SmartStop Self Storage REIT Proposes Charter Changes to Align with Publicly Listed Companies
July 12, 2019 | James Sprow | Blue Vault
At a stockholders meeting on September 16, 2019, shareholders in SmartStop Self Storage REIT (formerly Strategic Storage Trust II, Inc.) will be asked to approve amendments to the REIT’s charter that will bring the charter in closer alignment with publicly listed companies. The shareholders of record as of July 10, 2019, will be entitled to vote on the charter revisions, as well as the election of five directors and the appointment of BDO USA, LLP as the REIT’s independent auditor firm.
The charter revisions proposed will remove “certain limitations required by the Statement of Policy Regarding Real Estate Investment Trusts published by the North American Securities Administrators Association (the “NASAA REIT Guidelines”) and make other conforming and ministerial changes.”
The revisions will also enable the transfer of shares to prevent the possibility of a continuing violation of the ownership restrictions for REIT qualification.
According to the REIT’s Proxy Statement filing on July 9, the REIT’s board of directors is continuing to explore various strategic alternatives ultimately designed to provide stockholder liquidity at some point in the future, including but not limited to a potential listing on a national securities exchange. The first step in the process was the “Self Administration Transaction” with SmartStop Asset Management, LLC, ( “SAM”), the REIT’s former sponsor, pursuant to which, effective as of June 28, 2019, it acquired the self storage advisory, asset management, property management and tenant insurance joint venture interests of SAM. As consideration for the Self Administration Transaction the REIT paid approximately $770,000 in cash, assumed existing debt in the amount of approximately $15 million, and issued 8,698,956 Class A-1 limited partnership units and 3,283,302 Class A-2 limited partnership units in its Operating Partnership. Completing the Self-Administration Transaction provided the REIT with the internal capability to originate, structure and manage additional investment products that it would sponsor.
The REIT, among other things:
• now directly owns Strategic Storage Advisor II, LLC (its “Former External Advisor”), Strategic Storage Property Management II, LLC (the “T2 Property Manager”) and SS Growth Property Management, LLC (the “GT Property Manager” and together with the T2 Property Manager, the “Property Manager”);
• will serve as the sponsor, advisor and property manager for Strategic Storage Trust IV, Inc. (“SST IV”) and Strategic Storage Growth Trust II, Inc. (“SSGT II”), which will generate new advisory and property management revenue streams and provide additional potential growth to its net income, and we will also have the ability to provide third party property management solutions to other operators;
• succeed to the tenant insurance joint ventures previously in place for SST IV and SSGT II
• now own the “SmartStop®” brand, “Strategic Storage®” brand and related trademarks, and over 250 web domains including www.smartstop.com; and
• own the office building that houses its corporate headquarters.
This initial step by the board recognized that certain potential liquidity events may be enhanced if the REIT became self-administered. For example, it is widely believed that the REIT’s shares would be more highly valued by the market if it became self-administered and had its own employees rather than those of the external advisor. Also, it may be possible to sell the Company for a higher price or attract equity as a self-administered company, particularly with respect to purchasers that desire to acquire the management team and employees, along with assets.
Strategic Storage Trust II, Inc. acquired Strategic Storage Growth Trust, Inc. (“SSGT”) on January 24, 2019. Each share of SSGT was converted to the right to receive $12.00 per share in cash. The REIT acquired 28 operating self storage properties located in 10 states and in the Greater Toronto, Canada area, along with one development property.
As of March 31, 2019, Strategic Storage Trust II, Inc. owned 112 self storage properties with a total of 71,170 units, that were 86% leased. The REIT was paying a distribution of 6.00% on its Class A shares and 5.34% on its Class T shares, net of fees, based upon the original offering prices. The shares each had a most recent announced NAV per share of $10.65.
According to analysts at S&P Global, the five listed self storage REITs were selling at a median premium to NAV of 15.2% as of June 28, 2019. The only property type selling at a higher premium to NAV was the healthcare REIT sector with 16 REITs selling at a median 18.3% premium to NAV. The median for all 153 U.S. listed REITs was a discount of 6.6% to NAV. These listed REIT valuations within the self storage category could make a potential listing by SmartStop Self Storage REIT more attractive.
Sources: SEC, S&P Global, Blue Vault
I have been using Blue Vault Partners for the past five years. I have found them to be a valuable, unbiased resource when it comes to evaluating and comparing non-traded REITs. The reports help me analyze which sponsors are doing a responsible job of managing their offerings. This allows me to limit my REIT recommendations to only the most competitive products, and then track those REITs throughout their life cycle.