UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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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:
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices)
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(Registrant’s telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered |
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None |
None |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value per share
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.
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).
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.
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Large accelerated filer |
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Accelerated filer |
☐ |
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☒ |
Smaller reporting company |
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Emerging growth company |
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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
As of November 6, 2020, there were
FORM 10-Q
STRATEGIC STORAGE TRUST IV, INC.
TABLE OF CONTENTS
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Item 1. |
3 |
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Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
49 |
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Item 4. |
50 |
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Item 1. |
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Item 1A. |
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Item 2. |
54 |
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Item 3. |
54 |
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Item 4. |
54 |
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Item 5. |
55 |
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Item 6. |
55 |
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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, including without limitation, changes in the political and economic climate, economic conditions and fiscal imbalances in the United States, and other major developments, including wars, natural disasters, epidemics and pandemics, including the outbreak of novel coronavirus (COVID-19), military actions, and terrorist attacks. The occurrence or severity of any such event or circumstance is difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to 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.
For further information regarding risks and uncertainties associated with our business, and important factors that could cause our actual results to vary materially from those expressed or implied in such forward-looking statements, please refer to the factors listed and described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Risk Factors” sections of the documents we file from time to time with the U.S. Securities and Exchange Commission, including, but not limited to, our Annual Report on Form 10-K for the year ended December 31, 2019, 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.
2
PART I. FINANCIAL INFORMATION
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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, 2019. Our results of operations for the three and nine months ended September 30, 2020, are not necessarily indicative of the operating results expected for the full year.
3
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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September 30, 2020 (Unaudited) |
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December 31, 2019 |
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ASSETS |
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Real estate facilities: |
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Land |
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$ |
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$ |
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Buildings |
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Site improvements |
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Accumulated depreciation |
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( |
) |
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( |
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Construction in process |
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Real estate facilities, net |
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Cash and cash equivalents |
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Restricted cash |
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Investments in unconsolidated real estate ventures (Note 4) |
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Other assets, net |
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Debt issuance costs, net of accumulated amortization |
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Intangible assets, net of accumulated amortization |
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Total assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Secured debt, net |
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$ |
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$ |
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Accounts payable and accrued liabilities |
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Due to affiliates |
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Distributions payable |
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Total liabilities |
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Commitments and contingencies (Note 7) |
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Redeemable common stock |
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Equity: |
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Strategic Storage Trust IV, Inc. equity: |
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Preferred Stock, $ and outstanding at September 30, 2020 and December 31, 2019 |
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Class A Common stock, $ 2020 and December 31, 2019, respectively |
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Class T Common stock, $ 2020 and December 31, 2019, respectively |
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Class W Common stock, $ 2020 and December 31, 2019, respectively |
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Additional paid-in capital |
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Distributions |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive (loss) income |
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( |
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Total Strategic Storage Trust IV, Inc. equity |
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Noncontrolling interests in our Operating Partnership |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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See notes to consolidated financial statements.
4
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2020 |
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2019 |
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2020 |
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2019 |
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Revenues: |
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Self storage rental revenue |
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$ |
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$ |
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$ |
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$ |
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Ancillary operating revenue |
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Total revenues |
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Operating expenses: |
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Property operating expenses |
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Property operating expenses – affiliates |
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General and administrative |
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Depreciation |
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Intangible amortization expense |
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Acquisition expenses – affiliates |
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Other property acquisition expenses |
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Total operating expenses |
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Operating loss |
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( |
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( |
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( |
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( |
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Other income (expense): |
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Interest expense |
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( |
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( |
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( |
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( |
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Interest expense – debt issuance costs |
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( |
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( |
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( |
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( |
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Equity in loss of unconsolidated real estate venture |
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( |
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- |
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( |
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- |
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Other |
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( |
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Net loss |
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( |
) |
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( |
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( |
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( |
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Net loss attributable to the noncontrolling interests in our Operating Partnership |
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Net loss attributable to Strategic Storage Trust IV, Inc. common stockholders |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net loss per Class A share—basic and diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net loss per Class T share—basic and diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net loss per Class W share—basic and diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Weighted average Class A shares outstanding— basic and diluted |
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Weighted average Class T shares outstanding— basic and diluted |
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Weighted average Class W shares outstanding— basic and diluted |
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See notes to consolidated financial statements.
5
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2020 |
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2019 |
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2020 |
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2019 |
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Net loss |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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$ |
( |
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Other comprehensive loss: |
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Foreign currency translation adjustment |
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( |
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( |
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Comprehensive loss |
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( |
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( |
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( |
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( |
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Comprehensive loss attributable to noncontrolling interests: |
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Comprehensive loss attributable to the noncontrolling interests in our Operating Partnership |
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Comprehensive loss attributable to Strategic Storage Trust IV, Inc. common stockholders |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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See notes to consolidated financial statements.
6
Strategic Storage Trust IV, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
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Common Stock |
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Class A |
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Class T |
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Class W |
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Number of Shares |
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Common Stock Par Value |
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Number of Shares |
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Common Stock Par Value |
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Number of Shares |
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Common Stock Par Value |
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Additional Paid-in Capital |
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Distributions |
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Accumulated Deficit |
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Accumulated Other Comprehensive Income (Loss) |
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Total Strategic Storage Trust IV, Inc. Equity |
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Nonconrolling Interests in our Operating Partnership |
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Total Equity |
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Redeemable Common Stock |
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Balance as of December 31, 2018 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
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Gross proceeds from issuance of common stock |
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— |
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— |
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— |
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— |
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— |
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Offering costs |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
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— |
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( |
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— |
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Reimbursement of offering costs by Advisor |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Changes to redeemable common stock |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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— |
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( |
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Redemptions of common stock |
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( |
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( |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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( |
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Distributions |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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— |
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( |
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— |
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Distributions to noncontrolling interests |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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— |
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Issuance of shares for distribution reinvestment plan |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Stock based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Net loss attributable to Strategic Storage Trust IV, Inc. |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Net loss attributable to the noncontrolling interests in our Operating Partnership |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Balance as of March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross proceeds from issuance of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Offering costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Reimbursement of offering costs by Advisor |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Changes to redeemable common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
Redemptions of common stock |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Issuance of restricted stock |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Distributions to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
Issuance of shares for distribution reinvestment plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Stock based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Net loss attributable to Strategic Storage Trust IV, Inc. |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Net loss attributable to the noncontrolling interests in our Operating Partnership |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Balance as of June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross proceeds from issuance of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Offering costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Reimbursement of offering costs by Advisor |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Changes to redeemable common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
Redemptions of common stock |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Distributions to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
Issuance of shares for distribution reinvestment plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Stock based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Net loss attributable to Strategic Storage Trust IV, Inc. |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Net loss attributable to the noncontrolling interests in our Operating Partnership |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Balance as of September 30, 2019 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
7
Strategic Storage Trust IV, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (Continued)
(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 Income (Loss) |
|
|
Total Strategic Storage Trust IV, Inc. Equity |
|
|
Nonconrolling Interests in our Operating Partnership |
|
|
Total Equity |
|
|
Redeemable Common Stock |
|
||||||||||||||
|
Balance as of December 31, 2019 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Gross proceeds from issuance of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Offering costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Reimbursement of offering costs by Advisor |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Changes to redeemable common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
Redemptions of common stock |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Distributions to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
Issuance of shares for distribution reinvestment plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Stock based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Net loss attributable to Strategic Storage Trust IV, Inc. |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Net loss attributable to the noncontrolling interests in our Operating Partnership |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Balance as of March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross proceeds from issuance of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Offering costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Adjustment to offering costs (Note 7) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Reimbursement of offering costs by Advisor |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Changes to redeemable common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
Issuance of restricted stock |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Distributions to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
Issuance of shares for distribution reinvestment plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Stock based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Net loss attributable to Strategic Storage Trust IV, Inc. |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Net loss attributable to the noncontrolling interests in our Operating Partnership |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Balance as of June 30, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Offering costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Changes to redeemable common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
Distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Distributions to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
Issuance of shares for distribution reinvestment plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Stock based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Net loss attributable to Strategic Storage Trust IV, Inc. |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Net loss attributable to the noncontrolling interests in our Operating Partnership |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Balance as of September 30, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
See notes to consolidated financial statements.
8
STrategic Storage Trust IV, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
Adjustments to reconcile net loss to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs |
|
|
|
|
|
|
|
|
|
Stock based compensation expense related to issuance of restricted stock |
|
|
|
|
|
|
|
|
|
Equity in loss of unconsolidated joint venture |
|
|
|
|
|
|
— |
|
|
Interest payments added to debt principal |
|
|
|
|
|
|
— |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Other assets, net |
|
|
( |
) |
|
|
( |
) |
|
Accounts payable and accrued liabilities |
|
|
|
|
|
|
|
|
|
Due to affiliates |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Purchase of real estate |
|
|
( |
) |
|
|
( |
) |
|
Additions to real estate facilities |
|
|
( |
) |
|
|
( |
) |
|
Deposits on acquisitions of real estate |
|
|
— |
|
|
|
( |
) |
|
Return of deposits on acquisition of real estate |
|
|
|
|
|
|
— |
|
|
Investments in unconsolidated real estate ventures |
|
|
( |
) |
|
|
( |
) |
|
Deposits on acquisitions of investments in unconsolidated real estate ventures |
|
|
— |
|
|
|
( |
) |
|
Return of capital on investments in unconsolidated real estate ventures |
|
|
|
|
|
|
— |
|
|
Return of preferred equity method investment |
|
|
— |
|
|
|
|
|
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of revolving secured debt |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of secured debt |
|
|
|
|
|
|
|
|
|
Repayment of revolving secured debt |
|
|
( |
) |
|
|
( |
) |
|
Repayment of secured debt |
|
|
( |
) |
|
|
( |
) |
|
Scheduled principal payments on secured debt |
|
|
( |
) |
|
|
( |
) |
|
Debt issuance costs |
|
|
( |
) |
|
|
( |
) |
|
Gross proceeds from issuance of common stock |
|
|
|
|
|
|
|
|
|
Offering costs |
|
|
( |
) |
|
|
( |
) |
|
Redemption of common stock |
|
|
( |
) |
|
|
( |
) |
|
Distributions paid to common stockholders |
|
|
( |
) |
|
|
( |
) |
|
Distributions paid to noncontrolling interests in our Operating Partnership |
|
|
( |
) |
|
|
( |
) |
|
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
|
|
|
|
— |
|
|
Net change in cash, cash equivalents and restricted cash |
|
|
|
|
|
|
( |
) |
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
|
|
|
$ |
|
|
|
Supplemental disclosures and non-cash transactions: |
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
|
|
|
$ |
|
|
|
Deposits applied to purchase of real estate |
|
$ |
|
|
|
$ |
|
|
|
Deposits applied to purchase of investments in unconsolidated real estate ventures |
|
$ |
|
|
|
$ |
|
|
|
Preferred equity method investment applied to purchase of real estate |
|
$ |
|
|
|
$ |
— |
|
|
Preferred return on preferred equity method investment applied to purchase of real estate |
|
$ |
|
|
|
$ |
— |
|
|
Additions to real estate facilities included in accounts payable and accrued liabilities |
|
$ |
|
|
|
$ |
|
|
|
Proceeds from issuance of common stock in accounts payable and accrued liabilities |
|
$ |
— |
|
|
$ |
|
|
|
Offering costs included in due to affiliates |
|
$ |
|
|
|
$ |
|
|
|
Adjustment to offering costs |
|
$ |
( |
) |
|
$ |
— |
|
|
Offering costs included in accounts payable and accrued liabilities |
|
$ |
|
|
|
$ |
|
|
|
Redemption of common stock in accounts payable and accrued liabilities |
|
$ |
— |
|
|
$ |
|
|
|
Distributions payable |
|
$ |
|
|
|
$ |
|
|
|
Issuance of shares pursuant to distribution reinvestment plan |
|
$ |
|
|
|
$ |
|
|
|
Foreign currency translation adjustment |
|
$ |
( |
) |
|
$ |
|
|
See notes to consolidated financial statements.
9
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
Note 1. Organization
Strategic Storage Trust IV, Inc., a Maryland corporation (the “Company”), was formed on
Prior to June 28, 2019, both we and Strategic Storage Trust II, Inc. (“SST II”) were sponsored by SmartStop Asset Management, LLC (“SAM,” or our “Prior Sponsor”). On June 28, 2019, SST II acquired the self storage advisory, asset management and property management businesses and certain joint venture interests (the “Self Storage Platform”) of SAM, along with certain other assets of SAM (collectively, the “Self Administration Transaction”). Immediately after the Self Administration Transaction, SST II changed its name to SmartStop Self Storage REIT, Inc. (“SmartStop”). As a result of the Self Administration Transaction, SmartStop REIT Advisors, LLC, an indirect subsidiary of SmartStop, became the sponsor (our “Sponsor”) of our Public Offering of shares of our common stock, as described below. Our Sponsor owns
We have
Potential Merger
On November 10, 2020, the Company, SmartStop, and SST IV Merger Sub, LLC, a Maryland limited liability company and a wholly-owned subsidiary of SmartStop (“Merger Sub”), entered into a definitive agreement and plan of merger (the “Merger Agreement”). Pursuant to the Merger Agreement, the Company will merge with and into Merger Sub (the “Merger”) with Merger Sub being the surviving entity. The Merger is expected to close during the first half of 2021. See Note 11, Subsequent Events for additional information related to the Merger and other transactions entered into in conjunction with the Merger Agreement.
Offering Related
On June 15, 2016, our Advisor purchased
10
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
On January 25, 2017, we sold approximately
We have invested the net proceeds from our Private Offering Transaction and the Public 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, 2020, we wholly owned
On June 29, 2020, our board of directors, upon recommendation of our nominating and corporate governance committee, approved an estimated value per share of $
Other Corporate History
Our operating partnership, Strategic Storage Operating Partnership IV, L.P., a Delaware limited partnership (our “Operating Partnership”), was formed on
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. An affiliate of our Sponsor owns the rights to the “SmartStop® Self Storage” brand. 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.
11
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
Our dealer manager was Select Capital Corporation, a California corporation (our “Former Dealer Manager”). On February 10, 2017, the Company executed a dealer manager agreement, as amended (the “Dealer Manager Agreement”), with our Former Dealer Manager. Our Former Dealer Manager was responsible for marketing our shares to be offered pursuant to our Primary Offering. On April 17, 2020, in accordance with provisions of the Dealer Manager Agreement, we provided a
Our Prior Sponsor owns
As we accepted subscriptions for shares of our common stock, we transferred all of the net offering proceeds to our Operating Partnership as capital contributions in exchange for additional units of interest in our Operating Partnership. However, we were deemed to have made capital contributions in the amount of gross proceeds received from investors, and our Operating Partnership was deemed to have simultaneously paid the sales commissions and other costs associated with the 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.
COVID-19
The global economy has continued to be adversely impacted by the COVID-19 pandemic, including in the United States and in the markets in which we operate. The COVID-19 pandemic and the resulting effects, including shutdowns or weakness in national, regional and local economies have affected our business. While many of the factors underlying the demand for self storage improved during the third quarter, future governmental orders or broad economic weakness could adversely impact our business, financial condition, liquidity and results of operations, however, the extent and duration to which our operations will be impacted is highly uncertain and cannot be predicted.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC.
Principles of Consolidation
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.
12
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
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 September 30, 2020, we had
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.
Restricted Cash
Restricted cash consists primarily of impound reserve accounts for property taxes and capital improvements in connection with the requirements of certain of our loan agreements.
13
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
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 as of the date of acquisition. This guidance requires us to make significant estimates and assumptions, including fair value estimates, which requires the use of significant unobservable inputs as of the acquisition date.
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 $
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.
Acquisitions that do not meet the definition of a business, as defined under current GAAP, are accounted for as asset acquisitions. During the nine months ended September 30, 2020 and 2019, our property acquisitions did not meet the definition of a business because substantially all of the fair value was concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related intangible assets) or because the acquisitions did not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. As a result, once an acquisition is deemed probable, transaction costs are capitalized rather than expensed. During the nine months ended September 30, 2020 and 2019, we acquired
During the three months ended September 30, 2020 and 2019, we expensed approximately $
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, including those held through joint ventures, 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 nine months ended September 30, 2020 and 2019,
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. In March 2019, in connection with the acquisition of a self storage facility in Newark, New Jersey, we entered into a
14
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
Allowance for Doubtful Accounts
Tenant accounts receivable is reported net of an allowance for doubtful accounts. Management records a general reserve estimate 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 |
|
|
Buildings |
|
|
Site Improvements |
|
Depreciation of Personal Property Assets
Personal property assets consist primarily of furniture, fixtures and equipment and are depreciated on a straight-line basis over the estimated useful lives, generally ranging from
Intangible Assets
We have allocated a portion of our real estate purchase price to in-place lease intangibles. We are amortizing in-place lease intangibles on a straight-line basis over the estimated future benefit period. As of September 30, 2020, the gross amounts allocated to in-place lease intangibles were approximately $
The total estimated future amortization expense of intangible assets for the years ending December 31, 2020 and 2021 is approximately $
Debt Issuance Costs
The net carrying value of costs incurred in connection with our revolving credit facility are presented as debt issuance costs on our consolidated balance sheets. 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, 2020 and December 31, 2019, accumulated amortization of debt issuance costs related to our revolving credit facility totaled approximately $
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. 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, 2020 and December 31, 2019, accumulated amortization of debt issuance costs related to non revolving debt totaled approximately $
15
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
Organizational and Offering Costs
Our Advisor has funded organization and offering costs on our behalf. We are required to reimburse our Advisor for such organization and offering costs; provided, however, our Advisor has funded, and will not be reimbursed for,
In connection with our Primary Offering, our Former Dealer Manager received a sales commission of up to
16
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
Our Former 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 Former 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 Former Dealer Manager also re-allowed 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 Former Dealer Manager, payment of attendance fees required for employees of our Former 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 Former Dealer Manager also received reimbursement of bona fide due diligence expenses; however, to the extent these due diligence expenses could not be justified, any excess over actual due diligence expenses would have been considered underwriting compensation subject to a
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).
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.
In order to preserve cash in light of the uncertainty relating to COVID-19 and its potential impact on our overall financial results, on March 30, 2020, our board of directors approved the suspension of our share redemption program, effective on April 29, 2020. The share redemption program will remain suspended until its resumption is approved by the board, if ever. As a result, we were unable to honor redemption requests made during the nine months ended September 30, 2020.
For the year ended December 31, 2019, we received redemption requests totaling approximately $
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.
17
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(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, restricted cash, other assets, variable – rate debt, accounts payable and accrued liabilities, distributions payable and amounts due to affiliates approximate fair value.
The table below summarizes our fixed rate notes payable at September 30, 2020, and December 31, 2019. The estimated fair value of financial instruments is subjective in nature and is dependent on a number of important assumptions, including discount rates and relevant comparable market information associated with each financial instrument. The fair value of the fixed rate notes payable was estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented below are not necessarily indicative of the amounts we would realize in a current market exchange.
|
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||||||||||
|
|
Fair Value |
|
|
Carrying Value |
|
|
Fair Value |
|
|
Carrying Value |
|
||||
|
Fixed Rate Secured Debt |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
18
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(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, 2017. To qualify as a REIT, we must continue to meet certain organizational and operational requirements, including a requirement to distribute at least
Even if we continue to qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income.
We filed an election 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 are 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 unvested restricted stock was not included in the diluted weighted average shares as such shares were antidilutive.
Note 3. Real Estate Facilities
The following summarizes the activity in real estate facilities during the nine months ended September 30, 2020:
|
Real estate facilities |
|
|
|
|
Balance at December 31, 2019 |
$ |
|
|
|
Real estate facility acquisitions |
|
|
|
|
Improvements and additions |
|
|
|
|
Balance at September 30, 2020 |
$ |
|
|
|
Accumulated depreciation |
|
|
|
|
Balance at December 31, 2019 |
$ |
( |
) |
|
Depreciation expense |
|
( |
) |
|
Balance at September 30, 2020 |
$ |
( |
) |
19
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
The following table summarizes the purchase price allocations for our acquisitions during the nine months ended September 30, 2020:
|
Property |
|
Acquisition Date |
|
Real Estate Assets |
|
|
Intangibles |
|
|
Total(2) |
|
|
2020 Revenue(3) |
|
|
2020 Property Operating Income (Loss)(3)(4) |
|
|||||
|
Escondido –CA(1) |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
Punta Gorda –FL |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
(1) |
|
|
(2) |
|
|
(3) |
|
|
(4) |
|
Note 4. Investments in Unconsolidated Real Estate Ventures
We have entered into various agreements with a subsidiary of SmartCentres, an unaffiliated third party, to acquire tracts of land and develop them into self storage facilities.
We account for these investments using the equity method of accounting and they are stated at cost and adjusted for our share of net earnings or losses and reduced by distributions. Equity in earnings (loss) will generally be recognized based on our ownership interest in the earnings (loss) of each of the unconsolidated investments.
The following table summarizes our investments in unconsolidated real estate ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value of Investment |
|
|||||
|
|
|
Location |
|
Date Real Estate Venture Acquired Land |
|
Real Estate Venture Status |
|
Equity Ownership % |
|
|
September 30, 2020 |
|
|
December 31, 2019 |
|
|||
|
Oshawa Property |
|
Oshawa, Ontario |
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
East York Property |
|
East York, Ontario |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brampton Property |
|
Brampton, Ontario |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vaughan Property |
|
Vaughan, Ontario |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scarborough Property |
|
Scarborough, Ontario |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kingspoint Property |
|
Kingspoint, Ontario |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
20
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
Financing Agreement
On July 9, 2020, we and SmartCentres, through the Oshawa, East York, Brampton and Vaughan joint venture partnerships (“the JV Properties”), entered into a master mortgage commitment agreement (the “MMCA”) with SmartCentres Storage Finance LP (the “SmartCentres Lender”) (collectively, the “SmartCentres Financing”). The SmartCentres Lender is an affiliate of SmartCentres. The initial maximum amount available is approximately $
The SmartCentres Financing is secured by first mortgages on each of the JV Properties.
The SmartCentres Financing matures on
The SmartCentres Financing contains customary affirmative and negative covenants, agreements, representations, warranties and borrowing conditions (including a loan to value ratio of no greater than
Completed Acquisition
In January 2019, one of our subsidiaries entered into a contribution agreement with a subsidiary of SmartCentres, to acquire a tract of land owned by SmartCentres and located in Scarborough, Ontario (“Scarborough Land”) in the Greater Toronto Area of Canada.
On August 7, 2020, we closed on the Scarborough Land, which is now owned by a limited partnership (the “Scarborough Limited Partnership”), in which we (through our subsidiaries) and SmartCentres (through its subsidiaries) are each a
Potential Acquisition
In January 2019, one of our subsidiaries entered into a contribution agreement with a subsidiary of SmartCentres, to acquire a tract of land owned by SmartCentres and located in Brampton, Ontario (the “Kingspoint Land”) in the Greater Toronto Area of Canada.
Upon closing, the Kingspoint Land it will be owned by a limited partnership (the “Kingspoint Limited Partnership”), in which we (through our subsidiaries) and SmartCentres (through its subsidiaries) will each be a
21
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
Note 5. Secured Debt
The Company’s debt is summarized as follows:
|
Secured Debt |
|
September 30, 2020 |
|
|
December 31, 2019 |
|
|
Interest Rate |
|
|
Maturity Date |
|||
|
Revolving KeyBank Credit Facility |
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
|
|
Katy Loan |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
CMBS Loan |
|
|
|
|
|
|
— |
|
|
|
|
% |
|
|
|
TCF Loan |
|
|
|
|
|
|
— |
|
|
|
|
% |
|
|
|
Debt issuance costs, net |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
Total Secured Debt |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
The weighted average interest rate on our consolidated debt as of September 30, 2020 was approximately
KeyBank Credit Facility
On July 31, 2018, the Company, through
On
Revolving KeyBank Credit Facility
On June 27, 2019, we, through our operating partnership, and certain affiliated entities (collectively, the “Borrower”), entered into an amended and restated credit agreement (the “Revolving KeyBank Credit Facility”) with KeyBank, as administrative agent and KeyBanc Capital Markets, LLC, as sole book runner and sole lead arranger. The Revolving KeyBank Credit Facility replaced the KeyBank Credit Facility.
Under the terms of the Revolving KeyBank Credit Facility, we had an initial maximum borrowing capacity of $
On November 5, 2019, we entered into an amendment and joinder to amend and restate the Revolving KeyBank Credit Facility (the “Second Amendment”) with KeyBank. Under the terms of the Second Amendment, we added an additional $
On January 31, 2020, we, through
22
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
The Revolving KeyBank Credit Facility is fully recourse, jointly and severally, to each of the Borrowers and is secured by cross-collateralized first mortgage liens on the Mortgaged Properties (as defined in the Revolving KeyBank Credit Facility). As of September 30, 2020, the facility encumbered the following
Under certain conditions, the Borrower may cause the release of one or more of the properties serving as collateral for the Revolving KeyBank Credit Facility, provided that no default or event of default is then outstanding or would reasonably occur as a result of such release, and after taking into account any prepayment of outstanding Loans (as defined in the Revolving KeyBank Credit Facility) necessary to maintain compliance with the financial covenants.
The Revolving KeyBank Credit Facility contains: customary affirmative, negative and financial covenants; agreements; representations; warranties and borrowing conditions; and events of default all as set forth in such loan documents. In particular, the aggregate borrowing base availability under the Revolving KeyBank Credit Facility is limited by a minimum Debt-Service-Coverage-Ratio, maximum Loan-to-Value Ratio, minimum number of Mortgaged Properties, and minimum required Pool Value for the Mortgaged Properties (capitalized terms are as defined in the Revolving KeyBank Credit Facility). In addition, we must meet certain requirements as of the close of each fiscal quarter including a maximum Total Leverage Ratio, a minimum Tangible Net Worth, a minimum Fixed Charge Ratio and required Interest Rate Protection (capitalized terms are as defined in the Revolving KeyBank Credit Facility). We are in compliance with all such covenants.
Katy Loan
On October 10, 2018, in connection with the acquisition of the property in Katy, Texas (the “Katy Property”), we, through a special purpose entity formed to acquire and hold the Katy Property, assumed an approximately $
KeyBank Bridge Loan
On January 17, 2020, we closed on a bridge loan (the “KeyBank Bridge Loan”) with KeyBank that allowed for a limited number of draws, up to an aggregate amount of $
23
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
CMBS Loan
On January 31, 2020, we, through
The amounts outstanding under the CMBS Loan bear interest at an annual fixed rate equal to
The loan documents for the CMBS Loan contain: customary affirmative and negative covenants; agreements; representations; warranties and borrowing conditions; reserve requirements and events of default all as set forth in such loan documents. In addition, and pursuant to the terms of the limited recourse guaranty dated January 31, 2020 in favor of KeyBank, we serve as a non-recourse guarantor with respect to the CMBS Loan. We are in compliance with all such covenants.
TCF Loan
On March 30, 2020, we, through
On September 2, 2020, the Company, the Original Borrowers and TCF amended the TCF Loan Agreement, whereby a special purpose entity of the Company owning the Punta Gorda property, became a co-borrower and pledged its property as additional collateral for the TCF Loan. Accordingly, we received an increase of approximately $
The interest rate on the TCF Loan is equal to the greater of (i)
The TCF Loan has an initial term of
The TCF Loan Agreement also contains a debt service coverage ratio covenant applicable to the Borrowers whereby, commencing on March 31, 2022, the TCF Properties must have a debt service coverage ratio of not less than
We serve as a limited recourse guarantor with respect to the TCF Loan during the initial term. Our obligations as guarantor may decrease based on the debt service coverage ratio on the TCF Properties.
24
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
The following table presents the future principal payment requirements on outstanding secured debt as of September 30, 2020:
|
2020 |
|
$ |
|
|
|
2021 |
|
|
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 and thereafter |
|
|
|
|
|
Total payments |
|
|
|
|
|
Debt issuance costs, net |
|
|
( |
) |
|
Total |
|
$ |
|
|
Note 6. Related Party Transactions
Fees to Affiliates
Our Advisory Agreement with our Advisor and our Dealer Manager Agreement with our Former Dealer Manager entitle our Advisor and our Former Dealer Manager to specified fees upon the provision of certain services with regard to the Public Offering and investment of funds in real estate properties, among other services, as well as reimbursement for organization and offering costs incurred by our Advisor on our behalf and reimbursement of certain costs and expenses incurred by our Advisor in providing services to us.
Organization and Offering Costs
Organization and offering costs of the Public Offering were paid by our Advisor on our behalf and reimbursed to our Advisor from the proceeds of our Public Offering; provided, however, that our Advisor funded, and will not be reimbursed for,
Advisory Agreement
We do
25
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
Our Advisory Agreement also requires our Advisor to reimburse us to the extent that offering expenses, including sales commissions, dealer manager fees, stockholder servicing fees, dealer manager servicing fees and organization and offering expenses, are in excess of
Our Advisory Agreement provides for reimbursement of our Advisor’s direct and indirect costs of providing administrative and management services to us. Beginning four fiscal quarters after we acquire our first real estate asset, our Advisor is required to pay or reimburse us the amount by which our aggregate annual operating expenses, as defined, exceed the greater of
As of September 30, 2020 and 2019, our aggregate annual operating expenses, as defined, did not exceed the thresholds described above.
Dealer Manager Agreement
On April 17, 2020, in accordance with provisions of the Dealer Manager Agreement, we provided a
26
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
portion of our liability for future payment of Class W dealer manager servicing fees in excess of the
Our Former 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 Former Dealer Manager 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 Former 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 Former Dealer Manager, payment of attendance fees required for employees of our Former 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 Former Dealer Manager also received 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 are considered underwriting compensation subject to a
Property Management Agreement
Our Property Manager receives: (i) a monthly management fee for the property equal to the greater of $
All of our properties are operated under the “SmartStop® Self Storage” brand. An affiliate of our sponsor owns the rights to the “SmartStop® Self Storage” brand.
Transfer Agent Agreement
Our Prior Sponsor is the owner and manager of our Transfer Agent, which is a registered transfer agent with the SEC. Pursuant to our transfer agent agreement, our Transfer Agent provides transfer agent and registrar services to us. These services are substantially similar to what a third party transfer agent would provide in the ordinary course of performing its functions as a transfer agent, including, but not limited to: providing customer service to our stockholders, processing the distributions and any servicing fees with respect to our shares and issuing regular reports to our stockholders. Our Transfer Agent may retain and supervise third party vendors in its efforts to administer certain services. We believe that our Transfer Agent, through its knowledge and understanding of the direct participation program industry which includes non-traded REITs, is particularly suited to provide us with transfer agent and registrar services. Our Transfer Agent also conducts transfer agent and registrar services for our Sponsor and a private REIT sponsored by our Sponsor.
Fees paid to our Transfer Agent are based on a fixed quarterly fee, one-time account setup fees and monthly open account fees. In addition, we will reimburse our Transfer Agent for all reasonable expenses or other changes incurred by it in connection with the provision of its services to us, and we will pay our Transfer Agent fees for any additional services we may request from time to time, in accordance with its rates then in effect. Upon the request of our Transfer Agent, we may also advance payment for substantial reasonable out-of-pocket expenditures to be incurred by it.
27
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
The initial term of the Transfer Agent Agreement is
Pursuant to the terms of the agreements described above, the following table summarizes related party costs incurred and paid by us for the year ended December 31, 2019 and the nine months ended September 30, 2020, as well as any related amounts payable as of December 31, 2019 and September 30, 2020:
|
|
|
Year Ended December 31, 2019 |
|
|
Nine Months Ended September 30, 2020 |
|
||||||||||||||||||||||
|
|
|
Incurred |
|
|
Paid |
|
|
Payable |
|
|
Incurred |
|
|
Paid |
|
|
Adjustment(2) |
|
|
Payable |
|
|||||||
|
Expensed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (including organizational costs) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
Asset management fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Property management fees |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
— |
|
|
Transfer Agent expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Acquisition expenses |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
— |
|
|
Capitalized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition expenses |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
— |
|
|
Additional Paid-in Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling commissions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
Dealer Manager fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
Stockholder Servicing Fees and Dealer Manager Servicing Fees(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Offering costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
(1) |
|
|
(2) |
|
Tenant Programs
We may offer a tenant insurance plan, tenant protection plan or similar program (collectively “Tenant Programs”) to customers at our properties pursuant to which our Property Manager or an affiliate is entitled to substantially all of the net revenue attributable to the sale of Tenant Programs at our properties.
28
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
In order to protect the interest of the Property Manager in receiving these revenues in light of the fact that we control the properties and, hence, the ability of the Property Manager to receive such revenues, we and an affiliate of our Property Manager agreed to transfer our respective rights in such revenue to a joint venture entity owned
Storage Auction Program
Our Sponsor owns a minority interest in a company that owns
Note 7. Commitments and Contingencies
Distribution Reinvestment Plan
We adopted a distribution reinvestment plan that will allow our stockholders to have distributions otherwise distributable to them invested in additional shares of our common stock. The plan became effective on the effective date of our Public Offering.
Share Redemption Program
We adopted a share redemption program that enables stockholders to sell their shares to us in limited circumstances. As long as our common stock is not listed on a national securities exchange or over-the-counter market, our stockholders who have held their stock for at least
Our board of directors may amend, suspend or terminate the share redemption program with
29
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
In order to preserve cash in light of the uncertainty relating to COVID-19 and its potential impact on our overall financial results, on March 30, 2020, our board of directors approved the suspension of our share redemption program, effective on
There are several limitations on our ability to redeem shares under the share redemption program including, but not limited to:
|
|
• |
Unless the shares are being redeemed in connection with a stockholder’s death, “qualifying disability” (as defined under the share redemption program) or bankruptcy, we may not redeem shares until the stockholder has held his or her shares for one year. |
|
|
• |
During any calendar year, we will |
|
|
• |
The cash available for redemption is limited to the proceeds from the sale of shares pursuant to our distribution reinvestment plan. |
|
|
• |
We have |
For the year ended December 31, 2019, we received redemption requests totaling approximately $
Operating Partnership Redemption Rights
The limited partners of our Operating Partnership have the right to cause our Operating Partnership to redeem their limited partnership units for cash equal to the value of an equivalent number of our shares, or, at our option, we may purchase their limited partnership units by issuing
Other Contingencies
From time to time, we are party to legal proceedings that arise in the ordinary course of our business. We are not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by governmental authorities.
30
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
Note 8. Selected Quarterly Data (Unaudited)
The following is a summary of quarterly financial information for the periods shown below.
|
|
|
Three months ended |
|
|||||||||||||||||
|
|
|
September 30, 2019 |
|
|
December 31, 2019 |
|
|
March 31, 2020 |
|
|
June 30, 2020 |
|
|
September 30, 2020 |
|
|||||
|
Total revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net loss attributable to common stockholders |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net loss per Class A share-basic and diluted |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net loss per Class T share-basic and diluted |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net loss per Class W share-basic and diluted |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Note 9. Declaration of Distributions
Cash Distribution Declaration
In order to give our board of directors maximum flexibility to monitor and evaluate the situation related to the financial impact of COVID-19, on
Note 10. Potential Acquisitions
San Gabriel Property
On
Note 11. Subsequent Events
Potential Merger with SmartStop Self Storage REIT, Inc.
On November 10, 2020, the Company, SmartStop and Merger Sub entered into the Merger Agreement in connection with the Merger. The Merger Agreement provides that SmartStop will acquire the Company by way of a merger of the Company with and into Merger Sub, with Merger Sub being the surviving entity in the Merger. The special committee (the “Committee”) of our board of directors, our board, the special committee of the board of directors of SmartStop and the board of directors of SmartStop have approved the Merger, the Merger Agreement and the transactions contemplated by the Merger Agreement. In addition, the Committee and our board have approved, and recommended that our stockholders
31
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
approve, an amendment to the Company’s First Articles of Amendment and Restatement to remove the limitations on “roll-up transactions” (the “Charter Amendment”), which is necessary to consummate the Merger.
Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Merger Effective Time”),
The Merger Agreement contains customary representations, warranties and covenants, including covenants relating to the conduct of the respective businesses of the Company and SmartStop during the period between the execution of the Merger Agreement and the earlier of the completion of the Merger or the termination of the Merger Agreement in accordance with its terms. The closing of the Merger (the “Closing”) is subject to and conditioned on the approval of the Merger and the Charter Amendment by the affirmative vote of holders of not less than a majority of all outstanding shares of our common stock (the “Stockholder Approvals”). Pursuant to the terms of the Merger Agreement, the Closing is also subject to other customary conditions, including the delivery of certain documents and legal opinions, the accuracy of the representations and warranties of the parties (subject to the materiality standards contained in the Merger Agreement), the effectiveness of the registration statement on Form S-4 to be filed by SmartStop to register the shares of the SmartStop Common Stock to be issued as Merger Consideration, and the absence of a “SST IV Material Adverse Effect” or “SmartStop Material Adverse Effect” (as each term is defined in the Merger Agreement). The Closing is not subject to a financing condition or the approval of SmartStop’s stockholders.
The Merger Agreement prohibits the Company and its subsidiaries and representatives from soliciting, providing information or entering into discussions concerning proposals relating to alternative business combination transactions, subject to certain limited exceptions. The Merger Agreement also provides that at any time prior to receipt of the Stockholder Approvals, the Company and its representatives may, in certain circumstances, make an “Adverse Recommendation Change” (as that term is defined in the Merger Agreement) and terminate the Merger Agreement, subject to complying with certain conditions set forth in the Merger Agreement.
In the event of the termination of the Merger Agreement and the Company’s entry into an alternative transaction with respect to a superior proposal, as well as under other specified circumstances, the Company will be required to pay to SmartStop a termination payment of $
We expect the Merger to close during the first half of 2021; however, there is no guarantee that the Merger will be consummated.
Ancillary Agreements
Concurrently with the entry into the Merger Agreement, (i) the Company, our Operating Partnership, and our Advisor, entered into a termination agreement (the “Termination Agreement”), pursuant to which, among other things, the Advisory Agreement, dated as of March 3, 2017, by and among the Company, our Operating Partnership, and our Advisor will terminate upon the Merger Effective Time without any payment to our Advisor, and (ii) the Company, our Operating Partnership, and SmartStop Storage Advisors, LLC, a subsidiary of SmartStop (“SSA”), entered into a Redemption of Special Limited Partner Interest Agreement (the “Redemption Agreement”), pursuant to which the special limited partner interest in our Operating Partnership held by SSA will be redeemed by our Operating Partnership immediately prior to the Merger Effective Time, without any distribution or other payment to SSA.
32
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)
Suspension of Distribution Reinvestment Plan
In connection with the Merger Agreement, on November 10, 2020, the board of directors approved the suspension of the DRP with an effective date of
33
|
ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and notes thereto contained elsewhere in this report. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should also be read in conjunction with our 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, 2019. See also “Cautionary Note Regarding Forward Looking Statements” preceding Part I.
Overview
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.
Prior to June 28, 2019, both we and Strategic Storage Trust II, Inc. (“SST II”), were sponsored by SmartStop Asset Management, LLC (“SAM,” or our “Prior Sponsor”). On June 28, 2019, SST II acquired the self storage advisory, asset management and property management businesses and certain joint venture interests (the “Self Storage Platform”) of SAM, along with certain other assets of SAM (collectively, the “Self Administration Transaction”). Immediately after the Self Administration Transaction, SST II changed its name to SmartStop Self Storage REIT, Inc. (“SmartStop”). As a result of the Self Administration Transaction, SmartStop REIT Advisors, LLC, an indirect subsidiary of SmartStop, became the sponsor (our “Sponsor”) of our Offering of shares of our common stock, as described below. Our Sponsor owns 100% of Strategic Storage Advisor IV, LLC (our “Advisor”) and Strategic Storage Property Management IV, LLC (our “Property Manager”).
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”).
On March 17, 2017, we commenced a public offering of a maximum of $1 billion in common shares for sale to the public (the “Primary Offering”) and $95 million in common shares for sale pursuant to our distribution reinvestment plan (collectively, the “Public Offering”). On April 17, 2020, our board of directors approved the suspension of our Primary Offering, effective as of April 30, 2020, based upon various factors, including the uncertainty relating to the ongoing COVID-19 outbreak and its potential economic impact, the status of fundraising in the non-traded REIT industry due to such uncertainty, and the termination of our Dealer Manager Agreement. The termination of our Public Offering occurred on September 13, 2020. On July 30, 2020, prior to the termination of our Public Offering, we filed with the SEC a Registration Statement on Form S-3, which registered up to an additional $50 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.
On June 29, 2020, our board of directors, upon recommendation of our nominating and corporate governance committee, approved an estimated value per share of $22.65 for our Class A shares, Class T shares, and Class W 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 an adjusted fully diluted basis, calculated as of March 31, 2020. As a result of the calculation of our estimated value per share remaining the same as the prior year value, there was no change to the public offering prices for any of our share classes. In addition, the purchase price for shares sold pursuant to our distribution reinvestment plan remained at $22.65 per share for Class A, Class T, and Class W shares.
During the third quarter of 2020, our board of directors established a special committee comprised solely of its independent directors to conduct a review of a potential strategic transaction with SmartStop. As a result of this process, on November 10, 2020, the Company, SmartStop, and Merger Sub, entered into the Merger Agreement in connection with the Merger. The Merger Agreement provides that SmartStop will acquire the Company by way of a merger of the Company with and into Merger Sub, with Merger Sub being the surviving entity in the Merger. See Note 11, Subsequent Events for additional information related to the Merger and other transactions entered into in conjunction with the Merger Agreement.
As of September 30, 2020, we wholly owned 24 operating self storage properties located in nine states (Arizona, California, Florida, Nevada, New Jersey, North Carolina, Texas, Virginia and Washington) comprising approximately 18,000 units and 2.0 million net rentable square feet as well as 50% equity interests in five unconsolidated real estate ventures located in the Greater Toronto Area. Our unconsolidated real estate ventures consist of one operating self storage property and four parcels of land being developed into self storage facilities, with subsidiaries of SmartCentres owning the other 50% of such entities. In addition, we had entered into one other contribution agreement with respect to a tract of land in the Greater Toronto Area owned by SmartCentres. For more information, see Note 4 of the Notes to the Consolidated Financial Statements contained in this report.
34
As of September 30, 2020, our wholly owned self storage portfolio was comprised as follows:
|
State |
|
No. of Properties |
|
|
Units(1) |
|
|
Sq. Ft. (net)(2) |
|
|
% of Total Rentable Sq. Ft. |
|
|
Physical Occupancy %(3) |
|
|
Rental Income %(4) |
|
||||||
|
Arizona |
|
|
1 |
|
|
|
720 |
|
|
|
79,000 |
|
|
|
3.9 |
% |
|
|
80 |
% |
(5) |
|
1.1 |
% |
|
California |
|
|
2 |
|
|
|
1,620 |
|
|
|
154,000 |
|
|
|
7.5 |
% |
|
|
69 |
% |
(6) |
|
4.4 |
% |
|
Florida |
|
|
5 |
|
|
|
3,830 |
|
|
|
519,100 |
|
|
|
25.4 |
% |
|
|
86 |
% |
(7) |
|
22.2 |
% |
|
Nevada |
|
|
2 |
|
|
|
1,220 |
|
|
|
131,500 |
|
|
|
6.4 |
% |
|
|
94 |
% |
|
|
8.6 |
% |
|
New Jersey |
|
|
1 |
|
|
|
1,900 |
|
|
|
158,000 |
|
|
|
7.7 |
% |
|
|
96 |
% |
|
|
13.0 |
% |
|
North Carolina |
|
|
2 |
|
|
|
1,910 |
|
|
|
176,500 |
|
|
|
8.6 |
% |
|
|
88 |
% |
|
|
7.7 |
% |
|
Texas |
|
|
8 |
|
|
|
4,610 |
|
|
|
605,900 |
|
|
|
29.7 |
% |
|
|
92 |
% |
|
|
28.5 |
% |
|
Virginia |
|
|
1 |
|
|
|
830 |
|
|
|
71,000 |
|
|
|
3.5 |
% |
|
|
92 |
% |
|
|
5.5 |
% |
|
Washington |
|
|
2 |
|
|
|
1,180 |
|
|
|
146,000 |
|
|
|
7.3 |
% |
|
|
92 |
% |
|
|
9.0 |
% |
|
|
|
|
24 |
|
|
|
17,820 |
|
|
|
2,041,000 |
|
|
|
100 |
% |
|
|
89 |
% |
(3) |
|
100 |
% |
|
(1) |
Includes all rentable units, consisting of storage units and parking units (approximately 690 units). |
|
(2) |
Includes all rentable square feet consisting of storage units and parking units (approximately 250,000 square feet). |
|
(3) |
Represents the occupied square feet of all facilities we owned in a state divided by total rentable square feet of all the facilities we owned in such state as of September 30, 2020. As of September 30, 2020, the following properties were not physically stabilized: Ocoee, Surprise, Escondido, and Punta Gorda. Excluding these properties, our total physical occupancy was approximately 93%. |
|
(4) |
Represents rental income for all facilities we own in a state divided by our total rental income for the month ended September 30, 2020. |
|
(5) |
We acquired the Surprise property, at certificate of occupancy, with initial occupancy of 0%, in December 2019. The occupancy was approximately 80% as of September 30, 2020. |
|
(6) |
We acquired the Escondido property, at certificate of occupancy, with initial occupancy of 0%, in January 2020. The occupancy was approximately 52% as of September 30, 2020. |
|
(7) |
We acquired the Ocoee property, a lease-up property, with initial occupancy of 37%, in November 2019. The occupancy was approximately 83% as of September 30, 2020. We acquired the Punta Gorda property, a lease-up property, with initial occupancy of 46%, on June 18, 2020. The occupancy was approximately 67% as of September 30, 2020. |
Investments in Unconsolidated Real Estate Ventures
We have entered into joint venture agreements with a subsidiary of SmartCentres, an unaffiliated third party, for tracts of land owned by SmartCentres that are intended to be developed into self storage facilities. We account for these investments using the equity method of accounting and they will be stated at cost and adjusted for our share of net earnings or losses and reduced by distributions. Equity in earnings (loss) will generally be recognized based on our ownership interest in the earnings of each of the unconsolidated investments. On June 16, 2020, the East York property obtained certificate of occupancy and commenced operations, with initial occupancy of 0%. The occupancy was approximately 15% as of September 30, 2020.
The following table summarizes our investments in unconsolidated real estate ventures as of September 30, 2020:
|
|
|
Location |
|
Date Real Estate Venture Acquired Land |
|
Estimated Property Completion Date |
|
Equity Ownership % |
|
|
Approx. Units at Completion |
|
|
Approx. Sq. Ft. (net) at Completion |
|
|||
|
Oshawa |
|
Oshawa, |
|
September 2018 |
|
Second half of |
|
50% |
|
|
900 |
|
|
|
119,000 |
|
||
|
Property |
|
Ontario |
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
East York |
|
East York, |
|
January 2019 |
|
Commenced |
|
50% |
|
|
|
1,000 |
|
|
|
100,000 |
|
|
|
Property |
|
Ontario |
|
|
|
Operations June 16, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Brampton |
|
Brampton, |
|
September 2019 |
|
Fourth Quarter of |
|
50% |
|
|
|
1,030 |
|
|
|
133,000 |
|
|
|
Property |
|
Ontario |
|
|
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Vaughan |
|
Vaughan, |
|
August 2019 |
|
First Quarter of |
|
50% |
|
|
880 |
|
|
|
119,000 |
|
||
|
Property |
|
Ontario |
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Scarborough |
|
Scarborough, |
|
August 2020 |
|
Second half of |
|
50% |
|
|
|
880 |
|
|
|
90,000 |
|
|
|
Property |
|
Ontario |
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,690 |
|
|
|
561,000 |
|
35
Critical Accounting Policies
We have established accounting policies which conform to generally accepted accounting principles (“GAAP”). Preparing financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. Following is a discussion of the estimates and assumptions used in setting accounting policies that we consider critical in the presentation of our financial statements. Many estimates and assumptions involved in the application of GAAP may have a material impact on our financial condition or operating performance, or on the comparability of such information to amounts reported for other periods, because of the subjectivity and judgment required to account for highly uncertain items or the susceptibility of such items to change. These estimates and assumptions affect our reported amounts of assets and liabilities, our disclosure of contingent assets and liabilities at the dates of the financial statements and our reported amounts of revenue and expenses during the period covered by this report. If management’s judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied or different amounts of assets, liabilities, revenues and expenses would have been recorded, thus resulting in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements. Additionally, other companies may use different estimates and assumptions that may impact the comparability of our financial condition and results of operations to those companies.
We believe that our critical accounting policies include the following: real estate purchase price allocations; the evaluation of whether any of our long-lived assets have been impaired; the determination of the useful lives of our long-lived assets; and the evaluation of the consolidation of our interests in joint ventures. The following discussion of these policies supplements, but does not supplant the description of our significant accounting policies, as contained in Note 2 of the Notes to the Consolidated Financial Statements contained in this report, and is intended to present our analysis of the uncertainties involved in arriving upon and applying each policy.
Real Estate Purchase Price Allocation
We account for acquisitions in accordance with GAAP which requires that we allocate the purchase price of a property to the tangible and intangible assets acquired and the liabilities assumed based on their relative fair values. This guidance requires us to make significant estimates and assumptions, including fair value estimates, which requires the use of significant unobservable inputs as of the acquisition date.
The value of the tangible assets, consisting of land and buildings, is determined as if vacant. Because we believe that substantially all of the leases in place at properties we will acquire will be at market rates, as the majority of the leases are month-to-month contracts, we do not expect to allocate any portion of the purchase prices to above or below market leases. We also consider whether in-place, market leases represent an intangible asset. Acquisitions of portfolios of facilities are allocated to the individual facilities based upon an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates which take into account the relative size, age, and location of the individual facility along with current and projected occupancy and rental rate levels or appraised values, if available.
Our allocations of purchase prices are based on certain significant estimates and assumptions, variations in such estimates and assumptions could result in a materially different presentation of the consolidated financial statements or materially different amounts being reported in the consolidated financial statements.
36
Impairment of Long-Lived Assets
The majority of our assets, other than cash and cash equivalents, consist of long-lived real estate assets as well as intangible assets related to our acquisitions. We will evaluate such assets for impairment based on events and changes in circumstances that may arise in the future and that may impact the carrying amounts of our long-lived assets, including those held through joint ventures. When indicators of potential impairment are present, we will assess the recoverability of the particular asset by determining whether the carrying value of the asset will be recovered, through an evaluation of the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. This evaluation is based on a number of estimates and assumptions. Based on this evaluation, if the expected undiscounted future cash flows do not exceed the carrying value, we will adjust the value of the long-lived asset and recognize an impairment loss. Our evaluation of the impairment of long-lived assets could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements, as the amount of impairment loss recognized, if any, may vary based on the estimates and assumptions we use.
Estimated Useful Lives of Long-Lived Assets
We assess the useful lives of the assets underlying our properties based upon a subjective determination of the period of future benefit for each asset. We record depreciation expense with respect to these assets based upon the estimated useful lives we determine. Our determinations of the useful lives of the assets could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements, as such determinations, and the corresponding amount of depreciation expense, may vary dramatically based on the estimates and assumptions we use.
Consolidation of Investments in Joint Ventures
We evaluate the consolidation of our investments in joint ventures in accordance with relevant accounting guidance. This evaluation requires us to determine whether we have a controlling interest in a joint venture through a means other than voting rights, and, if so, such joint venture may be required to be consolidated in our financial statements. Our evaluation of our joint ventures under such accounting guidance could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements, as the joint venture entities included in our financial statements may vary based on the estimates and assumptions we use.
REIT Qualification
We made an election under Section 856(c) of the Internal Revenue Code of 1986 (the “Code”) to be taxed as a REIT under the Code, commencing with the taxable year ended December 31, 2017. By qualifying as a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is denied. Such an event could materially and adversely affect our net income and could have a material adverse impact on our financial condition and results of operations. However, we believe that we are organized and operate in 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.
Recent Market Conditions
Our rental revenue and operating results depend significantly on the demand for self storage space. Since the beginning of the COVID-19 pandemic in March 2020, our operations have been affected by COVID-19 in various ways, including but not limited to, national and local jurisdictions issuing orders causing temporary restrictions on our business in certain markets, temporary shutdowns of certain of our facilities, customer behavior and their comfort levels visiting our facilities, as well as the broader economic impacts of COVID-19. The financial impact associated with these items were most significant in the second quarter of 2020, with customer demand for self storage resuming at or above normalized levels during the third quarter of 2020.
Since the beginning of March 2020, we have been focused on creating a safe environment for our customers and employees given the spread of COVID-19. We have instituted the use of masks, plastic dividers, additional cleaning measures and social distancing at all of our self storage facilities. We have also adjusted our in-store operations in order to comply with the various governmental orders, and, in certain cases, we had to temporarily close some of our offices. Additionally, we have expanded our options for customers to rent units via contactless means, including directly through our website and call center. Implementing additional safety measures, including personal protective equipment, as well as various field personnel one-time cash bonuses, resulting in increased property operating expenses during 2020.
37
Various jurisdictions issued orders or proclamations impacting our ability to charge certain fees, conduct auctions or increase our rental rates. Beginning in mid-March, we elected to suspend auctions and rate increases for our existing customers, as well as suspend or waive certain fees. At the end of the second quarter 2020, in certain jurisdictions, we resumed certain of the foregoing operating procedures on a modified basis, including auctions and charging late fees. While many of the restrictions initially implemented lapsed during the third quarter, we are still subject to some restrictions at certain locations. To date there has been no significant change in our rent collections. However, rent collections could be impacted by prolonged economic stress and unemployment, which could affect our customers’ ability to pay rent and thus would increase bad debt expense.
We experienced reduced rental activity during late March and April, as well as lower prices offered by our competitors, which caused lower rental rates for our incoming customers during the second quarter. As a result of market conditions, and the suspension of existing customer rate increases and certain forgone fees, we saw a negative impact on our revenues in the second quarter.
Many of these factors improved throughout the third quarter, along with increased self storage demand, resulting in revenue returning to more normalized seasonal levels. Our rental activity during the third quarter was strong, we were able to resume existing customer rate increases in most markets, customer collections remained relatively consistent, and our asking rates to new customers continued to improve on a year-over-year basis.
Below is a summary of the business indicators, drivers, and metrics which were impacted by the COVID-19 pandemic for the third quarter of 2020 as compared to the second quarter 2020:
|
|
• |
Resumed existing customer rate increases on a modified basis beginning July 2020 and through the third quarter 2020, as compared to no rate increases for our existing customers during second quarter 2020; |
|
|
• |
A reduction in late fees during third quarter 2020 of approximately 24% on a same-store basis as compared to third quarter 2019, an improvement from second quarter 2020, in which same-store late fees declined 31% year-over-year; |
|
|
• |
Same-store move-ins increased approximately 16% during third quarter 2020 as compared to third quarter 2019, an improvement from the decline of approximately 6% year-over-year during the second quarter 2020; |
|
|
• |
Same-store move outs increased approximately 1% during third quarter 2020 as compared to third quarter 2019, as compared to the decline of approximately 5% year-over-year for the second quarter 2020; |
|
|
• |
Rents billed and collected within the same month, remained consistent on year-over-year basis at approximately 97% during the third and second quarters of 2020. |
The ultimate extent and duration of the COVID-19 pandemic and the resulting impact, including the corresponding governmental orders or broader economic condition and any associated impact on the demand for self storage space or on our business, financial condition, collections, bad debt expense, liquidity, results of operations and prospects will depend on future developments, which are highly uncertain and cannot be predicted. This includes new information that may also emerge concerning the breadth or severity of the COVID-19 outbreak, as well as the actions to contain or treat its impact.
Results of Operations
Overview
We derive revenues principally from: (i) rents received from tenants who rent storage units under month-to-month leases at each of our self storage facilities; and (ii) sales of packing and storage related supplies at our storage facilities. Therefore, our operating results depend significantly on our ability to retain our existing tenants and lease our available self storage units to new tenants, while maintaining and, where possible, increasing the prices for our self storage units. Additionally, our operating results depend on our tenants making their required rental payments to us.
Competition in the market areas in which we operate is significant and affects the occupancy levels, rental rates, rental revenues and operating expenses of our facilities. Development of any new self storage facilities would intensify competition of self storage operators in markets in which we operate.
38
As of September 30, 2020 and 2019, we owned 24 and 17 self storage facilities, respectively. The comparability of our results of operations was significantly affected by our acquisition activity in 2019 and 2020 as listed below.
|
|
• |
Our operating results for the three months ended September 30, 2019 include full period results for 16 self storage facilities and partial period results for one self storage facility acquired during the third quarter of 2019. Our operating results for the three months ended September 30, 2020 include full period results for 24 self storage facilities. As such, we believe there is little basis for comparison between the three months ended September 30, 2020 and 2019. Operating results in future periods will depend on the results of operations of these properties and the real estate properties that we acquire in the future. |
|
|
• |
Our operating results for the nine months ended September 30, 2019 include full period results for 14 self storage facilities and partial period results for three self storage facilities acquired during the first three quarters of 2019. Our operating results for the nine months ended September 30, 2020 include full period results for 22 self storage facilities and partial period results for two self storage facilities acquired during the first two quarters of 2020. As such, we believe there is little basis for comparison between the nine months ended September 30, 2020 and 2019. Operating results in future periods will depend on the results of operations of these properties and the real estate properties that we acquire in the future. |
Comparison of the Three Months Ended September 30, 2020 and 2019
Total Revenues
Total revenues for the three months ended September 30, 2020 and 2019 were approximately $6.1 million and $4.5 million, respectively. The increase in total revenues is primarily attributable to a full quarter of operations for 24 properties in the third quarter of 2020, compared to a full quarter of operations for 16 properties and partial quarter of operations for one property acquired in the third quarter of 2019. We expect total revenues to increase in the future commensurate with our future acquisition activity and lease-up of our non-stabilized properties.
Property Operating Expenses
Property operating expenses for the three months ended September 30, 2020 and 2019 were approximately $2.5 million (approximately 41% of total revenues) and $1.7 million (approximately 37% of total revenues), respectively. Property operating expenses include the costs to operate our facilities including payroll, utilities, insurance, real estate taxes, and marketing. The increase in property operating expenses is primarily attributable to a full quarter of operations for 24 properties in the third quarter of 2020, compared to a full quarter of operations for 16 properties and partial quarter of operations for one property acquired in the third quarter of 2019. The increase in property operating expenses as a percentage of total revenues is primarily a result of the lease-up and certificate of occupancy properties that were acquired in the fourth quarter of 2019 and the first two quarters of 2020. We expect property operating expenses to increase in the future as our operational activity increases but decrease as a percentage of total revenues as we lease-up our non-stabilized properties.
Property Operating Expenses – Affiliates
Property operating expenses – affiliates for the three months ended September 30, 2020 and 2019 were approximately $1.2 million and $0.8 million, respectively. Property operating expenses – affiliates includes property management fees and asset management fees. The increase in property operating expenses – affiliates is primarily attributable to a full quarter of operations for 24 properties in the third quarter of 2020, compared to a full quarter of operations for 16 properties and partial quarter of operations for one property acquired in the third quarter of 2019. We expect property operating expenses – affiliates to increase in the future as our operational activity increases.
General and Administrative Expenses
General and administrative expenses for the three months ended September 30, 2020 and 2019 were approximately $0.9 million and $0.7 million, respectively. General and administrative expenses consist primarily of legal expenses, directors’ and officers’ insurance, transfer agent fees, an allocation of a portion of our Advisor’s payroll related costs, accounting expenses and board of directors related costs. The increase in general and administrative expenses is primarily attributable to professional expense and board of directors costs related to our evaluation of and entry into the Merger Agreement. We expect general and administrative expenses to increase in the future as our operational activity increases, but decrease as a percentage of total revenue.
39
Depreciation and Amortization Expenses
Depreciation and amortization expenses for the three months ended September 30, 2020 and 2019 were approximately $2.7 million and $2.6 million, respectively. Depreciation expense consists primarily of depreciation on the buildings and site improvements at our properties. Amortization expense consists of the amortization of intangible assets resulting from our acquisitions. The increase in depreciation and amortization expense is primarily attributable to a full quarter of operations for 24 properties in the third quarter of 2020, compared to a full quarter of operations for 16 properties and partial quarter of operations for one property acquired in the third quarter of 2019, partially offset by certain of our intangible assets associated with in-place leases being fully amortized during 2019 and 2020. We expect depreciation and amortization expense to increase in future periods commensurate with our future acquisition activity.
Acquisition Expenses – Affiliates
Acquisition expenses – affiliates for the three months ended September 30, 2020 and 2019 were approximately $0.1 million and $0.2 million, respectively. Acquisition expenses primarily relate to the costs associated with our potential acquisitions of self storage facilities prior to the acquisitions becoming probable in accordance with our capitalization policy. We expect acquisition expenses - affiliates to fluctuate in the future commensurate with our acquisition activity.
Other Property Acquisition Expenses
Other property acquisition expenses for the three months ended September 30, 2020 and 2019 were approximately $4,000 and $0.1 million, respectively. Acquisition expenses primarily relate to the costs associated with our potential acquisitions of self storage facilities prior to the acquisitions becoming probable in accordance with our capitalization policy. We expect other property acquisition expenses to fluctuate in the future commensurate with our acquisition activity.
Interest Expense
Interest expense for the three months ended September 30, 2020 and 2019 was approximately $1.1 million and $0.5 million, respectively. The increase in interest expense is primarily attributable to debt obtained in conjunction with certain of the properties we acquired subsequent to September 30, 2019 offset by lower interest rates related to the KeyBank Revolving Credit Facility, the CMBS Loan, and the TCF Loan. We expect interest expense to fluctuate in the future commensurate with our future debt level.
Interest Expense – Debt Issuance Costs
Interest expense – debt issuance costs for the three months ended September 30, 2020 and 2019 were approximately $0.4 million and $0.1 million, respectively. The increase in interest expense – debt issuance costs was primarily due to the write off of approximately $0.2 million of debt issuance costs in accordance with GAAP during the three months ended September 30, 2020. We expect interest expense – debt issuance costs to fluctuate in the future commensurate with our future financing activity.
40
Same-Store Facility Results – Three months ended September 30, 2020 and 2019
The following table sets forth operating data for our same-store facilities (those properties included in the consolidated results of operations since July 1, 2019) for the three months ended September 30, 2020 and 2019. We consider the following data to be meaningful as this allows for the comparison of results without the effects of acquisition or lease up activity.
|
|
|
Same-Store Facilities |
|
|
Non Same-Store Facilities |
|
Total |
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
% |
|
||
|
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
2020 |
|
|
2019 |
|
|
Change |
|
||||||||
|
Revenue (1) |
|
$ |
4,447,642 |
|
|
$ |
4,348,102 |
|
|
|
2.3 |
% |
|
$ |
1,646,904 |
|
|
$ |
154,691 |
|
|
N/M |
|
$ |
6,094,546 |
|
|
$ |
4,502,793 |
|
|
|
35.4 |
% |
|
Property operating expenses (2) |
|
|
2,021,732 |
|
|
|
1,848,920 |
|
|
|
9.3 |
% |
|
|
861,532 |
|
|
|
77,858 |
|
|
N/M |
|
|
2,883,264 |
|
|
|
1,926,778 |
|
|
|
49.6 |
% |
|
Property operating income |
|
$ |
2,425,910 |
|
|
$ |
2,499,182 |
|
|
|
(2.9 |
)% |
|
$ |
785,372 |
|
|
$ |
76,833 |
|
|
N/M |
|
$ |
3,211,282 |
|
|
$ |
2,576,015 |
|
|
|
24.7 |
% |
|
Number of facilities |
|
|
16 |
|
|
|
16 |
|
|
|
|
|
|
|
8 |
|
|
|
1 |
|
|
|
|
|
24 |
|
|
|
17 |
|
|
|
|
|
|
Rentable square feet (3) |
|
|
1,385,800 |
|
|
|
1,385,800 |
|
|
|
|
|
|
|
655,200 |
|
|
|
48,000 |
|
|
|
|
|
2,041,000 |
|
|
|
1,433,800 |
|
|
|
|
|
|
Average physical occupancy (4) |
|
93.5% |
|
|
89.6% |
|
|
|
|
|
|
N/M |
|
|
N/M |
|
|
|
|
87.7% |
|
(5) |
89.6% |
|
|
|
|
|
||||||
|
Annualized rent per occupied square foot (6) |
|
$ |
15.46 |
|
|
$ |
15.67 |
|
|
|
|
|
|
N/M |
|
|
N/M |
|
|
|
|
$ |
14.88 |
|
|
$ |
15.61 |
|
|
|
|
|
||
N/M Not meaningful
|
(1) |
Revenue includes rental revenue, ancillary revenue, and administrative and late fees. |
|
(2) |
Property operating expenses excludes corporate general and administrative expenses, asset management fees, interest expense, depreciation, amortization expense and acquisition expenses, but includes property management fees. |
|
(3) |
Of the total rentable square feet, parking represented approximately 240,000 and 218,000 square feet as of September 30, 2020 and 2019, respectively. On a same-store basis, for the same periods, parking represented approximately 218,000 square feet. |
|
(4) |
Determined by dividing the sum of the month-end occupied square feet for the applicable group of facilities for each applicable period by the sum of their month-end rentable square feet for the period. |
|
(5) |
Total average physical occupancy includes the Surprise, Escondido, Ocoee, and Punta Gorda properties which were not physically stabilized as of September 30, 2020. |
|
(6) |
Determined by dividing the aggregate realized rental revenue for each applicable period by the aggregate of the month-end occupied square feet for the period. Properties are included in the respective calculations in their first full month of operations, as appropriate. We have excluded the realized rental revenue and occupied square feet related to parking herein for the purpose of calculating annualized rent per occupied square foot. |
Our same-store revenue increased by approximately $0.1 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily due to an increase in average physical occupancy of approximately 3.9%, partially offset by lower rates.
Our same-store property operating expenses increased by approximately $0.2 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily due to an increase in property taxes.
41
The following table presents a reconciliation of net loss as presented on our consolidated statements of operations to property operating income, as stated above, for the periods indicated:
|
|
|
For the Three Months Ended September 30, |
|
|
|||||||
|
|
|
2020 |
|
|
2019 |
|
|
||||
|
Net loss |
|
$ |
|
(2,903,717 |
) |
|
$ |
|
(1,957,502 |
) |
|
|
Adjusted to exclude: |
|
|
|
|
|
|
|
|
|
|
|
|
Asset management fees (1) |
|
|
|
810,700 |
|
|
|
|
492,559 |
|
|
|
General and administrative |
|
|
|
920,347 |
|
|
|
|
672,582 |
|
|
|
Depreciation |
|
|
|
2,071,758 |
|
|
|
|
1,261,774 |
|
|
|
Intangible amortization expense |
|
|
|
673,465 |
|
|
|
|
1,340,317 |
|
|
|
Acquisition expenses—affiliates |
|
|
|
74,546 |
|
|
|
|
159,371 |
|
|
|
Other property acquisition expenses |
|
|
|
4,327 |
|
|
|
|
74,074 |
|
|
|
Interest expense |
|
|
|
1,067,673 |
|
|
|
|
476,423 |
|
|
|
Interest expense—debt issuance costs |
|
|
|
376,783 |
|
|
|
|
61,784 |
|
|
|
Equity in loss of unconsolidated real estate venture |
|
|
|
154,052 |
|
|
|
|
- |
|
|
|
Other |
|
|
|
(38,652 |
) |
|
|
|
(5,367 |
) |
|
|
Total property operating income |
|
$ |
|
3,211,282 |
|
|
$ |
|
2,576,015 |
|
|
|
(1) |
Asset management fees are included in Property operating expenses – affiliates in the consolidated statements of operations. |
Comparison of the Nine Months Ended September 30, 2020 and 2019
Total Revenues
Total revenues for the nine months ended September 30, 2020 and 2019 were approximately $16.7 million and $12.3 million, respectively. The increase in total revenues is primarily attributable to a full period of operations for 22 self storage facilities and partial period of operations for two self storage facilities acquired during the first two quarters of 2020, compared to a full period of operations for 14 self storage facilities and partial period of operations for three self storage facilities acquired during the first three quarters of 2019. We expect total revenues to increase in the future commensurate with our future acquisition activity and lease-up of our non-stabilized properties.
Property Operating Expenses
Property operating expenses for the nine months ended September 30, 2020 and 2019 were approximately $6.9 million (approximately 41% of total revenues) and $4.1 million (approximately 34% of total revenues), respectively. Property operating expenses include the costs to operate our facilities including payroll, utilities, insurance, real estate taxes, and marketing. The increase in property operating expenses is primarily attributable to a full period of operations for 22 self storage facilities and partial period of operations for two self storage facilities acquired during the first two quarters of 2020, compared to a full period of operations for 14 self storage facilities and partial period of operations for three self storage facilities acquired during the first three quarters of 2019. The increase in property operating expenses as a percentage of total revenues is primarily a result of the lease-up and certificate of occupancy properties that were acquired in the fourth quarter of 2019 and the first two quarters of 2020. We expect property operating expenses to increase in the future as our operational activity increases but decrease as a percentage of total revenues as we lease-up our non-stabilized properties.
Property Operating Expenses – Affiliates
Property operating expenses – affiliates for the nine months ended September 30, 2020 and 2019 were approximately $3.4 million and $2.1 million, respectively. Property operating expenses – affiliates includes property management fees and asset management fees. The increase in property operating expenses – affiliates is primarily attributable to a full period of operations for 22 self storage facilities and partial period of operations for two self storage facilities acquired during the first two quarters of 2020, compared to a full period of operations for 14 self storage facilities and partial period of operations for three self storage facilities acquired during the first three quarters of 2019. We expect property operating expenses – affiliates to increase in the future as our operational activity increases.
42
General and Administrative Expenses
General and administrative expenses for the nine months ended September 30, 2020 and 2019 were approximately $2.5 million and $1.8 million, respectively. General and administrative expenses consist primarily of legal expenses, directors’ and officers’ insurance, transfer agent fees, an allocation of a portion of our Advisor’s payroll related costs, accounting expenses and board of directors related costs. The increase in general and administrative expenses is primarily attributable to professional expense and board of directors costs related to our evaluation of and entry into the Merger Agreement and an increase in costs commensurate with the increase in our operational activity. We expect general and administrative expenses to increase in the future as our operational activity increases, but decrease as a percentage of total revenue.
Depreciation and Amortization Expenses
Depreciation and amortization expenses for the nine months ended September 30, 2020 and 2019 were approximately $8.6 million and $7.3 million, respectively. Depreciation expense consists primarily of depreciation on the buildings and site improvements at our properties. Amortization expense consists of the amortization of intangible assets resulting from our acquisitions. The increase in depreciation and amortization expense is primarily attributable to a full period of operations for 22 self storage facilities and partial period of operations for two self storage facilities acquired during the first two quarters of 2020, compared to a full period of operations for 14 self storage facilities and partial period of operations for three self storage facilities acquired during the first three quarters of 2019, partially offset by certain of our intangible assets associated with in-place leases being fully amortized during 2019 and 2020. We expect depreciation and amortization expense to increase in future periods commensurate with our future acquisition activity.
Acquisition Expenses – Affiliates
Acquisition expenses – affiliates for the nine months ended September 30, 2020 and 2019 were approximately $0.3 million and $0.5 million, respectively. Acquisition expenses primarily relate to the costs associated with our potential acquisitions of self storage facilities prior to the acquisitions becoming probable in accordance with our capitalization policy. We expect acquisition expenses - affiliates to fluctuate in the future commensurate with our acquisition activity.
Other Property Acquisition Expenses
Other property acquisition expenses for the nine months ended September 30, 2020 and 2019 were approximately $0.1 million and $0.3 million, respectively. Acquisition expenses primarily relate to the costs associated with our potential acquisitions of self storage facilities prior to the acquisitions becoming probable in accordance with our capitalization policy. We expect other property acquisition expenses to fluctuate in the future commensurate with our acquisition activity.
Interest Expense
Interest expense for the nine months ended September 30, 2020 and 2019 was approximately $3.1 million and $2.1 million, respectively. The increase in interest expense is primarily attributable to debt obtained in conjunction with certain of the properties we acquired subsequent to September 30, 2019, offset by lower interest rates related to the KeyBank Revolving Credit Facility, the CMBS Loan and the TCF Loan. We expect interest expense to fluctuate in the future commensurate with our future debt level.
Interest Expense – Debt Issuance Costs
Interest expense – debt issuance costs for the nine months ended September 30, 2020 and 2019 were approximately $1.1 million and $1.2 million, respectively. We expect interest expense – debt issuance costs to fluctuate in the future commensurate with our future financing activity.
43
Same-Store Facility Results – Nine months ended September 30, 2020 and 2019
The following table sets forth operating data for our same-store facilities (those properties included in the consolidated results of operations since January 1, 2019) for the nine months ended September 30, 2020 and 2019. We consider the following data to be meaningful as this allows for the comparison of results without the effects of acquisition or lease up activity.
|
|
|
Same-Store Facilities |
|
|
Non Same-Store Facilities |
|
Total |
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
% |
|
||
|
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
2020 |
|
|
2019 |
|
|
Change |
|
||||||||
|
Revenue (1) |
|
$ |
9,497,411 |
|
|
$ |
9,465,530 |
|
|
|
0.3 |
% |
|
$ |
7,204,729 |
|
|
$ |
2,805,962 |
|
|
N/M |
|
$ |
16,702,140 |
|
|
$ |
12,271,492 |
|
|
|
36.1 |
% |
|
Property operating expenses (2) |
|
|
3,962,066 |
|
|
|
3,897,780 |
|
|
|
1.6 |
% |
|
|
3,920,860 |
|
|
|
964,311 |
|
|
N/M |
|
|
7,882,926 |
|
|
|
4,862,091 |
|
|
|
62.1 |
% |
|
Property operating income |
|
$ |
5,535,345 |
|
|
$ |
5,567,750 |
|
|
|
(0.6 |
)% |
|
$ |
3,283,869 |
|
|
$ |
1,841,651 |
|
|
N/M |
|
$ |
8,819,214 |
|
|
$ |
7,409,401 |
|
|
|
19.0 |
% |
|
Number of facilities |
|
|
14 |
|
|
|
14 |
|
|
|
|
|
|
|
10 |
|
|
|
3 |
|
|
|
|
|
24 |
|
|
|
17 |
|
|
|
|
|
|
Rentable square feet (3) |
|
|
1,037,800 |
|
|
|
1,037,800 |
|
|
|
|
|
|
|
1,003,200 |
|
|
|
396,000 |
|
|
|
|
|
2,041,000 |
|
|
|
1,433,800 |
|
|
|
|
|
|
Average physical occupancy (4) |
|
91.8% |
|
|
90.2% |
|
|
|
|
|
|
N/M |
|
|
N/M |
|
|
|
|
|
80.3 |
% |
(5) |
88.7% |
|
|
|
|
|
|||||
|
Annualized rent per occupied square foot (6) |
|
$ |
14.57 |
|
|
$ |
14.85 |
|
|
|
|
|
|
N/M |
|
|
N/M |
|
|
|
|
$ |
14.89 |
|
|
$ |
15.59 |
|
|
|
|
|
||
N/M Not meaningful
|
(1) |
Revenue includes rental revenue, ancillary revenue, and administrative and late fees. |
|
(2) |
Property operating expenses excludes corporate general and administrative expenses, asset management fees, interest expense, depreciation, amortization expense and acquisition expenses, but includes property management fees. |
|
(3) |
Of the total rentable square feet, parking represented approximately 240,000 and 218,000 square feet as of September 30, 2020 and 2019, respectively. On a same-store basis, for the same periods, parking represented approximately 139,000 square feet. |
|
(4) |
Determined by dividing the sum of the month-end occupied square feet for the applicable group of facilities for each applicable period by the sum of their month-end rentable square feet for the period. |
|
(5) |
Total average physical occupancy includes the Surprise, Escondido, Ocoee, and Punta Gorda properties which were not physically stabilized as of September 30, 2020. |
|
(6) |
Determined by dividing the aggregate realized rental revenue for each applicable period by the aggregate of the month-end occupied square feet for the period. Properties are included in the respective calculations in their first full month of operations, as appropriate. We have excluded the realized rental revenue and occupied square feet related to parking herein for the purpose of calculating annualized rent per occupied square foot. |
Our same-store revenue increased by approximately $30,000 for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to an increase in average physical occupancy of approximately 1.6%, offset by the impact of the COVID-19 pandemic and the resulting reduction in late fees and pausing existing customer rate increases during the second quarter of 2020.
Our same-store property operating expenses increased by approximately $60,000 for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to increased payroll expense due to bonuses to our store personnel.
44
The following table presents a reconciliation of net loss as presented on our consolidated statements of operations to property operating income, as stated above, for the periods indicated:
|
|
|
For the Nine Months Ended September 30, |
|
|||||||
|
|
|
2020 |
|
|
2019 |
|
||||
|
Net loss |
|
$ |
|
(9,373,707 |
) |
|
$ |
|
(7,119,204 |
) |
|
Adjusted to exclude: |
|
|
|
|
|
|
|
|
|
|
|
Asset management fees (1) |
|
|
|
2,358,356 |
|
|
|
|
1,352,797 |
|
|
General and administrative |
|
|
|
2,502,863 |
|
|
|
|
1,782,454 |
|
|
Depreciation |
|
|
|
5,899,252 |
|
|
|
|
3,533,813 |
|
|
Intangible amortization expense |
|
|
|
2,746,401 |
|
|
|
|
3,774,255 |
|
|
Acquisition expenses—affiliates |
|
|
|
342,192 |
|
|
|
|
481,857 |
|
|
Other property acquisition expenses |
|
|
|
50,012 |
|
|
|
|
313,089 |
|
|
Interest expense |
|
|
|
3,139,590 |
|
|
|
|
2,109,907 |
|
|
Interest expense—debt issuance costs |
|
|
|
1,055,455 |
|
|
|
|
1,157,426 |
|
|
Equity in loss of unconsolidated real estate venture |
|
|
|
168,689 |
|
|
|
|
- |
|
|
Other |
|
|
|
(69,889 |
) |
|
|
|
23,007 |
|
|
Total property operating income |
|
$ |
|
8,819,214 |
|
|
$ |
|
7,409,401 |
|
|
(1) |
Asset management fees are included in Property operating expenses – affiliates in the consolidated statements of operations. |
Liquidity and Capital Resources
Cash Flows
A comparison of cash flows for operating, investing and financing activities for the nine months ended September 30, 2020 and 2019 is as follows:
|
|
|
Nine Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, 2020 |
|
|
September 30, 2019 |
|
|
Change |
|
|||
|
Net cash flow provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
1,352,194 |
|
|
$ |
397,364 |
|
|
$ |
954,830 |
|
|
Investing activities |
|
|
(27,149,635 |
) |
|
|
(65,435,881 |
) |
|
|
38,286,246 |
|
|
Financing activities |
|
|
30,760,232 |
|
|
|
54,882,436 |
|
|
|
(24,122,204 |
) |
Cash flows provided by operating activities for the nine months ended September 30, 2020 and 2019 were approximately $1.4 million and $0.4 million, respectively, a change of approximately $1.0 million. The increase in cash provided by our operating activities is primarily the result of an increase in cash provided by operating assets and liabilities.
Cash flows used in investing activities for the nine months ended September 30, 2020 and 2019 were approximately $27.1 million and $65.4 million, respectively, a change of approximately $38.3 million. The decrease in cash used in our investing activities is primarily the result of decreases in cash used for purchase of real estate of approximately $22.6 million a return of capital on investments in unconsolidated real estate ventures of approximately $10.5 million, and a decrease in investments in unconsolidated real estate ventures of approximately $5.1 million for the nine months ended September 30, 2020.
Cash flows provided by financing activities for the nine months ended September 30, 2020 and 2019 were approximately $30.8 million and $54.9 million, respectively, a change of approximately $24.1 million. The decrease in cash provided by our financing activities is primarily the result of an increase in net proceeds from debt of approximately $37.3 million, offset by a decrease in net proceeds raised from our offering of approximately $59.9 million and an increase in distributions paid to common stockholders of approximately $2.0 million.
45
Short-Term Liquidity and Capital Resources
We generally expect that we will meet our short-term operating liquidity requirements from the combination of existing cash balances, capacity on our revolving credit facility, proceeds from secured or unsecured financing from banks or other lenders, net cash provided by property operations, and advances from our Advisor which will be repaid, without interest, as funds are available after meeting our current liquidity requirements, subject to the limitations on reimbursement set forth in our advisory agreement with our Advisor.
Distribution Policy
In order to give our board of directors maximum flexibility to monitor and evaluate the situation related to the financial impact of COVID-19, on March 30, 2020, our board of directors changed its distribution authorizations from a quarterly to monthly authorization starting with the second quarter of 2020.
On September 25, 2020, our board of directors changed its distribution authorizations from monthly back to quarterly for the fourth quarter of 2020 and the foreseeable future. In addition, the board of directors authorized a daily distribution rate of approximately $0.00427 per day per share on the outstanding shares of common stock payable to Class A, Class T and Class W stockholders of record of such shares as shown on our books at the close of business on each day of the period commencing on October 1, 2020 and ending December 31, 2020. In connection with these distributions, for the stockholders of Class T shares, after the stockholder servicing fee is paid, approximately $0.00361 per day will be paid per Class T share and for the stockholders of Class W shares, after the dealer manager servicing fee is paid, approximately $0.00396 per day will be paid per Class W share. Such distributions payable to each stockholder of record during a month will be paid the following month.
Historically, we have primarily made distributions to our stockholders using proceeds from the Public Offering in anticipation of future cash flow. As such, this reduces the amount of capital we will ultimately invest in properties. Because substantially all of our operations are performed indirectly through our Operating Partnership, our ability to pay distributions depends in large part on our Operating Partnership’s ability to pay distributions to its partners, including to us. In the event we do not have enough cash from operations to fund cash distributions, we may borrow, issue additional securities or sell assets in order to fund the distributions or make the distributions out of net proceeds from the Public Offering. Though we presently intend to pay only cash distributions, and potentially stock distributions, we are authorized by our charter to pay in-kind distributions of readily marketable securities, distributions of beneficial interests in a liquidating trust established for our dissolution and the liquidation of our assets in accordance with the terms of the charter or distributions that meet all of the following conditions: (a) our board of directors advises each stockholder of the risks associated with direct ownership of the property; (b) our board of directors offers each stockholder the election of receiving such in-kind distributions; and (c) in-kind distributions are only made to those stockholders who accept such offer.
During our Offering, when we may raise capital more quickly than we acquire income-producing assets, we may not be able to pay distributions from our cash flows from operations, in which case distributions may be paid in part from debt financing or from proceeds from the Public Offering, if any. The payment of distributions from sources other than cash flows from operations may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds.
Over the long-term, we expect that a greater percentage of our distributions will be paid from cash flows from operations. However, our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including our ability to raise and invest capital at favorable yields, the financial performance of our investments in the current real estate and financial environment and the types and mix of investments in our portfolio. As a result, future distributions declared and paid may exceed cash flow from operations.
46
Distributions are paid to our stockholders as of the record date selected by our board of directors. We currently pay distributions monthly based on daily declaration and record dates so that investors may be entitled to distributions immediately upon purchasing our shares. We expect to continue to regularly pay distributions unless our results of operations, our general financial condition, general economic conditions, or other factors inhibit us from doing so. Distributions will be authorized at the discretion of our board of directors, which will be directed, in substantial part, by its obligation to cause us to comply with the REIT requirements of the Code. Our board of directors may increase, decrease or eliminate the distribution rate that is being paid at any time. Distributions will be made on all classes of our common stock at the same time. The per share amount of distributions on Class A Shares, Class T Shares and Class W Shares will likely differ because of different allocations of class-specific expenses. Specifically, distributions on Class T Shares will likely be lower than distributions on Class A Shares because Class T Shares are subject to ongoing stockholder servicing fees and distributions of Class W Shares will likely be lower than distributions on Class A Shares because Class W Shares are subject to the ongoing dealer manager servicing fees. The funds we receive from operations that are available for distribution may be affected by a number of factors, including the following:
|
|
• |
the amount of time required for us to invest the funds received in the Public Offering; |
|
|
• |
our operating and interest expenses; |
|
|
• |
the amount of distributions or dividends received by us from our indirect real estate investments; |
|
|
• |
our ability to keep our properties occupied; |
|
|
• |
our ability to maintain or increase rental rates; |
|
|
• |
capital expenditures and reserves for such expenditures; |
|
|
• |
the issuance of additional shares; and |
|
|
• |
financings and refinancings. |
The following shows our distributions and the sources of such distributions for the respective periods presented:
|
|
|
Nine Months Ended September 30, 2020 |
|
|
|
|
|
|
Nine Months Ended September 30, 2019 |
|
|
|
|
|
||
|
Distributions paid in cash — common stockholders |
|
$ |
5,791,928 |
|
|
|
|
|
|
$ |
3,807,794 |
|
|
|
|
|
|
Distributions paid in cash — Operating Partnership unitholders |
|
|
10,440 |
|
|
|
|
|
|
|
10,426 |
|
|
|
|
|
|
Distributions reinvested |
|
|
5,290,598 |
|
|
|
|
|
|
|
3,530,610 |
|
|
|
|
|
|
Total distributions |
|
$ |
11,092,966 |
|
|
|
|
|
|
$ |
7,348,830 |
|
|
|
|
|
|
Source of distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by operations |
|
$ |
1,352,194 |
|
|
|
12.2 |
% |
|
$ |
397,364 |
|
|
|
5.4 |
% |
|
Proceeds from the Primary Offering |
|
|
4,450,174 |
|
|
|
40.1 |
% |
|
|
3,420,856 |
|
|
|
46.6 |
% |
|
Offering proceeds from distribution reinvestment plan |
|
|
5,290,598 |
|
|
|
47.7 |
% |
|
|
3,530,610 |
|
|
|
48.0 |
% |
|
Total sources |
|
$ |
11,092,966 |
|
|
|
100.0 |
% |
|
$ |
7,348,830 |
|
|
|
100.0 |
% |
47
From inception through September 30, 2020, we paid cumulative distributions of approximately $27.1 million, as compared to cumulative net loss attributable to our common stockholders of approximately $24.9 million. Net loss attributable to our common stockholders from inception through September 30, 2020, reflects non-cash depreciation and amortization of approximately $25.4 million, and acquisition related expenses of approximately $3.3 million.
For the nine months ended September 30, 2020, we paid distributions of approximately $11.1 million, as compared to a net loss attributable to our common stockholders of approximately $9.4 million. Net loss attributable to our common stockholders for the nine months ended September 30, 2020 reflects non-cash depreciation and amortization of approximately $9.7 million and acquisition related expenses of approximately $0.4 million.
For the nine months ended September 30, 2019, we paid distributions of approximately $7.3 million, as compared to a net loss attributable to our common stockholders of approximately $7.1 million. Net loss attributable to our common stockholders for the nine months ended September 30, 2019 reflects non-cash depreciation and amortization of approximately $8.5 million and acquisition related expenses of approximately $0.8 million.
We must distribute to our stockholders at least 90% of our taxable income each year in order to meet the requirements for being treated as a REIT under the Code. Our directors may authorize distributions in excess of this percentage as they deem appropriate. Because we may receive income from interest or rents at various times during our fiscal year, distributions may not reflect our income earned in that particular distribution period, but may be made in anticipation of cash flow that we expect to receive during a later period and may be made in advance of actual receipt of funds in an attempt to make distributions relatively uniform. To allow for such differences in timing between the receipt of income and the payment of expenses, and the effect of required debt payments, among other things, we could be required to borrow funds from third parties on a short-term basis, issue new securities, or sell assets to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT. We are not prohibited from undertaking such activities by our charter, bylaws or investment policies, and we may use an unlimited amount from any source to pay our distributions. These methods of obtaining funding could affect future distributions by increasing operating costs and decreasing available cash, which could reduce the value of our stockholders’ investment in our shares. In addition, such distributions may constitute a return of investors’ capital.
We may not be able to pay distributions from our cash flows from operations, in which case distributions may be paid in part from debt financing or from proceeds from the issuance of common stock in the Public Offering, if any. The payment of distributions from sources other than cash flows from operations may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds.
As a result of the suspension of our distribution reinvestment plan on November 10, 2020, our distributions will all be paid in cash until such time as our board of directors resumes our distribution reinvestment plan, if ever. Please see Note 11 – Subsequent Events.
Indebtedness
As of September 30, 2020, our total indebtedness was approximately $126.1 million which included approximately $84.3 million of variable rate debt and approximately $42.6 million of fixed rate debt, less approximately $0.8 million in net debt issuance costs. As of December 31, 2019, our total indebtedness was approximately $109.1 million which included approximately $107.0 million of variable rate debt and approximately $2.2 million of fixed rate debt, less approximately $75,000 in net debt issuance costs.
Long-Term Liquidity and Capital Resources
On a long-term basis, our principal demands for funds will be for property acquisitions, either directly or through entity interests, for the payment of operating expenses and distributions, and for the payment of interest on our outstanding indebtedness, if any.
Long-term potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, issuance of equity instruments and undistributed funds from operations. To the extent we are not able to secure requisite financing in the form of a credit facility or other debt, we will be dependent upon proceeds from the issuance of equity securities and cash flows from operating activities in order to meet our long-term liquidity requirements and to fund our distributions.
48
Contractual Obligations
The following table summarizes our contractual obligations as of September 30, 2020:
|
|
|
Payments due during the years ended December 31, |
|
|||||||||||||||||
|
|
|
Total |
|
|
2020 |
|
|
2021-2022 |
|
|
2023-2024 |
|
|
Thereafter |
|
|||||
|
Mortgage interest(1) |
|
$ |
19,762,253 |
|
|
$ |
979,862 |
|
|
$ |
7,522,360 |
|
|
$ |
3,593,193 |
|
|
$ |
7,666,838 |
|
|
Mortgage principal(2) |
|
$ |
126,872,591 |
|
|
|
33,004 |
|
|
|
44,283,810 |
|
|
|
40,608,627 |
|
|
|
41,947,150 |
|
|
Total contractual obligations |
|
$ |
146,634,844 |
|
|
$ |
1,012,866 |
|
|
$ |
51,806,170 |
|
|
$ |
44,201,820 |
|
|
$ |
49,613,988 |
|
|
(1) |
Interest expense on variable rate debt was calculated based upon the contractual rate in effect as of September 30, 2020. Interest expense on the Revolving KeyBank Credit Facility is calculated presuming the amount outstanding as of September 30, 2020 would remain outstanding through the maturity date of June 27, 2022. |
|
(2) |
Amount represents principal payments only, excluding debt issuance costs. |
Off-Balance Sheet Arrangements
We have joint ventures with SmartCentres, which are accounted for using the equity method of accounting (Note 4). Other than the foregoing, we do not currently have any relationships with unconsolidated entities or financial partnerships. Such entities are often referred to as structured finance or special purpose entities, which typically are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Subsequent Events
Please see Note 11 of the Notes to the Consolidated Financial Statements contained in this report.
Seasonality
We believe that we will experience minor seasonal fluctuations in the occupancy levels of our facilities which we believe will be slightly higher over the summer months due to increased moving activity.
|
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk and to a lesser extent, foreign currency risk. We may be exposed to the effects of interest rate changes primarily as a result of borrowings used to maintain liquidity and fund acquisition, expansion, and financing of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve our objectives, we may borrow at fixed rates or variable rates. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes.
As of September 30, 2020, our total indebtedness was approximately $126.1 million which included approximately $84.3 million of variable rate debt and approximately $42.6 million of fixed rate debt, less approximately $0.8 million in net debt issuance costs. As of December 31, 2019, our total indebtedness was approximately $109.1 million, which included approximately $107.0 million in variable rate debt and approximately $2.2 million in fixed rate debt, less approximately $75,000 in debt issuance costs. A change in interest rates on variable debt could impact the interest incurred and cash flows and its fair value. If the underlying rate of the related index on our variable rate debt were to increase by 100 basis points, the increase in interest would decrease future earnings and cash flows by approximately $0.4 million annually.
Interest rate risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.
49
The following table summarizes future debt maturities and average interest rates on our outstanding debt as of September 30, 2020:
|
|
|
Payments due during the years ended December 31, |
|
|||||||||||||||||||||||||
|
|
|
2020 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
Thereafter |
|
|
Total |
|
|||||||
|
Variable rate debt |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
44,000,000 |
|
|
$ |
40,286,302 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
84,286,302 |
|
|
Average interest rate(1) |
|
|
2.8 |
% |
|
|
2.8 |
% |
|
|
2.8 |
% |
|
|
3.8 |
% |
|
N/A |
|
|
N/A |
|
|
|
|
|
||
|
Fixed rate debt |
|
$ |
33,004 |
|
|
$ |
137,392 |
|
|
$ |
146,418 |
|
|
$ |
156,038 |
|
|
$ |
166,287 |
|
|
$ |
41,947,150 |
|
|
$ |
42,586,289 |
|
|
Average interest rate |
|
|
3.7 |
% |
|
|
3.7 |
% |
|
|
3.7 |
% |
|
|
3.7 |
% |
|
|
3.7 |
% |
|
|
3.7 |
% |
|
|
|
|
|
(1) |
Interest expense for the variable rate debt was calculated based on the rate in effect on September 30, 2020. Interest expense on the Revolving KeyBank Credit Facility is calculated presuming the amount outstanding as of September 30, 2020 would remain outstanding through the maturity date of June 27, 2022. |
Currently, our only foreign exchange rate risk comes from our investments in our Canadian joint ventures and the Canadian Dollar (“CAD”). As a result of fluctuations in currency exchange, our cash flows and results of operations could be affected.
|
ITEM 4. |
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
As of the end of the period covered by this report, management, including our Chief Executive Officer (Our Principal Executive Officer) and Chief Financial Officer (Our Principal Financial Officer), evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
|
ITEM 1. |
LEGAL PROCEEDINGS |
None.
|
ITEM 1A. |
RISK FACTORS |
The following should be read in conjunction with the risk factors set forth in the “Risk Factors” section of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2019.
We have incurred a net loss to date, have an accumulated deficit and our operations may not be profitable in 2020.
We incurred a net loss attributable to common stockholders of approximately $9.4 million and $7.1 million for the nine months ended September 30, 2020 and 2019, respectively. Our accumulated deficit was approximately $24.9 million as of September 30, 2020.
50
The Merger Consideration will not be adjusted in the event of any change in the relative values of the Company or SmartStop.
Upon the consummation of the Merger, each outstanding share of SST IV Common Stock will be converted automatically into the right to receive 2.1875 shares of SmartStop’s Class A Common Stock, $0.001 par value per share (“SmartStop Class A Common Stock”) (the “Exchange Ratio”). The Exchange Ratio will not be adjusted before or after consummation of the Merger. Except as expressly contemplated in the Merger Agreement, no change in the Merger Consideration will be made for any reason, including the following:
|
|
• |
changes in the respective businesses, operations, assets, liabilities and prospects of the Company or SmartStop; |
|
|
• |
changes in the estimated value per share of either the shares of SST IV Common Stock or SmartStop Class A Common Stock; |
|
|
• |
interest rates, general market and economic conditions, market and economic conditions in specific geographic regions, and other factors generally affecting the businesses of the Company and SmartStop; |
|
|
• |
federal, state and local legislation, governmental regulation, and legal developments in the businesses in which the Company and SmartStop operate; |
|
|
• |
dissident stockholder activity, including any stockholder litigation challenging the transaction; and |
|
|
• |
acquisitions, disposals, or new development opportunities. |
Completion of the Merger is subject to many conditions and if these conditions are not satisfied or waived, the Merger will not be completed, which could result in the requirement that the Company pay a termination payment to SmartStop or, in certain circumstances, that the Company or SmartStop pay expenses to the other party.
The Merger Agreement is subject to many conditions, which must be satisfied or waived in order to complete the Merger. The mutual conditions of the parties include, among others, the approval by the Company’s stockholders of the Merger and Charter Amendment. In addition, each party’s obligation to consummate the Merger is subject to certain other conditions, including, among others: (a) the accuracy of the other party’s representations and warranties; (b) the other party’s compliance with its covenants and agreements contained in the Merger Agreement; (c) the absence of an event that constitutes a material adverse effect on the other party; and (d) the receipt of customary legal opinions.
There is no assurance that the Merger will be completed. Failure to consummate the Merger may adversely affect the Company’s results of operations and business prospects for the following reasons, among others: (i) the Company has incurred and will continue to incur certain transaction costs, regardless of whether the Merger closes, which could adversely affect the Company’s financial condition, results of operations and ability to make distributions to its stockholders, and (ii) the Merger, whether or not it closes, will divert the attention of certain management and other key employees of the Company from ongoing business activities, including the pursuit of other opportunities that could be beneficial to the Company.
In addition, the Company or SmartStop may terminate the Merger Agreement under certain circumstances, including, among other reasons, if the Merger has not been consummated by August 6, 2021 (the “Outside Date”). The Merger Agreement also may be terminated in certain circumstances if a final and non-appealable order is entered prohibiting the transactions contemplated by the Merger Agreement, upon a material uncured breach by the other party that would cause the closing conditions not to be satisfied, or if the Company’s stockholders fail to approve the Merger Proposal or the Charter Amendment Proposal. In addition, at any time prior to the time the Company’s stockholders approve the Merger Proposal and the Charter Amendment Proposal, the Company has the right to terminate the Merger Agreement in order to enter into an Alternative Acquisition Agreement (as such term is defined in the Merger Agreement) with a third party relating to a Superior Proposal (as such term is defined in the Merger Agreement). Finally, at any time prior to the time the Company’s stockholders approve the Merger Proposal and the Charter Amendment Proposal, SmartStop has the right to terminate the Merger Agreement upon an Adverse Recommendation Change (as such term is defined in the Merger Agreement), upon the commencement of a tender offer or exchange offer for any shares of SST IV Common Stock that constitutes an Acquisition Proposal (as such term is defined in the Merger Agreement) if the Company’s board of directors (the “Board”) fails to recommend against acceptance of such tender offer or exchange offer or to publicly reaffirm the Board’s recommendation
51
after being requested to do so by SmartStop or if the Company breaches or fails to comply in any material respect with certain of its obligations regarding the solicitation of and response to Acquisition Proposals.
In certain circumstances specified in the Merger Agreement, the Company may be required to pay SmartStop a termination payment of $7,200,000 or one party may be required to reimburse the other party's transaction expenses (subject to a cap of $1,500,000).
Failure to complete the Merger could negatively impact the future business and financial results of the Company.
If the Merger is not completed, the ongoing business of the Company could be materially and adversely affected and the Company will be subject to a variety of risks associated with the failure to complete the Merger, including the following:
|
|
• |
the Company being required, under certain circumstances in which the Merger Agreement is terminated, to pay to SmartStop a termination payment of $7.2 million; |
|
|
• |
the Company having to bear certain costs relating to the Merger, such as legal, accounting, financial advisor, filing, printing, and mailing fees; |
|
|
• |
the diversion of the Company’s management’s focus and resources from operational matters and other strategic opportunities while working to implement the Merger; and |
|
|
• |
the Company failing to achieve economies of scale and to recognize the benefits thereof. |
If the Merger is not completed, these risks could materially affect the business and financial results of the Company.
The pendency of the Merger, including as a result of the restrictions on the operation of the Company’s and SmartStop’s business during the period between signing the Merger Agreement and the completion of the Merger, could adversely affect the business and operations of the Company, SmartStop, or both.
During the pendency of the Merger, some business partners or vendors of each of the Company and SmartStop may delay or defer decisions, which could negatively impact the revenues, earnings, cash flows, and expenses of the Company and SmartStop, regardless of whether the Merger is completed. In addition, due to operating covenants in the Merger Agreement, each of the Company and SmartStop may be unable without the consent of the other party to pursue certain strategic transactions, undertake certain significant capital projects, undertake certain significant financing transactions, and otherwise pursue other actions that are not in the ordinary course of business, even if such actions would prove beneficial.
The Company expects to incur substantial expenses related to the Merger.
The Company expects to incur substantial expenses in connection with completing the Merger and integrating the properties and operations of the Company that SmartStop is acquiring with those of SmartStop. Although the Company has assumed that a certain level of transaction expenses would be incurred, there are a number of factors beyond the control of the Company that could affect the total amount or the timing of such expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. As a result, the actual transaction expenses associated with the Merger could significantly exceed the estimated transaction expenses.
The ownership positions of the Company’s stockholders and the SmartStop stockholders will be diluted by the Merger.
The Merger will result in the Company’s stockholders having an ownership stake in the combined company after the completion of the merger (the “Combined Company”) that is smaller than their current stake in the Company. Upon completion of the Merger, based on the number of shares of SST IV Common Stock, the number of shares of SmartStop’s common stock, and the number of limited partnership units of SmartStop’s operating partnership outstanding on September 30, 2020, the Company’s stockholders will own approximately 25% of the ownership interests in the Combined Company, continuing SmartStop stockholders will own approximately 64% of the ownership interests in the Combined Company, and the Combined Company’s management will own approximately 11% of the ownership interests in the Combined Company. Consequently, the Company’s stockholders and continuing SmartStop stockholders will have less influence over the management and policies of the Combined Company following the Merger than they currently exercise over the management and policies of the Company and SmartStop, respectively.
52
Litigation challenging the Merger may increase transaction costs and prevent the Merger from becoming effective or from becoming effective within the expected timeframe.
If any stockholder files a lawsuit challenging the Merger, the Company can provide no assurances as to the outcome of any such lawsuit, including the costs associated with defending such claims or any other liabilities that may be incurred in connection with the litigation or settlement of such claims. If plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the Merger on the agreed-upon terms, such an injunction may prevent the completion of the Merger in the expected time frame, or may prevent it from being completed altogether. Whether or not any such plaintiffs’ claims are successful, this type of litigation is often expensive and diverts management’s attention and resources, which could adversely affect the operations of the Company’s business.
The Combined Company will have substantial indebtedness upon completion of the Merger.
In connection with the Merger, the Combined Company will assume, and may refinance, certain indebtedness of the Company and will be subject to risks associated with such indebtedness. As of September 30, 2020, the Company had $127 million of outstanding debt, and SmartStop had $717 million of outstanding debt. After giving effect to the Merger, the Combined Company’s total pro forma consolidated indebtedness may increase.
The Combined Company’s indebtedness could have important consequences to holders of its common stock, including the Company’s stockholders who receive SmartStop Class A Common Stock in the Merger, including:
|
|
• |
the risk of a complete loss of stockholders’ investments should the Combined Company become unable to pay its debts; |
|
|
• |
vulnerability of the Combined Company to general adverse economic and industry conditions; |
|
|
• |
limiting the Combined Company’s ability to obtain additional financing to fund future working capital, capital expenditures, and other general corporate requirements; |
|
|
• |
requiring the use of a substantial portion of the Combined Company’s cash flow from operations for the payment of principal and interest on its indebtedness, thereby reducing its ability to use its cash flow to fund working capital, acquisitions, capital expenditures, general corporate requirements, and distributions to stockholders; |
|
|
• |
limiting the Combined Company’s flexibility in planning for, or reacting to, changes in its business and its industry; |
|
|
• |
putting the Combined Company at a disadvantage compared to its competitors with less indebtedness; and |
|
|
• |
limiting the Combined Company’s ability to access capital markets. |
The future results of the Combined Company will suffer if the Combined Company does not effectively manage its expanded portfolio and operations following the Merger.
Following the Merger, the Combined Company will have an expanded portfolio and operations and likely will continue to expand its operations through additional acquisitions and other strategic transactions. The future success of the Combined Company will depend, in part, upon its ability to manage its expansion opportunities, integrate new operations into its existing business in an efficient and timely manner, successfully monitor its operations, costs, regulatory compliance and service quality, and maintain other necessary internal controls. The Combined Company cannot assure investors that its expansion or acquisition opportunities will be successful, or that the Combined Company will realize its expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits.
If and when the Combined Company completes a liquidity event, the market value ascribed to the shares of common stock of the Combined Company upon the liquidity event may be significantly lower than the estimated net asset values per share of the Company and SmartStop used to establish the exchange ratio in the Merger.
In approving and recommending the Merger, the Committee and the special committee of the board of directors of SmartStop (the “SmartStop Special Committee”) considered the most recent estimated net asset values per share of the Company and SmartStop, which are as of March 31, 2020 and as of December 31, 2019, respectively. The estimated net asset value per share of the Combined Company will only be determined after the Merger. In the event that the Combined Company completes a liquidity event after the consummation of the Merger the value ascribed to the shares of the Combined
53
Company in connection with such liquidity event may be significantly lower than the estimated net asset values considered by the Committee and the SmartStop Special Committee and the estimated net asset value per share of the Combined Company that may be reflected on the account statements of stockholders of the Combined Company after the consummation of the Merger.
|
ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
|
(a) |
None. |
|
(b) |
On March 17, 2017, our Offering (SEC File No. 333-212639) of up to $1.0 billion in shares of our common stock in our primary offering was declared effective by the SEC, consisting of three classes of shares: Class A shares for $25.00 per share (up to $450 million in shares), Class T shares for $24.21 per share (up to $450 million in shares), and Class W shares for $22.75 per share (up to $100 million in shares) and up to $95 million in shares pursuant to our distribution reinvestment plan at $23.75 per share for Class A shares, $23.00 per share for Class T shares and $22.75 per share for Class W shares. On June 29, 2020, our board of directors, upon recommendation of our nominating and corporate governance committee, approved an estimated value per share of $22.65 for our Class A shares, Class T shares, and Class W 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 an adjusted fully diluted basis, calculated as of March 31, 2020. As a result of the calculation of our estimated value per share remaining the same as the prior year value, there was no change to the public offering prices for any of our share classes. In addition, the purchase price for shares sold pursuant to our distribution reinvestment plan continues to be equal to $22.65 per share for Class A, Class T, and Class W shares. |
As of September 30, 2020, we had sold approximately 5.1 million Class A shares for gross offering proceeds of approximately $126.4 million, approximately 4.0 million Class T shares for gross offering proceeds of approximately $97.2 million and approximately 1.1 million Class W shares for gross offering proceeds of approximately $25.3 million pursuant to our Primary Offering and had sold approximately 360,577 Class A Shares in the Private Offering Transaction for gross proceeds of approximately $7.5 million. In conjunction with the Private Offering Transaction and the Primary Offering, we have incurred approximately $19.7 million in sales commissions and dealer manager fees (of which approximately $13.4 million was re-allowed to a third party broker-dealer), and approximately $5.1 million in organization and offering costs. On July 30, 2020, prior to the termination of our Public Offering, we filed with the SEC a Registration Statement on Form S-3, which registered up to an additional $50 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.
With the net offering proceeds of the Public Offering, we acquired approximately $321 million in self storage facilities and made the other payments reflected under “Cash Flows from Financing Activities” in our consolidated statements of cash flows included in this report.
|
(c) |
In order to preserve cash in light of the uncertainty relating to COVID-19 and its potential impact on our overall financial results, on March 30, 2020, our board of directors approved the suspension of our share redemption program, effective on April 29, 2020. The share redemption program will remain suspended until its resumption is approved by the board, if ever. As a result, we were not able to honor redemption requests made during the nine months ended September 30, 2020. For the year ended December 31, 2019, we received redemption requests totaling approximately $1.4 million (approximately 62,000 shares), approximately $0.7 million of which were fulfilled during the year ended December 31, 2019, with the remaining approximately $0.7 million included in accounts payable and accrued liabilities as of December 31, 2019, and fulfilled in January 2020. During the nine months ended September 30, 2020, we received redemption requests totaling approximately $0.9 million (approximately 39,000 shares); however, due to the suspension of our share redemption program, no share redemption requests were fulfilled. |
|
ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES |
None.
|
ITEM 4. |
MINE SAFETY DISCLOSURES |
Not applicable.
54
|
ITEM 5. |
OTHER INFORMATION |
None.
|
ITEM 6. |
EXHIBITS |
The exhibits required to be filed with this report are set forth on the Exhibit Index hereto and incorporated by
reference herein.
55
EXHIBIT INDEX
The following exhibits are included in this report on Form 10-Q for the period ended September 30, 2020 (and are numbered in accordance with Item 601 of Regulation S-K).
|
Exhibit No. |
|
Description |
|
|
|
|
|
3.1 |
|
|
|
|
|
|
|
3.2 |
|
|
|
|
|
|
|
3.3 |
|
|
|
3.4 |
|
|
|
|
|
|
|
4.1 |
|
|
|
|
|
|
|
10.1 |
|
|
|
|
|
|
|
10.2 |
|
|
|
|
|
|
|
10.3 |
|
|
|
|
|
|
|
31.1* |
|
|
|
|
|
|
|
31.2* |
|
|
|
|
|
|
|
32.1* |
|
|
|
|
|
|
|
32.2* |
|
|
|
|
|
|
|
101* |
|
The following Strategic Storage Trust IV, Inc. financial information for the quarter ended September 30, 2020, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements. |
|
|
|
|
|
104* |
|
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 has been formatted in Inline XBRL. |
|
* |
Filed herewith. |
56
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
STRATEGIC STORAGE TRUST IV, INC. (Registrant) |
|
|
Dated: November 13, 2020 |
|
By: |
/s/ Matt F. Lopez |
|
|
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Matt F. Lopez Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
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