UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
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Securities registered pursuant to Section 12(b) of the Act:
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FORM 10-Q
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC.
TABLE OF CONTENTS
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Page No. |
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PART I. |
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Item 1. |
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Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023 |
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Consolidated Statements of Operations for the Three Ended March 31, 2024 and 2023 (unaudited) |
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Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (unaudited) |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
40 |
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PART II. |
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Item 1. |
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Item 1A. |
41 |
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Item 2. |
41 |
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Item 3. |
41 |
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Item 4. |
41 |
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Item 5. |
41 |
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Item 6. |
41 |
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q of Strategic Student & Senior Housing Trust, Inc. (the “Company”), 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. Any such forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which we operate, and beliefs of, and assumptions made by, our management and involve uncertainties that could significantly affect our financial results. Such statements include, but are not limited to: (i) statements about our plans, strategies, initiatives, and prospects; (ii) potential future outbreaks of infectious diseases or other health concerns, which could adversely affect the Company’s business and its tenants; and (iii) statements about our future results of operations, capital expenditures, and liquidity. Such statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those projected or anticipated, including, without limitation: changes in economic conditions generally and the real estate market specifically; legislative and regulatory changes, including changes to laws governing the taxation of real estate investment trusts, or REITs; our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due; our ability to maintain our qualification as a REIT for U.S. federal income tax purposes; our ability to retain our executives and key employees; and increased operating costs due to labor market challenges and macroeconomic factors such as inflation.
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 U.S. Securities and Exchange Commission (the “SEC”) and are not intended to be a guarantee of our performance in future periods. 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.
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 SEC, including, but not limited to, our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC, as supplemented by the risk factors included in Part II, Item 1A of this Form 10-Q.
3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The information furnished in the accompanying unaudited consolidated balance sheets and related consolidated statements of operations, equity and temporary 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, 2023. Our results of operations for the three months ended March 31, 2024 are not necessarily indicative of the operating results expected for the full year.
4
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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March 31, 2024 |
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December 31, |
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ASSETS |
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Real estate facilities: |
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Land |
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$ |
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$ |
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Buildings |
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Site improvements |
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Furniture, fixtures and equipment |
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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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Total real estate facilities, net |
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Cash and cash equivalents |
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Restricted cash |
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Other assets, net |
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Total assets |
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$ |
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$ |
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LIABILITIES, TEMPORARY EQUITY, AND DEFICIT |
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Debt, net |
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$ |
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$ |
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Accounts payable and accrued liabilities |
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Distributions payable |
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Total liabilities |
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Redeemable common stock |
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Preferred equity in our Operating Partnership |
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Equity (Deficit): |
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Strategic Student & Senior Housing Trust, Inc. Deficit: |
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Preferred stock, $ |
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Class A Common stock, $ |
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Class T Common stock, $ |
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Class W Common stock, $ |
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Class Y Common stock, $ |
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Class Z Common stock, $ |
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Additional paid-in capital |
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Distributions |
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Accumulated deficit |
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Total Strategic Student & Senior Housing Trust, Inc. deficit |
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( |
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( |
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Noncontrolling interests in our Operating Partnership |
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( |
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Total deficit |
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( |
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Total liabilities, temporary equity, and deficit |
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$ |
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$ |
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See notes to consolidated financial statements.
5
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Revenues: |
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Leasing and related revenues – student |
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$ |
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$ |
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Leasing and related revenues – senior |
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Total revenues |
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Operating expenses: |
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Property operating expenses – student |
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Property operating expenses – senior |
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Property operating expenses – affiliates |
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General and administrative |
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Depreciation |
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Total operating expenses |
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Income (loss) from operations |
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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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Interest expense – debt issuance costs |
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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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Less: Distributions to preferred unitholders in our Operating Partnership |
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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 Student & Senior Housing Trust, Inc. common stockholders |
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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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Net loss per Class T share – basic and diluted |
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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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Net loss per Class Y share – basic and diluted |
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$( |
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$( |
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Net loss per Class Z share – basic and diluted |
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$( |
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$( |
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Weighted average Class A shares outstanding – |
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Weighted average Class T shares outstanding – |
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Weighted average Class W shares outstanding – |
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Weighted average Class Y shares outstanding – |
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Weighted average Class Z shares outstanding – |
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See notes to consolidated financial statements.
6
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) AND TEMPORARY EQUITY
(Unaudited)
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Common Stock |
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Class A |
Class T |
Class W |
Class Y |
Class Z |
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Number |
Common |
Number |
Common |
Number |
Common |
Number |
Common |
Number |
Common |
Additional |
Distributions |
Accumulated |
Total |
Noncontrolling |
Total |
Preferred |
Redeemable |
Balance as of December 31, 2022 |
$ |
$ |
$ |
$ |
$ |
$ |
$( |
$( |
$ |
$( |
$ |
$ |
$ |
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Distributions to preferred unitholders in our Operating Partnership |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
( |
— |
Stock based compensation expense |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
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Net loss attributable to Strategic Student & Senior Housing Trust, Inc. |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
— |
( |
— |
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Net loss attributable to the noncontrolling interests in our Operating Partnership |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
— |
— |
Balance as of March 31, 2023 |
$ |
$ |
$ |
$ |
$ |
$ |
$( |
$( |
$ |
$( |
$ |
$ |
$ |
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Common Stock |
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Class A |
Class T |
Class W |
Class Y |
Class Z |
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Number |
Common |
Number |
Common |
Number |
Common |
Number |
Common |
Number |
Common |
Additional |
Distributions |
Accumulated |
Total |
Noncontrolling |
Total |
Preferred |
Redeemable |
Balance as of December 31, 2023 |
$ |
$ |
$ |
$ |
$ |
$ |
$( |
$( |
$( |
$( |
$( |
$ |
$ |
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Distributions to preferred unitholders in our Operating Partnership |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
( |
— |
Stock based compensation expense |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
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Net loss attributable to Strategic Student & Senior Housing Trust, Inc. |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
— |
( |
— |
|
Net loss attributable to the noncontrolling interests in our Operating Partnership |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
— |
— |
Balance as of March 31, 2024 |
$ |
$ |
$ |
$ |
$ |
$ |
$( |
$( |
$( |
$( |
$( |
$ |
$ |
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See notes to consolidated financial statements.
7
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
) |
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$ |
( |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation |
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Amortization of debt issuance costs |
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Stock based compensation expense related to issuance of restricted stock |
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Increase (decrease) in cash, cash equivalents, and restricted cash from changes in |
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Other assets |
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( |
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Accounts payable and accrued liabilities |
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Due to affiliates |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Additions to real estate |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Principal payments of KeyBank Bridge Loans |
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( |
) |
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( |
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Scheduled principal payments of mortgage loans |
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( |
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( |
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Debt issuance costs |
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( |
) |
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— |
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Net cash used in financing activities |
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( |
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( |
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Net change in cash, cash equivalents, and restricted cash |
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( |
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( |
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Cash, cash equivalents, and restricted cash, beginning of period |
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Cash, cash equivalents, and restricted cash, end of period |
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$ |
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$ |
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Supplemental disclosures and non-cash transactions: |
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Cash paid for interest |
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$ |
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$ |
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Additions to real estate facilities and construction in process included in accounts payable and accrued liabilities |
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$ |
— |
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$ |
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Debt issuance costs in accounts payable and accrued liabilities |
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$ |
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$ |
— |
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Distributions payable to preferred unit holders in our operating partnership |
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$ |
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$ |
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See notes to consolidated financial statements.
8
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Note 1. Organization
Strategic Student & Senior Housing Trust, Inc., a Maryland corporation, was formed on
Offering Related
On October 4, 2016, our Advisor, as defined below, acquired
On May 1, 2018, our registration statement on Form S-11 (File No. 333-220646) (the “Registration Statement”) was declared effective by the U.S. Securities and Exchange Commission (the “SEC”). The Registration Statement registered up to $
On June 21, 2019, we suspended the sale of Class A shares, Class T shares, and Class W shares in the Primary Offering and filed a post-effective amendment to our Registration Statement to register two new classes of common stock (Class Y shares and Class Z shares) with the SEC. On July 10, 2019, the post-effective amendment to our Registration Statement was declared effective by the SEC. Also on July 10, 2019, we filed articles supplementary to our charter which reclassified certain authorized and unissued shares of our common stock into Class Y shares and Class Z shares. Effective as of July 10, 2019, we began offering Class Y shares (up to $
On March 30, 2020, our board of directors approved the suspension of the Primary Offering based upon various factors, including the uncertainty relating to the novel coronavirus (“COVID-19”) pandemic and its potential impact on us and our overall financial results. Our board of directors also approved the suspension of our share redemption program (see Note 8 – Commitments and Contingencies for additional detail) and the suspension of distributions to our stockholders, both of which remain suspended as of March 31, 2024. The termination of our Primary Offering occurred on May 1, 2021. Primarily as a result of the termination of our Primary Offering, we currently do not have the equity capital needed to acquire additional properties at this time and we are focusing our efforts on managing our existing properties. Subsequent to March 31, 2020,
On January 22, 2024, our board of directors, upon recommendation of our nominating and corporate governance committee, approved an estimated value per share of $
9
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
shares, and Class Z 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 September 30, 2023.
As of March 31, 2024, we owned
Our operating partnership, SSSHT Operating Partnership, L.P., a Delaware limited partnership (our “Operating Partnership”), was formed on
Other Corporate History
Strategic Asset Management I, LLC (f/k/a SmartStop Asset Management, LLC), a Delaware limited liability company organized in 2013 (our “Sponsor”), was the sponsor of our Offerings. Our Sponsor provides real estate advisory, asset management, and property management services. In June 2019, our Sponsor entered into a series of transactions with SmartStop Self Storage REIT, Inc. (f/k/a Strategic Storage Trust II, Inc.) (“SmartStop”) in which SmartStop acquired the self storage advisory, asset management, property management, investment management, and certain joint venture interests of our Sponsor. As a result of the transactions, our Sponsor and its subsidiaries own limited partnership units in the operating partnership of SmartStop, and our Sponsor is now focused primarily on student and senior housing. Our Sponsor owns approximately
We have
SSSHT Property Management, LLC, a Delaware limited liability company (our “Property Manager”), was formed on
Our student housing property is managed by a third-party student housing property manager. Each of our senior housing properties is managed by a third-party senior living operator. Please see Note 8 – Commitments and Contingencies for additional detail.
Our dealer manager was Select Capital Corporation, a California corporation (our “Former Dealer Manager”). We terminated the Dealer Management Agreement on
Our Sponsor owns
10
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
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 limited partnership units in our Operating Partnership. However, we were deemed to have made capital contributions in the amount of gross proceeds received from investors, and our Operating Partnership was deemed to have simultaneously paid the sales commissions and other costs associated with the Offering. In addition, our Operating Partnership is structured to make distributions with respect to limited partnership units that are equivalent to the distributions we make to stockholders. 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 (the “Operating Partnership Agreement”). Our Advisor is prohibited from exchanging or otherwise transferring its limited partnership units so long as it is acting as our Advisor pursuant to our Advisory Agreement.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC.
Principles of Consolidation
Our financial statements, and the financial statements of our Operating Partnership, including its wholly-owned subsidiaries, are consolidated in the accompanying consolidated financial statements. The portion of these consolidated entities not wholly-owned by us is presented as noncontrolling interests. All intercompany accounts and transactions have been eliminated in consolidation.
Consolidation Considerations
Current accounting guidance provides a framework for identifying a variable interest entity (“VIE”) and determining when a company should include the assets, liabilities, noncontrolling interests, and results of activities of a VIE in its consolidated financial statements. In general, a VIE is an entity or other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations. Generally, a VIE should be consolidated if a party with an ownership, contractual, or other financial interest in the VIE (a variable interest holder) has the power to direct the VIE’s most significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities, and noncontrolling interest at fair value and subsequently account for the VIE as if it were consolidated based on majority voting interest. Our Operating Partnership is deemed to be a VIE and is consolidated by the Company as the primary beneficiary. As of March 31, 2024, we had not entered into other contracts/interests that would be deemed to be variable interests in a VIE.
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 partners, our Operating Partnership, including its wholly-owned subsidiaries, is consolidated by 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.
11
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
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, insurance, and capital improvements in connection with the requirements of certain of our loan agreements.
Real Estate Purchase Price Allocation
We account for acquisitions in accordance with GAAP which requires that we allocate the purchase price of a property to the tangible and intangible assets acquired and the liabilities assumed based on their relative fair values. This guidance requires us to make significant estimates and assumptions, including fair value estimates, which requires the use of significant unobservable inputs as of the acquisition date.
The value of the tangible assets, consisting of land and buildings, is determined as if vacant. Substantially all of the leases in place at acquired properties are at market rates, as the majority of the leases are one year or less. We also consider whether in-place, market leases represent an intangible asset. We do not expect to have intangible assets for the value of tenant relationships.
Acquisitions of portfolios of properties are allocated to the individual properties 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 property along with current and projected occupancy and rental rate levels or appraised values, if available.
Acquisitions of integrated sets of assets and activities that do not meet the definition of a business, as defined under current GAAP, are accounted for as asset acquisitions. Accordingly, once an acquisition is deemed probable, transaction costs are capitalized rather than expensed.
During the three months ended March 31, 2024 and 2023, we did
Real Estate Held for Sale
We consider real estate to be “held for sale” when the following criteria are met: (i) management commits to a plan to sell the property, (ii) the property is available for sale immediately, (iii) the property is actively being marketed for sale at a price that is reasonable in relation to its current fair value, (iv) the sale of the property within one year is considered probable and (v) significant changes to the plan to sell are not expected. Real estate that is held for sale and its related debt are classified as “real estate held for sale” and "debt related to real estate held for sale," respectively, in the period when all criteria are met in the accompanying consolidated financial statements. Real estate classified as held for sale is no longer depreciated and is reported at the lower of its carrying value or its estimated fair value less estimated costs to sell. Operating results and related gains (losses) on sale of properties that were disposed of or classified as held for sale in the ordinary
12
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
course of business are included in continuing operations on the Company’s consolidated statements of operations, consistent with current accounting guidance.
Evaluation of Possible Impairment of Long-Lived Assets
Management monitors events and changes in circumstances that could indicate that the carrying amounts of our long-lived assets, may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of the assets may not be recoverable, we will assess the recoverability of the assets by determining whether the carrying value of the long-lived assets will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, we will adjust the value of the long-lived assets to the fair value and recognize an impairment loss. During the three months ended March 31, 2024 and 2023,
Revenue Recognition and Accounts Receivable
Our student housing property is typically leased by the bed with fixed terms on an individual lease basis, often with parental guarantees. Substantially all of our leases coincide with the university’s academic year but generally commence in August and terminate in July. We bill residents on a monthly basis, which is generally due at the beginning of the month. Residents have access to their units along with the property’s amenities (i.e. study rooms, exercise facilities, common areas, etc.). The units are generally fully equipped (i.e., kitchen facilities, washer/dryer, etc.). We do not provide any food or other similar services.
Our senior housing properties are generally leased by the unit, pursuant to a resident lease agreement with fixed terms. Such agreements generally have an initial term of no more than
Additionally, at our senior housing properties our managers provide certain ancillary services to residents that are not contemplated in the lease agreement with each resident (primarily community fees and to a lesser extent guest meals, etc.). These services are provided and paid for in addition to the standard items included in each resident lease. Such items are billed on a monthly basis and are generally due at the beginning of the month.
The majority of our revenues are derived from lease and lease related revenues, and the majority of such revenue is not subject to the revenue recognition guidance (“ASC Topic 606”) under GAAP. The revenues derived from our leases are accounted for pursuant to ASC Topic 842.
Additionally, we have elected to adopt a practical expedient not to separate lease and nonlease components, which can only be applied to leasing arrangements for which (i) the timing and pattern of transfer are the same for the lease and nonlease components and (ii) the lease component, if accounted for separately, would be classified as an operating lease. Under this practical expedient, contracts that are predominantly lease-based would be accounted for under ASC Topic 842, and contracts that are predominantly service-based would be accounted for under ASC Topic 606. Lease and nonlease revenue components that are accounted for within the scope of ASC Topic 842 are:
Our revenues that are within the scope of ASC Topic 606 are:
13
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
If we determine that a receivable is not probable of being substantially collected, we adjust the amount of leasing and related revenues recorded related to such tenant and recognize future revenues for such tenant on a cash basis.
Allowance for Doubtful Accounts
Tenant accounts receivable is reported net of an allowance for doubtful accounts, in the accompanying consolidated balance sheets in other assets. Management records this general reserve estimate based upon a review of the current status of accounts receivable. It is reasonably possible that management’s estimate of the allowance will change in the future. As of both March 31, 2024 and December 31, 2023, approximately $
Advertising Costs
Advertising costs are included in property operating expenses, in the accompanying consolidated statements of operations. These costs are expensed in the period in which the cost is incurred. The Company incurred advertising costs of approximately $
Real Estate Properties
Real estate properties are recorded based upon relative fair values as of the date of acquisition. We capitalize costs incurred to renovate and improve properties, including interest and property taxes incurred during the construction period. The construction period begins when expenditures incurred to renovate and improve properties, 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. The costs of ordinary repairs and maintenance are charged to operations when incurred.
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 |
Land |
|
|
Buildings |
|
|
Site Improvements |
|
Depreciation of Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are depreciated on a straight-line basis over the estimated useful lives generally ranging from
Intangible Assets
We allocate a portion of our real estate purchase price to in-place leases. We amortize in-place lease intangibles on a straight-line basis over the estimated future benefit period. As of both March 31, 2024 and December 31, 2023, the gross amount allocated to in-place leases was approximately $
Debt Issuance Costs
The net carrying value of costs incurred in connection with obtaining non-revolving financing are presented on the consolidated balance sheets as a deduction from the related debt and such amounts totaled approximately $
14
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Organization and Offering Costs
Our Advisor 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 funded, and was not reimbursed for
Our Advisor must reimburse us within
In connection with our Primary Offering, our Former Dealer Manager received an upfront sales commission and dealer manager fee based upon the share class sold under the terms of the Dealer Manager Agreement, which are recorded as a reduction to additional paid-in capital as an offering cost. Our Advisor agreed to fund the payment of the upfront
In addition, our Former Dealer Manager also received an ongoing stockholder servicing fee and ongoing dealer manager fee for certain classes of our common stock, subject to certain limitations. We record a liability within due to affiliates and a reduction to additional paid-in capital at the time of sale of the Class T, Class W, Class Y, and Class Z shares for the future estimated ongoing stockholder and dealer manager servicing fees. Please see Note 7 – Related Party Transactions – Dealer Manager Agreements for additional details about such commissions and fees.
Redeemable Common Stock
In connection with the Private Offering, we adopted a share redemption program (the “Private Offering Share Redemption Program”) that enabled stockholders to sell their shares to us in limited circumstances, and in connection with the Public Offering, we amended the Private Offering Share Redemption Program (the “Share Redemption Program”). On March 30, 2020, our board of directors approved the suspension of our Share Redemption Program. Please see Note 8 – Commitments and Contingencies – Share Redemption Program for additional details.
In general, 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 the 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 should be presented as redeemable when such amount is known. Therefore, the net proceeds from the Distribution Reinvestment Plan are considered to be temporary equity and are presented as redeemable common stock in our consolidated balance sheets. In addition, current accounting guidance requires, among other things, that financial instruments that represent a mandatory obligation of us to repurchase shares be classified as liabilities and reported at settlement value. Our redeemable common stock is contingently redeemable at the option of the holder. When we determine we have a mandatory obligation to repurchase shares under the Share Redemption Program, we reclassify such obligations from temporary equity to a liability based upon their respective settlement values.
15
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Accounting for Equity Awards
The cost of restricted stock is required to be measured based on the grant date fair value, the cost is recognized over the relevant service period, and we have elected to record forfeitures as they occur.
Fair Value Measurements
The accounting standard for fair value measurements and disclosures defines fair value, establishes a framework for measuring fair value, and provides for expanded disclosure about fair value measurements. 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:
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, accounts payable and accrued liabilities, distributions payable and amounts due to affiliates approximate fair value because of the relatively short-term nature of these instruments (categorized as level 1 within the Fair Value hierarchy).
The table below summarizes the carrying amounts and fair values of financial instruments that are not carried at fair value as of March 31, 2024 and December 31, 2023. 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 our fixed and variable rate debt 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 (categorized within Level 2 of the fair value hierarchy). The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. As of March 31, 2024 and December 31, 2023, we believe the carrying amounts of our variable rate debt are reasonably estimated at their notional amounts as there have been minimal changes to the fixed spread portion of interest
16
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
rates for similar loans observed in the market, and as the variable portion of our interest rates fluctuate with the associated market indices.
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
||||
Fixed Rate Secured Debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
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 meet certain organizational and operational requirements, including a requirement to currently 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 residents and generally engages in any real estate or non-real estate related business. We also utilize our TRS in connection with any structuring of our senior housing properties under the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”). Under the RIDEA structure, the senior housing properties that we own are leased by a property owning entity to a subsidiary of our TRS. That TRS subsidiary then directly engages an “eligible independent contractor” to manage and operate the property. Currently, all of our senior housing properties utilize the RIDEA structure.
The TRS is subject to corporate federal and state income tax.
We account for deferred income taxes using the asset and liability method and recognize deferred tax assets and liabilities for the expected future tax consequences of events that have included in our financial statements or tax returns. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
Any increase or decrease in the deferred tax liability that results from a change in circumstances, and that causes a change in our judgment about expected future tax consequences of events, is included in the tax provision when such changes occur. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. Any increase or decrease in the valuation allowance asset, is included in the tax provision when such changes occur.
17
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
The major sources of temporary differences that give rise to the deferred tax effects are shown below:
|
|
March 31, |
|
|
December 31, |
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
||
Depreciation timing differences |
|
$ |
( |
) |
|
$ |
( |
) |
Other |
|
|
— |
|
|
|
( |
) |
Total deferred tax liability |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Net operating loss carryovers |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total deferred tax assets |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Valuation allowance (1) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Net deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
The Company had consolidated pretax net loss attributable to our common stockholders of approximately $
As of March 31,2024, the gross federal net operating losses are approximately $
Uncertain tax positions may arise where tax laws may allow for alternative interpretations or where the timing of recognition of income is subject to judgment. Under ASC Topic 740, tax positions are evaluated for recognition using a more-likely-than-not threshold and those tax positions requiring recognition are measured at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Interest and penalties relating to uncertain tax positions will be recognized in income tax expense when incurred. As of March 31, 2024 and December 31, 2023, there were
Concentration
Preferred Equity in our Operating Partnership
We classify our Preferred Units (as defined in Note 5 – Preferred Equity in our Operating Partnership) on our consolidated balance sheets using the guidance in ASC 480 10 S99. The Preferred Units are redeemable by our Operating Partnership, in whole or in part, at the option of our Operating Partnership at any time. Additionally, the holder can elect to redeem if any of the following events outside our control occur: (i) change of control; (ii) a breach of protective provisions; (iii) upon the occurrence of monetary and other material defaults under secured property debt; and (iv) if we do not maintain our REIT status. As the shares are contingently redeemable, and under certain circumstances not solely within our control, we have classified our Preferred Stock as temporary equity.
18
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
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. The dilutive effect of unvested restricted stock was not included in the diluted weighted average shares for each of the three months ended March 31, 2024, and March 31, 2023, as such shares were antidilutive. Such unvested shares totaled approximately
Recently Issued Accounting Guidance
In November 2023, the FASB issued , "Segment Reporting (Topic 280)." The guidance in ASU 2023-07 was
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740).” The guidance in ASU 2023-09 was issued to provide investors with information to better assess how an entity’s operations and related tax risks, tax planning and operational opportunities affect its tax rate and prospects for future cash flows. The amendment becomes effective for fiscal years beginning after December 15, 2024. The Company has evaluated and determined that there will be no material impact upon adoption of the new standard on its consolidated financial statements and related disclosures.
Segment Reporting
Our real estate portfolio is comprised of
Note 3. Real Estate Facilities
The following summarizes the activity in the real estate facilities during the three months ended March 31, 2024:
Real estate facilities |
|
|
|
|
Balance at December 31, 2023 |
|
$ |
|
|
Additions - Student |
|
|
|
|
Additions - Senior |
|
|
|
|
Balance at March 31, 2024 |
|
$ |
|
|
Accumulated depreciation |
|
|
|
|
Balance at December 31, 2023 |
|
$ |
( |
) |
Depreciation expense |
|
|
( |
) |
Balance at March 31, 2024 |
|
$ |
( |
) |
Note 4. Debt
The Company’s outstanding debt is summarized as follows:
Loan |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
|
Interest |
|
|
Maturity |
|||
Fayetteville JPM Mortgage Loan (1) |
|
$ |
|
|
$ |
|
|
|
% |
|
||||
Freddie Mac Utah Loans (2) |
|
|
|
|
|
|
|
|
% |
|
||||
Freddie Mac Courtyard Loan (3) |
|
|
|
|
|
|
|
|
% |
|
||||
KeyBank Bridge Loans (4) |
|
|
|
|
|
|
|
|
% |
|
||||
Debt issuance costs, net |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
Total debt, net |
|
$ |
|
|
$ |
|
|
|
|
|
|
19
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Fayetteville JPM Mortgage Loan
On June 28, 2017, we, through our Operating Partnership and a property-owning special purpose entity (the “JPM Borrower”) wholly-owned by our Operating Partnership, entered into a $
The Fayetteville JPM Mortgage Loan had a term of
On April 10, 2024, we entered into a $
Freddie Mac Utah Loans
On February 23, 2018, we, through
The Freddie Mac Utah Loans have a term of
The loans also contain a number of other customary representations, warranties, borrowing conditions, events of default, affirmative, negative and financial covenants, reserve requirements and other agreements, such as restrictions on our ability to prepay or defease the loans. The Freddie Mac Borrowers maintain separate books and records and their separate assets and credit (including the Wellington, Cottonwood Creek, and Charleston properties) are not available to pay our other debts.
20
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Each Freddie Mac Utah Loan is secured under a multifamily deed of trust, assignment of rents and security agreement from the respective Freddie Mac Borrower in favor of the Freddie Mac Lender, granting a first priority mortgage on the respective property in favor of the Freddie Mac Lender.
Freddie Mac Courtyard Loan
On August 31, 2018, we, through a property-owning special purpose entity (the “Freddie Mac Courtyard Borrower”) wholly owned by our Operating Partnership, entered into a mortgage loan of $
The Freddie Mac Courtyard Loan has a term of
The Freddie Mac Courtyard Borrower maintains separate books and records and its separate assets and credit (including the Courtyard Property) is not available to pay our other debts. The Freddie Mac Courtyard Loan is secured under a multifamily deed of trust, assignment of rents and security agreement from the Freddie Mac Courtyard Borrower in favor of the Freddie Mac Lender, granting a first priority mortgage in favor of the Freddie Mac Lender.
KeyBank Bridge Loans
Beginning with our acquisition of the Fayetteville Property, we have entered into various loans with KeyBank National Association (“KeyBank”) in order to fund a portion of the purchase price for our acquisitions. Such loans are in addition to the particular mortgage loan used to acquire the property, and such loans are with us, through our Operating Partnership, along with our Chairman and an entity controlled by him (the “Initial KeyBank Bridge Borrowers”). On February 23, 2018, the Initial KeyBank Bridge Borrowers and KeyBank entered into a second amended and restated credit agreement (the “Utah Bridge Loan”) in which the Initial KeyBank Bridge Borrowers borrowed $
Concurrent with our entry into the Freddie Mac Courtyard Loan, the Initial KeyBank Bridge Borrowers and KeyBank entered into a first credit agreement supplement and amendment (the “Courtyard Bridge Loans”) to the Utah Bridge Loan in order to add additional tranches. Accordingly, each of the Courtyard Bridge Loans and the Utah Bridge Loan are separate loans with separate maturity dates, but they are secured by the same pool of collateral and subject to the same general restrictions, as described within this section.
The terms of the Courtyard Bridge Loans were amended to add two additional tranches: (i) an initial loan of $
21
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
The KeyBank Bridge Loans bear interest at a rate of
The Courtyard Bridge Loans were scheduled to mature on August 31, 2019, but were extended to
On November 9, 2021, we amended the KeyBank Bridge Loans such that the maturity date was further extended to
On October 28, 2022, the KeyBank Bridge Borrowers entered into the Seventh Amendment to the KeyBank Bridge Loans (the “Seventh Amendment”) that extended the maturity date of the KeyBank Bridge Loans from
On March 13, 2024, we amended the KeyBank Bridge Loans (“Eighth Amendment”) such that the maturity date was further extended to
Future Principal Requirements
The following table presents the future principal payment requirements on outstanding debt as of March 31, 2024:
2024 |
|
$ |
|
(1) |
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
2028 |
|
|
|
|
|
Total payments |
|
|
|
|
|
Debt issuance costs, net |
|
|
( |
) |
|
Total |
|
$ |
|
|
22
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Note 5. Preferred Equity in our Operating Partnership
Issuance of Preferred Units by our Operating Partnership
On June 28, 2017, we and our Operating Partnership entered into a Series A Cumulative Redeemable Preferred Unit Purchase Agreement (the “Unit Purchase Agreement”) with SAM Preferred Investor, LLC (the “Preferred Investor”), a wholly-owned subsidiary of our Sponsor. Pursuant to the Unit Purchase Agreement, as amended, the Operating Partnership agreed to issue Preferred Units to the Preferred Investor in connection with preferred equity investments by the Preferred Investor of up to $
In addition to the Unit Purchase Agreement, we and our Operating Partnership entered into a Second Amended and Restated Limited Partnership Agreement of the Operating Partnership (the “Second Amended and Restated Limited Partnership Agreement”) and Amendment No. 1 to the Second and Amended and Restated Limited Partnership Agreement (the “Amendment”). The Second Amended and Restated Limited Partnership Agreement authorized the issuance of additional classes of units of limited partnership interest in the Operating Partnership and sets forth other necessary corresponding changes. All other terms of the Second Amended and Restated Limited Partnership Agreement remained substantially the same. Such terms continue to be included in the Third Amended and Restated Limited Partnership Agreement, as amended.
The Preferred Units are redeemable by our Operating Partnership, in whole or in part, at the option of our Operating Partnership at any time. Pursuant to the amendment of the KeyBank Bridge Loans on February 27, 2020, we are currently restricted from paying distributions on the Preferred Units or redeeming such Preferred Units until the KeyBank Bridge Loans are repaid. The redemption price (“Redemption Price”) for the Preferred Units is equal to the sum of the Liquidation Amount plus all accumulated and unpaid distributions thereon to the date of redemption.
As of March 31, 2024 and December 31, 2023, approximately $
Note 6. Segment Disclosures
We operate in
Management evaluates performance based upon property net operating income (“NOI”). NOI is defined as leasing and related revenues, less property level operating expenses.
23
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
The following table summarizes information for the reportable segments for the three months ended March 31, 2024, and 2023:
|
|
Three Months Ended March 31, |
||||||||||||||
|
|
Student Housing |
|
Senior Housing |
|
Corporate and Other |
|
Total |
||||||||
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
2024 |
|
2023 |
Leasing and leasing related revenues |
|
$ |
|
$ |
|
$ |
|
$ |
|
$— |
|
$— |
|
$ |
|
$ |
Other revenues |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
||||
Property operating expenses |
|
( |
|
( |
|
( |
|
( |
|
— |
|
— |
|
( |
|
( |
Net operating income |
|
|
|
|
|
— |
|
— |
|
|
||||||
Property operating expenses - affiliates |
|
|
|
|
|
— |
|
— |
|
|
||||||
General and administrative |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
||||
Depreciation |
|
|
|
|
|
|
|
|
||||||||
Interest expense |
|
|
|
|
|
— |
|
— |
|
|
||||||
Interest expense – debt issuance costs |
|
|
|
|
|
— |
|
— |
|
|
||||||
Other income (loss) |
|
— |
|
— |
|
|
( |
|
|
( |
|
|
( |
|||
Net income (loss) |
|
$ |
|
$( |
|
$( |
|
$( |
|
$( |
|
$( |
|
$( |
|
$( |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes our total assets by segment:
Segments |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Student housing |
|
$ |
|
|
$ |
|
||
Senior housing |
|
|
|
|
|
|
||
Corporate and Other |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
Note 7. Related Party Transactions
Fees to Affiliates
In connection with our Public Offering, we entered into an advisory agreement with our Advisor (as amended, the “Advisory Agreement”) and a dealer manager agreement with our Former Dealer Manager (as amended, the “Dealer Manager Agreement”) which 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. On April 17, 2020, in accordance with provisions of the Dealer Manager Agreement, we provided a
The Advisory Agreement, Dealer Manager Agreement, and transfer agent agreement (the “Transfer Agent Agreement”) entitle our Advisor, our Former Dealer Manager and our Transfer Agent 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 organizational and offering costs incurred by our Advisor on our behalf and reimbursement of certain costs and expenses incurred by our Advisor and our Transfer Agent in providing services to us.
24
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Organization and Offering Costs
Organization and offering costs of the Public Offering were paid by our Advisor on our behalf and were reimbursed to our Advisor from the proceeds of our Primary Offering, provided, however, that our Advisor agreed to fund, and was not reimbursed for,
Advisory Agreement
We do not have any employees. Our Advisor is primarily responsible for managing our business affairs and carrying out the directives of our board of directors. Our Advisor receives various fees and expenses under the terms of our Advisory Agreement. As discussed above, we are required to reimburse our Advisor for certain organization and offering costs from the Offerings; provided, however, pursuant to the Advisory Agreement, our Advisor funded, and was not reimbursed for,
The Advisory Agreement also requires our Advisor to reimburse us to the extent that offering expenses, including sales commissions, dealer manager fees, stockholder servicing fees and dealer manager servicing fees, are in excess of
Prior to the amendment of the Advisory Agreement on September 6, 2018 (the “AA Amendment”), our Advisor received acquisition fees equal to
Pursuant to the Advisory Agreement, effective May 1, 2018, our Advisor is entitled to receive a monthly asset management fee. This fee was initially equal to
25
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Pursuant to the Second AA Amendment, our Advisor may be entitled to disposition fees generally equal to the lesser of (a)
Our Advisor may also be entitled to various subordinated distributions under our operating partnership agreement if we (1) list our shares of common stock on a national exchange, (2) do not renew or terminate the Advisory Agreement, (3) liquidate our portfolio or (4) effect a merger or other corporate reorganization.
The 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 commencement of the Public Offering, pursuant to our Advisory Agreement, our Advisor is required to pay or reimburse us the amount by which our aggregate annual operating expenses, as defined, exceed the greater of
Advisor Funding Agreement
Concurrent with the execution of the Second AA Amendment (as described above), we entered into the Advisor Funding Agreement by and among us, our Operating Partnership, our Advisor and our Sponsor, pursuant to which our Advisor agreed to fund the payment of the upfront
Dealer Manager Agreement
In connection with our Public Offering, our Former Dealer Manager received a sales commission of up to
As of June 21, 2019, we ceased offering Class A shares, Class T shares and Class W shares in our Primary Offering, and on July 10, 2019, we commenced offering Class Y shares and Class Z shares. On March 30, 2020, our board of directors approved the suspension of our Primary Offering and on
26
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
accordance with provisions of the Dealer Manager Agreement, we provided a
The Dealer Manager Agreement provided that we would cease paying the stockholder servicing fee with respect to the Class T shares and Class Y shares sold in the Primary Offering at the earlier of (i) the date we list our shares on a national securities exchange, merge or consolidate with or into another entity, or sell or dispose of all or substantially all of our assets, (ii) the date at which the aggregate underwriting compensation from all sources equals
In connection with our Public Offering, 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 allowed all of the sales commissions paid in connection with sales made by these broker-dealers. Our Former Dealer Manager was also permitted to allow 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 will be considered underwriting compensation subject to a
27
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Affiliated Former Dealer Manager
Our Sponsor previously owned, through a wholly-owned limited liability company, a
Transfer Agent Agreement
Our Sponsor is the owner and manager of our Transfer Agent, which is a registered transfer agent with the SEC. Effective in May 2018, our Transfer Agent processes subscription agreements and certain other forms directly, as well as provides customer service to our stockholders. These services include, among other things, processing payment of any sales commission and dealer manager fees associated with a particular purchase, as well as processing the distributions and any servicing fees with respect to our shares. Additionally, our Transfer Agent may retain and supervise third party vendors in its efforts to administer certain services. Our Transfer Agent also conducts transfer agent and registrar services for other non-traded REITs sponsored by an affiliate of our Sponsor.
Fees paid to our Transfer Agent are based on a fixed quarterly fee, one-time account setup fees, monthly open account fees, one time transfer fees, monthly portal fees, and investor telephone call 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.
The initial term of the Transfer Agent Agreement was three years, which term will be automatically renewed for one year successive terms, but either party may terminate the Transfer Agent Agreement upon 90 days’ prior written notice. In the event that we terminate the Transfer Agent Agreement, other than for cause, we will pay our Transfer Agent all amounts that would have otherwise accrued during the remaining term of the Transfer Agent Agreement; provided, however, that when calculating the remaining months in the term for such purposes, such term is deemed to be a 12-month period starting from the date of the most recent annual anniversary date.
Property Managers
Pursuant to our Advisory Agreement, our Advisor is responsible for overseeing any third party property managers or operators and may delegate such responsibility to its affiliates. Our Advisor has assigned such oversight responsibilities to our Property Manager. Currently, we expect to rely on third party property managers and senior living operators to manage and operate our properties.
28
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
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, 2023 and the three months ended March 31, 2024, as well as any related amounts payable, which are included in due to affiliates on the accompanying consolidated balance sheets as of December 31, 2023 and March 31, 2024:
|
|
Year Ended December 31, 2023 |
|
|
Three Months Ended March 31, 2024 |
|
||||||||||||||||||
|
|
Incurred |
|
|
Paid |
|
|
Payable |
|
|
Incurred |
|
|
Paid |
|
|
Payable |
|
||||||
Expensed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating expenses (including organizational costs) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||||
Transfer Agent expenses |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Asset management fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||||
Property management oversight fees |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Disposition fee |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Capitalized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Acquisition expenses - Affiliates |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Additional Paid-In Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Offering costs |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
Please see Note 4 – Debt and Note 5 – Preferred Equity in our Operating Partnership for detail regarding additional related party transactions.
Note 8. Commitments and Contingencies
Property Management
Our student housing property is managed by a third-party student housing manager. Pursuant to our property management agreements,
Our senior housing properties are managed by third-party senior living operators. Pursuant to the respective property management agreements,
Distribution Reinvestment Plans
We adopted a distribution reinvestment plan in connection with the Private Offering (the “Private Offering Distribution Reinvestment Plan”) that allowed our stockholders to have distributions otherwise distributable to them invested in additional shares of our common stock. On May 1, 2018, we amended and restated the Private Offering Distribution Reinvestment Plan in connection with the Public Offering to establish the purchase price per share under the distribution reinvestment plan of our Class A, Class T, and Class W shares. On June 21, 2019, our board of directors further amended and restated the distribution reinvestment plan (the “Distribution Reinvestment Plan”), effective as of July 13, 2019, to include, as eligible participants, stockholders holding Class Y shares of our common stock and stockholders holding Class Z shares of our common stock, and to state that the purchase price for shares pursuant to the Distribution Reinvestment Plan shall be $
29
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
the estimated value per share of each class of shares. We may amend or terminate the Distribution Reinvestment Plan for any reason at any time upon
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 30 days’ notice to our stockholders. We may provide this notice by including such information in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC, or by a separate mailing to our stockholders.
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 May 3, 2020. Our share redemption program remains suspended as of March 31, 2024.
As a result of our board of directors approving an estimated net asset value per share on January 22, 2024, the per share price for the repurchase of a given class of shares is equal to the then-current estimated net asset value per share for such class of shares; however, as noted elsewhere our Share Redemption Program is currently suspended.
If we recommence our Share Redemption Program, there will be several limitations on our ability to redeem shares under the Share Redemption Program including, but not limited to:
For the year ended December 31, 2023 and the three months ended March 31, 2024, we did
30
STRATEGIC STUDENT & SENIOR HOUSING TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Operating Partnership Redemption Rights
The limited partners of our Operating Partnership will 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 redeem 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.
Note 9. Subsequent Events
Fayetteville JPM Mortgage Loan Refinance
On April 10, 2024, we, through our Operating Partnership, and a property-owning special purpose entity (“Borrower”) wholly-owned by the Operating Partnership, entered into a $
The JPM Mortgage Loan has an initial term of
We and H. Michael Schwartz, our Chairman of the board of directors and a director (our “Chairman”), serve as non-recourse guarantors pursuant to the terms and conditions of the JPM Mortgage Loan pursuant to a guaranty agreement entered into in connection with the JPM Mortgage Loan (the “Guaranty Agreement”). The JPM Mortgage Loan contains a number of other customary terms and covenants.
31
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, as well as with our 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, 2023. See also “Cautionary Note Regarding Forward Looking Statements” preceding Part I.
Overview
Strategic Student & Senior Housing Trust, Inc. was formed on October 4, 2016 and commenced formal operations on June 28, 2017, as discussed below. We were formed under the MGCL for the purpose of engaging in the business of investing in student housing and senior housing properties and related real estate investments. We elected to be treated as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), for federal income tax purposes beginning with our taxable year ended December 31, 2017.
On January 27, 2017, pursuant to a confidential private placement memorandum, we commenced a private offering of up to $100,000,000 in shares of our common stock (the “Primary Private Offering”) and 1,000,000 shares of common stock pursuant to our distribution reinvestment plan (together with the Primary Private Offering, the “Private Offering”). The Private Offering required a minimum offering amount of $1,000,000, which we met on August 4, 2017. Our Private Offering terminated on March 15, 2018. We raised offering proceeds of approximately $91.5 million from the issuance of approximately 10.7 million shares pursuant to the Private Offering. Please see the Notes to the Consolidated Financial Statements contained elsewhere in this report for additional information. Upon the commencement of our Public Offering, discussed below, and the filing of the articles of amendment to our charter, all outstanding common stock was redesignated as Class A common stock.
On May 1, 2018, we commenced a public offering of a maximum of $1.0 billion in common shares for sale to the public (the “Primary Offering”) and $95.0 million in common shares for sale pursuant to our distribution reinvestment plan (together with the Primary Offering, the “Public Offering,” and collectively with the Private Offering, the “Offerings”), consisting of three classes of shares: Class A shares for $10.33 per share (up to $450 million in shares), Class T shares for $10.00 per share (up to $450 million in shares), and Class W shares for $9.40 per share (up to $100 million in shares).
On June 21, 2019, we suspended the sale of Class A shares, Class T shares, and Class W shares in the Primary Offering and filed a post-effective amendment to our Registration Statement to register two new classes of common stock (Class Y shares and Class Z shares) with the SEC. On July 10, 2019, the post-effective amendment to our Registration Statement was declared effective by the SEC. Also on July 10, 2019, we filed articles supplementary to our charter which reclassified certain authorized and unissued shares of our common stock into Class Y shares and Class Z shares. Effective July 10, 2019, we began offering Class Y shares (up to $700 million in shares) and Class Z shares (up to $300 million in shares) in our Primary Offering at a price of $9.30 per share and are offering Class A shares, Class T shares, Class W shares, Class Y shares, and Class Z shares pursuant to our distribution reinvestment plan at a price of $9.30 per share. The termination of our Primary Offering occurred on May 1, 2021.
On March 30, 2020, our board of directors approved the suspension of the Primary Offering based upon various factors, including the uncertainty relating to the novel coronavirus (“COVID-19”) pandemic and its potential impact on us and our overall financial results. Our board of directors also approved the suspension of our share redemption program (see Note 8 – Commitments and Contingencies for additional detail) and the suspension of distributions to our stockholders. Primarily as a result of the suspension and subsequent termination of our Public Offering, we currently do not have the equity capital needed to acquire additional properties and, consequently, we are focusing our efforts on managing our existing properties.
Subsequent to March 31, 2020, no sales were made pursuant to the Primary Offering. As of March 31, 2024, we had sold approximately 362,000 Class A shares, approximately 70,000 Class T shares, approximately 83,000 Class W shares, approximately 1.1 million Class Y shares, and approximately 165,000 Class Z shares for gross offering proceeds of approximately $17.1 million in our Primary Offering.
32
On January 22, 2024, our board of directors, upon recommendation of our nominating and corporate governance committee, approved an estimated value per share of $6.34 for our Class A shares, Class T shares, Class W shares, Class Y shares, and Class Z 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 September 30, 2023.
As of March 31, 2024 we owned one student housing property and four senior housing properties.
Student Housing
As of March 31, 2024, our student housing property portfolio was comprised as follows:
Property |
|
Date Acquired |
|
Year Built |
|
Primary |
|
Average |
|
|
# of |
|
|
# of |
|
|
Occupancy%(2) |
|
||||
Fayetteville |
|
June 28, 2017 |
|
2016 |
|
University of Arkansas |
|
$ |
725 |
|
|
|
198 |
|
|
|
589 |
|
|
|
97.8 |
% |
Senior Housing
As of March 31, 2024, our senior housing property portfolio was comprised as follows:
Property |
|
Date Acquired |
|
Year |
|
City, State |
|
Average |
|
|
# of |
|
|
Occupancy%(2) |
|
|||
Wellington |
|
February 23, 2018 |
|
1999 |
|
Millcreek, Utah |
|
$ |
5,208 |
|
|
|
119 |
|
|
|
91.7 |
% |
Cottonwood Creek |
|
February 23, 2018 |
|
1982 |
|
Millcreek, Utah |
|
|
4,410 |
|
|
|
112 |
|
|
|
82.9 |
% |
Charleston |
|
February 23, 2018 |
|
2005 |
|
Cedar Hills, Utah |
|
|
5,025 |
|
|
|
64 |
|
|
|
97.4 |
% |
Courtyard |
|
August 31, 2018 |
|
1992-2019 |
|
Portland, Oregon |
|
|
5,399 |
|
|
|
309 |
|
|
|
89.0 |
% |
Total |
|
|
|
$ |
5,147 |
|
|
|
604 |
|
|
|
89.3 |
% |
Critical Accounting Policies and Estimates
We have established accounting policies which conform to generally accepted accounting principles (“GAAP”) in the U.S. Preparing financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. Following is a discussion of the estimates and assumptions used in setting accounting policies that we consider critical in the presentation of our consolidated financial statements. Many estimates and assumptions involved in the application of GAAP may have a material impact on our financial condition or operating performance, or on the comparability of such information to amounts reported for other periods, because of the subjectivity and judgment required to account for highly uncertain items or the susceptibility of such items to change. These estimates and assumptions affect our reported amounts of assets and liabilities, our disclosure of contingent assets and liabilities at the dates of the financial statements and our reported amounts of revenues and expenses during the periods 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
33
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 one year or less, we do not expect to allocate any portion of the purchase prices to above or below market leases. Acquisitions of portfolios of properties are allocated to the individual properties 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 property 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.
Impairment of Long-Lived Assets
The majority of our assets, other than cash and cash equivalents, restricted cash, and other assets 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. 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 consolidated financial statements or materially different amounts being reported in the consolidated 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 consolidated financial statements or materially different amounts being reported in the consolidated financial statements, as such determinations, and the corresponding amount of depreciation expense, may vary dramatically based on the estimates and assumptions we use.
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 consolidated financial statements, as the joint venture entities included in our consolidated financial statements may vary based on the estimates and assumptions we use.
REIT Qualification
We made an election to be taxed as a REIT, under Sections 856 through 860 of the Code, commencing with our taxable year ended December 31, 2017. To continue to qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90% of the REIT’s ordinary taxable income to stockholders. As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is lost. Such an event could materially adversely affect
34
our net income and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT and intend to operate in the foreseeable future in such a manner that we will remain qualified as a REIT for federal income tax purposes.
Results of Operations
Overview
During the three months ended March 31, 2024 and 2023, we have derived revenues principally from rents and related fees received from residents of our student housing and senior housing properties and to a lesser extent from other services provided at our senior housing properties. Our operating results depend significantly on our ability to retain our existing residents and lease our available units to new residents, while maintaining and, where possible, increasing rates. Additionally, our operating results depend on our residents making their required payments to us.
Competition in the markets in which we operate is significant and affects the occupancy levels, rental rates, rental revenues, fees and operating expenses of our student housing and senior housing properties. Development of any new student housing or senior housing properties would intensify competition in the markets in which we operate and could negatively impact our results.
Recent Market Conditions
On March 11, 2020, the World Health Organization declared COVID-19, a respiratory illness caused by the novel coronavirus, a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The COVID-19 pandemic caused state and local governments to institute quarantines, "shelter in place" rules and restrictions on travel, the types of business that were allowed to continue to operate, and the types of construction projects that were allowed to continue. We have implemented precautionary and protective measures intended to help ensure the well-being of our residents and staff at our student and senior housing properties. The Public Health Emergency expired in May 2023 and we expect the adverse effect the COVID-19 pandemic has had on our financial condition and results of operations to continue to mitigate. We expect revenues and expenses to continue to fluctuate, as we remain cognizant of the current economic risk factors, including interest rate fluctuations, that could negatively impact the financial performance of our portfolio in future periods.
During each of the quarters ended March 31, 2024 and 2023, occupancy at our Fayetteville property was approximately 98%. Our pre-leasing for academic year 2024/2025 is currently at approximately 100% at our Fayetteville property serving the University of Arkansas. Due to increased enrollment over the last two years coupled with minimal new development in Fayetteville, we are experiencing more favorable supply and demand conditions, which has allowed us to increase rental rates during academic year 2023/2024 and continue to increase rental rates during the pre-leasing for academic year 2024/2025.
At our senior housing properties, during 2023 and we continue to see, COVID-19 variant breakthrough infections, however, we have experienced increased move in activity and occupancies while continuing to incur incremental, COVID-19 related expenses. During 2023 and 2024, historically low unemployment and competitors, have negatively affected the ability of our senior housing properties to maintain necessary staffing levels resulting in the need to use third party contract services and overtime.
Comparison of the Three Months Ended March 31, 2024 and 2023
Leasing and Related Revenues - Student
Leasing and related revenues - student for the three months ended March 31, 2024 were approximately $1.4 million, as compared to approximately $1.2 million for the three months ended March 31, 2023, an increase of approximately $0.2 million. The increase is primarily attributable to an increase in rental rates at our Fayetteville property. We expect leasing and related revenues – student to fluctuate in future periods for the Fayetteville property commensurate with our leasing activity.
Leasing and Related Revenues - Senior
Leasing and related revenues - senior for the three months ended March 31, 2024 were approximately $8.4 million, as compared to approximately $7.9 million for the three months ended March 31, 2023, an increase of approximately $0.5 million. The increase is primarily attributable to an increase in both occupancies and rates at our senior housing properties. We expect leasing and related revenues to fluctuate in future periods commensurate with our leasing activity.
35
Property Operating Expenses - Student
Property operating expenses - student for each of the three months ended March 31, 2024 and 2023 were approximately $0.6 million. Such expenses include the cost to operate our student housing properties including payroll, utilities, insurance, real estate taxes, repairs and maintenance, marketing, and third-party property management fees.
Property Operating Expenses - Senior
Property operating expenses - senior for the three months ended March 31, 2024 were approximately $6.3 million, as compared to approximately $5.7 million for the three months ended March 31, 2023, an increase of approximately $0.6 million. Such property operating expenses include the cost to operate our senior housing properties including payroll, food service costs, utilities, insurance, real estate taxes, repairs and maintenance, marketing, and third-party property management fees. The increase is primarily due to an increase in payroll, due to an increase in employee headcount, the use of contract services, and turnover costs to fill vacancies. To a lesser extent, inflationary pressures impacted overall property expenses, not limited to payroll, utilities, repairs and maintenance, and insurance.
Property Operating Expenses - Affiliates
Property operating expenses - affiliates for each of the three months ended March 31, 2024 and 2023 were approximately $0.6 million. Property operating expenses - affiliates consists of asset management and property management oversight fees due to our Advisor.
General and Administrative Expenses
General and administrative expenses for the three months ended March 31, 2024 were approximately $0.4 million, as compared to approximately $0.5 million for the three months ended March 31, 2023, an decrease of approximately $0.1 million. General and administrative expenses consist primarily of legal expenses, directors’ and officers’ insurance expense, transfer agent expenses, an allocation of a portion of payroll related costs attributable to our Advisor and its affiliates, accounting expenses and professional services. The decrease was primarily due to an decrease in professional services, legal, and accounting expenses. We expect general and administrative expenses to fluctuate in future periods commensurate with our operational activity.
Depreciation Expense
Depreciation expense for the three months ended March 31, 2024 was approximately $1.7 million, as compared to approximately $1.8 million for the three months ended March 31, 2023, a decrease of approximately $0.1 million. Depreciation expense consists primarily of depreciation on the buildings, site improvements, and furniture, fixtures and equipment at our properties.
Interest Expense
Interest expense for the three months ended March 31, 2024 was approximately $2.3 million, as compared to approximately $2.2 million for the three months ended March 31, 2023, an increase of approximately $0.1 million. The increase is primarily attributable to the increased rate on our variable rate KeyBank Bridge Loans. We expect interest expense to fluctuate in future periods commensurate with our future debt level and interest rates.
Interest Expense - Debt Issuance Costs
Interest expense - debt issuance costs for both of the three months ended March 31, 2024 and 2023 were approximately $0.1 million. Interest expense - debt issuance costs reflects the amortization of costs incurred in connection with obtaining debt related to the acquisition of our properties. We expect interest expense - debt issuance costs to fluctuate commensurate with our future financing activity.
36
Liquidity and Capital Resources
Cash Flows
A comparison of our cash flows for operating, investing and financing activities for the three months ended March 31, 2024 and 2023, is as follows:
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
Change |
|
|||
Net cash flow provided by (used in): |
|
|
|
|
|
|
|
|
|
|||
Operating activities |
|
$ |
516,427 |
|
|
$ |
394,092 |
|
|
$ |
122,335 |
|
Investing activities |
|
|
(331,663 |
) |
|
|
(1,446,117 |
) |
|
|
1,114,454 |
|
Financing activities |
|
|
(754,939 |
) |
|
|
(578,845 |
) |
|
|
(176,094 |
) |
Cash flows provided by operating activities for the three months ended March 31, 2024 and 2023 were approximately $0.5 million and $0.4 million, respectively, a change of approximately $0.1 million. The increase in cash provided by operating activities was primarily the result of an increase in cash provided by operating assets and liabilities.
Cash flows used in investing activities for the three months ended March 31, 2024 and 2023 were approximately $0.3 million and $1.4 million, respectively, a change of approximately $1.1 million. The decrease in cash used in investing activities is primarily the result of the decrease in additions to real estate during 2024.
Cash flows used in financing activities for the three months ended March 31, 2024 and 2023 were approximately $0.8 million and $0.6 million, respectively, a change of approximately $0.2 million. The increase in cash used in financing activities is primarily the result of the extension and modification of the KeyBank Bridge Loans during 2024.
Short-Term Liquidity and Capital Resources
Our liquidity needs consist primarily of our property operating expenses, general and administrative expenses, regularly scheduled debt service payments, and capital expenditures. Currently, we generally expect that we will meet our short-term operating liquidity requirements from the combination of our cash on hand, proceeds from net cash provided by property operations, proceeds from secured or unsecured financing from banks or other lenders, issuance of preferred units in our Operating Partnership, 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.
We believe we have access to adequate resources to meet the needs of our existing operations, mandatory capital expenditures, and working capital, to the extent not funded by cash provided by operating activities. However, volatility in the debt and equity markets and continued and/or further impact of COVID-19, inflation and other economic events will depend on future developments, which are highly uncertain. While we do not expect such events to have a material impact upon our liquidity in the short-term, continued uncertainty or deterioration in the debt and equity markets over an extended period of time could potentially impact our liquidity over the long-term.
The Fayetteville JPM Mortgage Loan was set to mature on July 1, 2024, however, on April 10, 2024, we refinanced the loan with the existing lender into the new JPM Mortgage Loan with an initial maturity of April 9, 2025. Please see Note 9 – Subsequent Events for additional details.
Distribution Policy and Distributions
In order to retain cash and preserve financial flexibility in light of the impact that COVID-19 has had and could continue to have on our business and the uncertainty as to the ultimate severity, duration, and effects of the outbreak, on March 30, 2020, our board of directors approved the suspension of all distributions to our stockholders.
37
Historically, we have made distributions to our stockholders using a combination of cash flows from operations and the proceeds from the Public Offering in anticipation of additional future cash flow. As such, this reduces the amount of capital we ultimately invested 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. Though we have previously only paid cash distributions and may pay stock distributions in the future, 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.
Distributions are paid to our stockholders based on the record date selected by our board of directors. Prior to the suspension of our distributions, we paid distributions monthly based on daily declaration and record dates so that investors may be entitled to distributions immediately upon purchasing our shares. Distributions are authorized at the discretion of our board of directors, which are directed, in substantial part, by its obligation to cause us to comply with the REIT requirements of the Code. Our board of directors may increase, decrease or eliminate the distribution rate that is being paid at any time. Distributions are made on all classes of our common stock at the same time. The per share amount of distributions on different classes of shares will likely differ because of different allocations of class-specific expenses. Specifically, distributions on Class T shares, Class W shares, Class Y shares, and Class Z shares will likely be lower than distributions on Class A shares because Class T shares and Class Y shares are subject to ongoing stockholder servicing fees and Class W shares and Class Z shares are subject to 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:
We commenced paying distributions in September 2017. From our inception through March 31, 2024, we paid cumulative distributions of approximately $17.3 million, including approximately $0.2 million related to our preferred unitholders, as compared to cumulative net loss attributable to our common stockholders of approximately $82.7 million, which includes acquisition related expenses of approximately $3.4 million and non-cash depreciation and amortization of approximately $71.0 million.
For the three ended March 31, 2024, we did not declare or pay any distributions and had a net loss attributable to our common stockholders of approximately $2.6 million. For the three ended March 31, 2023, we did not declare or pay any distributions and had a net loss attributable to our common stockholders of approximately $2.8 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
38
return of investors’ capital. In the future, we may decide to make stock distributions or to make distributions using a combination of stock and cash in order to meet the REIT distribution requirements under the Code or otherwise.
We have not been able to, and may not be able to, pay distributions, solely from our cash flows from operations, in which case distributions may be paid in part from debt financing. 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.
Indebtedness
As of March 31, 2024, our total indebtedness was approximately $161.0 million, which included approximately $135.4 million in fixed rate debt and approximately $25.6 million in variable rate debt. See Note 4 of the Notes to the Consolidated Financial Statements for more information about our indebtedness.
Long-Term Liquidity and Capital Resources
On a long-term basis, our principal demands for funds will be for the payment of interest and principal on our outstanding indebtedness, for the payment of operating expenses and distributions, if resumed in the future, and for property capital improvements, and acquisitions, either directly or through entity interests, if any.
Long-term potential future sources of capital include secured or unsecured financings from banks or other lenders, issuance of equity securities including private offerings, undistributed funds from operations, and potential sales of remaining properties. 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, cash flows from operating activities and potential sales of remaining properties in order to meet our long-term liquidity requirements and to fund our distributions, if any.
Contractual Obligations
The following table summarizes our contractual obligations as of March 31, 2024:
|
|
Payments due during the years ending December 31: |
|
|||||||||||||
|
|
Total |
|
|
2024 |
|
|
2025-2026 |
|
|
2027-2028 |
|
||||
Debt interest(1) |
|
$ |
24,883,941 |
|
|
$ |
6,182,436 |
|
|
$ |
11,469,320 |
|
|
$ |
7,232,185 |
|
Debt principal(2) |
|
|
160,971,974 |
|
|
|
31,401,081 |
|
(3) |
|
28,925,620 |
|
|
|
100,645,273 |
|
Total contractual obligations |
|
$ |
185,855,915 |
|
|
$ |
37,583,517 |
|
|
$ |
40,394,940 |
|
|
$ |
107,877,458 |
|
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships. Such entities are often referred to as structured finance or special purposes entities, which typically are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitments or intent to provide funding to any such entities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk includes risks that arise from changes in interest 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. 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 are 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
39
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 March 31, 2024, our debt consisted of approximately $161.0 million, which included approximately $135.4 million in fixed rate debt and approximately $25.6 million in variable rate debt. Our debt instruments were entered into for other than trading purposes. Changes in interest rates have different impacts on fixed and variable debt. A change in interest rates on fixed rate debt impacts its fair value but has no impact on interest incurred or cash flows. A change in interest rates on the 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 or decrease by 100 basis points, the increase or decrease in interest would increase or decrease future earnings and cash flows by approximately $0.3 million annually.
The following table summarizes annual debt maturities and average interest rates on our outstanding debt as of March 31, 2024:
|
|
Year Ending December 31, |
|
|||||||||||||||||||||
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
Total |
|
||||||
Fixed rate debt |
|
$ |
30,951,081 |
|
(2) |
$ |
1,856,855 |
|
|
$ |
1,952,215 |
|
|
$ |
2,052,475 |
|
|
$ |
98,592,798 |
|
|
$ |
135,405,424 |
|
Average interest |
|
|
4.85 |
% |
|
|
4.94 |
% |
|
|
4.94 |
% |
|
|
4.94 |
% |
|
|
4.94 |
% |
|
|
4.92 |
% |
Variable rate |
|
$ |
450,000 |
|
|
$ |
25,116,550 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
25,566,550 |
|
Average interest |
|
|
9.42 |
% |
|
|
9.42 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9.42 |
% |
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
40
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 our Annual Report on Form 10-K for the year ended December 31, 2023.
We have incurred net losses to date, have an accumulated deficit and our operations may not be profitable in 2024.
We incurred a net loss attributable to common stockholders of approximately $2.6 million for the three months ended March 31, 2024. Our accumulated deficit was approximately $82.7 million as of March 31, 2024. Given that (i) we are in our operational stage and (ii) due to COVID-19 we terminated our Public Offering, we currently have no plans to acquire any additional properties, and our operations will likely not be profitable in 2024.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The exhibits required to be filed with this report are set forth on the Exhibit Index hereto and incorporated by reference herein.
41
EXHIBIT INDEX
The following exhibits are included in this report on Form 10-Q for the period ended March 31, 2024 (and are numbered in accordance with Item 601 of Regulation S-K).
Exhibit No. |
Description |
|
|
3.1 |
|
|
|
3.2 |
|
|
|
3.3 |
|
|
|
3.4 |
|
|
|
3.5 |
|
|
|
10.1 |
|
10.2 |
|
|
|
31.1* |
|
|
|
31.2* |
|
|
|
32.1* |
|
|
|
32.2* |
|
|
|
101* |
The following Strategic Student & Senior Housing Trust, Inc. financial information for the Three Months Ended March 31, 2024, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Deficit and Temporary Equity, (iv) Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
|
|
104* |
The cover page from the Strategic Student & Senior Housing Trust, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, has been formatted in Inline XBRL. |
* Filed herewith.
42
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 STUDENT & SENIOR HOUSING TRUST, INC. |
|
|
|
(Registrant) |
|
|
|
|
|
Dated: May 7, 2024 |
|
By: |
/s/ Matt F. Lopez |
|
|
|
Matt F. Lopez |
|
|
|
Chief Financial Officer, Treasurer, and Secretary |
|
|
|
(Principal Financial and Accounting Officer) |
43