granted various time based awards, which generally vest ratably over either , , or
With respect to grants of time based LTIP Units made to our executive officers in 2020, 2021, and 2022, distributions began to accrue effective January 1 of each respective year, and are payable as distributions are paid on our Class A Shares without regard to whether the underlying awards have vested. With respect to time based restricted stock issued to our board of directors in or after June 2022, distributions accrue as of the effective date of each grant and are payable as distributions are paid on our Class A Shares without regard to whether the underlying awards have vested. With respect to all other time based restricted stock, distributions accrue on non-vested shares granted and are paid when the underlying restricted shares vest.
Holders of time based LTIP Units receive allocations of profits and losses with respect to the LTIP Units as of the effective date, distributions from the effective date in an amount equivalent to the distributions declared and paid on our Class A Shares, and the same voting rights as holders of common units, voting as a class with each LTIP Unit holder having one vote per LTIP Unit held. Prior to vesting, time based LTIP Units generally may not be transferred, other than by laws of descent and distribution.
53
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
The following table summarizes the activity related to our time based awards:
|
|
Restricted Stock |
|
|
LTIP Units |
|
||||||||||
Time Based Award Grants |
|
Shares |
|
|
Weighted-Average |
|
|
Units |
|
|
Weighted-Average |
|
||||
Unvested at December 31, 2020 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Forfeited |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
Unvested at December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Forfeited |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
Unvested at June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Performance Based Awards
With respect to performance based awards, the number of shares of restricted stock granted as of the grant date equaled
Recipients of performance based restricted stock accrue distributions during the performance period, and such distributions will only be payable on the date that any such shares of restricted stock vest, based upon the performance level attained.
The following table summarizes our activity related to our performance based awards:
|
|
Restricted Stock |
|
|
LTIP Units |
|
||||||||||
Performance Based Award Grants |
|
Shares |
|
|
Weighted-Average |
|
|
Units |
|
|
Weighted-Average |
|
||||
Unvested at December 31, 2020 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Vested |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Unvested at December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Granted |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Vested |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Unvested at June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
54
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Holders of performance based restricted stock
Holders of performance based LTIP Units have the same voting rights as holders of common units, voting as a class with each LTIP Unit holder having
LTIP Units are designed to qualify as “profits interests” in the Operating Partnership for federal income tax purposes. The profits interests’ characteristics of the LTIP Units mean that initially they will not be treated as economically equivalent in value to a common unit and the issuance of LTIP Units will not be a taxable event to the Operating Partnership or the recipient. If and when certain events occur pursuant to applicable tax regulations and in accordance with the Operating Partnership Agreement, LTIP Units may become economically equivalent to common units of limited partnership interest of our Operating Partnership on a one-for-one basis.
As of June 30, 2022,
We recorded approximately $
In February 2022, the compensation committee of our board of directors approved the 2022 executive compensation terms for our executives, which included (1) performance-based equity grants in the form of either, at the election of the executive, restricted stock awards or LTIP Units, and (2) time-based equity grants in the form of either, at the election of the executive, restricted stock awards or LTIP Units.
In February 2022, an aggregate of
Note 11. Commitments and Contingencies
Contingent Earnout
On June 28, 2019, in relation to the Self Administration Transaction,
The conversion features of the Class A-2 Units are as follows: (A) the first time the aggregate incremental assets under management, as amended (“AUM”) (as defined in the Operating Partnership Agreement) of the Operating Partnership equals or exceeds $
55
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
The Class A-2 Units conversion rights will expire seven years following the closing date of the Self Administration Transaction. Notwithstanding the foregoing, the earnout consideration will be earned and automatically convert in the event of an “Earnout Acceleration Event” (as defined in the Operating Partnership Agreement), which includes each of the following: certain change of control events (as described in the Operating Partnership Agreement), or H. Michael Schwartz being removed either as a member of our board of directors or as one of our executive officers for any reason other than for cause.
On March 24, 2021, we, as the general partner of our Operating Partnership, entered into Amendment No. 3 (the “Amendment”) to the Operating Partnership Agreement, to make certain revisions to Exhibit D (Description of Class A-2 Units) to the Operating Partnership Agreement.
The Amendment (i) revised the definition of “AUM” in connection with the earnout of the Class A-2 Units so that it (A) includes assets acquired by us and our affiliates and (B) includes
On March 24, 2021,
On October 19, 2021, the Nominating and Corporate Governance Committee of our board of directors and our board of
directors approved resolutions providing that the denominator in the calculation of the earnout exchange ratio will be $
(the value of the Class A common stock at the time of the Self Administration Transaction, pursuant to which the earnout was established) for the subsequent 12 months, until October 19, 2022. Thereafter the denominator in the calculation of the earnout exchange ratio will be as provided in the Operating Partnership Agreement.
On March 29, 2022,
As of June 30, 2022, pursuant to the revised definition of “AUM” as described above, we had added incremental assets under management of approximately $
On August 9, 2022,
Distribution Reinvestment Plan
We have adopted an amended and restated distribution reinvestment plan (our "DRP") that allows both our Class A and Class T stockholders to have distributions otherwise distributable to them invested in additional shares of our Class A and Class T Shares, respectively. The purchase price per share pursuant to our DRP is equivalent to the estimated value per share approved by our board of directors and in effect on the date of purchase of shares under the plan. In conjunction with the board of directors’ declaration of a new estimated value per share of our common stock on October 19, 2021, beginning in October 2021, shares sold pursuant to our distribution reinvestment plan were and will continue to be sold at our new estimated value per share of $
As described below, on March 7, 2022, our board of directors approved the suspension of our DRP, effective on April
15, 2022.
Share Redemption Program
As described in Note 2 – Redeemable Common Stock, we have an SRP, which is fully suspended. Pursuant to the SRP, we may redeem the shares of stock presented for redemption for cash to the extent that such requests comply with the below terms of our SRP and we have sufficient funds available to fund such redemption.
56
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Our board of directors may amend, suspend or terminate the SRP with
On August 20, 2020, our board of directors determined that it would be in the best interests of the Company to amend the terms of the SRP to revise the redemption price per share for all redemptions under the SRP to be equal to the most recently published estimated net asset value per share of the applicable share class (the “SRP Amendment”). Prior to the SRP Amendment, the redemption amount was the lesser of the amount the stockholders paid for their shares or the price per share in the current offering. On October 19, 2021, we declared a new estimated net asset value per share and the redemption price under our SRP immediately changed to $
There are several limitations in addition to those noted above on our ability to redeem shares under the SRP including, but not limited to:
For the year ended December 31, 2021, we received redemption requests totaling approximately $
As described below, on March 7, 2022, our board of directors approved the complete suspension of our SRP, effective immediately.
Suspension of DRP and SRP
In connection with a review of liquidity alternatives by our Board, on March 7, 2022, the Board approved the full suspension of our DRP and SRP. Under our DRP, the Board may amend, modify, suspend or terminate our plan for any reason upon 10 days’ written notice to the participants.
Consistent with the terms of our DRP, distributions declared by the Board for the month of February 2022, which were paid on or about March 15, 2022, were not affected by this suspension. However, beginning with the distributions declared by the Board for the month of March 2022, which were paid in April 2022, and continuing until such time as the Board may approve the resumption of the DRP, if ever, all distributions declared by the Board will be paid to our stockholders in cash.
Prior to the suspension of our share redemption program, consistent with its terms, all redemption requests received, and not withdrawn, on or prior to the last day of the applicable quarter were processed on the last business day of the month following the end of the quarter in which the redemption requests were received. Accordingly, redemption requests received during the fourth quarter of 2021 were processed on January 31, 2022, and redemption requests received during the first quarter of 2022 ordinarily would have needed to be received on or prior to March 31, 2022 and would have been processed on April 30, 2022. However, the effective date of the aforementioned suspension of our share redemption program occurred prior to March 31, 2022. Accordingly, any redemption requests received during the first six months of 2022, or any future quarter, will not be processed until such time as the Board may approve the resumption of our share redemption program, if ever.
57
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Operating Partnership Redemption Rights
Generally, the limited partners of our Operating Partnership, excluding any limited partners with respect to their Class A-2 Units, have the right to cause our Operating Partnership to redeem their limited partnership units for cash equal to the value of an equivalent number of our shares, or, at our option, we may purchase their limited partnership units by issuing
Additionally, the Class A-1 Units issued in connection with the Self Administration Transaction are subject to the general restrictions on transfer contained in the Operating Partnership Agreement. The Class A-1 Units are otherwise entitled to all rights and duties of the Class A limited partnership units in the Operating Partnership, including cash distributions and the allocation of any profits or losses in the Operating Partnership.
Other Contingencies
We have a severance plan which covers certain officers; this plan provides for severance payments upon certain events, including after a change of control.
Additionally, as of June 30, 2022 and December 31, 2021, pursuant to the SST VI Mezzanine Loan, we were potentially required to fund an additional $
See Note 9 – Related Party Transactions for more information about our obligations under these agreements.
From time to time, we are party to legal, regulatory and other proceedings that arise in the ordinary course of our business. In accordance with applicable accounting guidance, management accrues an estimated liability when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. We are not aware of any such proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition.
Note 12. Declaration of Distributions
On June 23, 2022, our board of directors declared a distribution rate for the month of July 2022 of approximately $
On July 21, 2022, our board of directors declared a distribution rate for the month of August 2022 of approximately $
Note 13. Subsequent Events
On August 9, 2022,
On July 8, 2022, SST VI borrowed $
58
SMARTSTOP SELF STORAGE REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
On August 9, 2022, in connection with SSGT III's acquisition of
The interest rate on the SSGT III Mezzanine Loan Facility is a variable rate equal to SOFR plus
59
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and notes thereto contained elsewhere in this report. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should also be read in conjunction with our consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021. See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I.
Overview
We are a self-managed and fully-integrated self storage real estate investment trust (“REIT”). Our year-end is December 31. As used in this report, “we,” “us,” “our,” and “Company” refer to SmartStop Self Storage REIT, Inc. and each of our subsidiaries.
We focus on the acquisition, ownership, and operation of self storage properties located primarily within the top 100 metropolitan statistical areas, or MSAs, throughout the United States and the Greater Toronto Area in Canada. According to the Inside Self Storage Top-Operators List for 2021, we are the 11th largest owner and operator of self storage properties in the United States based on number of properties, units, and rentable square footage. As of June 30, 2022, our wholly-owned portfolio consisted of 153 self storage properties diversified across 19 states and the Greater Toronto Area of Ontario, Canada comprising approximately 103,000 units and 11.8 million net rentable square feet. Additionally, we had a 50% equity interest in ten unconsolidated real estate ventures located in the Greater Toronto Area, which consisted of six operating self storage properties, three parcels of land currently under development into self storage facilities, and one single tenant industrial building, which we plan to convert into a self storage property over the long term. Further, through our Managed REIT Platform, we serve as the sponsor of two Managed REITs: Strategic Storage Trust VI, Inc., a publicly-registered non-traded REIT (“SST VI”), and Strategic Storage Growth Trust III, Inc., a private company that intends to elect to qualify as a REIT (“SSGT III”), both of which pay us fees to manage these programs and operate their 11 operating self storage properties (as of June 30, 2022).
Our primary business model is focused on owning and operating high quality self storage properties in high growth markets in the United States and Canada. Our business model is designed to maximize cash flow available for distribution to our stockholders and to achieve sustainable long-term growth in cash flow in order to maximize long-term stockholder value at acceptable levels of risk. We execute our organic growth strategy by pursuing revenue-optimizing and expense-minimizing opportunities in the operations of our existing portfolio. We execute our external growth strategy by developing, redeveloping, acquiring and managing self storage facilities in the United States and Canada, and we look to acquire properties that are physically stabilized, recently developed, in various stages of lease up or at certificate of occupancy. We seek to acquire undermanaged facilities that are not operated by institutional operators, where we can implement our proprietary management and technology to maximize net operating income.
As discussed herein, we, through our subsidiaries, currently serve as the sponsor of SST VI and SSGT III. We also served as the sponsor of Strategic Storage Trust IV, Inc., a public non-traded REIT (“SST IV”) through March 17, 2021, and Strategic Storage Growth Trust II, Inc., a private REIT (“SSGT II”) through June 1, 2022. Prior to March 17, 2021 and June 1, 2022, SST IV and SSGT II, respectively, were also referred as “Managed REITs.” We operate the properties owned by the Managed REITs, consisting of, as of June 30, 2022, 11 operating properties and approximately 7,600 units and 0.9 million rentable square feet. In addition, we have the internal capability to originate, structure and manage additional self storage investment programs (the “Managed REIT Platform”) which would be sponsored by SmartStop REIT Advisors, LLC (“SRA”), our indirect subsidiary. We generate asset management fees, property management fees, acquisition fees, and other fees and also receive substantially all of the tenant protection program revenue earned by our Managed REITs. For the property management and advisory services that we provide, we are reimbursed for certain expenses that otherwise helps to offset our net operating expense burden.
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As of June 30, 2022, our wholly-owned self storage portfolio was comprised as follows:
State |
|
No. of |
|
|
Units(1) |
|
|
Sq. Ft. |
|
|
% of Total |
|
|
Physical |
|
|
Rental |
|
||||||
Alabama |
|
|
1 |
|
|
|
1,090 |
|
|
|
163,300 |
|
|
|
1.4 |
% |
|
|
95.9 |
% |
|
|
0.8 |
% |
Arizona |
|
|
4 |
|
|
|
3,130 |
|
|
|
329,100 |
|
|
|
2.8 |
% |
|
|
95.0 |
% |
|
|
2.7 |
% |
California |
|
|
29 |
|
|
|
19,195 |
|
|
|
2,030,300 |
|
|
|
17.1 |
% |
|
|
94.5 |
% |
|
|
20.4 |
% |
Colorado |
|
|
8 |
|
|
|
4,550 |
|
|
|
493,085 |
|
|
|
4.2 |
% |
|
|
93.5 |
% |
|
|
3.2 |
% |
Florida |
|
|
26 |
|
|
|
19,870 |
|
|
|
2,363,100 |
|
|
|
20.1 |
% |
|
|
94.7 |
% |
|
|
22.3 |
% |
Illinois |
|
|
6 |
|
|
|
3,785 |
|
|
|
429,500 |
|
|
|
3.6 |
% |
|
|
95.0 |
% |
|
|
2.9 |
% |
Indiana |
|
|
2 |
|
|
|
1,030 |
|
|
|
112,700 |
|
|
|
1.0 |
% |
|
|
96.3 |
% |
|
|
0.6 |
% |
Massachusetts |
|
|
1 |
|
|
|
840 |
|
|
|
93,200 |
|
|
|
0.8 |
% |
|
|
98.3 |
% |
|
|
1.8 |
% |
Maryland |
|
|
2 |
|
|
|
1,610 |
|
|
|
169,500 |
|
|
|
1.4 |
% |
|
|
94.9 |
% |
|
|
1.5 |
% |
Michigan |
|
|
4 |
|
|
|
2,220 |
|
|
|
266,100 |
|
|
|
2.3 |
% |
|
|
95.9 |
% |
|
|
1.8 |
% |
New Jersey |
|
|
2 |
|
|
|
2,350 |
|
|
|
205,100 |
|
|
|
1.7 |
% |
|
|
93.2 |
% |
|
|
1.9 |
% |
Nevada |
|
|
9 |
|
|
|
7,160 |
|
|
|
865,000 |
|
|
|
7.3 |
% |
|
|
95.2 |
% |
|
|
7.1 |
% |
North Carolina |
|
|
19 |
|
|
|
9,190 |
|
|
|
1,192,400 |
|
|
|
10.1 |
% |
|
|
95.1 |
% |
|
|
8.1 |
% |
Ohio |
|
|
5 |
|
|
|
2,310 |
|
|
|
279,700 |
|
|
|
2.4 |
% |
|
|
93.9 |
% |
|
|
1.5 |
% |
South Carolina |
|
|
3 |
|
|
|
1,940 |
|
|
|
246,000 |
|
|
|
2.1 |
% |
|
|
95.6 |
% |
|
|
1.6 |
% |
Texas |
|
|
12 |
|
|
|
6,960 |
|
|
|
919,300 |
|
|
|
7.8 |
% |
|
|
95.8 |
% |
|
|
6.7 |
% |
Virginia |
|
|
1 |
|
|
|
830 |
|
|
|
71,100 |
|
|
|
0.6 |
% |
|
|
97.9 |
% |
|
|
0.9 |
% |
Washington |
|
|
5 |
|
|
|
3,427 |
|
|
|
390,545 |
|
|
|
3.3 |
% |
|
|
89.7 |
% |
|
|
3.2 |
% |
Wisconsin |
|
|
1 |
|
|
|
780 |
|
|
|
83,400 |
|
|
|
0.7 |
% |
|
|
93.9 |
% |
|
|
0.5 |
% |
Ontario, Canada |
|
|
13 |
|
|
|
10,610 |
|
|
|
1,092,300 |
|
|
|
9.3 |
% |
|
|
95.5 |
% |
|
|
10.5 |
% |
Total |
|
|
153 |
|
|
|
102,877 |
|
|
|
11,794,730 |
|
|
|
100 |
% |
|
|
94.8 |
% |
|
|
100 |
% |
Additionally, we own our office located at 10 Terrace Rd, Ladera Ranch, California (the “Ladera Office”) which houses our corporate headquarters.
61
Critical Accounting Policies
We have established accounting policies which conform to generally accepted accounting principles (“GAAP”). Preparing financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. Following is a discussion of the estimates and assumptions used in setting accounting policies that we consider critical in the presentation of our consolidated financial statements. Many estimates and assumptions involved in the application of GAAP may have a material impact on our financial condition or operating performance, or on the comparability of such information to amounts reported for other periods, because of the subjectivity and judgment required to account for highly uncertain items or the susceptibility of such items to change. These estimates and assumptions affect our reported amounts of assets and liabilities, our disclosure of contingent assets and liabilities at the dates of the financial statements and our reported amounts of revenue and expenses during the period covered by this report. If management’s judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied or different amounts of assets, liabilities, revenues and expenses would have been recorded, thus resulting in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements. Additionally, other companies may use different estimates and assumptions that may impact the comparability of our financial condition and results of operations to those companies.
We believe that our critical accounting policies include the following: real estate purchase price allocations; the evaluation of whether any of our long-lived assets have been impaired; the valuation of goodwill and related impairment considerations, the valuation of our trademarks and related impairment considerations, the valuation of our contingent consideration liability, the determination of the useful lives of our long-lived assets; and the evaluation of the consolidation of our interests in joint ventures. The following discussion of these policies supplements, but does not supplant the description of our significant accounting policies, as contained in Note 2 – Summary of Significant Accounting Policies, of the Notes to the Consolidated Financial Statements contained in this report, and is intended to present our analysis of the uncertainties involved in arriving upon and applying each policy.
Real Estate Purchase Price Allocation
We account for asset acquisitions in accordance with GAAP which requires that we allocate the purchase price of a property to the tangible and intangible assets acquired and the liabilities assumed based on their relative fair values. This guidance requires us to make significant estimates and assumptions, including fair value estimates, which requires the use of significant unobservable inputs as of the acquisition date.
The value of the tangible assets, consisting of land and buildings is determined as if vacant. Because we believe that substantially all of the leases in place at properties we will acquire will be at market rates, as the majority of the leases are month-to-month contracts, we do not expect to allocate any portion of the purchase prices to above or below market leases. We also consider whether in-place, market leases represent an intangible asset. Acquisitions of portfolios of facilities are allocated to the individual facilities based upon an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates which take into account the relative size, age, and location of the individual facility along with current and projected occupancy and rental rate levels or appraised values, if available.
Our allocations of purchase prices are based on certain significant estimates and assumptions, variations in such estimates and assumptions could result in a materially different presentation of the consolidated financial statements or materially different amounts being reported in the consolidated financial statements.
Real Property Assets Valuation
We evaluate our real property assets for impairment based on events and changes in circumstances that may arise in the future and that may impact the carrying amounts of such assets. When indicators of potential impairment are present, we will assess the recoverability of the particular asset by determining whether the carrying value of the asset will be recovered, through an evaluation of the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. This evaluation is based on a number of estimates and assumptions. Based on this evaluation, if the expected undiscounted future cash flows do not exceed the carrying value, we will adjust the value of the real property asset and recognize an impairment loss. Our evaluation of the impairment of real property assets could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements, as the amount of impairment loss, if any, recognized may vary based on the estimates and assumptions we use.
62
Intangible Assets Valuation
In connection with the acquisition of the self storage advisory, asset management and property management businesses and certain joint venture interests of Strategic Asset Management I, LLC (f/k/a SmartStop Asset Management, LLC), our former sponsor (“SAM”), along with certain other assets of SAM (collectively, the “Self Administration Transaction”), we allocated a portion of the consideration to the contracts that we acquired related to the Managed REITs and the customer relationships related to our tenant insurance, tenant protection plans or similar programs (the “Tenant Protection Programs”). For these intangibles, we are amortizing such amounts on a straight-line basis over the estimated benefit period of the contracts and customer relationships. We evaluate these intangible assets for impairment when an event occurs or circumstances change that indicate the carrying value may not be recoverable. In such an event, an impairment charge is recognized and the intangible asset is marked down to its fair value.
Goodwill Valuation
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible assets and other intangible assets acquired. Goodwill is allocated to various reporting units, as applicable, and is not amortized. We perform an annual impairment test for goodwill and between annual tests, we evaluate the recoverability of goodwill whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be fully recoverable. If circumstances indicate the carrying amount may not be fully recoverable, we perform a quantitative impairment test of goodwill to compare the fair value of each reporting unit to its respective carrying amount. If the carrying amount of goodwill exceeds its fair value, an impairment charge will be recognized.
Trademarks Valuation
Trademarks are based on the value of our brands. Trademarks are valued using the relief from royalty method, which presumes that without ownership of such trademarks, we would have to make a stream of payments to a brand or franchise owner in return for the right to use their name. By virtue of this asset, we avoid any such payments and record the related intangible value of our ownership of the brand name.
We qualitatively evaluate whether any triggering events or changes in circumstances have occurred subsequent to our annual impairment test that would indicate an impairment condition may exist. If any change in circumstance or triggering event occurs, and results in a significant impact to our revenue and profitability projections, or any significant assumption in our valuation methods is adversely impacted, the impact could result in a material impairment charge in the future.
Contingent Earnout Valuation
In connection with the Self Administration Transaction, we issued the Class A-2 Units, as a form of contingent consideration, which is required to be revalued at each reporting period, based on the discounted probability weighted forecast of achieving the requisite AUM thresholds or the occurrence of an Earnout Acceleration Event (both as defined in Note 11 – Commitments and Contingencies, of the Notes to the Consolidated Financial Statements contained in this report).
Estimated Useful Lives of Real Property Assets
We assess the useful lives of the assets underlying our properties based upon a subjective determination of the period of future benefit for each asset. We record depreciation expense with respect to these assets based upon the estimated useful lives we determine. Our determinations of the useful lives of the assets could result in a materially different presentation of the consolidated financial statements or materially different amounts being reported in the consolidated financial statements, as such determinations, and the corresponding amount of depreciation expense, may vary dramatically based on the estimates and assumptions we use.
63
Consolidation Considerations
Current accounting guidance provides a framework for identifying a variable interest entity (“VIE”) and determining when a company should include the assets, liabilities, noncontrolling interests, and results of activities of a VIE in its consolidated financial statements. In general, a VIE is an entity or other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations. Generally, a VIE should be consolidated if a party with an ownership, contractual, or other financial interest in the VIE (a variable interest holder) has the power to direct the VIE’s most significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities, and noncontrolling interest at fair value and subsequently account for the VIE as if it were consolidated based on majority voting interest.
We evaluate the consolidation of our investments in joint ventures in accordance with relevant accounting guidance. This evaluation requires us to determine whether we have a controlling interest in a joint venture through a means other than voting rights, and, if so, such joint venture may be required to be consolidated in our financial statements. Our evaluation of our joint ventures under such accounting guidance could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements, as the joint venture entities included in our consolidated financial statements may vary based on the estimates and assumptions we use.
REIT Qualification
We made an election under Section 856(c) of the Internal Revenue Code of 1986 (the Code) to be taxed as a REIT under the Code, commencing with the taxable year ended December 31, 2014. By qualifying as a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is denied. Such an event could materially and adversely affect our net income and could have a material adverse impact on our financial condition and results of operations. However, we believe that we are organized and operate in a manner that will enable us to continue to qualify for treatment as a REIT for federal income tax purposes, and we intend to continue to operate as to remain qualified as a REIT for federal income tax purposes.
Current Market and Economic Conditions
Our rental revenue and operating results depend significantly on the demand for self storage space. Since the beginning of the COVID-19 pandemic in late March 2020, the challenges associated with the COVID-19 pandemic were partially offset by other trends that helped maintain the demand for self storage. The broader shift of people working from home, elevated migration patterns and strength in the housing market helped drive continued growth in self storage demand through the first half of 2022. As rental activity, occupancy levels, and rental rates increased during the second half of 2020 and through 2022, our financial performance has continued to be strong. However, same-store growth and overall results are expected to normalize over the coming quarters as the comparable periods change.
Recently, the broader economy began experiencing increased levels of inflation, higher interest rates, tightening monetary and fiscal policies and a slowdown in home price appreciation. This could result in less discretionary spending, weakening consumer balance sheets and reduced demand for self storage. However, demand for self storage sector is dynamic with drivers that function in a multitude of economic environments, both cyclically and counter-cyclically. Demand for self storage tends to be needs-based, with numerous factors that lead customers to renting and maintaining storage units.
In addition to the sector’s numerous historical demand drivers, one significant demand driver that increased substantially during the COVID-19 pandemic is the work-from-home, or hybrid work environment. We believe the need for work space in residences will continue to be a driver of storage demand in 2022 and going forward, which could partially offset a potential reduction in population mobility caused by a softening housing market.
Recently, the Federal Reserve has increased its targeted range for the federal funds rate, leading to increased interest rates. We currently have fixed interest rates for certain of our loans, either directly or indirectly through our use of interest rate hedges. The rise in overall interest rates has caused an increase in our variable rate borrowing costs and our overall cost of capital, resulting in an increase in net interest expense. Capitalization rates on acquisitions have not increased at the same magnitude as interest rates. This may limit our ability to acquire self storage properties in an as accretive manner going forward.
64
Results of Operations
Overview
We derive revenues principally from: (i) rents received from our self storage tenant leases; (ii) fees generated from our Managed REITs; (iii) our Tenant Protection Programs; and (iv) sales of packing and storage-related supplies at our storage facilities. Therefore, our operating results depend significantly on our ability to retain our existing tenants and lease our available self storage units to new tenants, while maintaining and, where possible, increasing the prices for our self storage units.
Competition in the market areas in which we operate is significant and affects the occupancy levels, rental rates, rental revenues and operating expenses of our facilities. Development of any new self storage facilities would intensify competition of self storage operators in markets in which we operate.
As of June 30, 2022 and 2021, we wholly-owned 153 and 138 operating self storage facilities, respectively. Our operating results for the three months ended June 30, 2022 include full quarter results for 140 self storage facilities and partial quarter results for 13 operating self storage facilities acquired during the quarter ended June 30, 2022. Our operating results for the three months ended June 30, 2021 include full quarter results for 136 self storage facilities and partial quarter results for two operating self storage facilities acquired during the quarter ended June 30, 2021. Operating results in future periods will depend on the results of operations of these properties and of the real estate properties that we acquire in the future.
Our operating results for the six months ended June 30, 2022 include a full six months of results for 139 self storage facilities and partial period results for 14 operating self storage facilities acquired during the six months ended June 30, 2022. Our operating results for the six months ended June 30, 2021 include a full six months of results for 112 self storage facilities and partial period results for 26 operating self storage facilities acquired during the six months ended June 30, 2021. Operating results in future periods will depend on the results of operations of these properties and of the real estate properties that we acquire in the future.
As discussed below, the results of operations presented herein cover a period of time prior to the SST IV Merger and SSGT II Merger. Our 2021 and 2022 operating results have been and will continue to be significantly impacted by these mergers as a result of acquiring 34 operating self storage facilities and 50% equity interests in nine unconsolidated real estate ventures, as well as the elimination of management fees that we previously earned from SST IV and SSGT II. Over time we expect the SSGT II Merger and SST IV Merger to be accretive to FFO, as adjusted as the former SST IV and SSGT II properties eventually reach higher levels of either physical or economic occupancy or both.
SST IV Merger
On March 17, 2021, we acquired 24 operating self storage facilities and six real estate joint ventures by way of merger with SST IV. The 24 SST IV operating properties had a weighted average physical occupancy of 93.0% and 92.6% as of June 30, 2022, and 2021, respectively.
SSGT II Merger
On June 1, 2022, we acquired 10 operating self storage facilities and three real estate joint ventures by way of merger with SSGT II. The 10 SSGT II operating properties had a weighted average physical occupancy of 92.1% and 93.1% as of June 30, 2022, and 2021, respectively.
Comparison of the Three Months Ended June 30, 2022 and 2021
Total Self Storage Revenues
Total self storage related revenues for the three months ended June 30, 2022 and 2021 were approximately $48.6 million and $40.1 million, respectively. The increase in total self storage revenues of approximately $8.4 million, or approximately 21%, is primarily attributable to an increase in same-store revenues of approximately $4.3 million, an increase in revenue at the 24 operating self storage facilities acquired in connection with the SST IV Merger (approximately $1.3 million), and the 10 operating self storage facilities acquired on June 1, 2022 in connection with the SSGT II Merger (approximately $1.2 million).
We expect self storage revenues to increase in future periods as our lease-up properties continue to increase occupancy and rates, and to otherwise fluctuate based on the performance of our same-store pool, which will be influenced by the overall economic environment and increases in self storage supply, amongst other things. Additionally, we expect to see
65
increases in self storage revenues from our future acquisitions and the inclusion of the properties we acquired in the SSGT II Merger for a full period.
Managed REIT Platform Revenue
Managed REIT Platform revenue for the three months ended June 30, 2022 and 2021 was approximately $2.0 million and $1.1 million, respectively. The increase in Managed REIT Platform revenue of approximately $0.9 million is primarily attributable to acquisition fee revenue growth of $0.6 million from our Managed REITs. We expect Managed REIT Platform Revenue to decline in the short term as a result of the SSGT II Merger as we will no longer receive fees from SSGT II for providing property management and advisory services. We further expect Managed REIT Platform Revenue to fluctuate commensurate with our Managed REITs' increase in operations as we receive revenue for providing such services.
Reimbursable Costs from Managed REITs
Reimbursable costs from Managed REITs for the three months ended June 30, 2022 and 2021 were approximately $1.2 million and $1.1 million, respectively. Such revenues consist of costs incurred by us as we provide property management and advisory services to the Managed REITs, which are reimbursed by our Managed REITs, pursuant to our related contracts with the Managed REITs. We expect Reimbursable Costs from Managed REITs to decline in future periods as a result of the SSGT II Merger as we will no longer receive reimbursement for providing such services. We further expect reimbursable costs from Managed REITs to fluctuate commensurate with our Managed REITs' increase in operations as we receive reimbursement for providing such services.
Property Operating Expenses
Property operating expenses for the three months ended June 30, 2022 and 2021 were approximately $13.6 million (or 28.1% of self storage revenue) and $12.5 million (or 31.1% of self storage revenue), respectively. Property operating expenses include the costs to operate our facilities including payroll expense, utilities, insurance, real estate taxes, and marketing. The increase in property operating expenses of approximately $1.2 million is largely attributable to the 10 operating self storage facilities acquired in connection with the SSGT II Merger (approximately $0.4 million), as well other property acquisitions during the period and increases in payroll and repairs and maintenance expense. We expect property operating expenses to decrease as a percentage of revenue as revenues increase.
Managed REIT Platform Expenses
Managed REIT Platform expenses for the three months ended June 30, 2022 and 2021 were approximately $0.6 million and $0.3 million, respectively. Such expenses primarily consisted of expenses related to non-reimbursable costs associated with the operation of the Managed REIT Platform and the Administrative Services Agreement (as discussed in Note 9 – Related Party Transactions, of the notes to consolidated financial statements contained in this report). We expect Managed REIT Platform expenses to fluctuate in future periods commensurate with the level of services provided to the Managed REITs.
Reimbursable Costs from Managed REITs
Reimbursable costs from Managed REITs for the three months ended June 30, 2022 and 2021 were approximately $1.2 million and $1.1 million, respectively. Such expenses consist of costs incurred by us as we provide property management and advisory services to the Managed REITs, which are reimbursed by our Managed REITs, pursuant to our related contracts with the Managed REITs. We expect reimbursable costs from Managed REITs to fluctuate commensurate with our Managed REITs' increase in operations as we receive reimbursement for providing such services, and decline in the short term due to the SSGT II Merger.
General and Administrative Expenses
General and administrative expenses for the three months ended June 30, 2022 and 2021 were approximately $7.9 million and $6.8 million, respectively. Such expenses consist primarily of compensation-related costs, legal expenses, accounting expenses, transfer agent fees, directors’ and officers’ insurance expense and board of directors related costs. Additionally, during the current quarter we recorded expenses of approximately $1.4 million related to our filing of an S-11 registration statement and related costs in pursuit of the potential offering of our common stock. The increase is primarily attributable to expenses recorded related to a potential offering, increased board of directors related costs, transfer agent costs
66
and compensation-related expenses. We expect general and administrative expenses to decrease as a percentage of total revenues over time.
Depreciation and Amortization Expenses
Depreciation and amortization expenses for the three months ended June 30, 2022 and 2021 were approximately $16.3 million and $14.4 million, respectively. Depreciation expense consists primarily of depreciation on the buildings and site improvements at our properties. Amortization expense consists of the amortization of our in place lease intangible assets resulting from our self storage acquisitions and amortization of certain intangible assets acquired in the Self Administration Transaction. The increase in depreciation and amortization expense is primarily attributable to additional depreciation and amortization on the properties and intangible assets acquired in the SSGT II Merger.
Acquisition Expenses
Acquisition expenses for the three months ended June 30, 2022 and 2021 were approximately $0.3 million and $30,000, respectively. These acquisition expenses were incurred prior to acquisitions becoming probable in accordance with our capitalization policy.
Contingent Earnout Adjustment
The contingent earnout adjustments for the three months ended June 30, 2022 and 2021 reflects increases in the contingent earnout liability of approximately $0.8 million and $0.4 million, respectively. The contingent earnout adjustment reflects the change in the liability based on an updated valuation and changes in the discounted probability weighted forecast of our projected assets under management (as defined in the Operating Partnership Agreement, as amended).
Write-off of Equity Interest and Preexisting Relationships Upon Acquisition of Control
Write-off of equity interest and preexisting relationships upon acquisition of control for the three months ended June 30, 2022 and 2021 was approximately $2.0 million and none, respectively. Such expense represents the Company’s write-off of the intangible assets related to the SSGT II advisory agreement and property management contracts due to the termination of such contracts as a result of the SSGT II Merger.
Gain on Sale of Real Estate
Gain on sale of real estate for the three months ended June 30, 2022 and 2021 was none and approximately $0.2 million, respectively. The gain in 2021 was related to a sale of a parcel of excess land attached to the self storage facility we own in McKinney, Texas. The sale of this parcel did not affect the operations of our McKinney, Texas property.
Gain On Equity Interests Upon Acquisition
Gain on equity interests upon acquisition for the three months ended June 30, 2022 and 2021 was approximately $16.1 million and none, respectively. The gain was related to recording the fair value of our preexisting special limited partnership interest in SSGT II in connection with the SSGT II Merger.
Interest Expense
Interest expense for the three months ended June 30, 2022 and 2021 was approximately $8.9 million and $8.4 million, respectively. Interest expense includes interest expense, accretion of fair market value of debt, amortization of debt issuance costs, and amortization of interest rate caps. The increase of approximately $0.4 million is primarily attributable to an increase in the average outstanding principal balance, primarily as a result of the SSGT II Merger as well as three other self storage acquisitions that were funded by draws on the Credit Facility Revolver during the quarter. We expect interest expense to fluctuate in future periods commensurate with our future debt levels and interest rates.
Net Loss on Extinguishment of Debt
Net loss on extinguishment of debt for the three months ended June 30, 2022 and 2021 were approximately $2.4 million and none, respectively. The increase in net loss on debt extinguishment is primarily attributable to debt defeasance costs for the Midland North Carolina CMBS Loan which was defeased on May 19, 2022, as well as the write-off of related unamortized debt issuance costs.
67
Other
Other for the three months ended June 30, 2022 and 2021 was approximately $0.2 million of income and $0.2 million of income, respectively. Other consists primarily of state and federal tax expense, adjustments to deferred tax liabilities, foreign currency fluctuations, changes in value related to our foreign currency and interest rate hedges not designated for hedge accounting, and equity in earnings attributable to our unconsolidated joint ventures. The change of approximately $40,000 is comprised of additional deferred tax liability adjustments of approximately $1.0 million primarily attributable to the write-off of the asset management and property management intangible assets related to the SSGT II Merger and deferred tax liability adjustments at our Canadian properties, offset by foreign currency related adjustments.
Same-Store Facility Results - Three Months Ended June 30, 2022 and 2021
The following table sets forth operating data for our same-store facilities (those properties included in the consolidated results of operations since January 1, 2021, excluding three lease-up properties we owned as of January 1, 2021) for the three months ended June 30, 2022 and 2021. We consider the following data to be meaningful as this allows for the comparison of results without the effects of acquisition, lease up, or development activity.
|
|
Same-Store Facilities |
|
|
Non Same-Store Facilities |
|
Total |
|
||||||||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
% |
|
|
2022 |
|
|
2021(6) |
|
|
% |
|
2022 |
|
|
2021 |
|
|
% |
|
||||||||
Revenue (1) |
|
$ |
34,694,481 |
|
|
$ |
30,396,194 |
|
|
|
14.1 |
% |
|
$ |
12,039,007 |
|
|
$ |
8,022,875 |
|
|
N/M |
|
$ |
46,733,488 |
|
|
$ |
38,419,069 |
|
|
|
21.6 |
% |
Property |
|
|
9,543,263 |
|
|
|
9,488,105 |
|
|
|
0.6 |
% |
|
|
4,093,968 |
|
|
|
2,991,864 |
|
|
N/M |
|
|
13,637,231 |
|
|
|
12,479,969 |
|
|
|
9.3 |
% |
Net operating |
|
$ |
25,151,218 |
|
|
$ |
20,908,089 |
|
|
|
20.3 |
% |
|
$ |
7,945,039 |
|
|
$ |
5,031,011 |
|
|
N/M |
|
$ |
33,096,257 |
|
|
$ |
25,939,100 |
|
|
|
27.6 |
% |
Number of |
|
|
109 |
|
|
|
109 |
|
|
|
|
|
|
44 |
|
|
|
30 |
|
|
|
|
|
153 |
|
|
|
139 |
|
|
|
|
||
Rentable |
|
|
8,036,285 |
|
|
|
8,034,200 |
|
|
|
|
|
|
3,758,445 |
|
|
|
2,543,800 |
|
|
|
|
|
11,794,730 |
|
|
|
10,578,000 |
|
|
|
|
||
Average |
|
|
95.5 |
% |
|
|
95.8 |
% |
|
|
|
|
|
92.5 |
% |
|
|
88.9 |
% |
|
|
|
|
94.5 |
% |
|
|
94.6 |
% |
|
|
|
||
Annualized |
|
$ |
18.47 |
|
|
$ |
16.02 |
|
|
|
|
|
N/M |
|
|
N/M |
|
|
|
|
$ |
18.09 |
|
|
$ |
15.76 |
|
|
|
|
||||
N/M Not meaningful
Our same-store revenue increased by approximately $4.3 million, or approximately 14.1%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 due to higher annualized rent per occupied square foot, partially offset by a slight decrease in average occupancy.
68
The following table presents a reconciliation of net income (loss) as presented on our consolidated statements of operations to net operating income, as stated above, for the periods indicated:
|
|
For the Three Months Ended |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Net income (loss) |
|
$ |
14,013,122 |
|
|
$ |
(1,310,838 |
) |
Adjusted to exclude: |
|
|
|
|
|
|
||
Tenant Protection Program revenue(1) |
|
|
(1,836,707 |
) |
|
|
(1,712,671 |
) |
Managed REIT Platform revenue |
|
|
(2,013,134 |
) |
|
|
(1,058,291 |
) |
Managed REIT Platform expenses |
|
|
617,846 |
|
|
|
316,142 |
|
General and administrative |
|
|
7,946,583 |
|
|
|
6,811,313 |
|
Depreciation |
|
|
11,826,106 |
|
|
|
10,742,801 |
|
Intangible amortization expense |
|
|
4,471,973 |
|
|
|
3,653,681 |
|
Acquisition expenses |
|
|
285,097 |
|
|
|
30,448 |
|
Contingent earnout adjustment |
|
|
800,000 |
|
|
|
400,000 |
|
Write-off of equity interest and |
|
|
2,049,682 |
|
|
|
— |
|
Gain on equity interests upon acquisition |
|
|
(16,101,237 |
) |
|
|
— |
|
Gain on sale of real estate |
|
|
— |
|
|
|
(178,631 |
) |
Interest expense |
|
|
8,852,586 |
|
|
|
8,416,349 |
|
Net loss on extinguishment of debt |
|
|
2,393,475 |
|
|
|
— |
|
Other, net |
|
|
(209,135 |
) |
|
|
(171,203 |
) |
Total net operating income |
|
$ |
33,096,257 |
|
|
$ |
25,939,100 |
|
(1) Approximately $1.4 million of Tenant Protection Program revenue was earned at same-store facilities during three months ended June 30, 2022, with the remaining approximately $0.5 million earned at non same-store facilities.
Comparison of the Six Months Ended June 30, 2022 and 2021
Total Self Storage Revenues
Total self storage related revenues for the six months ended June 30, 2022 and 2021 were approximately $93.6 million and $71.2 million, respectively. The increase in total self storage revenues of approximately $22.4 million, or approximately 31%, is largely attributable to an increase in same-store revenues of approximately $9.5 million, as well as the 10 and 24 operating self storage facilities acquired in connection with the SSGT II Merger and SST IV Merger, respectively, representing increased revenues over the prior periods of approximately $1.1 million and $8.7 million, respectively.
We expect self storage revenues to increase in future periods as our lease-up properties continue to increase occupancy and rates, and to otherwise fluctuate based on the performance of our same-store pool, which will be influenced by the overall economic environment and increases in self storage supply, amongst other things. Additionally, we expect to see increases in self storage revenues from our future acquisitions and from the inclusion of the properties we acquired in the SSGT II Merger for a full period.
Managed REIT Platform Revenue
Managed REIT Platform revenue for the six months ended June 30, 2022 and 2021 was approximately $3.8 million and $3.3 million, respectively. The increase in Managed REIT Platform revenue of approximately $0.5 million is primarily attributable to acquisition fee revenue growth of $1.0 million from our Managed REITs. We expect Managed REIT Platform Revenue to decline in the short term as a result of the SSGT II Merger as we will no longer receive fees from SSGT II for providing property management and advisory services. We further expect Managed REIT Platform Revenue to fluctuate commensurate with our Managed REITs' increase in operations.
69
Reimbursable Costs from Managed REITs
Reimbursable costs from Managed REITs for the six months ended June 30, 2022 and 2021 were approximately $2.3 million and $2.3 million, respectively. Such revenues consist of costs incurred by us as we provide property management and advisory services to the Managed REITs, which are reimbursed by our Managed REITs, pursuant to our related contracts with the Managed REITs. We expect Reimbursable Costs from Managed REITs to decline in future periods as a result of the SSGT II Merger as we will no longer receive reimbursement for providing such services. We further expect reimbursable costs from Managed REITs to fluctuate commensurate with our Managed REITs' increase in operations as we receive reimbursement for providing such services.
Property Operating Expenses
Property operating expenses for the six months ended June 30, 2022 and 2021 were approximately $26.7 million (or 28.6% of self storage revenue) and $22.8 million (or 32.1% of self storage revenue), respectively. Property operating expenses include the costs to operate our facilities including payroll expense, utilities, insurance, real estate taxes, and marketing. The increase in property operating expenses of approximately $3.9 million is largely attributable to the 24 and 10 operating self storage facilities acquired in connection with the SST IV Merger and the SSGT II Merger, respectively. We expect property operating expenses to decrease as a percentage of revenue as revenues increase.
Managed REIT Platform Expenses
Managed REIT Platform expenses for the six months ended June 30, 2022 and 2021 were approximately $1.0 million and $0.6 million, respectively. Such expenses primarily consisted of expenses related to non-reimbursable costs associated with the operation of the Managed REIT Platform and the Administrative Services Agreement (as discussed in Note 9 – Related Party Transactions, of the notes to consolidated financial statements contained in this report). We expect Managed REIT Platform expenses to fluctuate in future periods commensurate with the level of services provided to the Managed REITs.
Reimbursable Costs from Managed REITs
Reimbursable costs from Managed REITs for the six months ended June 30, 2022 and 2021 were approximately $2.3 million and $2.3 million, respectively. Such expenses consist of costs incurred by us as we provide property management and advisory services to the Managed REITs, which are reimbursed by our Managed REITs, pursuant to our related contracts with the Managed REITs. We expect reimbursable costs from Managed REITs to fluctuate commensurate with our Managed REITs' increase in operations as we receive reimbursement for providing such services, and decline in the short term due to the SSGT II Merger.
General and Administrative Expenses
General and administrative expenses for the six months ended June 30, 2022 and 2021 were approximately $13.8 million and $11.6 million, respectively. Such expenses consist primarily of compensation-related costs, legal expenses, accounting expenses, transfer agent fees, directors’ and officers’ insurance expense and board of directors related costs. Additionally, during the six months ended June 30, 2022, we recorded expenses of approximately $1.4 million related to our filing of an S-11 registration statement and related costs in pursuit of the potential offering of our common stock. The increase is primarily attributable to expenses recorded related to a potential offering, increased board of directors related costs, transfer agent costs and compensation-related expenses. We expect general and administrative expenses to decrease as a percentage of total revenues over time.
Depreciation and Amortization Expenses
Depreciation and amortization expenses for the six months ended June 30, 2022 and 2021 were approximately $31.3 million and $24.2 million, respectively. Depreciation expense consists primarily of depreciation on the buildings and site improvements at our properties. Amortization expense consists of the amortization of our in place lease intangible assets resulting from our self storage acquisitions and amortization of certain intangible assets acquired in the Self Administration Transaction. The increase in depreciation and amortization expense is primarily attributable to additional depreciation and amortization on the properties and intangible assets acquired in the SST IV Merger and the SSGT II Merger.
Acquisition Expenses
70
Acquisition expenses for the six months ended June 30, 2022 and 2021 were approximately $0.7 million and $0.3 million, respectively. These acquisition expenses were incurred prior to acquisitions becoming probable in accordance with our capitalization policy.
Contingent Earnout Adjustment
The contingent earnout adjustment for the six months ended June 30, 2022 and 2021 reflects increases in the contingent earnout liability of approximately $1.3 million and $2.5 million, respectively. The contingent earnout adjustment reflects the change in the liability based on an updated valuation and changes in the discounted probability weighted forecast of our projected assets under management (as defined in the Operating Partnership Agreement, as amended).
Write-off of equity interest and preexisting relationships upon acquisition of control
Write-off of equity interest and preexisting relationships upon acquisition of control for the six months ended June 30, 2022 and 2021 was approximately $2.0 and $8.4 million, respectively. Such expenses in 2022 represents the write-off of the intangible assets related to the SSGT II advisory agreement and property management contracts due to the termination of such contracts with the SSGT II Merger. Such expenses in 2021 primarily represents the write-off of the intangible assets related to the SST IV advisory agreement and property management contracts due to the termination of such contracts with the SST IV Merger, and to a lesser extent, the write-off of the SST IV special limited partnership interest we held in SST IV, which per the terms of the SST IV Merger, terminated without consideration.
Gain on Sale of Real Estate
Gain on sale of real estate for the six months ended June 30, 2022 and 2021 was none and approximately $0.2 million, respectively. The gain in 2021 was related to a sale of a parcel of excess land attached to the self storage facility we own in McKinney, Texas. The sale of this parcel did not affect the operations of our McKinney, Texas property.
Gain On Equity Interests Upon Acquisition
Gain on equity interests upon acquisition for the six months ended June 30, 2022 and 2021 was approximately $16.1 million and none, respectively. The gain was related to recording the fair value of our preexisting special limited partnership interest in SSGT II in connection with the SSGT II Merger.
Interest Expense
Interest expense for the six months ended June 30, 2022 and 2021 was approximately $16.4 million and $17.0 million, respectively. Interest expense includes interest expense, accretion of fair market value of debt, and amortization of debt issuance costs and amortization of interest rate caps. The decrease of approximately $0.6 million is primarily attributable to lower rates on a year over year basis for the first three months of 2022 due in part to the expiration of our $235 million LIBOR swap, partially offset by higher interest rates and an increase in the average outstanding principal balance during the six months ended June 30, 2022. The increase in the average outstanding principal balance was primarily the result of the SSGT II Merger, and four other acquisitions in 2022. We expect interest expense to fluctuate in future periods commensurate with our future debt levels and interest rates.
Net Loss on Extinguishment of Debt
Net loss on extinguishment of debt for the six months ended June 30, 2022 and 2021 were approximately $2.4 million and $2.4 million, respectively. The net loss on debt extinguishment for the six months ended June 30, 2022 is attributable to the write-off of unamortized debt issuance costs and debt defeasance costs for the Midland North Carolina CMBS Loan which was defeased on May 19, 2022. The net loss on debt extinguishment for the six months ended June 30, 2021 is attributable to the write-off of unamortized debt issuance costs on loans that were paid off in connection with the Credit Facility that was obtained in conjunction with the SST IV Merger.
Other
Other income (expense) for the six months ended June 30, 2022 and 2021 were approximately ($0.5) million of expense, and $1.6 million of income, respectively. Other consists primarily of state and federal tax expense, adjustments to
71
deferred tax liabilities, foreign currency fluctuations, changes in value related to our foreign currency and interest rate hedges not designated for hedge accounting, and equity in earnings attributable to our unconsolidated joint ventures. The change of approximately $2.1 million is primarily the result of a reduction in the deferred tax liabilities as a result of the write-off the asset management and property management intangible assets of approximately $0.5 million and $1.9 million during the six months ended June 30, 2022 and 2021, related to the SSGT II Merger and the SST IV Merger, respectively.
Same-Store Facility Results - Six Months Ended June 30, 2022 and 2021
The following table sets forth operating data for our same-store facilities (those properties included in the consolidated results of operations since January 1, 2021, excluding three lease-up properties we owned as of January 1, 2021) for the six months ended June 30, 2022 and 2021. We consider the following data to be meaningful as this allows for the comparison of results without the effects of acquisition, lease up, or development activity.
|
|
Same-Store Facilities |
|
|
Non Same-Store Facilities |
|
Total |
|
||||||||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
% |
|
|
2022 |
|
|
2021(6) |
|
|
% |
|
2022 |
|
|
2021 |
|
|
% |
|
||||||||
Revenue (1) |
|
$ |
68,018,946 |
|
|
$ |
58,552,193 |
|
|
|
16.2 |
% |
|
$ |
21,991,236 |
|
|
$ |
9,590,980 |
|
|
N/M |
|
$ |
90,010,182 |
|
|
$ |
68,143,173 |
|
|
|
32.1 |
% |
Property operating |
|
|
19,310,992 |
|
|
|
18,906,251 |
|
|
|
2.1 |
% |
|
|
7,431,564 |
|
|
|
3,916,999 |
|
|
N/M |
|
|
26,742,556 |
|
|
|
22,823,250 |
|
|
|
17.2 |
% |
Net operating |
|
$ |
48,707,954 |
|
|
$ |
39,645,942 |
|
|
|
22.9 |
% |
|
$ |
14,559,672 |
|
|
$ |
5,673,981 |
|
|
N/M |
|
$ |
63,267,626 |
|
|
$ |
45,319,923 |
|
|
|
39.6 |
% |
Number of |
|
|
109 |
|
|
|
109 |
|
|
|
|
|
|
44 |
|
|
|
30 |
|
|
|
|
|
153 |
|
|
|
139 |
|
|
|
|
||
Rentable square |
|
|
8,036,285 |
|
|
|
8,034,200 |
|
|
|
|
|
|
3,758,445 |
|
|
|
2,543,800 |
|
|
|
|
|
11,794,730 |
|
|
|
10,578,000 |
|
|
|
|
||
Average physical |
|
|
95.3 |
% |
|
|
94.5 |
% |
|
|
|
|
|
92.2 |
% |
|
|
90.1 |
% |
|
|
|
|
94.3 |
% |
|
|
93.5 |
% |
|
|
|
||
Annualized rent |
|
$ |
18.12 |
|
|
$ |
15.65 |
|
|
|
|
|
N/M |
|
|
N/M |
|
|
|
|
$ |
17.78 |
|
|
$ |
15.46 |
|
|
|
|
||||
N/M Not meaningful
Our same-store revenue increased by approximately $9.5 million, or approximately 16.2%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to higher annualized rent per occupied square foot.
The following table presents a reconciliation of net income (loss) as presented on our consolidated statements of operations to net operating income, as stated above, for the periods indicated:
72
|
|
For the Six Months Ended |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Net income (loss) |
|
$ |
17,282,581 |
|
|
$ |
(13,614,304 |
) |
Adjusted to exclude: |
|
|
|
|
|
|
||
Tenant Protection Program revenue(1) |
|
|
(3,591,205 |
) |
|
|
(3,049,439 |
) |
Managed REIT Platform revenue |
|
|
(3,822,230 |
) |
|
|
(3,346,031 |
) |
Managed REIT Platform expenses |
|
|
1,007,111 |
|
|
|
636,032 |
|
General and administrative |
|
|
13,784,230 |
|
|
|
11,564,302 |
|
Depreciation |
|
|
22,934,092 |
|
|
|
19,286,728 |
|
Intangible amortization expense |
|
|
8,372,857 |
|
|
|
4,913,228 |
|
Acquisition expenses |
|
|
702,871 |
|
|
|
336,098 |
|
Contingent earnout adjustment |
|
|
1,313,821 |
|
|
|
2,519,744 |
|
Write-off of equity interest and |
|
|
2,049,682 |
|
|
|
8,389,573 |
|
Gain on sale of real estate |
|
|
— |
|
|
|
(178,631 |
) |
Interest expense |
|
|
16,428,370 |
|
|
|
17,032,420 |
|
Net loss on extinguishment of debt |
|
|
2,393,475 |
|
|
|
2,444,788 |
|
Gain on equity interests upon acquisition |
|
|
(16,101,237 |
) |
|
|
— |
|
Other, net |
|
|
513,208 |
|
|
|
(1,614,585 |
) |
Total net operating income |
|
$ |
63,267,626 |
|
|
$ |
45,319,923 |
|
(1) Approximately $2.7 million of Tenant Protection Program revenue was earned at same-store facilities during six months ended June 30, 2022, with the remaining approximately $0.9 million earned at non same-store facilities.
Non-GAAP Financial Measures
Funds from Operations
Funds from operations ("FFO"), is a non-GAAP financial metric promulgated by the National Association of Real Estate Investment Trusts (NAREIT) that we believe is an appropriate supplemental measure to reflect our operating performance. We define FFO consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, or the White Paper. The White Paper defines FFO as net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of property and real estate related asset impairment write downs, plus depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. Additionally, gains and losses from change in control are excluded from the determination of FFO. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. Our FFO calculation complies with NAREIT’s policy described above.
FFO, as Adjusted
We use FFO, as adjusted, as an additional non-GAAP financial measure to evaluate our operating performance. FFO, as adjusted, provides investors with supplemental performance information that is consistent with the performance models and analysis used by management. In addition, FFO, as adjusted, is a measure used among our peer group, which includes publicly traded REITs. Further, we believe FFO, as adjusted, is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies.
In determining FFO, as adjusted, we make further adjustments to the NAREIT computation of FFO to exclude the effects of non-real estate related asset impairments and intangible amortization, acquisition related costs, other write-offs incurred in connection with acquisitions, contingent earnout expenses, accretion of fair value of debt adjustments, gains or losses from extinguishment of debt, adjustments of deferred tax liabilities, realized and unrealized gains/losses on foreign exchange transactions, and gains/losses on foreign exchange and interest rate derivatives not designated for hedge accounting, which we believe are not indicative of our overall long-term operating performance. We exclude these items from GAAP net income (loss) to arrive at FFO, as adjusted, as they are not the primary drivers in our decision-making process and excluding these items provides investors a view of our continuing operating portfolio performance over time, which in any respective period may experience fluctuations in such acquisition, merger or other similar activities that are not
73
of a long-term operating performance nature. FFO, as adjusted, also reflects adjustments for unconsolidated partnerships and jointly owned investments. We use FFO, as adjusted, as one measure of our operating performance when we formulate corporate goals and evaluate the effectiveness of our strategies.
Presentation of FFO and FFO, as adjusted, is intended to provide useful information to investors as they compare the operating performance of different REITs. However, not all REITs calculate FFO and FFO, as adjusted, the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and FFO, as adjusted, are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and FFO, as adjusted, should be reviewed in conjunction with other measurements as an indication of our performance.
The following is a reconciliation of net loss, which is the most directly comparable GAAP financial measure, to FFO and FFO, as adjusted (attributable to common stockholders), for each of the periods presented below:
|
|
Three Months |
|
|
Three Months |
|
|
Six Months |
|
|
Six Months |
|
||||
Net income (loss) |
|
$ |
9,138,542 |
|
|
$ |
(3,881,184 |
) |
|
$ |
8,921,987 |
|
|
$ |
(17,789,848 |
) |
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation of real estate |
|
|
11,619,040 |
|
|
|
10,521,283 |
|
|
|
22,481,157 |
|
|
|
18,898,768 |
|
Amortization of real estate related intangible assets |
|
|
4,286,753 |
|
|
|
3,441,144 |
|
|
|
7,946,836 |
|
|
|
4,003,229 |
|
Depreciation and amortization of real estate and |
|
|
358,716 |
|
|
|
213,959 |
|
|
|
658,729 |
|
|
|
230,996 |
|
Deduct: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on deconsolidation |
|
|
— |
|
|
|
(169,533 |
) |
|
|
— |
|
|
|
(169,533 |
) |
Gain on sale of real estate |
|
|
— |
|
|
|
(178,631 |
) |
|
|
— |
|
|
|
(178,631 |
) |
Gain on equity interests upon acquisition (7) |
|
|
(16,101,237 |
) |
|
|
— |
|
|
|
(16,101,237 |
) |
|
|
— |
|
Adjustment for noncontrolling interests (6) |
|
|
58,107 |
|
|
|
(1,500,869 |
) |
|
|
(1,540,958 |
) |
|
|
(2,616,924 |
) |
FFO (attributable to common stockholders) |
|
|
9,359,921 |
|
|
|
8,446,169 |
|
|
|
22,366,514 |
|
|
|
2,378,057 |
|
Other Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Intangible amortization expense - contracts (1) |
|
|
185,220 |
|
|
|
212,537 |
|
|
|
426,021 |
|
|
|
909,999 |
|
Acquisition expenses (2) |
|
|
285,097 |
|
|
|
30,448 |
|
|
|
702,871 |
|
|
|
336,098 |
|
Acquisition expenses and foreign currency |
|
|
31,460 |
|
|
|
107,388 |
|
|
|
51,956 |
|
|
|
107,388 |
|
Contingent earnout adjustment (3) |
|
|
800,000 |
|
|
|
400,000 |
|
|
|
1,313,821 |
|
|
|
2,519,744 |
|
Write-off of equity interest and preexisting |
|
|
2,049,682 |
|
|
|
— |
|
|
|
2,049,682 |
|
|
|
8,389,573 |
|
Accretion of fair market value of secured debt |
|
|
(7,556 |
) |
|
|
(31,250 |
) |
|
|
(42,198 |
) |
|
|
(63,116 |
) |
Net loss on extinguishment of debt (4) |
|
|
2,393,475 |
|
|
|
— |
|
|
|
2,393,475 |
|
|
|
2,444,788 |
|
Foreign currency and interest rate derivative |
|
|
251,804 |
|
|
|
(643,547 |
) |
|
|
76,272 |
|
|
|
(425,549 |
) |
Adjustment of deferred tax liabilities (1) |
|
|
(1,040,711 |
) |
|
|
(56,880 |
) |
|
|
(799,123 |
) |
|
|
(1,929,746 |
) |
Offering related expenses (8) |
|
|
1,387,760 |
|
|
|
— |
|
|
|
1,387,760 |
|
|
|
— |
|
Adjustment for noncontrolling interests (6) |
|
|
(744,709 |
) |
|
|
(1,784 |
) |
|
|
(876,681 |
) |
|
|
(1,435,079 |
) |
FFO, as adjusted (attributable to common |
|
$ |
14,951,443 |
|
|
$ |
8,463,081 |
|
|
$ |
29,050,370 |
|
|
$ |
13,232,157 |
|
The following is a reconciliation of FFO and FFO, as adjusted (attributable to common stockholders), to FFO and FFO, as adjusted (attributable to common stockholders and OP Unit holders), for each of the periods presented below:
74
|
|
Three Months |
|
|
Three Months |
|
|
Six Months |
|
|
Six Months |
|
||||
FFO (attributable to common stockholders and |
|
|
|
|
|
|
|
|
|
|
|
|
||||
FFO (attributable to common stockholders) |
|
$ |
9,359,921 |
|
|
$ |
8,446,169 |
|
|
$ |
22,366,514 |
|
|
$ |
2,378,057 |
|
Net income (loss) attributable to the noncontrolling |
|
|
1,758,141 |
|
|
|
(546,092 |
) |
|
|
2,161,963 |
|
|
|
(2,023,086 |
) |
Adjustment for noncontrolling interests(6) |
|
|
(58,107 |
) |
|
|
1,500,869 |
|
|
|
1,540,958 |
|
|
|
2,616,924 |
|
FFO (attributable to common stockholders and |
|
$ |
11,059,955 |
|
|
$ |
9,400,946 |
|
|
$ |
26,069,435 |
|
|
$ |
2,971,895 |
|
FFO, as adjusted (attributable to common |
|
|
|
|
|
|
|
|
|
|
|
|
||||
FFO, as adjusted (attributable to common stockholders) |
|
$ |
14,951,443 |
|
|
$ |
8,463,081 |
|
|
$ |
29,050,370 |
|
|
$ |
13,232,157 |
|
Net income (loss) attributable to the noncontrolling |
|
|
1,758,141 |
|
|
|
(546,092 |
) |
|
|
2,161,963 |
|
|
|
(2,023,086 |
) |
Adjustment for noncontrolling interests(6) |
|
|
686,602 |
|
|
|
1,502,653 |
|
|
|
2,417,639 |
|
|
|
4,052,003 |
|
FFO, adjusted (attributable to common |
|
$ |
17,396,186 |
|
|
$ |
9,419,642 |
|
|
$ |
33,629,972 |
|
|
$ |
15,261,074 |
|
(1) These items represent the amortization, accretion, or adjustment of intangible assets or deferred tax liabilities.
(2) This represents acquisition expenses associated with investments in real estate that were incurred prior to the acquisitions becoming probable and therefore not capitalized in accordance with our capitalization policy.
(3) The contingent earnout adjustment represents the adjustment to the fair value during the period of the Class A-2 Units issued in connection with the self administration transaction.
(4) The net loss associated with the extinguishment of debt includes prepayment penalties, defeasance costs, the write-off of unamortized deferred financing fees, and other fees incurred.
(5) This represents the mark-to-market adjustment for our derivative instruments not designated for hedge accounting and the ineffective portion of the change in fair value of derivatives recognized in earnings, as well as changes in foreign currency related to our foreign equity investments not classified as long term.
(6) This represents the portion of the above stated adjustments in the calculations of FFO and FFO, as adjusted, that are attributable to our non-controlling interests.
(7) This gain relates to the mark up in fair value of our preexisting equity interests in SSGT II as a result of our acquisition of control in the SSGT II Merger.
(8) Such costs relate to our filing of an S-11 registration statement and our pursuit of a potential offering of our common stock. As this item is non-recurring and not a primary driver in our decision-making process, FFO is adjusted for its effect to arrive at FFO, as adjusted, as a means of determining a comparable sustainable operating performance metric.
Cash Flows
A comparison of cash flows for operating, investing and financing activities for the six months ended June 30, 2022 and 2021 is as follows:
|
|
Six Months Ended |
|
|
|
|
||||||
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
Change |
|
|||
Net cash flow provided by (used in): |
|
|
|
|
|
|
|
|
|
|||
Operating activities |
|
$ |
41,260,764 |
|
|
$ |
21,629,817 |
|
|
$ |
19,630,947 |
|
Investing activities |
|
|
(146,001,246 |
) |
|
|
(98,333,499 |
) |
|
|
(47,667,747 |
) |
Financing activities |
|
|
113,723,939 |
|
|
|
29,734,478 |
|
|
|
83,989,461 |
|
75
Cash flows provided by operating activities for the six months ended June 30, 2022 and 2021 were approximately $41.3 million and $21.6 million, respectively, an increase of approximately $19.6 million. The increase in cash provided by our operating activities is primarily the result of an increase in net income when excluding the impact of non-cash items included in the determination of net income, which resulted in an increase in cash provided by operating activities of approximately $17.5 million, as well as an improvement of approximately $2.2 million resulting from changes in working capital accounts.
Cash flows used in investing activities for the six months ended June 30, 2022 and 2021 were approximately $146.0 million and $98.3 million, respectively, an increase in the use of cash of approximately $47.7 million. The increase in cash used in investing activities primarily relates to funding the SSGT II Merger and four other property acquisitions, collectively representing cash outflows of approximately $138.0 million during the six months ended June 30, 2022, compared to approximately $93.6 million of cash outflows during the six months ended June 30, 2022 used to complete the SST IV Merger and one other property acquisition.
Cash flows provided by financing activities for the six months ended June 30, 2022 and 2021 were approximately $113.7 million and $29.7 million, respectively, a change of approximately $84.0 million. The change in financing activities is primarily attributable to the net proceeds from the issuance of debt of approximately $150.5 million during the six months ended June 30, 2022 compared to the approximately $54.6 million net proceeds from the issuance of debt during the six months ended June 30, 2021.
Liquidity and Capital Resources
Short-Term Liquidity and Capital Resources
We generally expect that we will meet our short-term liquidity requirements from the combination of existing cash balances and net cash provided from property operations and the Managed REIT Platform and further supported by our Credit Facility. Alternatively, we may issue additional secured or unsecured financing from banks or other lenders, or we may enter into various other forms of financing.
Volatility in the debt and equity markets and continued and/or further impact of COVID-19, inflation and other economic events will depend on future developments, which are highly uncertain. While we do not expect such events to have a material impact upon our liquidity in the short-term, continued uncertainty or deterioration in the debt and equity markets over an extended period of time could potentially impact our liquidity over the long-term.
Distribution Policy and Distributions
Preferred Stock Dividends
The shares of Series A Convertible Preferred Stock rank senior to all other shares of our capital stock, including our common stock, with respect to rights to receive dividends and to participate in distributions or payments upon any voluntary or involuntary liquidation, dissolution or winding up of the Company. Dividends payable on each share of Series A Convertible Preferred Stock will initially be equal to a rate of 6.25% per annum, which accrues daily but is payable quarterly in arrears. If the Series A Convertible Preferred Stock has not been redeemed on or prior to the fifth anniversary date of the Initial Closing, the dividend rate will increase an additional 0.75% per annum each year thereafter to a maximum of 9.0% per annum until the tenth anniversary of the Initial Closing, at which time the dividend rate shall increase 0.75% per annum each year thereafter until the Series A Convertible Preferred Stock is either converted or repurchased in full.
76
Common Stock Distributions
On June 23, 2022, our board of directors declared a distribution rate for the month of July 2022 of approximately $0.00164 per day per share on the outstanding shares of common stock payable to Class A and Class T stockholders of record of such shares as shown on our books at the close of business on each day of the period commencing on July 1, 2022 and ending July 31, 2022. Such distributions payable to each stockholder of record during a month will be paid the following month.
On July 21, 2022, our board of directors declared a distribution rate for the month of August 2022 of approximately $0.00164 per day per share on the outstanding shares of common stock payable to Class A and Class T stockholders of record of such shares as shown on our books at the close of business on each day of the period commencing on August 1, 2022 and ending August 31, 2022. Such distributions payable to each stockholder of record during a month will be paid the following month.
Background and History of Common Stock Distributions
Since substantially all of our operations are performed indirectly through our Operating Partnership, our ability to pay distributions depends in large part on our Operating Partnership’s ability to pay distributions to its partners, including to us. In the event we do not have enough cash from operations to fund cash distributions, we may borrow, issue additional securities or sell assets in order to fund the distributions. The terms of the Series A Convertible Preferred Stock place certain restrictions on our ability to pay distributions to our common stockholders. In general, we are prohibited from paying distributions to our common stockholders other than regular cash dividends on a basis consistent with past practice and dividends payable in shares of common stock in connection with an initial listing of such shares. Accordingly, we are presently only permitted to pay cash distributions, which may be reinvested in stock pursuant to our DRP, unless otherwise approved by the holder of the Series A Convertible Preferred Stock. Absent the foregoing restrictions, our charter allows our board of directors to authorize payments to stockholders in cash or other assets of the Company or in stock, including in stock of one class payable to holders of stock of another class.
We may not be able to pay distributions from our cash flows from operations, in which case distributions may be paid in part from debt or other financing sources.
Distributions are paid to our common stockholders based on the record date selected by our board of directors. Such distributions are based on daily declaration and record dates. We expect to continue to regularly pay distributions unless our results of operations, our general financial condition, general economic conditions, or other factors inhibit us from doing so. Distributions are authorized at the discretion of our board of directors, which are directed, in substantial part, by its obligation to cause us to comply with the REIT requirements of the Code. Absent the restrictions noted above, our board of directors may increase, decrease or eliminate the distribution rate that is being paid on our common stock at any time. Distributions are made on all classes of our common stock at the same time. The funds that are available for distribution may be affected by a number of factors, including the following:
77
The following shows our distributions paid and the sources of such distributions for the respective periods presented:
|
|
Six Months |
|
|
|
|
|
Six Months |
|
|
|
|
||||
Distributions paid in cash — common stockholders |
|
$ |
20,200,992 |
|
|
|
|
|
$ |
11,798,066 |
|
|
|
|
||
Distributions paid in cash — Operating Partnership |
|
|
3,360,975 |
|
|
|
|
|
|
2,927,564 |
|
|
|
|
||
Distributions paid in cash — preferred stockholders |
|
|
6,232,877 |
|
|
|
|
|
|
6,010,812 |
|
|
|
|
||
Distributions reinvested |
|
|
5,243,398 |
|
|
|
|
|
|
8,849,845 |
|
|
|
|
||
Total distributions |
|
$ |
35,038,242 |
|
|
|
|
|
$ |
29,586,287 |
|
|
|
|
||
Source of distributions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash flows provided by operations |
|
$ |
35,038,242 |
|
|
|
100 |
% |
|
$ |
21,629,817 |
|
|
|
73 |
% |
Cash on hand |
|
|
— |
|
|
|
0 |
% |
|
|
— |
|
|
|
0 |
% |
Offering proceeds from distribution reinvestment plan |
|
|
— |
|
|
|
0 |
% |
|
|
7,956,470 |
|
|
|
27 |
% |
Total sources |
|
$ |
35,038,242 |
|
|
|
100 |
% |
|
$ |
29,586,287 |
|
|
|
100 |
% |
From our inception through June 30, 2022, we paid cumulative distributions of approximately $282 million, of which approximately $232 million were paid to common stockholders, as compared to cumulative FFO of approximately $41.4 million.
For the six months ended June 30, 2022, we paid distributions of approximately $20.2 million, of which approximately $20.2 million were paid to common stockholders, as compared to FFO (attributable to common stockholders) of approximately $22.4 million, which reflects debt defeasance costs of approximately $2.4 million and acquisition related expenses of approximately $0.7 million.
For the six months ended June 30, 2021, we paid distributions of approximately $29.6 million, of which approximately $11.8 million were paid to common stockholders, as compared to FFO (attributable to common stockholders) of approximately $2.4 million, which reflects a write-off of equity interest and preexisting relationships of approximately $8.4 million and acquisition related expenses of approximately $0.3 million.
The payment of distributions from sources other than FFO may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds.
We must distribute to our stockholders at least 90% of our taxable income each year in order to meet the requirements for being treated as a REIT under the Code. Our directors may authorize distributions in excess of this percentage as they deem appropriate. Because we may receive income from interest or rents at various times during our fiscal year, distributions may not reflect our income earned in that particular distribution period, but may be made in anticipation of cash flow that we expect to receive during a later period and may be made in advance of actual receipt of funds in an attempt to make distributions relatively uniform. To allow for such differences in timing between the receipt of income and the payment of expenses, and the effect of required debt payments, among other things, we could be required to borrow funds from third parties on a short-term basis, issue new securities, or sell assets to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT. We are not prohibited from undertaking such activities by our charter, bylaws or investment policies, and we may use an unlimited amount from any source to pay our distributions. These methods of obtaining funding could affect future distributions by increasing operating costs and decreasing available cash, which could reduce the value of our stockholders’ investment in our shares. In addition, such distributions may constitute a return of investors’ capital.
We may not be able to pay distributions from our cash flows from operations, in which case distributions may be paid in part from available funds or from debt financing and pursuant to our distribution reinvestment plan. The payment of distributions from sources other than cash flows from operations may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds.
Over the long-term, we expect that a greater percentage of our distributions will be paid from cash flows from operations. However, our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including our ability to raise and invest capital at favorable yields, the financial performance of our investments in the current real estate and financial environment and the types and mix of investments in our portfolio. As a result, future distributions declared and paid may exceed cash flow from operations.
78
Indebtedness
As of June 30, 2022, our net debt was approximately $1.0 billion, which included approximately $444 million in fixed rate debt and approximately $584 million in variable rate debt, less $0.1 million in debt discount and approximately $5.0 million in net debt issuance costs. See Note 5 – Debt, of the Notes to the Consolidated Financial Statements contained in this report for more information about our indebtedness.
Additionally, we are party to a master mortgage commitment agreement (the "SmartCentres Financing") with SmartCentres Storage Finance LP (the "SmartCentres Lender"). The SmartCentres Lender is an affiliate of SmartCentres Real Estate Investment Trust, an unaffiliated third party ("SmartCentres"), that owns the other 50% of our unconsolidated real estate joint ventures located in the Greater Toronto Area of Canada. As of June 30, 2022, approximately $101.1 million Canadian Dollars ("CAD") was outstanding on the SmartCentres Financing. The proceeds of the SmartCentres Financing have been and will be used to finance the development and construction of the SmartCentres joint venture properties. See Note 4 – Investments in Unconsolidated Real Estate Ventures, of the Notes to the Consolidated Financial Statements contained in this report for additional information regarding the SmartCentres Financing.
Long-Term Liquidity and Capital Resources
On a long-term basis, our principal demands for funds will be for potential property acquisitions, either directly or through entity interests, for the payment of operating expenses and distributions, to fund the growth of our Managed REITs through investment in loans, and/or advances, and for the payment of principal and interest on our outstanding indebtedness.
Long-term potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, issuance of equity instruments, undistributed funds from operations, and additional public or private offerings. To the extent we are not able to secure requisite financing in the form of a credit facility or other debt, we will be dependent upon proceeds from the issuance of equity securities and cash flows from operating activities in order to meet our long-term liquidity requirements and to fund our distributions.
Our material cash requirements from contractual and other obligations primarily relate to our debt obligations. The expected timing of those outstanding principal payments are shown in the table below. The information in this section should be read in conjunction with Note 5 – Debt, and Note 11 – Commitments and Contingencies, of the Notes to the Consolidated Financial Statements contained within this report.
|
|
Principal payments due during the years ending December 31: |
|
|
2022 |
|
$ |
1,270,186 |
|
2023 |
|
|
2,639,402 |
|
2024 |
|
|
336,539,683 |
|
2025 |
|
|
2,869,187 |
|
2026 |
|
|
341,916,098 |
|
2027 and thereafter |
|
|
342,605,555 |
|
Total payments |
|
$ |
1,027,840,111 |
|
Additionally, as of June 30, 2022, pursuant to the SST VI Mezzanine Loan, we were potentially required to fund an additional $38.2 million in debt to SST VI at their option. On July 8, 2022, SST VI borrowed $7.2 million pursuant to the SST VI Mezzanine Loan and we were potentially required to fund an additional $31.0 million as of such date pursuant to the SST VI Mezzanine Loan.
On August 9, 2022 we entered into a mezzanine loan for up to approximately $50.0 million with SSGT III and initially funded $42.0 million. Pursuant to such loan, after this initial funding, we are potentially still required to fund an additional $8.0 million.
During the quarter ended June 30, 2022, SmartStop committed to contribute $5.0 million to SSGT III's operating partnership in exchange for common units in SSGT III's operating partnership at such time as SSGT III has raised $10 million in its private placement offering.
See Note 9 – Related Party Transactions and Note 13 – Subsequent Events, of the Notes to the Consolidated Financial Statements for more information about our obligations under these agreements.
For cash requirements related to potential acquisitions currently under contract, please see Note 3 – Real Estate Facilities of the Notes to the Consolidated Financial Statements.
79
Subsequent Events
Please see Note 13 – Subsequent Events of the Notes to the Consolidated Financial Statements contained in this report.
Seasonality
We believe that we will experience minor seasonal fluctuations in the occupancy levels of our facilities, which we believe will be slightly higher over the summer months due to increased moving activity.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk and to a lesser extent, foreign currency risk. We may be exposed to the effects of interest rate changes primarily as a result of borrowings used to maintain liquidity and fund acquisition, expansion, and financing of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve our objectives, we may borrow at fixed rates or variable rates. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes.
As of June 30, 2022, our net debt was approximately $1.0 billion, which included approximately $444 million in fixed rate debt and approximately $584 million in variable rate debt, less $0.1 million in debt discount and approximately $5.0 million in net debt issuance costs. As of December 31, 2021, our net debt was approximately $873.9 million, which included approximately $340.7 million in fixed rate debt, $536.8 million in variable rate debt and approximately $0.2 million in net debt premium less approximately $3.9 million in net debt issuance costs. Our debt instruments were entered into for other than trading purposes.
Changes in interest rates have different impacts on the fixed and variable debt. A change in interest rates on fixed rate debt impacts its fair value but has no impact on interest incurred or cash flows. A change in interest rates on variable debt could impact the interest incurred and cash flows and its fair value. If the underlying rate of the related index on our variable rate debt were to increase by 100 basis points, the increase in interest would decrease future earnings and cash flows by approximately $4.3 million annually.
Interest rate risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.
80
The following table summarizes annual debt maturities and average interest rates on our outstanding debt as of June 30, 2022:
|
|
Year Ending December 31, |
|
|||||||||||||||||||||||||
|
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
Thereafter |
|
|
Total |
|
|||||||
Fixed rate debt |
|
$ |
1,270,186 |
|
|
$ |
2,639,402 |
|
|
$ |
2,734,895 |
|
|
$ |
2,869,187 |
|
|
$ |
91,916,098 |
|
|
$ |
342,605,555 |
|
|
$ |
444,035,323 |
|
Average interest |
|
|
4.43 |
% |
|
|
4.43 |
% |
|
|
4.43 |
% |
|
|
4.43 |
% |
|
|
4.49 |
% |
|
|
4.51 |
% |
|
|
|
|
Variable rate debt |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
333,804,788 |
|
|
$ |
— |
|
|
$ |
250,000,000 |
|
|
$ |
— |
|
|
$ |
583,804,788 |
|
Average interest |
|
|
3.16 |
% |
|
|
3.16 |
% |
|
|
3.13 |
% |
|
|
3.10 |
% |
|
|
3.10 |
% |
|
N/A |
|
|
|
|
||
(1) Interest expense for fixed rate debt was calculated based upon the contractual rate and the interest expense on variable rate debt was calculated based on the rate in effect on June 30, 2022, excluding the impact of interest rate derivatives. Debt denominated in foreign currency has been converted based on the rate in effect as of June 30, 2022.
Currently, our only foreign exchange rate risk comes from our Canadian properties and the Canadian Dollar (“CAD”). Our existing foreign currency hedges mitigate most of our foreign currency exposure of our net CAD denominated investments; however, we generate all of our revenues and expend essentially all of our operating expenses and third party debt service costs related to our Canadian Properties in CAD. As a result of fluctuations in currency exchange, our cash flows and results of operations could be affected.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
81
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
The following should be read in conjunction with the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2021. With the exception of the risk factors set forth below, there have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2021.
We have incurred and intend to continue to incur, mortgage indebtedness and other borrowings, which may increase our business risks.
We have placed, and intend to continue to place, permanent financing on our properties and we may obtain additional credit facilities or other similar financing arrangements in order to acquire additional properties. We are a party to various debt arrangements, including our Credit Facility with KeyBank, National Association of up to $700 million, consisting of a term loan of up to $250 million and a revolver of up to $450 million. As of December 31, 2021, approximately $233 million was borrowed of the $450 million current capacity revolver and all $250 million was borrowed of the $250 million current capacity of the term loan. The Credit Facility may be increased by an additional $350 million, for an aggregate amount of up to $1.05 billion, subject to certain conditions. We are also party to a note purchase agreement, whereby we issued to the purchasers named therein an aggregate of $150 million of secured notes payable. The notes are subject to a series of financial and other covenants substantially similar to the Credit Facility.
The notes are pari passu with the Credit Facility and share in the existing pool of collateral. Both the notes and Credit Facility are currently secured by a pledge of equity interests, but can become unsecured at our election and upon the achievement of certain security interest termination conditions. We may also decide to later further leverage our properties. We may incur mortgage debt and pledge all or some of our real properties as security for that debt to obtain funds to acquire real properties. If we default on our secured indebtedness, the lender may foreclose and we could lose our entire investment in the properties securing such loan, which could adversely affect distributions to our stockholders. To the extent lenders require us to cross-collateralize our properties, or our loan agreements contain cross-default provisions, a default under a single loan agreement could subject multiple properties to foreclosure.
In addition, we may borrow if we need funds to pay a desired distribution rate to our stockholders. We may also borrow if we deem it necessary or advisable to assure that we maintain our qualification as a REIT for federal income tax purposes. If there is a shortfall between the cash flow from our properties and the cash flow needed to service mortgage debt, then the amount available for distribution to our stockholders may be reduced.
If we or the other parties to our loans or secured notes payable, as applicable, breach covenants thereunder, such loan or loans or secured notes payable could be deemed in default, which could accelerate our repayment date and materially adversely affect the value of our stockholders’ investment in us.
Certain of our loans are secured by first mortgages on some of our properties, and other loans and our secured notes payable are secured by pledges of equity interests in the entities that own certain of our properties. Such loans and our secured notes payable also impose a number of financial or other covenant requirements on us. If we, or the other parties to these loans or notes, should breach certain of those financial or other covenant requirements, or otherwise default on such loans or notes, then the respective lenders or noteholders, as the case may be, could accelerate our repayment dates. If we do not have sufficient cash to repay the applicable loan or note at that time, such lenders or noteholder could foreclose on the property securing the applicable loan or note or take control of the pledged collateral, as the case may be. Such foreclosure could result in a material loss for us and would adversely affect the value of our stockholders’ investment in us. In addition, certain of our loans are cross-collateralized and cross-defaulted with each other such that a default under one loan would cause a default under the other loans.
We are in the process of migrating to a new property management platform, and if this new platform proves ineffective or we experience difficulties with the migration, we may experience disruptions to our business that may adversely affect our results from operations.
We are in the process of migrating to a new property management platform, which has been recently developed and does not have a proven operating history. As we migrate to the new platform and implement it at our self storage facilities,
82
we may experience disruptions to our operations associated with the new platform. Such disruptions could include software defects or errors, system failures, technical or integration issues with specific features of the platform, technical or integration issues with other third party technologies currently used in our business, or human error associated with the implementation of the platform, any of which could adversely affect our operations or financial reporting. Additionally, we could experience disruptions associated with capacity constraints as the new platform is initially implemented across our business. In the event such disruptions persist, or our property managers are unable to adequately respond to such disruptions, the ability of our property managers to perform their duties could suffer, which may have an adverse effect on our results from operations.
Our future results may suffer as a result of the effect of recent affiliated mergers, acquisitions and other strategic transactions.
We consummated the SSGT Merger in January 2019, the SST IV Merger in March 2021 and the SSGT II Merger in June 2022. We will likely continue to expand our operations through additional mergers, acquisitions and other strategic transactions, including such transactions with affiliated real estate programs or Managed REITs, some of which may involve complex challenges. Our future success will depend, in part, upon the merger consideration negotiated by our special committees appointed by our board of directors in connection with these affiliated mergers, our ability to manage our expansion opportunities, integrate new operations into our existing business in an efficient and timely manner, successfully monitoring our operations, costs and service quality, and maintaining other necessary internal controls. There can be no assurance that our expansion or acquisition opportunities will be successful, or that we will realize our expected operating efficiencies, cost savings, revenue enhancements, synergies, or other benefits. Moreover, we assumed the liabilities of SSGT, SST IV and SSGT II in connection with the respective mergers. These liabilities could have a material adverse effect on our business to the extent we have not identified such liabilities or have underestimated the amount of such liabilities.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
For the Month Ended |
|
Total Number of |
|
|
Average Price |
|
|
Total Number of |
|
|
Maximum Number |
|
|
||||
April 30, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
3,971,919 |
|
(1) |
May 31, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
3,971,919 |
|
(1) |
June 30, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
3,971,919 |
|
(1) |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The exhibits required to be filed with this report are set forth on the Exhibit Index hereto and incorporated by reference herein.
83
EXHIBIT INDEX
The following exhibits are included in this report on Form 10-Q for the period ended June 30, 2022 (and are numbered in accordance with Item 601 of Regulation S-K).
Exhibit No. |
|
Description |
|
|
|
2.1 |
|
|
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
3.3 |
|
|
3.4 |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2 |
|
|
|
|
|
10.3 |
|
|
|
|
|
10.4 |
|
|
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
32.1* |
|
|
|
|
|
32.2* |
|
|
|
|
|
101* |
|
The following SmartStop Self Storage REIT, Inc. financial information for the three and six months ended June 30, 2022 formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss) (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
104* |
|
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 has been formatted in Inline XBRL. |
* Filed herewith.
84
Certain instruments defining rights of holders of long-term debt of the company and its consolidated subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. Upon request, the company agrees to furnish to the SEC copies of such instruments.
85
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
SMARTSTOP SELF STORAGE REIT, INC. (Registrant) |
|
|
|
|
Dated: August 11, 2022 |
By: |
/s/ James R. Barry |
|
|
James R. Barry |
|
|
Chief Financial Officer and Treasurer (Principal Financial Officer) |
86