0001564590-18-021331.txt : 20180813 0001564590-18-021331.hdr.sgml : 20180813 20180810185832 ACCESSION NUMBER: 0001564590-18-021331 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 62 CONFORMED PERIOD OF REPORT: 20180630 FILED AS OF DATE: 20180813 DATE AS OF CHANGE: 20180810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Strategic Storage Growth Trust, Inc. CENTRAL INDEX KEY: 0001575428 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 462335760 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-55616 FILM NUMBER: 181010027 BUSINESS ADDRESS: STREET 1: 10 TERRACE ROAD CITY: LADERA RANCH STATE: CA ZIP: 92694 BUSINESS PHONE: 949 429 6600 MAIL ADDRESS: STREET 1: 10 TERRACE ROAD CITY: LADERA RANCH STATE: CA ZIP: 92694 FORMER COMPANY: FORMER CONFORMED NAME: Strategic Storage Opportunity Trust, Inc. DATE OF NAME CHANGE: 20130426 10-Q 1 ck0001575428-10q_20180630.htm 10-Q 20180630 ck0001575428-10q_20180630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 000-55616

 

Strategic Storage Growth Trust, Inc.

(Exact name of Registrant as specified in its charter)

 

 

Maryland

46-2335760

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

10 Terrace Road,

Ladera Ranch, California 92694

(Address of principal executive offices)

(877) 327-3485

(Registrant’s telephone number)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

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.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

 

 

 

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.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of August 9, 2018, there were 19,033,052 outstanding shares of Class A common stock and 7,599,792 outstanding shares of Class T common stock of the registrant.

 

 

 


 

FORM 10-Q

STRATEGIC STORAGE GROWTH TRUST, INC.

TABLE OF CONTENTS

 

 

 

Page No.

 

Cautionary Note Regarding Forward-Looking Statements

3

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Consolidated Financial Statements:

4

 

 

 

 

Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017

5

 

 

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)

6

 

 

 

 

Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)

7

 

 

 

 

Consolidated Statement of Equity for the Six Months Ended June 30, 2018 (unaudited)

8

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 (unaudited)

9

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

10

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

32

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

49

 

 

 

Item 4.

Controls and Procedures

50

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

51

 

 

 

Item 1A.

Risk Factors

51

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

 

 

 

Item 3.

Defaults Upon Senior Securities

52

 

 

 

Item 4.

Mine Safety Disclosures

52

 

 

 

Item 5.

Other Information

52

 

 

 

Item 6.

Exhibits

52

2


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q of Strategic Storage Growth Trust, 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, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet 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. See the risk factors identified in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2017, 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, for a discussion of some, although not all, of the risks and uncertainties that could cause actual results to differ materially from those presented in our forward-looking statements.

3


 

PART I. FINANCIAL INFORMATION

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

The information furnished in the accompanying unaudited consolidated balance sheets and related consolidated statements of operations, comprehensive 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, 2017. Our results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the operating results expected for the full year.

4


 

STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

June 30,

2018

(Unaudited)

 

 

December 31,

2017

 

ASSETS

 

 

 

 

 

 

 

 

Real estate facilities:

 

 

 

 

 

 

 

 

Land

 

$

49,243,040

 

 

$

40,955,234

 

Buildings

 

 

177,577,078

 

 

 

125,878,582

 

Site improvements

 

 

12,206,834

 

 

 

9,527,049

 

 

 

 

239,026,952

 

 

 

176,360,865

 

Accumulated depreciation

 

 

(9,968,170

)

 

 

(7,052,779

)

 

 

 

229,058,782

 

 

 

169,308,086

 

Construction in process

 

 

3,193,765

 

 

 

10,753,238

 

Real estate facilities, net

 

 

232,252,547

 

 

 

180,061,324

 

Cash and cash equivalents

 

 

3,138,521

 

 

 

52,720,171

 

Other assets, net

 

 

4,808,380

 

 

 

5,825,906

 

Debt issuance costs, net

 

 

231,949

 

 

 

465,378

 

Intangible assets, net

 

 

788,275

 

 

 

856,979

 

Total assets

 

$

241,219,672

 

 

$

239,929,758

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Secured debt, net

 

$

12,495,015

 

 

$

5,594,779

 

Accounts payable and accrued liabilities

 

 

4,499,990

 

 

 

3,800,992

 

Due to affiliates

 

 

2,981,554

 

 

 

3,406,088

 

Distributions payable

 

 

813,643

 

 

 

833,488

 

Total liabilities

 

 

20,790,202

 

 

 

13,635,347

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Redeemable common stock

 

 

7,045,646

 

 

 

5,679,485

 

Equity:

 

 

 

 

 

 

 

 

Strategic Storage Growth Trust, Inc. equity:

 

 

 

 

 

 

 

 

Preferred Stock, $0.001 par value; 200,000,000 shares authorized; none issued

   and outstanding at June 30, 2018 and December 31, 2017

 

 

 

 

 

 

Class A Common stock, $0.001 par value; 350,000,000 shares authorized;

   19,103,986 and 18,942,639 shares issued and outstanding at June 30,

   2018 and December 31, 2017, respectively

 

 

19,104

 

 

 

18,943

 

Class T Common stock, $0.001 par value; 350,000,000 shares authorized;

   7,598,165 and 7,566,333 shares issued and outstanding at June 30,

   2018 and December 31, 2017, respectively

 

 

7,598

 

 

 

7,567

 

Additional paid-in capital

 

 

247,559,502

 

 

 

247,552,584

 

Distributions

 

 

(15,543,454

)

 

 

(10,655,612

)

Accumulated deficit

 

 

(18,425,234

)

 

 

(16,607,616

)

Accumulated other comprehensive income (loss)

 

 

(155,544

)

 

 

371,923

 

Total Strategic Storage Growth Trust, Inc. equity

 

 

213,461,972

 

 

 

220,687,789

 

Noncontrolling interests in our Operating Partnership

 

 

(78,148

)

 

 

(72,863

)

Total equity

 

 

213,383,824

 

 

 

220,614,926

 

Total liabilities and equity

 

$

241,219,672

 

 

$

239,929,758

 

 

See notes to consolidated financial statements.

5


 

STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Self storage rental revenue

 

$

4,642,910

 

 

$

3,024,621

 

 

$

8,885,974

 

 

$

5,711,108

 

Ancillary operating revenue

 

 

144,496

 

 

 

23,760

 

 

 

258,860

 

 

 

41,704

 

Total revenues

 

 

4,787,406

 

 

 

3,048,381

 

 

 

9,144,834

 

 

 

5,752,812

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

2,229,347

 

 

 

1,338,707

 

 

 

3,970,365

 

 

 

2,488,203

 

Property operating expenses – affiliates

 

 

635,632

 

 

 

360,456

 

 

 

1,191,329

 

 

 

659,783

 

General and administrative

 

 

1,008,570

 

 

 

597,542

 

 

 

1,765,108

 

 

 

1,178,676

 

Depreciation

 

 

1,608,668

 

 

 

854,560

 

 

 

2,954,196

 

 

 

1,533,665

 

Intangible amortization expense

 

 

252,991

 

 

 

245,843

 

 

 

463,704

 

 

 

444,431

 

Acquisition expenses – affiliates

 

 

26,774

 

 

 

463,469

 

 

 

139,354

 

 

 

1,072,488

 

Other property acquisition expenses

 

 

2,565

 

 

 

237,100

 

 

 

91,274

 

 

 

339,906

 

Total operating expenses

 

 

5,764,547

 

 

 

4,097,677

 

 

 

10,575,330

 

 

 

7,717,152

 

Operating loss

 

 

(977,141

)

 

 

(1,049,296

)

 

 

(1,430,496

)

 

 

(1,964,340

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(39,500

)

 

 

(24,055

)

 

 

(80,929

)

 

 

(39,155

)

Interest expense – debt issuance costs

 

 

(152,541

)

 

 

(178,558

)

 

 

(293,253

)

 

 

(326,797

)

Other

 

 

(26,421

)

 

 

123,859

 

 

 

(14,238

)

 

 

110,650

 

Net loss

 

 

(1,195,603

)

 

 

(1,128,050

)

 

 

(1,818,916

)

 

 

(2,219,642

)

Net loss attributable to the noncontrolling interests in

   our Operating Partnership

 

 

829

 

 

 

1,081

 

 

 

1,298

 

 

 

2,476

 

Net loss attributable to Strategic Storage Growth Trust,

   Inc. common stockholders

 

$

(1,194,774

)

 

$

(1,126,969

)

 

$

(1,817,618

)

 

$

(2,217,166

)

Net loss per Class A share—basic and diluted

 

$

(0.04

)

 

$

(0.04

)

 

$

(0.07

)

 

$

(0.11

)

Net loss per Class T share—basic and diluted

 

$

(0.04

)

 

$

(0.04

)

 

$

(0.07

)

 

$

(0.11

)

Weighted average Class A shares outstanding—basic and

   diluted

 

 

19,051,633

 

 

 

18,486,387

 

 

 

19,015,577

 

 

 

14,753,319

 

Weighted average Class T shares outstanding—basic and

   diluted

 

 

7,592,058

 

 

 

7,368,963

 

 

 

7,586,693

 

 

 

5,171,021

 

 

See notes to consolidated financial statements.

 

6


 

STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net loss

 

$

(1,195,603

)

 

$

(1,128,050

)

 

$

(1,818,916

)

 

$

(2,219,642

)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(214,950

)

 

 

215,085

 

 

 

(527,467

)

 

 

261,502

 

Comprehensive loss

 

 

(1,410,553

)

 

 

(912,965

)

 

 

(2,346,383

)

 

 

(1,958,140

)

Comprehensive loss attributable to noncontrolling

   interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss attributable to the noncontrolling

   interests in our Operating Partnership

 

 

991

 

 

 

931

 

 

 

1,696

 

 

 

2,258

 

Comprehensive loss attributable to Strategic Storage

   Growth Trust, Inc. common stockholders

 

$

(1,409,562

)

 

$

(912,034

)

 

$

(2,344,687

)

 

$

(1,955,882

)

 

See notes to consolidated financial statements.

 

 

7


 

 

STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

Class T

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Strategic

 

 

Noncontrolling

 

 

 

 

 

 

 

 

 

 

 

Number of

Shares

 

 

Common

Stock

Par Value

 

 

Number of

Shares

 

 

Common

Stock

Par Value

 

 

Additional

Paid-in

Capital

 

 

Distributions

 

 

Accumulated

Deficit

 

 

Other

Comprehensive

Income (Loss)

 

 

Storage

Growth Trust,

Inc. Equity

 

 

Interests in

our Operating

Partnership

 

 

Total

Equity

 

 

Redeemable

Common

Stock

 

Balance as of

   December 31, 2017

 

 

18,942,639

 

 

$

18,943

 

 

 

7,566,333

 

 

$

7,567

 

 

$

247,552,584

 

 

$

(10,655,612

)

 

$

(16,607,616

)

 

$

371,923

 

 

$

220,687,789

 

 

$

(72,863

)

 

$

220,614,926

 

 

$

5,679,485

 

Offering costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,197

)

 

 

 

 

 

 

 

 

 

 

 

(8,197

)

 

 

 

 

 

(8,197

)

 

 

 

Changes to redeemable

   common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,832,871

)

 

 

 

 

 

 

 

 

 

 

 

(2,832,871

)

 

 

 

 

 

(2,832,871

)

 

 

2,832,871

 

Redemptions of common

   stock

 

 

(31,252

)

 

 

(31

)

 

 

(25,690

)

 

 

(26

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(57

)

 

 

 

 

 

(57

)

 

 

(1,466,710

)

Issuance of restricted stock

 

 

5,000

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

 

 

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,887,842

)

 

 

 

 

 

 

 

 

(4,887,842

)

 

 

 

 

 

(4,887,842

)

 

 

 

Distributions to noncontrolling

   interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,987

)

 

 

(3,987

)

 

 

 

Issuance of shares for

   distribution reinvestment

   plan

 

 

187,599

 

 

 

187

 

 

 

57,522

 

 

 

57

 

 

 

2,832,627

 

 

 

 

 

 

 

 

 

 

 

 

2,832,871

 

 

 

 

 

 

2,832,871

 

 

 

 

Stock based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,359

 

 

 

 

 

 

 

 

 

 

 

 

15,359

 

 

 

 

 

 

15,359

 

 

 

 

Net loss attributable to

   Strategic Storage

   Growth Trust, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,817,618

)

 

 

 

 

 

(1,817,618

)

 

 

 

 

 

(1,817,618

)

 

 

 

Net loss attributable

   to the noncontrolling

   interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,298

)

 

 

(1,298

)

 

 

 

Foreign currency translation

   adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(527,467

)

 

 

(527,467

)

 

 

 

 

 

(527,467

)

 

 

 

Balance as of

   June 30, 2018

 

 

19,103,986

 

 

$

19,104

 

 

 

7,598,165

 

 

$

7,598

 

 

$

247,559,502

 

 

$

(15,543,454

)

 

$

(18,425,234

)

 

$

(155,544

)

 

$

213,461,972

 

 

$

(78,148

)

 

$

213,383,824

 

 

$

7,045,646

 

 

See notes to consolidated financial statements.

 

 

8


 

STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(1,818,916

)

 

$

(2,219,642

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,711,153

 

 

 

2,304,893

 

Expense related to issuance of restricted stock

 

 

15,359

 

 

 

11,131

 

Increase (decrease) in cash and cash equivalents from changes in assets

   and liabilities:

 

 

 

 

 

 

 

 

Other assets, net

 

 

(563,938

)

 

 

(246,002

)

Accounts payable and accrued liabilities

 

 

43,086

 

 

 

627,803

 

Due to affiliates

 

 

(52,377

)

 

 

40,407

 

Net cash provided by operating activities

 

 

1,334,367

 

 

 

518,590

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of real estate

 

 

(50,345,667

)

 

 

(45,050,000

)

Additions and development to real estate

 

 

(4,500,349

)

 

 

(2,885,276

)

Deposits on acquisitions of real estate facilities

 

 

 

 

 

(2,250,000

)

Distributions from preferred investment

 

 

75,600

 

 

 

 

Net cash used in investing activities

 

 

(54,770,416

)

 

 

(50,185,276

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of revolving secured debt

 

 

9,000,000

 

 

 

5,000,000

 

Principal payments of revolving secured debt

 

 

 

 

 

(12,647,000

)

Proceeds from issuance of non-revolving secured debt

 

 

3,046,349

 

 

 

 

Principal payments of non-revolving secured debt

 

 

(5,053,000

)

 

 

 

Debt issuance costs

 

 

(100,809

)

 

 

(95,063

)

Gross proceeds from issuance of common stock

 

 

 

 

 

171,980,653

 

Offering costs

 

 

(392,151

)

 

 

(12,999,556

)

Redemptions of common stock

 

 

(534,821

)

 

 

(89,593

)

Distributions paid to common stockholders

 

 

(2,074,794

)

 

 

(1,307,975

)

Distributions paid to noncontrolling interests

 

 

(4,009

)

 

 

(3,967

)

Net cash provided by financing activities

 

 

3,886,765

 

 

 

149,837,499

 

Impact of foreign exchange rate changes on cash and cash equivalents

 

 

(32,366

)

 

 

19,156

 

Net change in cash and cash equivalents

 

 

(49,581,650

)

 

 

100,189,969

 

Cash and cash equivalents, beginning of period

 

 

52,720,171

 

 

 

3,642,631

 

Cash and cash equivalents, end of period

 

$

3,138,521

 

 

$

103,832,600

 

Supplemental disclosures and non-cash transactions:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

260,800

 

 

$

255,103

 

Interest capitalized

 

$

196,496

 

 

$

151,763

 

Supplemental disclosure of noncash activities:

 

 

 

 

 

 

 

 

Deposits applied to purchase of real estate facilities

 

$

1,550,000

 

 

$

400,000

 

Construction in process in accounts payable and accrued liabilities

 

$

615,457

 

 

$

 

Construction in process placed in service

 

$

11,301,512

 

 

$

 

Offering costs included in due to affiliates

 

$

 

 

$

2,793,738

 

Distributions payable to common stockholders

 

$

813,643

 

 

$

833,488

 

Issuance of shares pursuant to distribution reinvestment plan

 

$

2,832,871

 

 

$

1,920,766

 

Redemptions of common stock included in accounts payable

   and accrued liabilities

 

$

941,416

 

 

$

9,204

 

 

See notes to consolidated financial statements.

 

9


 

STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(Unaudited)

 

Note 1. Organization

Strategic Storage Growth Trust, Inc., a Maryland corporation (the “Company”), was formed on March 12, 2013 under the Maryland General Corporation Law for the purpose of engaging in the business of investing in self storage facilities. The Company’s year-end is December 31. As used in this report, “we,” “us,” “our,” and “Company” refer to Strategic Storage Growth Trust, Inc. and each of our subsidiaries.

SmartStop Asset Management, LLC, a Delaware limited liability company organized in 2013, was the sponsor of our Offering of shares of common stock (our “Sponsor”), as described below. Our Sponsor is a company focused on providing real estate advisory, asset management, and property management services. Our Sponsor owns 97.5% of the economic interests (and 100% of the voting membership interests) of SS Growth Advisor, LLC (our “Advisor”) and owns 100% of SS Growth Property Management, LLC (our “Property Manager”).

On October 1, 2015, SmartStop Self Storage, Inc. (“SmartStop”) and Extra Space Storage Inc. (“Extra Space”), along with subsidiaries of each of SmartStop and Extra Space, closed on a merger transaction (the “Merger”) in which SmartStop was acquired by Extra Space for $13.75 per share in cash, representing an enterprise value of approximately $1.4 billion. At the closing of the Merger, our Sponsor, which was previously owned by SmartStop, was sold to an entity controlled by H. Michael Schwartz, our Chairman of the Board of Directors and Chief Executive Officer, and became our Sponsor. The former executive management team of SmartStop continued to serve on the executive management team for our Sponsor. In addition, the majority of our management team at the time of the Merger continues to serve on our management team, as well as the management team of our Advisor and Property Manager.

We have no employees. Our Advisor, a Delaware limited liability company, was formed on March 12, 2013. Our Advisor is responsible for managing our affairs on a day-to-day basis and identifying and making acquisitions and investments on our behalf under the terms of the advisory agreement we have with our Advisor (our “Advisory Agreement”). The officers of our Advisor are also officers of us and our Sponsor.

Our Second Articles of Amendment and Restatement, as amended, authorize 350,000,000 shares of Class A common stock (“Class A Shares”), $0.001 par value per share and 350,000,000 shares of Class T common stock (“Class T Shares”), $0.001 par value per share and 200,000,000 shares of preferred stock with a par value of $0.001. On June 17, 2013, we commenced a private placement offering to accredited investors only for a maximum of $109.5 million in shares of common stock, including shares being offered pursuant to our distribution reinvestment plan (the “Private Offering”). On May 23, 2014, we satisfied the minimum offering requirements of $1 million from our Private Offering and commenced formal operations. We terminated the Private Offering on January 16, 2015. We raised gross offering proceeds of approximately $7.8 million from the issuance of approximately 830,000 shares pursuant to the Private Offering.

On January 20, 2015, we commenced a public offering of a maximum of $1.0 billion in common shares for sale to the public (the “Primary Offering”) and $95.0 million in common shares for sale pursuant to our distribution reinvestment plan (collectively, the “Public Offering”). The close down of our Primary Offering occurred on March 31, 2017. We sold approximately 17.9 million Class A Shares and approximately 7.5 million Class T Shares for approximately $193 million and $79 million respectively, in our Public Offering. On May 5, 2017, we filed with the SEC a Registration Statement on Form S-3, which registered up to an additional $115.6 million in shares under our distribution reinvestment plan (our “DRP Offering”). The DRP Offering may be terminated at any time upon 10 days’ prior written notice to stockholders. As of June 30, 2018, we had sold approximately 410,000 Class A Shares and approximately 129,000 Class T Shares for approximately $4.7 million and $1.5 million, respectively, in our DRP Offering.

During the second quarter of 2018, our board of directors established a special committee comprised solely of its independent directors to conduct a review of strategic alternatives and address any potential conflicts of interest.  The special committee has initiated a strategic review process to identify, examine, and consider a range of strategic alternatives available to us with the objective of maximizing stockholder value. The special committee has engaged KeyBanc Capital Markets Inc. as its independent financial advisor and retained special independent legal counsel in connection with such strategic review process.  There can be no assurance that the strategic review process will result in a strategic alternative being pursued or if pursued, that any such transaction would ultimately be consummated.

10


STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(Unaudited)

 

We have and intend to continue to invest primarily in opportunistic self storage facilities, which may include facilities to be developed, currently under development or in lease-up and self storage facilities in need of expansion, redevelopment or repositioning. As of June 30, 2018, we owned 28 self storage facilities located in 10 states (Arizona, California, Colorado, Florida, Illinois, Massachusetts, Nevada, North Carolina, South Carolina and Texas) and Canada (the Greater Toronto Area).

On April 19, 2018, our board of directors, upon recommendation of our Nominating and Corporate Governance Committee, approved an estimated value per share of our common stock of $11.58 for our Class A Shares and Class T Shares based on the estimated value of our assets less the estimated value of our liabilities, or net asset value, divided by the number of shares outstanding on a fully diluted basis, calculated as of December 31, 2017.

As a result of the calculation of our estimated value per share, effective in May 2018, shares sold pursuant to our distribution reinvestment plan are being sold at the estimated value per share of our common stock of $11.58 per share for Class A Shares and Class T Shares.

Our operating partnership, SS Growth Operating Partnership, L.P., a Delaware limited partnership (our “Operating Partnership”), was formed on March 13, 2013. During 2013, our Advisor purchased a limited partnership interest in our Operating Partnership totaling $201,000 and on May 31, 2013, we contributed the initial $1,000 capital contribution we received to our Operating Partnership in exchange for the general partner interest. Our Operating Partnership owns, directly or indirectly through one or more special purpose entities, all of the self storage properties that we acquire. As of June 30, 2018, we owned approximately 99.9% of the common units of limited partnership interests of our Operating Partnership. The remaining approximately 0.1% of the common units are owned by our Advisor.

As the sole general partner of our Operating Partnership, we have the exclusive power to manage and conduct the business of our Operating Partnership. We conduct certain activities through our taxable REIT subsidiary, SS Growth TRS, Inc., a Delaware corporation (the “TRS”) which was formed on March 14, 2013, and is a wholly owned subsidiary of our Operating Partnership.

Our Property Manager was formed on March 12, 2013 to manage our properties. Our Property Manager derives substantially all of its income from the property management services it performs for us. Our Property Manager may enter into sub-property management agreements with third party management companies and pay part of its management fee to such sub-property manager. From October 1, 2015 through September 30, 2017, our Property Manager contracted with Extra Space Storage, Inc. (“Extra Space”) for Extra Space to serve as the sub-property manager for each of our properties located in the United States pursuant to separate sub-property management agreements for each property.  

On October 1, 2017, our Property Manager terminated each sub-property management agreement with Extra Space and our Property Manager now manages all of our properties directly. In connection therewith an affiliate of our Property Manager acquired the “SmartStop® Self Storage” brand from Extra Space. We began using the “SmartStop® Self Storage” brand at our United States properties effective October 1, 2017. Please see Note 6 – Related Party Transactions – Property Management Agreement.  

All properties owned or acquired in Canada will be managed by a subsidiary of our Sponsor and are branded using the SmartStop® Self Storage brand.

Our dealer manager is Select Capital Corporation, a California corporation (our “Dealer Manager”). Our Dealer Manager was responsible for marketing our shares being offered pursuant to our Primary Offering. Our Sponsor owns a 15% non-voting equity interest in our Dealer Manager. Affiliates of our Dealer Manager own a 2.5% non-voting membership interest in our Advisor.

Our Sponsor owns 100% of the membership interests of Strategic Transfer Agent Services, LLC, our transfer agent (our “Transfer Agent”). On May 31, 2018, the Company executed a transfer agent agreement (the “Transfer Agent Agreement”), with our Transfer Agent. Our Transfer Agent provides transfer agent and registrar services to us that are substantially similar to what a third party transfer agent would provide in the ordinary course of performing its functions as a transfer agent. Our Transfer Agent may retain and supervise third party vendors in its efforts to administer certain services.

11


STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(Unaudited)

 

As we accepted subscriptions for shares of our common stock, we transferred 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 Public 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 the limited partnership agreement of our Operating Partnership, as amended (the “Operating Partnership Agreement”). Our Advisor is prohibited from exchanging or otherwise transferring its limited partnership units so long as it is acting as our Advisor pursuant to our Advisory Agreement.

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

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 consolidated entities not wholly-owned by us is presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated in consolidation.

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 the primary beneficiary.

As of June 30, 2018 and December 31, 2017, we had not entered into any other contracts/interests that would be deemed to be variable interests in a VIE other than one preferred equity investment, which was accounted for under the equity method of accounting. Other than the preferred equity investment, we do not currently have any relationships with unconsolidated entities or financial partnerships. For more information please see Note 8 of the Notes to the Consolidated Financial Statements contained in this report.

12


STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(Unaudited)

 

Noncontrolling Interest in Consolidated Entities

We account for the noncontrolling interest in our Operating Partnership 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 partner, our Operating Partnership, including its wholly-owned subsidiaries, are consolidated with the Company and the limited partner interest is reflected as a noncontrolling interest in the accompanying consolidated balance sheets. The noncontrolling interest shall be attributed its share of income and losses, even if that attribution results in a deficit noncontrolling interest 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 determination if certain entities should be consolidated, the evaluation of potential impairment of long-lived assets, 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 high quality financial institutions.

Real Estate Purchase Price Allocation

We account for 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. 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 $0.4 million and approximately $1.3 million in intangible assets to recognize the value of in-place leases related to our acquisitions during the six months ended June 30, 2018 and the year ended December 31, 2017, 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.  

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.          

13


STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(Unaudited)

 

In January 2017, the FASB issued Accounting Standards Update 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). ASU 2017-01 clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework provides guidance for determining whether an integrated set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. We adopted this ASU on January 1, 2018. We expect that acquisitions of real estate or in-substance real estate will not meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related intangible assets) or because the acquisition does 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, transaction costs are capitalized rather than expensed. During the six months ended June 30, 2018, we acquired four properties that did not meet the revised definition of a business, and we capitalized approximately $1.0 million of acquisition-related transaction costs that would have otherwise been expensed under the guidance in effect prior to January 1, 2018.

During the six months ended June 30, 2018 and 2017, we expensed approximately $0.2 million and $1.4 million, respectively, of acquisition-related transaction costs that did not meet our capitalization criteria during the respective periods.  

Evaluation of Possible Impairment of Long-Lived Assets

Management monitors events and changes in circumstances that could indicate that the carrying amounts of our long-lived 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 long-lived 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 long-lived assets to the fair value and recognize an impairment loss. For the three and six months ended June 30, 2018 and 2017, no impairment losses were recognized.

 

Revenue Recognition

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.

Allowance for Doubtful Accounts

Tenant accounts receivable is reported net of an allowance for doubtful accounts. Management’s estimate of the allowance is based upon a review of the current status of tenant accounts receivable. It is reasonably possible that management’s estimate of the allowance will change in the future.

Real Estate Facilities

Real estate facilities are recorded based upon relative fair values as of the date of acquisition. We capitalize costs incurred to develop, construct, renovate and improve properties, including interest and property taxes incurred during the construction period. The construction period begins when expenditures for the real estate assets have been made and activities that are necessary to prepare the asset for its intended use are in progress. The construction period ends when the asset is substantially complete and ready for its intended use.  

14


STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(Unaudited)

 

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

 

Standard Depreciable Life

Land

 

Not Depreciated

Buildings

 

30-35 years

Site Improvements

 

7-10 years

 

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 3 to 5 years, and are included in other assets on our consolidated balance sheets.

Intangible Assets

We have allocated a portion of our real estate purchase price to in-place lease intangibles. We are amortizing in-place lease intangibles on a straight-line basis over the estimated future benefit period. As of June 30, 2018 and December 31, 2017, the gross amounts allocated to in-place lease intangibles were approximately $4.5 million and $4.1 million, respectively, and accumulated amortization of in-place lease intangibles totaled approximately $3.7 million and $3.2 million, respectively.

The total future estimated amortization expense of intangible assets for the years ending December 31, 2018 and 2019 is approximately $0.5 million and $0.3 million, respectively, and none for the years thereafter.

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 related adjustments 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. Gains or losses on foreign currency transactions are recorded in other income (expense).

Debt Issuance Costs

The net carrying value of costs incurred in connection with obtaining revolving financing are presented in debt issuance costs on our consolidated balance sheets and such net amounts as of June 30, 2018 and December 31, 2017 totaled approximately $0.2 million and $0.5 million, respectively. The net carrying value of costs incurred in connection with obtaining non-revolving financing are presented in our consolidated balance sheets as a deduction from secured debt and such amounts as of June 30, 2018 and December 31, 2017 totaled approximately $0.2 million and $0.3 million, respectively. Debt issuance costs are amortized on a straight-line basis over the term of the related loan, which is not materially different than the effective interest method.

15


STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(Unaudited)

 

Organization and Offering Costs    

We pay our Dealer Manager an ongoing stockholder servicing fee that is payable monthly and accrues daily in an amount equal to 1/365th of 1% of the purchase price per share of the Class T Shares sold in the Primary Offering. We will cease paying the stockholder servicing fee with respect to the Class T Shares sold in the Primary Offering at the earlier of (i) the date we list our shares on a national securities exchange, merge or consolidate with or into another entity, or sell or dispose of all or substantially all of our assets, (ii) the date at which the aggregate underwriting compensation from all sources equals 10% of the gross proceeds from the sale of both Class A Shares and Class T Shares in our Primary Offering (i.e., excluding proceeds from sales pursuant to our distribution reinvestment plan), which calculation shall be made by us with the assistance of our Dealer Manager commencing after the termination of the Primary Offering; (iii) the fifth anniversary of the last day of the fiscal quarter in which our Primary Offering (i.e., excluding our distribution reinvestment plan offering) terminates; and (iv) the date that such Class T Share is redeemed or is no longer outstanding. Our Dealer Manager entered into participating dealer agreements with certain other broker-dealers which authorized them to sell our shares. Upon sale of our shares by such broker-dealers, our Dealer Manager re-allowed all of the sales commissions and, subject to certain limitations, the stockholder servicing fees paid in connection with sales made by these broker-dealers. Our Dealer Manager was also permitted to re-allow to these broker-dealers a portion of their dealer manager fee as marketing fees, reimbursement of certain costs and expenses of attending training and education meetings sponsored by our Dealer Manager, payment of attendance fees required for employees of our Dealer Manager or other affiliates to attend retail seminars and public seminars sponsored by these broker-dealers, or to defray other distribution-related expenses. Our Dealer Manager also received reimbursement of bona fide due diligence expenses; however, to the extent the due diligence expenses could not be justified, any excess over actual due diligence expenses would have been considered underwriting compensation subject to a 10% FINRA limitation and, when aggregated with all other non-accountable expenses in connection with our Public Offering, could not exceed 3% of gross offering proceeds from sales in the Public Offering. We record a liability within Due to affiliates for the future estimated stockholder servicing fees at the time of sale of Class T Shares as an offering cost.

Redeemable Common Stock

We adopted a share redemption program that enables stockholders to sell their shares to us in limited circumstances.

We record amounts that are redeemable under the share redemption program 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 share redemption program 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. Our redeemable common shares are contingently redeemable at the option of the holder. When we determine we have a mandatory obligation to repurchase shares under the share redemption program, we reclassify such obligations from temporary equity to a liability based upon their respective settlement values.

For the six months ended June 30, 2018, we received quarterly redemption requests totaling approximately 154,000 shares and approximately $1.5 million. Such requests were fulfilled in April and July 2018. For the year ended December 31, 2017, we received redemption requests totaling approximately 22,000 shares and approximately $211,000. Such requests were fulfilled in April, July, and October 2017 and January 2018.

Accounting for Equity Awards

The cost of restricted stock is required to be measured based on the grant date fair value and the cost recognized over the relevant service period.

16


STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(Unaudited)

 

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:

 

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access;

 

Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as interest rates and yield curves that are observable at commonly quoted intervals; and

 

Level 3 inputs are unobservable inputs for the assets or liabilities that are typically based on an entity’s own assumptions as there is little, if any, related market activity.

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. 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. 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, tenant accounts receivable, other assets, variable-rate secured debt, accounts payable and accrued liabilities, distributions payable and amounts due to affiliates approximate fair value.

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 nonperformance risk, we will consider the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

We had no assets or liabilities that required fair value measurements on a recurring basis at June 30, 2018 and December 31, 2017.

17


STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(Unaudited)

 

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 90% of the REIT’s ordinary taxable income to stockholders (which is computed without regard to the dividends paid deduction or net capital gains and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income taxes 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 during which qualification is lost unless the IRS grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT and intend to operate in the foreseeable future in such a manner that we will remain qualified as a REIT for federal income tax purposes.

Even if we continue to qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income.

We filed elections to treat our TRS as a taxable REIT subsidiary effective January 1, 2014. In general, the TRS performs additional services for our customers and generally engages in any real estate or non-real estate related business. The TRS is subject to corporate federal and state income tax. The TRS follows accounting guidance which requires the use of the asset and liability method. Deferred income taxes represent the tax effect of future differences between the book and tax bases of assets and liabilities.

Per Share Data

Basic earnings per share attributable to our common stockholders for all periods presented is computed by dividing net income (loss) attributable to our common stockholders by the weighted average number of shares outstanding during the period, excluding unvested restricted stock. Diluted earnings per share is computed by including the dilutive effect of unvested restricted stock, utilizing the treasury stock method. For all periods presented the dilutive effect of unrestricted stock was not included in the diluted weighted average shares as such shares were antidilutive.

Recently Issued Accounting Guidance

In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” as ASC Topic 606. The objective of ASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new standard, companies will perform a five-step analysis of transactions to determine when and how revenue is recognized. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB ASC. In July 2015, the FASB voted to defer the effective date by one year to annual reporting periods (including interim periods within those periods) beginning after December 15, 2017 with early adoption permitted. This ASU will be applied using the modified retrospective approach. We have determined that our self storage rental revenues are not subject to the guidance in ASU 2014-09, as they qualify as lease contracts, which are excluded from its scope. We adopted this ASU on January 1, 2018 and its adoption did not have a material impact on our consolidated financial statements.

18


STRATEGIC STORAGE GROWTH TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(Unaudited)

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 amends the guidance on accounting for leases. Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under ASU 2016-02, lessor accounting is largely unchanged. It also includes extensive amendments to the disclosure requirements. ASU 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted for financial statements that have not yet been made available for issuance. ASU 2016-02 requires a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. While we continue to evaluate the standard, based upon our assessment to date, we do not anticipate the adoption of this standard will have a material impact on our consolidated financial statements, because substantially all of our lease revenues are derived from month-to-month leases. 

Note 3. Real Estate Facilities

The following summarizes the activity in real estate facilities during the six months ended June 30, 2018:

 

Real estate facilities

 

 

 

 

Balance at December 31, 2017

 

$

176,360,865

 

Facility acquisitions

 

 

51,500,667

 

Construction in process placed in service(1)

 

 

11,301,512

 

Impact of foreign exchange rate changes

 

 

(313,102

)

Improvements and additions

 

 

177,010

 

Balance at June 30, 2018

 

$

239,026,952

 

Accumulated depreciation

 

 

 

 

Balance at December 31, 2017

 

$

(7,052,779

)

Depreciation expense

 

 

(2,915,391

)

Balance at June 30, 2018

 

$

(9,968,170

)

 

(1)

Construction on the first phase of our Asheville I facility was completed and the facility opened on March 22, 2018. Construction on the Stoney Creek facility was completed and the facility opened on May 31, 2018.

 

The following table summarizes the purchase price allocations for our acquisitions during the six months ended June 30, 2018: 

 

Property

 

Acquisition

Date

 

Real Estate

Assets

 

 

Intangibles

 

 

Total(1)

 

 

Debt Issued

 

 

2018

Revenue(2)

 

 

2018 Property

Operating

Income

(Loss)(2)(3)

 

Pembroke Pines – FL(4)

 

02/01/18

 

$

16,005,449

 

 

$

 

 

$

16,005,449

 

 

$

 

 

$

51,807

 

 

$

(95,046

)

Riverview – FL(4)

 

02/21/18

 

 

7,946,391

 

 

 

 

 

 

7,946,391

 

 

 

 

 

 

44,670

 

 

 

(94,609

)

Eastlake – CA(4)

 

03/09/18

 

 

17,342,483

 </