0001564590-18-029323.txt : 20181113 0001564590-18-029323.hdr.sgml : 20181113 20181113162909 ACCESSION NUMBER: 0001564590-18-029323 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 60 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181113 DATE AS OF CHANGE: 20181113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Strategic Storage Trust IV, Inc. CENTRAL INDEX KEY: 0001680232 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 812847976 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-55928 FILM NUMBER: 181178371 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 10-Q 1 ck0001680232-10q_20180930.htm 10-Q ck0001680232-10q_20180930.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 September 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: 000-55928

 

Strategic Storage Trust IV, Inc.

(Exact name of Registrant as specified in its charter)

 

 

Maryland

81-2847976

(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 every Interactive Data File required to be submitted 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 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

  

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 November 2, 2018, there were 2,740,845 outstanding shares of Class A common stock, 1,369,714 outstanding shares of Class T common stock and 317,143 outstanding shares of Class W common stock of the registrant.

 

 

 

 


 

FORM 10-Q

STRATEGIC STORAGE TRUST IV, INC.

TABLE OF CONTENTS

 

 

 

Page
No.

 

Cautionary Note Regarding Forward-Looking Statements

2

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

Consolidated Financial Statements:

3

 

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

4

 

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

5

 

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

6

 

Consolidated Statement of Equity for the Nine Months Ended September 30, 2018 (unaudited)

7

 

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

8

 

Notes to Consolidated Financial Statements (unaudited)

9

Item 2.

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

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

40

Item 4.

Controls and Procedures

41

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

41

Item 1A.

Risk Factors

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3.

Defaults Upon Senior Securities

42

Item 4.

Mine Safety Disclosures

42

Item 5.

Other Information

43

Item 6.

Exhibits

43

 

 

1


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q of Strategic Storage Trust IV, 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.

2


 

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 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 nine months ended September 30, 2018 are not necessarily indicative of the operating results expected for the full year.

 

3


 

STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

September 30, 2018

(Unaudited)

 

 

December 31,

2017

 

ASSETS

 

 

 

 

 

 

 

 

Real estate facilities:

 

 

 

 

 

 

 

 

Land

 

$

17,541,323

 

 

$

1,713,976

 

Buildings

 

 

58,738,040

 

 

 

9,614,412

 

Site improvements

 

 

3,294,504

 

 

 

1,011,151

 

 

 

 

79,573,867

 

 

 

12,339,539

 

Accumulated depreciation

 

 

(908,060

)

 

 

(138,219

)

Real estate facilities, net

 

 

78,665,807

 

 

 

12,201,320

 

Cash and cash equivalents

 

 

11,984,471

 

 

 

21,929,125

 

Other assets, net

 

 

7,973,844

 

 

 

1,221,753

 

Intangible assets, net of accumulated amortization

 

 

2,380,217

 

 

 

451,889

 

Total assets

 

$

101,004,339

 

 

$

35,804,087

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Secured debt, net

 

$

16,594,621

 

 

$

 

Due to affiliates

 

 

1,562,548

 

 

 

587,628

 

Accounts payable and accrued liabilities

 

 

1,384,508

 

 

 

301,273

 

Distributions payable

 

 

510,698

 

 

 

216,415

 

Total liabilities

 

 

20,052,375

 

 

 

1,105,316

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Redeemable common stock

 

 

1,464,069

 

 

 

183,420

 

Equity:

 

 

 

 

 

 

 

 

Strategic Storage Trust IV, Inc. equity:

 

 

 

 

 

 

 

 

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

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

 

 

 

 

 

 

Class A Common stock, $0.001 par value; 315,000,000 shares authorized; 2,628,095 and

   1,253,576 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

2,628

 

 

 

1,254

 

Class T Common stock, $0.001 par value; 315,000,000 shares authorized; 1,254,073 and

   426,228 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

1,254

 

 

 

426

 

Class W Common stock, $0.001 par value; 70,000,000 shares authorized; 291,296 and 110,646 shares

   issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

292

 

 

 

111

 

Additional paid-in capital

 

 

87,698,825

 

 

 

36,653,000

 

Distributions

 

 

(4,412,177

)

 

 

(1,079,785

)

Accumulated deficit

 

 

(3,933,974

)

 

 

(1,230,755

)

Accumulated other comprehensive loss

 

 

(21,874

)

 

 

 

Total Strategic Storage Trust IV, Inc. equity

 

 

79,334,974

 

 

 

34,344,251

 

Noncontrolling interests in our Operating Partnership

 

 

152,921

 

 

 

171,100

 

Total equity

 

 

79,487,895

 

 

 

34,515,351

 

Total liabilities and equity

 

$

101,004,339

 

 

$

35,804,087

 

 

See notes to consolidated financial statements.

4


 

STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Self storage rental revenue

 

$

1,556,081

 

 

$

129,163

 

 

$

2,733,203

 

 

$

244,209

 

Ancillary operating revenue

 

 

9,756

 

 

 

264

 

 

 

14,851

 

 

 

348

 

Total revenues

 

 

1,565,837

 

 

 

129,427

 

 

 

2,748,054

 

 

 

244,557

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

452,601

 

 

 

59,233

 

 

 

841,322

 

 

 

119,066

 

Property operating expenses – affiliates

 

 

252,681

 

 

 

23,863

 

 

 

439,602

 

 

 

40,779

 

General and administrative

 

 

399,505

 

 

 

153,069

 

 

 

1,199,057

 

 

 

447,951

 

Depreciation

 

 

453,153

 

 

 

36,496

 

 

 

784,592

 

 

 

73,330

 

Intangible amortization expense

 

 

492,867

 

 

 

38,877

 

 

 

846,386

 

 

 

77,754

 

Acquisition expense – affiliates

 

 

193,113

 

 

 

46,242

 

 

 

492,199

 

 

 

94,378

 

Other property acquisition expenses

 

 

150,090

 

 

 

31,580

 

 

 

619,890

 

 

 

63,906

 

Total operating expenses

 

 

2,394,010

 

 

 

389,360

 

 

 

5,223,048

 

 

 

917,164

 

Operating loss

 

 

(828,173

)

 

 

(259,933

)

 

 

(2,474,994

)

 

 

(672,607

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(141,539

)

 

 

 

 

 

(141,539

)

 

 

 

Interest expense – debt issuance costs

 

 

(248,450

)

 

 

 

 

 

(248,450

)

 

 

 

Other

 

 

32,884

 

 

 

 

 

 

153,973

 

 

 

 

Net loss

 

 

(1,185,278

)

 

 

(259,933

)

 

 

(2,711,010

)

 

 

(672,607

)

Net loss attributable to the noncontrolling interests

   in our Operating Partnership

 

 

2,721

 

 

 

3,034

 

 

 

7,791

 

 

 

12,589

 

Net loss attributable to Strategic Storage Trust IV, Inc.

   common stockholders

 

$

(1,182,557

)

 

$

(256,899

)

 

$

(2,703,219

)

 

$

(660,018

)

Net loss per Class A share—basic and diluted

 

$

(0.31

)

 

$

(0.35

)

 

$

(0.90

)

 

$

(1.43

)

Net loss per Class T share—basic and diluted

 

$

(0.31

)

 

$

(0.35

)

 

$

(0.90

)

 

$

(1.43

)

Net loss per Class W share—basic and diluted

 

$

(0.31

)

 

$

(0.35

)

 

$

(0.90

)

 

$

(1.43

)

Weighted average Class A shares outstanding—basic and

   diluted

 

 

2,446,890

 

 

 

613,965

 

 

 

1,971,170

 

 

 

420,271

 

Weighted average Class T shares outstanding—basic and

   diluted

 

 

1,122,980

 

 

 

73,599

 

 

 

821,524

 

 

 

25,116

 

Weighted average Class W shares outstanding—basic and

   diluted

 

 

266,935

 

 

 

43,837

 

 

 

200,782

 

 

 

16,729

 

See notes to consolidated financial statements.

 

 

5


 

STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net loss

 

$

(1,185,278

)

 

$

(259,933

)

 

$

(2,711,010

)

 

$

(672,607

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

8,118

 

 

 

-

 

 

 

(21,874

)

 

 

-

 

Comprehensive loss

 

 

(1,177,160

)

 

 

(259,933

)

 

 

(2,732,884

)

 

 

(672,607

)

Comprehensive loss attributable to noncontrolling

   interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss attributable to the noncontrolling

   interests in our Operating Partnership

 

 

2,684

 

 

 

3,034

 

 

 

7,854

 

 

 

12,589

 

Comprehensive loss attributable to Strategic Storage

   Trust IV, Inc. common stockholders

 

$

(1,174,476

)

 

$

(256,899

)

 

$

(2,725,030

)

 

$

(660,018

)

 

See notes to consolidated financial statements.

6


 

 

 

 

Strategic Storage Trust IV, Inc. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

Class T

 

 

Class W

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

Shares

 

 

Common

Stock

Par Value

 

 

Number of

Shares

 

 

Common

Stock

Par  Value

 

 

Number of

Shares

 

 

Common

Stock

Par Value

 

 

Additional

Paid-in

Capital

 

 

Distributions

 

 

Accumulated

Deficit

 

 

Accumulated Other Comprehensive Loss

 

 

Total Strategic Storage

Trust  IV, Inc.

Equity

 

 

Noncontrolling Interests in

our Operating

Partnership

 

 

Total

Equity

 

 

Redeemable

Common

Stock

 

Balance as of December 31, 2017

 

 

1,253,576

 

 

$

1,254

 

 

 

426,228

 

 

$

426

 

 

 

110,646

 

 

$

111

 

 

$

36,653,000

 

 

$

(1,079,785

)

 

$

(1,230,755

)

 

$

 

 

$

34,344,251

 

 

$

171,100

 

 

$

34,515,351

 

 

$

183,420

 

Gross proceeds from issuance of common stock

 

 

1,336,051

 

 

 

1,336

 

 

 

811,623

 

 

 

812

 

 

 

176,581

 

 

 

177

 

 

 

56,956,978

 

 

 

 

 

 

 

 

 

 

 

 

56,959,303

 

 

 

 

 

 

56,959,303

 

 

 

 

Offering costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,915,786

)

 

 

 

 

 

 

 

 

 

 

 

(5,915,786

)

 

 

 

 

 

(5,915,786

)

 

 

 

Changes to redeemable common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,307,604

)

 

 

 

 

 

 

 

 

 

 

 

(1,307,604

)

 

 

 

 

 

(1,307,604

)

 

 

1,307,604

 

Redemptions of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,955

)

Issuance of restricted stock

 

 

3,000

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

 

 

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,332,392

)

 

 

 

 

 

 

 

 

(3,332,392

)

 

 

 

 

 

(3,332,392

)

 

 

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,388

)

 

 

(10,388

)

 

 

 

Issuance of shares for distribution reinvestment plan

 

 

35,468

 

 

 

35

 

 

 

16,222

 

 

 

16

 

 

 

4,069

 

 

 

4

 

 

 

1,307,549

 

 

 

 

 

 

 

 

 

 

 

 

1,307,604

 

 

 

 

 

 

1,307,604

 

 

 

 

Stock based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,688

 

 

 

 

 

 

 

 

 

 

 

 

4,688

 

 

 

 

 

 

4,688

 

 

 

 

Net loss attributable to Strategic Storage Trust IV, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,703,219

)

 

 

 

 

 

(2,703,219

)

 

 

 

 

 

(2,703,219

)

 

 

 

Net loss attributable to the noncontrolling interests in our Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,791

)

 

 

(7,791

)

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,874

)

 

 

(21,874

)

 

 

 

 

 

(21,874

)

 

 

 

Balance as of September 30, 2018

 

 

2,628,095

 

 

$

2,628

 

 

 

1,254,073

 

 

$

1,254

 

 

 

291,296

 

 

$

292

 

 

$

87,698,825

 

 

$

(4,412,177

)

 

$

(3,933,974

)

 

$

(21,874

)

 

$

79,334,974

 

 

$

152,921

 

 

$

79,487,895

 

 

$

1,464,069

 

 

See notes to consolidated financial statements.

 

 

7


 

 

STrategic Storage Trust IV, Inc. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(2,711,010

)

 

$

(672,607

)

Adjustments to reconcile net loss to cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,630,978

 

 

 

151,084

 

Amortization of debt issuance costs

 

 

248,450

 

 

 

 

Stock based compensation expense related to issuance of restricted stock

 

 

4,688

 

 

 

 

Increase (decrease) in cash and cash equivalents from change in assets and liabilities:

 

 

 

 

 

 

 

 

Other assets, net

 

 

(878,437

)

 

 

(612,683

)

Accounts payable and accrued liabilities

 

 

458,460

 

 

 

113,844

 

Due to affiliates

 

 

74,501

 

 

 

54,596

 

Net cash used in operating activities

 

 

(1,172,370

)

 

 

(965,766

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of real estate

 

 

(69,833,589

)

 

 

(4,950,000

)

Additions to real estate

 

 

(175,453

)

 

 

 

Deposits on acquisitions of real estate

 

 

(3,160,312

)

 

 

(325,000

)

Return of deposits on acquisitions of real estate

 

 

750,000

 

 

 

 

Investment in equity method investment

 

 

(2,500,000

)

 

 

 

Investment in joint ventures

 

 

(875,977

)

 

 

 

Net cash used in investing activities

 

 

(75,795,331

)

 

 

(5,275,000

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of non-revolving secured debt

 

 

17,000,000

 

 

 

 

Gross proceeds from issuance of common stock

 

 

57,418,717

 

 

 

24,428,472

 

Offering costs

 

 

(4,980,127

)

 

 

(3,632,433

)

Distributions paid to common stockholders

 

 

(1,742,075

)

 

 

(382,189

)

Distributions paid to noncontrolling interests in our Operating Partnership

 

 

(11,005

)

 

 

(7,762

)

Debt issuance costs

 

 

(662,463

)

 

 

 

Net cash provided by financing activities

 

 

67,023,047

 

 

 

20,406,088

 

Net change in cash and cash equivalents

 

 

(9,944,654

)

 

 

14,165,322

 

Cash and cash equivalents, beginning of period

 

 

21,929,125

 

 

 

201,000

 

Cash and cash equivalents, end of period

 

$

11,984,471

 

 

$

14,366,322

 

Supplemental disclosures and non-cash transactions:

 

 

 

 

 

 

 

 

     Cash paid for interest

 

$

72,937

 

 

$

 

Proceeds from issuance of common stock in other assets

 

$

 

 

$

142,800

 

Offering costs included in due to affiliates

 

$

1,030,872

 

 

$

289,233

 

Offering costs included in accounts payable and accrued liabilities

 

$

71,039

 

 

$

28,156

 

Redemption of common stock in accounts payable and accrued liabilities

 

$

26,955

 

 

$

 

Distributions payable

 

$

510,698

 

 

$

120,213

 

Issuance of shares pursuant to distribution reinvestment plan

 

$

1,307,604

 

 

$

31,391

 

Foreign currency translation adjustment in accounts payable and accrued liabilities

 

$

21,874

 

 

$

 

Other assets included in accounts payable accrued liabilities

 

$

313,293

 

 

$

 

 

See notes to consolidated financial statements.

 

8


 

STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2018

(Unaudited)

 

Note 1. Organization

Strategic Storage Trust IV, Inc., a Maryland corporation (the “Company”), was formed on June 1, 2016 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 Trust IV, Inc. and each of our subsidiaries.

SmartStop Asset Management, LLC, a Delaware limited liability company organized in 2013, is the sponsor of our Offering of shares of our 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 Strategic Storage Advisor IV, LLC (our “Advisor”) and owns 100% of Strategic Storage Property Management IV, LLC (our “Property Manager”).

We have no employees. Our Advisor, a Delaware limited liability company, was formed on May 31, 2016. 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 an advisory agreement we entered into with our Advisor (our “Advisory Agreement”) on March 3, 2017. The officers of our Advisor, as well as a majority of the officers of our Sponsor, are also officers of us.

On June 15, 2016, our Advisor purchased 44 shares of our common stock for $1,000 and became our initial stockholder. Our Articles of Incorporation authorized 30,000 shares of common stock with a par value of $0.001. Our Articles of Amendment and Restatement, which were filed with the State Department of Assessments and Taxation of Maryland on January 17, 2017, authorized 700,000,000 shares of common stock with a par value of $0.001, of which 315,000,000 shares are designated as Class A shares, 315,000,000 shares are designated as Class T shares, and 70,000,000 shares are designated as Class W shares, and 200,000,000 shares of preferred stock with a par value of $0.001. Upon the filing of our Articles of Amendment and Restatement, our Advisor’s 44 shares of our common stock were classified as Class A shares. We are offering 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 “Offering”).

On January 25, 2017, we sold approximately 360,577 Class A shares for $7.5 million to an institutional account investor pursuant to a private offering transaction (the “Private Offering Transaction”). Due to the proceeds raised in our Private Offering Transaction, there was not a minimum number of shares we needed to sell before accepting subscriptions for the Primary Offering. On March 17, 2017 (the “Effective Date”), the Securities and Exchange Commission (“SEC”) declared our registration statement effective and we commenced formal operations. As of September 30, 2018, approximately 2,264,000 Class A shares for gross offering proceeds of approximately $56.4 million, approximately 1,254,000 Class T shares for gross offering proceeds of approximately $30.4 million and approximately 291,000 Class W shares for gross offering proceeds of approximately $6.6 million had been sold in the Offering. We intend to invest the net proceeds from the Offering primarily in self storage facilities consisting of both income-producing and growth properties located in the United States and Canada. As of September 30, 2018, we owned seven properties located in five states (California, Florida, Nevada, Texas and Washington).

Our operating partnership, Strategic Storage Operating Partnership IV, L.P., a Delaware limited partnership (our “Operating Partnership”), was formed on June 2, 2016. On June 15, 2016, our Advisor purchased a limited partnership interest in our Operating Partnership for $200,000 (8,889 partnership units) and on June 15, 2016, 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 September 30, 2018, we owned approximately 99.8% of the common units of limited partnership interests of our Operating Partnership. The remaining approximately 0.2% of the common units are owned by our Advisor.

9


 

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, Strategic Storage TRS IV, Inc., a Delaware corporation (the “TRS”) which was formed on June 2, 2016, and is a wholly owned subsidiary of our Operating Partnership.

Our Property Manager is a Delaware limited liability company which was formed on May 31, 2016 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. Please see Note 6 – Related Party Transactions – Property Management Agreement.

Our dealer manager is Select Capital Corporation, a California corporation (our “Dealer Manager”). On February 10, 2017, the Company executed a dealer manager agreement, as amended (the “Dealer Manager Agreement”), with our Dealer Manager. Our Dealer Manager is responsible for marketing our shares to be offered pursuant to our Primary Offering. Our Sponsor owns, through a wholly-owned limited liability company, a 15% non-voting equity interest in our Dealer Manager and 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 an agreement (the “Transfer Agent Agreement”), with our Transfer Agent to provide 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. Please see Note 6 – Related Party Transactions – Transfer Agent Agreement.

As we accept subscriptions for shares of our common stock, we transfer 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 are deemed to have made capital contributions in the amount of gross proceeds received from investors, and our Operating Partnership is deemed to have simultaneously paid the sales commissions and other costs associated with the Primary 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 entities not wholly-owned by us is presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated in consolidation.

10


 

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 December 31, 2017, we had not entered into any other contracts/interests that would be deemed to be variable interests in VIEs other than our Operating Partnership. As of September 30, 2018, we had not entered into any other contracts/interests that would be deemed to be variable interests in VIEs other than three joint ventures and one preferred equity investment, which are all accounted for under the equity method of accounting.  Please see Notes 3 and 10. Other than the entities noted above, we do not currently have any relationships with unconsolidated entities or financial partnerships.

Under the equity method, our investments will be stated at cost and adjusted for our share of net earnings or losses and reduced by distributions. Equity in earnings will generally be recognized based on our ownership interest in the earnings of each of the unconsolidated investments.

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 major financial institutions.

11


 

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 $2.8 million and $600,000 in intangible assets to recognize the value of in-place leases related to our acquisitions during the nine months ended September 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.

Allocation of purchase price to acquisitions 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.    

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 nine months ended September 30, 2018, we acquired five properties that did not meet the revised definition of a business, and we capitalized approximately $184,000 of acquisition-related transaction costs that would have otherwise been expensed under the guidance in effect prior to January 1, 2018.

During the three and nine months ended September 30, 2018, we expensed approximately $340,000 and $1.1 million, respectively, of acquisition-related transaction costs that did not meet our capitalization policy 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 nine months ended September 30, 2018 and 2017, no impairment losses were recognized.

12


 

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 on relative fair value 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.

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

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.

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).

13


 

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 September 30, 2018, the gross amounts allocated to in-place lease intangibles was approximately $3.4 million and accumulated amortization of in-place lease intangibles totaled approximately $1.0 million.  As of December 31, 2017, the gross amounts allocated to in-place lease intangibles were approximately $600,000 and accumulated amortization of in-place lease intangibles totaled approximately $150,000.

The total estimated future amortization expense of intangible assets for the years ending December 31, 2018, 2019 and 2020, is approximately $0.5 million, $1.8 million and $0.1 million, respectively, and none for the years thereafter.

Debt Issuance Costs

The net carrying value of costs incurred in connection with obtaining non revolving debt are presented on the consolidated balance sheets as a reduction of the related debt (see Note 5). 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. As of September 30, 2018 and December 31, 2017, accumulated amortization of debt issuance costs related to non revolving debt totaled approximately $0.2 million and none, respectively.  

Organization and Offering Costs

Our Advisor may fund organization and offering costs on our behalf. We are required to reimburse our Advisor for such organization and offering costs; provided, however, our Advisor will fund, and will not be reimbursed for, 1.15% of the gross offering proceeds from the sale of Class W shares towards payment of organization and offering expenses, which we will recognize as a capital contribution from our Advisor. Organization and offering costs funded by our Advisor are recognized as a liability in our consolidated financial statements as of September 30, 2018 and December 31, 2017, as we had a present responsibility to reimburse our Advisor after the Effective Date of the Primary Offering. Our Advisor must reimburse us within 60 days after the end of the month in which the Offering terminates to the extent we paid or reimbursed organization and offering costs (excluding sales commissions, dealer manager fees, stockholder servicing fees and dealer manager servicing fees) in excess of 3.5% of the gross offering proceeds from the Primary Offering. If at any point in time we determine that the total organization and offering costs are expected to exceed 3.5% of the gross proceeds anticipated to be received from the Primary Offering, we will recognize such excess as a capital contribution from our Advisor. Offering costs are recorded as an offset to additional paid-in capital, and organization costs are recorded as an expense.

In connection with our Primary Offering, our Dealer Manager will receive a sales commission of up to 6.0% of gross proceeds from sales of Class A shares and up to 3.0% of gross proceeds from the sales of Class T shares in the Primary Offering and a dealer manager fee of up to 3.0% of gross proceeds from sales of both Class A shares and Class T shares in the Primary Offering under the terms of the Dealer Manager Agreement. Our Dealer Manager does not receive an upfront sales commission or dealer manager fee from the sales of Class W shares in the Primary Offering. In addition, our Dealer Manager receives 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. Our Dealer Manager also receives an ongoing dealer manager servicing fee that is payable monthly and accrues daily in an amount equal to 1/365th of 0.5% of the purchase price per share of the Class W 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 Class A shares, Class T shares, and Class W 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 our Primary Offering; (iii) with respect to a particular Class T share, the third anniversary of the issuance of the share; and (iv) the date that such Class T share is redeemed or is no longer outstanding. We will cease paying the dealer manager servicing fee with respect to the Class W 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 Class A shares, Class T shares, and Class W 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 our Primary Offering; (iii) the end of the month in which the aggregate underwriting compensation paid in our

14


 

Primary Offering with respect to Class W shares, comprised of the dealer manager servicing fee, equals 9.0% of the gross proceeds from the sale of Class W 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 our Primary Offering, and (iv) the date that such Class W share is redeemed or is no longer outstanding.

Our Dealer Manager enters into participating dealer agreements with certain other broker-dealers which authorizes them to sell our shares. Upon sale of our shares by such broker-dealers, our Dealer Manager will re-allow 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 may also 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 will also receive reimbursement of bona fide due diligence expenses; however, to the extent these due diligence expenses cannot 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 Offering, may not exceed 3% of gross offering proceeds from sales in the Offering. We record a liability within Due to Affiliates for the future estimated stockholder and dealer manager servicing fees and a reduction to additional paid-in capital at the time of sale of the Class T and Class W shares as an offering cost.

Redeemable Common Stock

We adopted a share redemption program that will enable 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 will be limited to the number of shares we could 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 but that are contingent on an event that is likely to occur (e.g., the passage of time) 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 our 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 will reclassify such obligations from temporary equity to a liability based upon their respective settlement values.

For the nine months ended September 30, 2018, we received one redemption request totaling approximately $27,000 (approximately 1,200 shares) which was included in accounts payable and accrued liabilities as of September 30, 2018, and fulfilled in October 2018. For the year ended December 31, 2017, we did not receive any requests for redemptions.

 

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.

15


 

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 will 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 account receivables, other assets, variable – rate debt, accounts payable and accrued liabilities, distributions payable and amounts due to affiliates approximate fair value.

We had no assets or liabilities that required fair value measurement on a recurring basis as of September 30, 2018 and December 31, 2017.

16


 

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, 2017. 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. 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. This ASU was 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.

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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 nine months ended September 30, 2018:

 

Real estate facilities

 

 

 

Balance at December 31, 2017

$

12,339,539

 

Facility acquisitions

 

67,058,875

 

Improvements and additions

 

175,453

 

Balance at September 30, 2018

$

79,573,867

 

Accumulated depreciation

 

 

 

Balance at December 31, 2017

$

(138,219

)

Depreciation expense

 

(769,841

)

Balance at September 30, 2018

$

(908,060

)

 

The following table summarizes the purchase price allocation for our acquisitions during the nine months ended September 30, 2018:

 

Property

 

Acquisition

Date

 

Real Estate

Assets

 

 

Intangibles

 

 

Total(1)

 

 

2018

Revenue(2)