Maryland | | | | Maryland | | 46-1722812 | (State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
10 Terrace Rd, Ladera Ranch, California 92694 (Address of principal executive offices) (877)327-3485 (Registrant’s telephone number) Securities registered pursuant to Section 12(b) of the Act: | | | Title of Each Class | | Name of Each Exchange on Which Registered | None | | None |
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value per share Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form10-K or any amendment of this Form10-K. ☒ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer” and, “smaller reporting company”, and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one): | | | | | | | Large Accelerated Filer | ☐ | ☐ | | Accelerated Filer | | ☐ | Non-Accelerated Filer | ☒ | | | Non-Accelerated Filer | | ☒ (Do not check if a smaller reporting company) | | Smaller reporting company | ☒ | | ☐ | | Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial account standards provided pursuant to Section 13(a) of the Exchange Act. ☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒ There is currently no established public market for the registrant’s shares of common stock. Based on the $11.21$10.65 offering price of the Class A shares and the $10.62 offering price of the Class T shares in effect on June 30, 2016,2018, the aggregate market value of the stock held by non-affiliates of the registrant on such date was $471,538,530.approximately $610,512,879. As of March 23, 2017,22, 2019, there were 48,491,56150,638,531 outstanding shares of Class A common stock and 7,198,1817,562,127 outstanding shares of Class T common stock of the registrant. Documents Incorporated by Reference: The registrant incorporates by reference in Part III (Items 10, 11, 12, 13 and 14) of this Form10-K portions of its Definitive Proxy Statement for the 2017 Annual Meeting of Stockholders.None.
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this Form10-K of Strategic Storage Trust II, Inc., other than historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, including known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “seek,” “continue,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the Securities and Exchange Commission. We cannot guarantee the accuracy of any such forward-looking statements contained in this Form10-K, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Any such forward-looking statements are subject to risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to realize the plans, strategies and prospects contemplated by such forward-looking statements, including our ability to generate positive cash flow from operations and provide distributions to stockholders, and our ability to find suitable investment properties, may be significantly hindered. For further information regarding risks and uncertainties associated with our business, and important factors that could cause our actual results to vary materially from those expressed or implied in such forward-looking statements, please refer to the factors listed and described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Risk Factors” sections of the documents we file from time to time with the U.S. Securities and Exchange Commission, including, but not limited to, this report and our quarterly reports on Form10-Q, copies of which may be obtained from our website at www.strategicreit.com. PART I
1
PART I Overview Strategic Storage Trust II, Inc., a Maryland corporation (the “Company”), was formed on January 8, 2013 under the Maryland General Corporation Law for the purpose of engaging in the business of investing in self storage facilities and related self storage real estate investments.facilities. The Company’syear-end is December 31. As used in this report, “we,” “us,” “our,” and “Company” refer to Strategic Storage Trust II, Inc. and each of our subsidiaries. Strategic Storage Holdings,SmartStop Asset Management, LLC, a Delaware limited liability company (“SSH”(our “Sponsor”), organized in 2013, was the sponsor of our Offering (as defined below) through August 31, 2014. Effective August 31, 2014, SmartStop Self Storage, Inc. (“SmartStop”), entered intoof shares of common stock, as described below. Our Sponsor is a series of transactions, agreements and amendments to its existing agreements and arrangements (such agreements and amendments hereinafter referred to collectively as the “Self Administration and Investment Management Transaction”) with SSH and its affiliates, pursuant to which, effective August 31, 2014, SmartStop acquired the self storagecompany focused on providing real estate advisory, asset management, and property management and investment management businesses of SSH, including SSH’s sole membership interest in SmartStop Asset Management, LLC (formerly Strategic Storage Realty Group, LLC), whichservices. Our Sponsor owns 97.5% of the economic interests (and 100% of the voting membership interests) of Strategic Storage Advisor II, LLC (our “Advisor”) and owns 100% of Strategic Storage Property Management II, LLC (our(the “T2 Property Manager”). In addition, as a result of the SSGT Merger (defined below), certain of our properties are managed by SS Growth Property Management, LLC, which is also 100% owned by our Sponsor (the “GT Property Manager” and together with the T2 Property Manager, our “Property Manager”). See the section titled “Certain Relationships and Related Transaction and Director Independence—Certain Relationships and Related Transaction—Property Management Agreements,” below, for more information.
On October 1, 2015, SmartStop Self Storage, Inc. (“SmartStop”) and Extra Space Storage Inc. (“Extra Space”), along with subsidiaries of each of SmartStop and Extra Space, closed on a merger transaction (the “Merger”“Extra Space Merger”) in which SmartStop was acquired by Extra Space for $13.75 per share in cash, representing an enterprise value of approximately $1.4 billion. At the closing of the Extra Space Merger, SmartStop Asset Management, LLC, the owner of our Property Manager and majority and sole voting member of our Advisor,Sponsor was sold to an entity controlled by H. Michael Schwartz, our Chairman of the Board of Directors and Chief Executive Officer, and became our sponsor (our “Sponsor”).sponsor. The former executive management team of SmartStop continues to serve as the executive management team for our Sponsor. In addition, the majority of our management team remainsat the same,time of the Extra Space Merger continues to serve on our management team, as well as the management team of our Advisor and Property Manager. We have no employees. Our Advisor, a Delaware limited liability company, was formed on January 8, 2013. Our Advisor is responsible for managing our affairs on aday-to-day basis and identifying and making acquisitions and investments on our behalf under the terms of the advisory agreement we have with our Advisor (our “Advisory Agreement”). The officers of our Advisor, as well as a majority of the officers of our Sponsor, are also officers of us and our Sponsor.us. On August 2, 2013, our Advisor purchased 100 shares of our common stock for $1,000 and became our initial stockholder. Our Articles of Amendment and Restatement, as amended, authorized 350,000,000 shares of Class A common stock, $0.001 par value per share (the “Class A Shares”) and 350,000,000 shares of Class T common stock, $0.001 par value per share (the “Class T Shares”) and 200,000,000 shares of preferred stock with a par value of $0.001. We offered a maximum of $1.0 billion in common shares for sale to the public (the “Primary Offering”) and $95.0 million in common shares for sale pursuant to our distribution reinvestment plan (collectively, the “Offering”).
On January 10, 2014, the Securities and Exchange Commission (“SEC”) declared our registration statement effective. On May 23, 2014, we satisfied the $1.5 million minimum offering requirements of our Offering and commenced formal operations. On September 28, 2015, we revisedJanuary 9, 2017, our Primary Offering to offer two classes of shares of common stock:terminated. We sold approximately 48 million Class A Shares and approximately 7 million Class T Shares.Shares for approximately $493 million and $73 million respectively, in our Offering. On January 9, 2017, our Primary Offering terminated. In preparation forNovember 30, 2016, prior to the termination of our Primary Offering, on November 30, 2016, we filed with the SEC a Registration Statement on FormS-3, which registered up to an additional $100.9 million in shares under our distribution reinvestment plan (our “DRP Offering”). The DRP Offering may be terminated at any time upon 10 days’ prior written notice to stockholders. As of December 31, 2016,2018, we had issuedsold approximately 472.7 million Class A Shares and approximately 70.4 million Class T Shares for approximately $481$27.8 million and $67$4.2 million, respectively, in our DRP Offering. As of December 31, 20162018, we owned 7783 self storage properties located in 14 states and subsequent to December 31, 2016 we acquired an additional six self storage properties (See Note 11)Ontario, Canada (the Greater Toronto Area). On April 8, 2016,19, 2018, our board of directors, upon recommendation of its nominatingour Nominating and corporate governance committee,Corporate Governance Committee, approved an estimated value per share of our common stock of $10.09$10.65 for our Class A Shares and Class T Shares based on the estimated value of our assets less the estimated value of our liabilities, or net asset value, divided by the number of shares outstanding on a fully diluted basis, calculated as of December 31, 2015.2017. See Item 5, 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Market Information, for a description of the methodologies and assumptions used to determine, and the limitations of, the estimated value per share. 2
As a result of the calculation of our estimated value per share, effective on April 14, 2016,beginning in May 2018, shares sold pursuant to our distribution reinvestment plan are being sold at the offering price of Class A Shares increased from $10.00 per share to $11.21 per share and the offering price of Class T Shares increased from $9.47 per share to $10.62 per share. Our board of directors determined the new per share offering price of each class of stock by taking the $10.09 estimated value per share and adding the per shareup-front sales commissions and dealer manager fees to be paid with respect to the Class A Shares and Class T Shares, respectively, such that after the payment of such commissions and dealer manager fees, the net proceeds to us will be the same$10.65 for both Class A Shares and Class T Shares. In addition, effective April 21, 2016, shares sold pursuant to our distribution reinvestment plan are sold at $10.09 per share for Class A and Class T Shares. Our operating partnership, Strategic Storage Operating Partnership II, L.P., a Delaware limited partnership (our “Operating Partnership”), was formed on January 9, 2013. During 2013, our Advisor purchased limited partnership interests in our Operating Partnership for $200,000 and on August 2, 2013, we contributed the initial $1,000 capital contribution we received to our Operating Partnership in exchange for the general partner interest. In conjunction with the Toronto Merger (as defined in Note 7 to the consolidated financial statements) we issued an aggregate of approximately 483,197 Class A Units of our Operating Partnership to the common stockholders of Strategic Storage Toronto Properties REIT, Inc. (“SS Toronto”), consisting of Strategic 1031, LLC (“Strategic 1031”), a subsidiary of our Sponsor, and SS Toronto REIT Advisors, Inc., an affiliate of our Sponsor. Our Operating Partnership owns, directly or indirectly through one or more special purpose entities, all of the self storage properties that we have acquired and the self storage properties we will acquire in the future. On October 1, 2018, in conjunction with the amalgamation of our Canadian entities, Strategic 1031 exchanged 483,124 Class A Units of our Operating Partnership and received 483,124 shares of our Class A common stock. As of December 31, 2016,2018, we owned approximately 99.96% of the common units of limited partnership interests of our Operating Partnership. The remaining approximately 0.04% of the common units are owned by our Advisor. Our Operating Partnership had issued approximately 2.4 million Series A Cumulative Redeemable Preferred Units (the “Preferred Units”) to SSTI Preferred Investor, LLC (the “Preferred Investor”), a wholly-owned subsidiary of SmartStop Self Storage Operating Partnership, L.P., the former operating partnership of SmartStop, in exchange for an investment in our Operating Partnership of approximately $59.5 million. Such Preferred Units were owned by Extra Space subsequent to the Merger. As of December 31, 2015, we had redeemed all of the Preferred Units.Advisor, and SS Toronto REIT Advisors, Inc. As the sole general partner of our Operating Partnership, we have the exclusive power to manage and conduct the business of our Operating Partnership. We conduct certain activities through our taxable REIT subsidiary, Strategic Storage TRS II, Inc., a Delaware corporation (the “TRS”), which is a wholly-owned subsidiary of our Operating Partnership. OurOn October 1, 2018, we entered into a merger agreement with Strategic Storage Growth Trust, Inc., or SSGT, which we refer to as the SSGT Merger. The SSGT Merger was approved by SSGT's stockholders on January 18, 2019, and it was completed on January 24, 2019. See Note 11 to the consolidated financial statements, Subsequent Events—Merger with Strategic Storage Growth Trust, Inc., for additional information related to the SSGT Merger.
The T2 Property Manager was formed on January 8, 2013, to manage our properties.and the GT Property Manager was formed on March 12, 2013. Our Property Manager derives substantially all of its income from the property management services it performs for us. At the closing of the Merger, we enteredOur Property Manager may enter into new propertysub-property management agreements with third party management companies and pay part of its management fee to such sub-property manager. From October 1, 2015 through September 30, 2017, our Property Manager contracted with Extra Space for Extra Space to serve as the sub-property manager for each of our properties located in the United States pursuant to separate sub-property management agreements for each property. On October 1, 2017, our Property Manager terminated the sub-property management agreements with Extra Space and our Property Manager entered intosub-property management agreements withbegan managing all of our United States properties directly. In connection therewith, an affiliate of Extra Space for the management of our properties in the United States. Furthermore, Extra Space acquiredProperty Manager reacquired the rights to the “SmartStop® Self Storage” brand in the United States. As a result, we also began using the “SmartStop® Self Storage” brand at our United States throughproperties effective October 1, 2017. For more information, please see Note 7 of the Merger and we can no longer utilize this brand in the United States. The properties we own werere-branded under the Extra Space name subsequentNotes to the Merger. However, anyConsolidated Financial Statements contained in this report. All properties owned or acquired in Canada are managed by a subsidiary of our Sponsor and will continue to beare branded using the SmartStop®SmartStop® Self Storage brand. Our dealer manager wasis Select Capital Corporation, a California corporation (our “Dealer Manager”). Our Dealer Manager was responsible for marketing our shares offered pursuant to our Primary Offering. Our president owned, throughSponsor owns a wholly-owned limited liability company, a 15%non-voting equity interest in our Dealer Manager through August 31, 2014. Effective August 31, 2014, SmartStop indirectly owned the 15%non-voting equity interest in our Dealer Manager, pursuant to the Self Administration and Investment Management Transaction. Effective October 1, 2015, in connection with the Merger, the 15%non-voting equity interest in our Dealer Manager is now owned by our Sponsor. An affiliateManager. Affiliates of our Dealer Manager continues to own a 2.5%non-voting membership interest in our Advisor. Our Sponsor owns 100% of the membership interests of Strategic Transfer Agent Services, LLC, our transfer agent (our “Transfer Agent”). On May 31, 2018, the Company executed an agreement (the “Transfer Agent Agreement”), with our Transfer Agent to provide transfer agent and registrar services to us that are substantially similar to what a third party transfer agent would provide in the ordinary course of performing its functions as a transfer agent. Our Transfer Agent may retain and supervise third party vendors in its efforts to administer certain services. Please see Note 7 to the consolidated financial statements – Related Party Transactions – Transfer Agent Agreement. 3
As we acceptaccepted subscriptions for shares of our common stock, we transfer substantiallytransferred all of the net offering proceeds to our Operating Partnership as capital contributions in exchange for additional units of interest in our Operating Partnership. However, we arewere deemed to have made capital contributions in the amount of gross proceeds received from investors, and our Operating Partnership iswas 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 made to holders of common stock. Finally, a limited partner in our Operating Partnership may later exchange his or her limited partnership units in our Operating Partnership for shares of our common stock at any time after one year following the date of issuance of their limited partnership units, subject to certain restrictions outlined in our Operating Partnership’s limited partnership agreement (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. Industry Summary “Self storage” refers to properties that offerdo-it-yourself,month-to-month storage unit rental for personal or business use. Self storage offers a cost-effective and flexible storage alternative. Customers rent fully-enclosed spaces that can vary in size according to their specific needs. Customers typically have access to their storage units from 6:00AM – 10:00PM (365 days per year), and some of our facilities provide24-hour access. Customers have responsibility for moving their items into and out of their units. Self storage unit sizes typically range from five feet by five feet to 10 feet by 30 feet. Self storage provides a convenient way for individuals and businesses to store their possessions, whether due to a life change or simply because of a need for extra storage space. According to the 20162019 Self Storage Almanac, self storage facilities generally have a customer mix of approximately 70%77% residential, 18%19% commercial, 6%2% military and 6%2% students. The mix of residential customers using a self storage property is determined by a property’s local demographics and often includes people who are looking to downsize their living space or who are not yet settled in a large home. The items that residential customers place in self storage properties range from furniture, household items and appliances to cars, boats and recreational vehicles to furniture, household items and appliances.vehicles. Commercial customers tend to include small business owners who require easy and frequent access to their goods, records or extra inventory, or storage for seasonal goods. Self storage properties provide an accessible storage alternative at a relatively low cost. Properties generally haveon-site managers who supervise and run theday-to-day operations, providing customers with assistance as needed. The six key demand drivers of self storage are: (1) population growth; (2) percentage of renter-occupied housing units; (3) average household size; (4) average household income; (5) supply constraints; and (6) economic growth. Customers choose a self storage property based largely on the convenience of the site to their home or business. Therefore, high-density, high-traffic population centers are ideal locations for a self storage property. A property’s perceived security and the general professionalism of the site managers and staff are also contributing factors to a site’s ability to secure rentals. Although most self storage propertiesunits are leased to customers on amonth-to-month basis, customers tend to continue their leases for extended periods of time. However, there are seasonal fluctuations in occupancy rates for self storage properties. Generally, there is increased leasing activity at self storage properties during the late spring and early summer months due to the higher number of people who relocate during this period. As population densities have increased in the U.S., there has been an increase in self storage awareness and development. According to the 2019 Self Storage Association’s Self Storage Industry Fact Sheet (July 2015): Almanac: atyear-end 1984 the end of 2018 there were 6,601 facilities with 289.7 million square feet of rentable self storage in the U.S. Atyear-end 2014 there were approximately 48,500 “primary” self storage facilities (where self storage is the primary source of revenue) in the U.S. representing approximately 2.5 billion square feet; as of Q2 2015 there were approximately 60,000 self storage facilities worldwide including more than 3,00045,547 self storage facilities in Canada; andthe U.S.;
at the end of 2017 there were 44,149 self storage industry has been onefacilities in the U.S.; at the end of the fastest-growing sectors of the United States commercial real estate industry over the period of the last 40 years. According to the 2017 Self Storage Almanac, the top 102016 there were 41,879 self storage companies own approximately 18.3%facilities in the U.S.; and
at the end of the total2015 there were 41,443 self storage facilities. The market share offacilities in the top 100 self storage companies is approximately 24.2%.U.S. The growth in the industry has created more competition in various geographic regions. This has led to an increased emphasis on site location, property design, innovation and functionality to accommodate local planning and zoning boards and to distinguish a facility from other offerings in the market. This is especially true for new sites slated for high-density population centers. 4
Self storage operators have placed increased emphasis on offering ancillary products that provide incremental revenues. Moving and packing supplies, such as locks and boxes, and the offering of other services, such as tenant insurance and truck rentals, help to increase revenues. As more sophisticated self storage operators continue to develop innovative products and services such as online rentals,24-hour accessibility, climate-controlled storage, wine storage, customer-service call center access and after-hours storage, local operators may be increasingly unable to meet higher customer expectations, which could encourage consolidation in the industry. We expect the “baby boomer” generation to have a major impact on the future of the self storage industry. During the19-year period from 1946 to 1964, approximately 77 million babies, or “baby boomers,” were born in the U.S. According to the U.S. Census Bureau, “baby boomers” make up nearly 27% of the U.S. population. These “baby boomers” are retired or heading towards retirement age and have accumulated possessions which they wish to retain. As the “baby boomers” retire and begin to downsize their households, we believe there will be a great need for self storage facilities to assist them in protecting and housing these possessions for prolonged periods of time.
We also believe that the self storage industry possesses attractive characteristics not found in other commercial real estate sectors, including the following: no reliance on a “single large customer” whose vacating can have a devastating impact on
rental revenue; no leasing commissions and/or tenant improvements; relatively low capital expenditures; brand names can be developed at local, regional and even national levels; opportunity for a great deal of geographic diversification, which could enhance the stability and predictability of cash flows; and the lowest loan default rate of any commercial property type. Business Overview Unlike many other REITs and real estate companies, we are an operating business. We acquire, own, operate and manage self storage facilities. Our self storage facilities offer inexpensive, easily accessible, enclosed storage units or parking spaces to residential and commercial users on amonth-to-month basis. Most of our facilities are fenced with computerized gates and well lighted. Many of our properties are single-story, thereby providing customers with the convenience of direct vehicle access to their storage units. At certain facilities, we offer climate controlled units that offer heating in the winter and cooling in the summer. Many of our facilities also offer outside vehicle, boat and recreational vehicle storage areas. Our facilities are generally constructed of masonry or steel walls resting on concrete slabs and have standing seam metal, shingle, or tar and gravel roofs. Customers typically have access to their storage units from 6:00 AM – 10:00 PM, and some of our facilities provide24-hour access. Individual storage units are secured by a lock furnished by the customer to provide the customer with control of access to the space. As an operating business, self storage requires a much greater focus on strategic planning and tactical operation plans. As we have grown our portfolio of self storage facilities, we have been able to consolidate and streamline a number of aspects of our operations through economies of scale. For example, our size and geographic diversification, as well as institution of a blanket property and casualty insurance program over all properties managed by our Property Manager andsub-property manager nationwide, reduces our total insurance costs per property. As we acquiredacquire facilities, increased diversification further mitigates against risk and reduces the cost of insurance per property. To the extent we acquireacquired facilities in clusters within geographic regions, we see property management efficiencies resulting in reduction of personnel and other administrative costs. Investment Objectives Overview We have invested and will continue to invest a substantial amount of the net proceeds of the Offering and will continue to invest cash from operations in self storage facilities and related self storage real estate investments. We may also use net offering proceedssuch amounts to pay down debt or make distributions if our cash flows from operations are insufficient.distributions. We may use an unlimited amount from any source to pay our distributions. Our investment objectives, strategy and policies may be amended or changed at any time by our board of directors. Although we have no plans at this time to change any of our investment objectives, our board of directors may change any and all such investment objectives, including our focus on self storage facilities, if our board believes such changes are in the best interests of our stockholders. In addition, we may invest in real estate properties other than self storage facilities if our board deems such investments to be in the best interests of our stockholders. We cannot assure our stockholders that our policies or investment objectives will be attained or that the value of our common stock will not decrease. 5
Primary Investment Objectives Our primary investment objectives are to: invest in income-producing real property in a manner that allows us to qualify as a REIT for federal income
tax purposes; provide regular cash distributions to our stockholders; preserve and protect our stockholders’ invested capital; and achieve appreciation in the value of our properties over the long term.term; and grow net cash flow from operations in order to provide sustainable cash distributions to our stockholders over the long-term. We cannot assure our stockholders that we will attain these primary investment objectives. Liquidity Events Subject to then-existing market conditions and the sole discretion of our board of directors, we intend to seek one or more of the following liquidity events within three to five years after completion of our Primary Offering: merge, reorganize or otherwise transfer our company or its assets to another entity with listed securities; commence the sale of all of our properties and liquidate our company; list our shares on a national securities exchange; or otherwise create a liquidity event for our stockholders. However, we cannot assure our stockholders that we will achieve one or more of the above-described liquidity events within the time frame contemplated or at all. This time frame represents our best faith estimate of the time necessary to build a portfolio sufficient enough to effectuate one of the liquidity events listed above. Our charter does not require us to pursue a liquidity transaction at any time. Our board of directors has the sole discretion to continue operations beyond five years after completion of the Offering if it deems such continuation to be in the best interests of our stockholders. Even if we do accomplish one or more of these liquidity events, we cannot guarantee that a public market will develop for the securities listed or that such securities will trade at a price higher than what was paid for shares in our Offering. At the time it becomes necessary for our board of directors to determine which liquidity event, if any, is in our best interest and the best interests of our stockholders, we expect that the board will take all relevant factors at that time into consideration when making a liquidity event decision. We expect that the board will consider various factors including, but not limited to, costs and expenses related to each possible liquidity event and the potential subordinated distributions payable to our Advisor. Our Self Storage Acquisition Strategy We focus on investing in a portfolio of income-producing self storage facilities and related self storage real estate investments that are expected to support sustainable stockholder distributions over the long term. In order to implement our investment strategy, we focus on income-producing self storage facilities located in primary and secondary markets. Many of these facilities have stabilized occupancy rates greater than 75%, but have the opportunity for higher economic occupancy due to the property management capabilities of our Property Manager and oursub-property manager.Manager. We may make investments in mortgage loans secured by self storage facilities, including but not limited to, senior, mezzanine, or subordinated loans. We may also invest in self storage facilities internationally. Self Storage Focus “Self storage” refers to properties that offerdo-it-yourself,month-to-month storage unit rental for personal or business use. According to the Self Storage Association’s Self Storage Industry Fact Sheet (July 2015), the self storage industry in the United States consists of approximately 2.5 billion rentable square feet at approximately 48,500 “primary” facilities (where self storage is the primary source of revenue). The self storage industry is highly fragmented, comprised mainly of local operators and a few national owners and operators, including, we believe, only seven publicly traded self storage REITs. As a result of the track record of our Sponsor and its affiliates in investing in self storage facilities, our experienced management team and the fragmented nature of the self storage industry, we believe there is a significant opportunity for us to achieve market penetration in our markets. 6
We focus on pursuing investments in self storage facilities and related self storage real estate investments in markets with varying economic and demographic characteristics, including large urban cities, densely populated suburban cities and smaller rural cities, as long as the property meets our acquisition criteria described below under “General Acquisition and Investment Policies.” We also expand and develop certain facilities we purchase in order to capitalize on underutilization and excess demand. The development of certain facilities we purchase may include an expansion of the self storage units or the services and ancillary products offered as well as making units available for office space. Future investments will not be limited to any geographic area, to a type of facility or to a specified percentage of our total assets. We strategically invest in specific domestic or foreign markets when opportunities that meet our investment criteria are available. In general, when evaluating potential acquisitions of self storage facilities, the primary factor we consider is the property’s current and projected cash flow. General Acquisition and Investment Policies While we focus our investment strategy on self storage facilities and related self storage real estate investments, we may invest in other storage-related investments such as storage facilities for automobiles, recreation vehicles and boats. We may additionally invest in other types of commercial real estate properties if our board of directors deems appropriate; however, we have no current intention of investing more than 20% of the net proceeds of our Offering in such other commercial real estate properties. We seek to make investments that will satisfy the primary investment objective of providing regular cash distributions to our stockholders. However, because a significant factor in the valuation of income-producing real property is its potential for future appreciation, some properties we acquire may have the potential for both growth in value and for providing regular cash distributions to our stockholders. Our Advisor has substantial discretion with respect to the selection of specific properties. However, each acquisition will beis approved by our board of directors. The consideration paid for a property will ordinarily be based on the fair market value of the property as determined by a majority of our board of directors. In selecting a potential property for acquisition, we and our Advisor consider a number of factors, including, but not limited to, the following: projected demand for self storage facilities in the area; a property’s geographic location and type; a property’s physical location in relation to population density, traffic counts and access; construction quality and condition; potential for capital appreciation; proposed purchase price, terms and conditions; historical financial performance; rental rates and occupancy levels for the property and competing properties in the area; potential for rent increases; demographics of the area; operating expenses being incurred and expected to be incurred, including, but not limited to property taxes and insurance costs; potential capital improvements and reserves required to maintain the property; prospects for liquidity through sale, financing or refinancing of the property; potential for expanding the physical layout of the property; the potential for the construction of new properties in the area; treatment under applicable federal, state and local tax and other laws and regulations; evaluation of title and impediments, if any, to obtaining satisfactory title insurance; and evaluation of any reasonably ascertainable risks such as environmental contamination. 7
There is no limitation on the number, size or type of properties that we may acquire or on the percentage of net Offering proceeds that may be invested in any particular property type or single property.acquire. The number and mix of properties will depend upon real estate market conditions and other circumstances existing at the time of acquisition, and the amount of proceeds raised insuch as our Offering.cash from operations or our ability to obtain financing. In determining whether to purchase a particular property, we may obtain an option on such property. The amount paid for an option, if any, is normally surrendered if the property is not purchased and may or may not be credited against the purchase price if the property is ultimately purchased. Our Borrowing Strategy and Policies Although we intend to use low leverage (less than 50% loan to purchase price) to make our investments, at certain times, our debt leverage levels may be temporarily higher. Our board of directors will regularly monitor our investment pipeline in relation to our projected fundraising efforts and otherwise evaluate market conditions related to our debt
leverage ratios. We may incur indebtedness in the form of bank borrowings, purchase money obligations to the sellers of properties and publicly- or privately-placed debt instruments or financing from institutional investors or other lenders. We may obtain a credit facility or a separate loan for certain acquisitions. Our indebtedness may be unsecured or may be secured by mortgages or other interests in our properties. We may use borrowing proceeds to finance acquisitions of new properties, to pay for capital improvements, repairs or buildouts, to refinance existing indebtedness, to pay distributions, to fund redemptions of our shares or to provide working capital. There is no limitation on the amount we can borrow for the purchase of any property. Our aggregate borrowings, secured and unsecured, must be reasonable in relation to our net assets and must be reviewed by our board of directors at least quarterly. Our charter limits our borrowing to 300% of our net assets, as defined, (approximately 75% of the cost basis of our assets), unless any excess borrowing is approved by a majority of our independent directors and is disclosed to our stockholders in our next quarterly report, with a justification for such excess. We may borrow funds from our Advisor or its affiliates only if such loan is approved by a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction as fair, competitive, commercially reasonable and no less favorable to us than comparable loans between unaffiliated parties under
the circumstances. Except as set forth in our charter regarding debt limits, we mayre-evaluate and change our debt strategy and policies in the future without a stockholder vote. Factors that we could consider whenre-evaluating or changing our debt strategy and policies include then-current economic and market conditions, the relative cost of debt and equity capital, any acquisition opportunities, the ability of our properties to generate sufficient cash flow to cover debt service requirements and other similar factors. Further, we may increase or decrease our ratio of debt to equity in connection with any change of our borrowing policies. Acquisition Structure Although we are not limited as to the form our investments may take, our investments in real estate will generally constitute acquiring fee title or interests in joint ventures or similar entities that own and operate real estate. We may also enter into the following types of leases relating to real property: a ground lease in which we enter into a long-term lease (generally greater than 30 years) with the owner for use of the property during the term whereby the owner retains title to the land; or a master lease in which we enter into a long-term lease (typically 10 years with multiple renewal options) with the owner in which we agree to pay rent to the owner and pay all costs of operating and maintaining the property (a net lease) and typically have an option to purchase the property in the future. We make acquisitions of our real estate investments directly or indirectly through our Operating Partnership. We acquire interests in real estate either directly through our Operating Partnership or indirectly through limited liability companies or limited partnerships, or through investments in joint ventures. 8
Conditions to Closing Acquisitions Generally, we will not purchase any property unless and until we obtain at least a Phase I environmental assessment and environmental history for each property purchased and we are sufficiently satisfied with the property’s environmental status. In addition, we will generally condition our obligation to close the purchase of any investment on the delivery and verification of certain documents from the seller or other independent professionals, including, but not limited to,
where appropriate: appraisals, property surveys and site audits; building plans and specifications, if available; soil reports, seismic studies, flood zone studies, if available; licenses, permits, maps and governmental approvals; historical financial statements and tax statement summaries of the properties; proof of marketable title, subject to such liens and encumbrances as are acceptable to us; and liability and title insurance policies. Joint Venture Investments We may acquire some of our properties in joint ventures, some of which may be entered into with affiliates of our Advisor, including Strategic Storage Growth Trust, Inc. (“SSGT”), a public,non-traded REIT focused on opportunistic self storage properties, and Strategic Storage Trust IV, Inc. (“SST IV”), a publicnon-traded REIT focused on income-producing and growth self storage properties. We may also enter into joint ventures, general partnerships,co-tenancies and other participations with real estate developers, owners and others for the purpose of owning and leasing real properties. Among other reasons, we may want to acquire properties through a joint venture with third parties or affiliates in order to diversify our portfolio of properties in terms of geographic region or property type or toco-invest with one of our property management partners. Joint ventures may also allow us to acquire an interest in a property without requiring that we fund the entire purchase price. In addition, certain properties may be available to us only through joint ventures. For example, from time to time we enter into joint venture arrangements with SmartCentres. For more information, please see Note 3—Real Estate Facilities—Joint Venture with SmartCentres. In determining whether to recommend a particular joint venture, our Advisor will evaluate the real property which such joint venture owns or is being formed to own under the same criteria described elsewhere in this report. We may enter into joint ventures with our Advisor or any affiliate thereof for the acquisition of properties, but only provided that: a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction approve the transaction as being fair and reasonable to us; and the investment by us and the joint venture partner are on substantially the same terms and conditions. To the extent possible and if approved by our board of directors, including a majority of our independent directors, we will attempt to obtain a right of first refusal or option to buy if such venture partner elects to sell its interest in the joint venture entity or the property held by the joint venture. In the event that the venture partner were to elect to sell property held in any such joint venture, however, we may not have sufficient funds to exercise our right of first refusal to buy the venture partner’s interest in the property held by the joint venture. Entering into joint ventures with affiliates of our Advisor will result in certain conflicts of interest. Government Regulations Our business is subject to many laws and governmental regulations. Changes in these laws and regulations, or their interpretation by agencies and courts, occur frequently. 9
Americans with Disabilities Act Under the Americans with Disabilities Act of 1990, or ADA, all public accommodations and commercial facilities are required to meet certain federal requirements related to access and use by disabled persons. These requirements became effective in 1992. Complying with the ADA requirements could require us to remove access barriers. Failing to comply could result in the imposition of fines by the federal government or an award of damages to private litigants. Although we intend to acquire properties that substantially comply with these requirements, we may incur additional costs to comply with the ADA. In addition, a number of additional federal, state and local laws may require us to modify any properties we purchase, or may restrict further renovations thereof, with respect to access by disabled persons. Additional legislation could impose financial obligations or restrictions with respect to access by disabled persons. Although we believe that these costs will not have a material adverse effect on us, if required changes involve a greater amount of expenditures than we currently anticipate, our ability to make distributions to our stockholders could be adversely affected. Environmental Matters Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real property may be held liable for the costs of removing or remediating hazardous or toxic substances. These laws often imposeclean-up responsibility and liability without regard to whether the owner or operator was responsible for, or even knew of, the presence of the hazardous or toxic substances. The costs of investigating, removing or remediating these substances may be substantial, and the presence of these substances may adversely affect our ability to rent units or sell the property, or to borrow using the property as collateral, and may expose us to liability resulting from any release of or exposure to these substances. If we arrange for the disposal or treatment of hazardous or toxic substances at another location, we may be liable for the costs of removing or remediating these substances at the disposal or treatment facility, whether or not the facility is owned or operated by us. We may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site that we own or operate. Certain environmental laws also impose liability in connection with the handling of or exposure to asbestos containing materials, pursuant to which third parties may seek recovery from owners or operators of real properties for personal injury associated with asbestos-containing materials and other hazardous or toxic substances. Other Regulations The properties we acquire will be subject to various federal, state and local regulatory requirements, such as zoning and state and local fire and life safety requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. We intend to acquire properties that are in material compliance with all such regulatory requirements. However, we cannot make assurances that these requirements will not be changed or that new requirements will not be imposed which would require significant unanticipated expenditures by us and could have an adverse effect on our financial condition and results of operations. Disposition Policies As of December 31, 2016,2018, we had not disposed of any of our self storage facilities. We generally intend to hold each property we acquire for an extended period. However, we may sell a property at any time if, in our judgment, the sale of the property is in the best interests of our stockholders. The determination of whether a particular property should be sold or otherwise disposed of will generally be made after consideration of relevant factors, including prevailing economic conditions, other investment opportunities and considerations specific to the condition, value and financial performance of the property. In connection with our sales of properties, we may lend the purchaser all or a portion of the purchase price. In these instances, our taxable income may exceed the cash received in the sale. We may sell assets to third parties or to affiliates of our Advisor. Our Nominating and Corporate Governance Committee of our board of directors, which is comprised solely of independent directors, must review and approve all transactions between us and our Advisor and its affiliates. 10
Investment Limitations in Our Charter Our charter places numerous limitations on us with respect to the manner in which we may invest our funds, most of which are required by various provisions of the Statement of Policy Regarding Real Estate Investment Trusts published by the North American Securities Administrators Association (NASAA REIT Guidelines). Pursuant to the NASAA REIT Guidelines we will not: Invest in equity securities unless a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction approve such investment as being fair, competitive and
commercially reasonable. Invest in commodities or commodity futures contracts, except for futures contracts when used solely for the purpose of hedging in connection with our ordinary business of investing in real estate assets and mortgages. Invest in real estate contracts of sale, otherwise known as land sale contracts, unless the contract is in recordable form and is appropriately recorded in the chain of title. Make or invest in mortgage loans unless an appraisal is obtained concerning the underlying property, except for those mortgage loans insured or guaranteed by a government or government agency. In cases where our independent directors determine, and in all cases in which the transaction is with any of our directors or our Advisor and its affiliates, we will obtain an appraisal from an independent appraiser. We will maintain such appraisal in our records for at least five years and it will be available to our stockholders for inspection and duplication. We will also obtain a mortgagee’s or owner’s title insurance policy as to the priority of the mortgage or condition of the title. Make or invest in mortgage loans, including construction loans, on any one property if the aggregate amount of all mortgage loans on such property would exceed an amount equal to 85% of the appraised value of such property, as determined by an appraisal, unless substantial justification exists for exceeding such limit because of the presence of other loan underwriting criteria. Make or invest in mortgage loans that are subordinate to any mortgage or equity interest of any of our directors, our Advisor or their respective affiliates. Make investments in unimproved property or indebtedness secured by a deed of trust or mortgage loans on unimproved property in excess of 10% of our total assets. Issue equity securities on a deferred payment basis or other similar arrangement. Issue debt securities in the absence of adequate cash flow to cover debt service. Issue equity securities that are assessable after we have received the consideration for which our board of directors authorized their issuance. Issue “redeemable securities” redeemable solely at the option of the holder, which restriction has no effect on our ability to implement our share redemption program. Grant warrants or options to purchase shares to our Advisor or its affiliates or to officers or directors affiliated with our Advisor except on the same terms as options or warrants that are sold to the general public. Further, the amount of the options or warrants cannot exceed an amount equal to 10% of outstanding shares on the date of grant of the warrants and options. Lend money to our directors, or to our Advisor or its affiliates, except for certain mortgage loans
described above. Investment Allocation Policy In the event that an investment opportunity becomes available, our Sponsor will allocate such investment opportunity to us, SSGT, SST IV private programs and/or Strategic Student Senior and Storage Trust IV, Inc., a privatepublic non-traded REIT sponsored by our Sponsorsponsor (“SSSST”SST IV”), based on the following factors: the investment objectives of each program; the amount of funds available to each program; the financial and investment characteristics of each program, including investment size, potential leverage, transaction structure and anticipated cash flows; 11
| • | the strategic location of the investment in relationship to existing properties owned by each program; |
the effect of the investment on the diversification of each program’s investments; and the impact of the financial metrics of the investment, such as revenue per square foot, on each program. If, after consideration and analysis of these factors, the investment opportunity is suitable for us, SSGT, SST IV, and/or SSSST,another private program sponsored by our Sponsor, then: we will have priority for large portfolios of stabilized properties with an aggregate purchase price in excess of $150 million; SSGT will have priority for growth properties until it has aggregate assets (based on contract purchase price) of $250 million ofor more;
SST IV will have priority for (i) all individual stabilized properties and portfolios of properties, at least a majority of which (based on allocated purchase price) are stabilized, with aggregate purchase prices less than $150 million, and growth(ii) all joint venture development properties once with SmartCentres Real Estate Investment Trust; and Strategic Storage Growth Trust II, Inc., a private REIT sponsored by our sponsor (“SSGT has aggregate assets (based on contract purchase price) of $250 million; and SSSSTII”), will have priority for any self storageall individual growth properties passed upon by us, SSGT and SST IV.portfolios of properties, at least a majority of which (based on allocated purchase price) are growth-oriented, with aggregate purchase prices less than $150 million.
In the event all acquisition allocation factors have been exhausted and an investment opportunity remains suitable for two or more of SST II, us, private programs, or SST IV, or SSSST, then our Sponsor will offer the investment opportunity to the program that has had the longest period of time elapse since it was offered an investment opportunity. It will be the duty of our board of directors, including the independent directors, to ensure that this method is applied fairly to us. Changes in Investment Policies and Limitations Our charter requires that our independent directors review our investment policies at least annually to determine that the policies we are following are in the best interests of our stockholders. Each determination and the basis therefor is required to be set forth in the applicable meeting minutes. The methods of implementing our investment policies may also vary as new investment techniques are developed. The methods of implementing our investment objectives and policies, except as otherwise provided in our charter, may be altered by a majority of our directors, including a majority of our independent directors, without the approval of our stockholders. The determination by our board of directors that it is no longer in our best interests to continue to be qualified as a REIT shall require the concurrence oftwo-thirds of the board of directors. Investment policies and limitations specifically set forth in our charter, however, may only be amended by a vote of the stockholders holding a majority of our outstanding shares. Investments in Mortgage Loans As of December 31, 2016,2018, we had not invested in any mortgages. While we intend to emphasize equity real estate investments and, hence, operate as what is generally referred to as an “equity REIT,” as opposed to a “mortgage REIT,” we may invest in first or second mortgage loans, mezzanine loans secured by an interest in the entity owning the real estate or other similar real estate loans consistent with our REIT status. We may make such loans to developers in connection with construction and redevelopment of self storage facilities. Such mortgages may or may not be insured or guaranteed by the Federal Housing Administration, the Veterans Benefits Administration or another third party. We may also invest in participating or convertible mortgages if our directors conclude that we and our stockholders may benefit from the cash flow or any appreciation in the value of the subject property. Such mortgages are similar to equity participation. Investment Company Act of 1940 and Certain Other Policies We intend to operate in such a manner that we will not be subject to regulation under the Investment Company Act of 1940, or the 1940 Act. Our Advisor will continually review our investment activity to attempt to ensure that we do not come within the application of the 1940 Act. Among other things, our Advisor will attemptattempts to monitor the proportion of our portfolio that is placed in various investments so that we do not come within the definition of an “investment company” under the 1940 Act. If at any time the character of our investments could cause us to be deemed as an investment company for purposes of the 1940 Act, we will take all necessary actions to attempt to ensure that we are not deemed to be an “investment company.” In addition, we do not intend to underwrite securities of other issuers or actively trade in loans or other investments. 12
Subject to the restrictions we must follow in order to qualify to be taxed as a REIT, we may make investments other than as previously described, although we do not currently intend to do so. We have authority to purchase or otherwise reacquire our common shares or any of our other securities. We have no present intention of repurchasing any of our common shares except pursuant to our share redemption program, and we would only take such action in conformity with applicable federal and state laws and the requirements for qualifying as a REIT under the Internal Revenue Code of 1986, as
amended (the “Code”). Employees We have no employees. The employees of our Advisor and its affiliates provide management, acquisition, advisory and certain administrative services for us. Competition The extent of competition in a market area depends significantly on local market conditions. The primary factors upon which competition in the self storage industry is based are location, rental rates, suitability of the property’s design and the manner in which the property is operated and marketed. We believe we will compete successfully on these bases. Many of our competitors are larger and have substantially greater resources than we do. Such competitors may, among other possible advantages, be capable of paying higher prices for acquisitions and obtaining financing on better terms than us. Industry Segments We have internally evaluated all of our properties and interests therein as one industry segment and, accordingly, we do not report segment information. Geographic Information
As of December 31, 2016, we owned 77 self storage facilities located in 14 states (Alabama, California, Colorado, Florida, Illinois, Indiana, Maryland, Michigan, New Jersey, Nevada, North Carolina, Ohio, South Carolina, and Washington) and Ontario, Canada (the Greater Toronto Area) comprising approximately 46,920 units and approximately 5.5 million rentable square feet.
Below are risks and uncertainties that could adversely affect our operations that we believe are material to stockholders. Additional risks and uncertainties not presently known to us or that we do not consider material based on the information currently available to us may also harm our business. Risks Related to an Investment in Strategic Storage Trust II, Inc. We have incurred a net loss to date and have an accumulated deficit. We incurred a net loss of approximately $26.1$3.7 million for the fiscal year ended December 31, 2016.2018. Our accumulated deficit was approximately $43.8$62.3 million as of December 31, 2016.2018. We have paid, and may continue to pay, distributions from sources other than cash flow from operations; therefore, we will have fewer funds available for the acquisition of properties, and our stockholders’ overall return may be reduced. In the event we do not have enough cash from operations to fund our distributions, we may borrow, issue additional securities, or sell assets or use other capital raising strategies in order to fund the distributions.distributions or make the distributions out of proceeds from our DRP. 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. From our inception throughFor the years ended December 31, 2014, 2015, and 2016, we funded 100% of our distributions using proceeds from our Offering. For the paymentyear ended December 31, 2017, we funded 59% of our distributions has been paid from offering proceeds. If we continue to pay distributions from sources other thanusing cash flow from operations and 41% using proceeds from our DRP Offering. For the year ended December 31, 2018, we funded 54% of our distributions using cash flow from operations and 46% using proceeds from our DRP Offering. If we fund distributions from financings, then such financings will need to be repaid, and if we fund distributions from offering proceeds, then we will have fewer funds available for acquiringthe acquisition of properties, which may affect our ability to generate future cash flows from operations and may reduce our stockholders’ overall returns. Additionally, to the extent distributions exceed cash flow from operations, a stockholder’s basis in our stock may be reduced and, to the extent distributions exceed a stockholder’s basis, the stockholder may recognize a capital gain. 13
There is currently no public trading market for our shares and there may never be one; therefore, it will be difficult for our stockholders to sell their shares. Our charter does not require us to pursue a liquidity transaction at any time. There is currently no public market for our shares and there may never be one. Stockholders may not sell their shares unless the buyer meets applicable suitability and minimum purchase standards. Our charter also prohibits the ownership by any one individual of more than 9.8% of our stock, unless waived by our board of directors, which may inhibit large investors from desiring to purchase our stockholders’ shares. Moreover, our share redemption program includes numerous restrictions that would limit our stockholders’ ability to sell their shares to us. Our board of directors could choose to amend, suspend or terminate our share redemption program upon 30 days’ notice. Therefore, it may be difficult for our stockholders to sell their shares promptly or at all. If our stockholders are able to sell their shares, they will likely have to sell them at a substantial discount to the price they paid for the shares. It also is likely that the shares would not be accepted as the primary collateral for a loan. Our stockholders should purchase the shares only as a long-term investment because of the illiquid nature of
the shares. Our stockholders may be unable to sell their shares because their ability to have their shares redeemed pursuant to our share redemption program is subject to significant restrictions and limitations and if our stockholders are able to sell their shares under the program, our stockholders may not be able to recover the amount of their investment in our shares. Even though our share redemption program may provide our stockholders with a limited opportunity to sell their shares to us after they have held them for a period of one year, our stockholders should be fully aware that our share redemption program contains significant restrictions and limitations. Further, our board of directors may limit, suspend, terminate or amend any provision of the share redemption program upon 30 days’ notice. Redemption of shares, when requested, will generally be made quarterly. During any calendar year, we will not redeem in excess of 5% of the weighted average number of shares outstanding during the prior calendar year and redemptions will be funded solely from proceeds from our distribution reinvestment plan. Therefore, in making a decision to purchase our shares, our stockholders should not assume that they will be able to sell any of their shares back to us pursuant to our share redemption program at any time or at all. The purchase price for shares we repurchase under our share redemption program will depend on the length of time our stockholders have held such shares. The purchase price will be as follows: 90.0% of the redemption amount, as defined, after one year from the purchase date; 95.0% of the redemption amount after three years from the purchase date; and 100% of the redemption amount after four years from the purchase date. While we are offering shares, the redemption amount equals the amount the stockholder paid for the shares, until the offering price of such shares changes (as described in our share redemption program). Accordingly, our stockholders may receive less by selling their shares back to us than they would receive if our investments were sold for their estimated values and such proceeds were distributed in our liquidation. We may only calculate the value per share for our shares annually and, therefore, our stockholders may not be able to determine the net asset value of their shares on an ongoing basis. On April 8, 2016,19, 2018, our board of directors approved an estimated value per share for our Class A shares and Class T shares of $10.09.$10.65. Our board of directors approved this estimated value per share pursuant to recent amendments to rules promulgated by FINRA, which require us to disclose an estimated per share value of our shares based on a valuation no later than 150 days following the second anniversary of the date on which we breakbroke escrow in our Offering. When determining the estimated value per share from and after 150 days following the second anniversary of breaking escrow in our Offering and annually thereafter, there are currently no SEC, federal and state rules that establish requirements specifying the methodology to employ in determining an estimated value per share; provided, however, that the determination of the estimated value per share must be conducted by, or with the material assistance or confirmation of, a third-party valuation expert or service and must be derived from a methodology that conforms to standard industry practice. We intend to use this estimated per share value of our shares until the next net asset valuation approved by our board of directors, which we are required to approve at least annually. We may not calculate the net asset value per share for our shares more than annually. Therefore, our stockholdersyou may not be able to determine the net asset value of theiryour shares on an ongoing basis. In determining our estimated value per share, we primarily relied upon a valuation of our portfolio of properties as of December 31, 2015.2017. Valuations and appraisals of our properties are estimates of fair value and may not necessarily correspond to realizable value upon the sale of such properties,properties; therefore our estimated net asset value per share may not reflect the amount that would be realized upon a sale of each of our properties. 14
For the purposes of calculating the estimated value per share, an independent third party appraiser valued our properties as of December 31, 2015.2017. The valuation methodologies used to value our properties involved certain subjective judgments. Ultimate realization of the value of an asset depends to a great extent on economic and other conditions beyond our control and the control of our advisor and independent appraiser. Further, valuations do not necessarily represent the price at which an asset would sell, since market prices of assets can only be determined by negotiation between a willing buyer and seller. Therefore, the valuations of our properties and our investments in real estate related assets may not correspond to the timely realizable value upon a sale of those assets. Because the price stockholders paidyou will pay for shares in our Offering wasthis offering is primarily based on the estimated net asset value per share, our stockholdersyou may have paidpay more than realizable value when our stockholders purchased theiryou purchase your shares or receive less than realizable value for theiryour investment when theyyou sell theiryour shares. We may be unable to pay or maintain cash distributions or increase distributions over time. There are many factors that can affect the availability and timing of cash distributions to stockholders. Distributions will be based principally on distribution expectations of our potential investors and cash available from our operations. The amount of cash available for distribution will be affected by many factors, such as the yields on securities of other real estate programs that we invest in and our operating expense levels, as well as many other variables. Actual cash available for distribution may vary substantially from estimates. We cannot assure our stockholders that we will be able to pay or maintain distributions or that distributions will increase over time, nor can we give any assurance that rents from the properties will increase, that the securities we buy will increase in value or provide constant or increased distributions over time, or that future acquisitions of real properties will increase our cash available for distribution to stockholders. Our actual results may differ significantly from the assumptions used by our board of directors in establishing the distribution rate to stockholders. If we, through our Advisor, are unable to find suitable investments, then we may not be able to achieve our investment objectives or pay distributions.
Our ability to achieve our investment objectives and to pay distributions is dependent upon the performance of our Advisor in selecting our investments and obtaining suitable financing. Our stockholders will essentially have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments prior to the time we
make them. Our stockholders must rely entirely on the management ability of our Advisor and the oversight of our board of directors. We cannot be sure that our Advisor will be successful in obtaining suitable investments on financially attractive terms or that, if it makes investments on our behalf, our objectives will be achieved. If we are unable to find suitable investments, we will hold the proceeds of our Offering in an interest-bearing account or invest the proceeds in short-term, investment-grade investments. In such an event, our ability to pay distributions to our stockholders would be adversely affected.
We may suffer from delays in locating suitable investments, which could adversely affect our ability to make distributions and the value of our stockholders’ investment.
We could suffer from delays in locating suitable investments, particularly as a result of our reliance on our Advisor at times when management of our Advisor is simultaneously seeking to locate suitable investments for other affiliated programs, including SSGT and SST IV. Delays we encounter in the selection, acquisition and development of income-producing properties are likely to adversely affect our ability to make distributions and may also adversely affect the value of our stockholders’ investment. In such event, we may pay all or a substantial portion of any distributions from the proceeds of our Primary Offering or from borrowings in anticipation of future cash flow, which may constitute a return of our stockholders’ capital. We are not prohibited from undertaking such activities by our charter, bylaws or investment policies. We have established no maximum of distributions to be paid from such funds. Distributions from the proceeds of future offerings or from borrowings also could reduce the amount of capital we ultimately invest in properties. This, in turn, would reduce the value of our stockholders’ investment. In particular, if we acquire properties prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available storage units. Therefore, our stockholders could suffer delays in the receipt of cash distributions attributable to those particular properties.
If our Sponsor, Advisor or Property Manager loses or is unable to retain its executive officers, our ability to implement our investment objectives could be delayed or hindered, which could adversely affect our ability to make distributions and the value of our stockholders’ investment. Our success depends to a significant degree upon the contributions of our executive officers and the executive officers of our Advisor and Property Manager, including H. Michael Schwartz, Paula Mathews, Michael S. McClure, Matt F. Lopez, Wayne Johnson, and James Berg, and Ken Morrison, each of whom would be difficult to replace. Neither our Advisor nor our Property Manager, as applicable, has an employment agreement with any of these key personnel and we cannot guarantee that all, or any particular one, will remain affiliated with us and/or our Advisor or our Property Manager. If any of these executive officers were to cease their affiliation with our Sponsor, our Advisor or our Property Manager, our operating results could suffer. Further, we only intend to maintain key person life insurance on our Chief Executive Officer. If our Sponsor, our Advisor or our Property Manager loses or is unable to retain its executive officers or does not establish or maintain appropriate strategic relationships, our ability to implement our investment strategies could be delayed or hindered, which could adversely affect our ability to make distributions and the value of our stockholders’ investment. Strategic Transfer Agent Services, LLC, our Transfer Agent, has a limited operating history and a failure by our Transfer Agent to perform its functions for us effectively may adversely affect our operations. Our Transfer Agent is a related party which was recently launched as a new business. While it is a registered transfer agent with the SEC, the business was formed on October 21, 2017 and has not had any significant operations to date. Because of its limited experience, there is no assurance that our Transfer Agent will be able to effectively provide transfer agent and registrar services to us. Furthermore, our Transfer Agent will be responsible for supervising third party service providers who may, at times, be responsible for executing certain transfer agent and registrar services. If our Transfer Agent fails to perform its functions for us effectively, our operations may be adversely affected. Our ability to operate profitably will depend upon the ability of our Advisor to efficiently manage ourday-to-day operations and the ability of our Property Manager andsub-property manager to effectively manage our properties. We rely on our Advisor to manage our business and assets. Our Advisor makes all decisions with respect to ourday-to-day operations. In addition, we rely on our Property Manager and oursub-property manager to effectively manage our properties. Thus, the success of our business depends in large part on the ability of our Advisor and Property Manager andsub-property manager to manage our operations. Any adversity experienced by any of these parties could adversely impact our operations and, consequently, our cash flow and ability to make distributions to our stockholders. 15
A high concentration of our properties in a particular geographic area would magnify the effects of downturns in that geographic area. In the event that we have a concentration of properties in any particular geographic area, any adverse situation that disproportionately affects that geographic area would have a magnified adverse effect on our portfolio. For the month of December, 2018, approximately 25.3%, 24.5%, 14.6%, and 10.3% of our annualized rental income was concentrated in California, Florida, Ontario, Canada, and North Carolina, respectively. If our Property Manager suffers financial or other difficulties, our operating results and financial condition may be adversely impacted. All of our properties are managed by our Property Manager. Accordingly, financial or other difficulties experienced by our Property Manager would have a greater impact on our operating results and financial condition that would be the case if the properties did not have common management. For example, a financial failure or bankruptcy filing involving our Property Manager, given that it manages all of our properties, could have a greater impact on our operating results and financial condition than a financial failure or bankruptcy filing involving a property manager that does not manage multiple properties of ours. We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements. In April 2012, President Obama signed into law the Jumpstart Our Business Startups Act, or the JOBS Act. We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, and are eligible to take advantage of certain exemptions from, or reduced disclosure obligations relating to, various reporting requirements that are normally applicable to public companies.
We could remain an “emerging growth company” for up to five years, or until the earliest of (1) the last day of the first fiscal year in which we have total annual gross revenue of $1$1.07 billion or more, (2) December 31 of the fiscal year that we become a “large accelerated filer” as defined in Rule12b-2 under the Exchange Act (which would occur if the market value of our common stock held bynon-affiliates exceeds $700 million, measured as of the last business day of our most recently completed second fiscal quarter, and we have been publicly reporting for at least 12 months) or (3) the date on which we have issued more than $1 billion innon-convertible debt during the preceding three-year period. Under the JOBS Act, emerging growth companies are not required to (1) provide an auditor’s attestation report on management’s assessment of the effectiveness of internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act, (2) comply with new audit rules adopted by the PCAOB after April 5, 2012 (unless the SEC determines otherwise), (3) provide certain disclosures relating to executive compensation generally required for larger public companies or (4) hold shareholder advisory votes on executive compensation. If we take advantage of any of these exemptions, we do not know if some investors will find our common stock less attractive as a result. Additionally, the JOBS Act provides that an “emerging growth company” may take advantage of an extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. This means an “emerging growth company” can delay adopting certain accounting standards until such standards are otherwise applicable to private companies. However, we are electing to “opt out” of such extended transition period, and will therefore comply with new or revised accounting standards on the applicable dates on which the adoption of such standards are required fornon-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of such extended transition period for compliance with new or revised accounting standards is irrevocable. We may loan a portion of the proceeds of the Offeringmake loans to fund the development or purchase of income-producing self storage facilities, and we may invest in mortgage or other loans, but if these loans are not fully repaid, the resulting losses could reduce the expected cash available for distribution to our stockholders and the value of our stockholders’ investment. We will use the net offering proceedsour cash from our Offeringoperations primarily to purchase primarily income-producing self storage facilities, to repay debt financing that we may incur when acquiring properties, and to pay real estate commissions, acquisition fees and acquisition expenses relating to the selection and acquisition of properties, including amounts paid to our Advisor and its affiliates. In addition,However, from time to time, we may loan a portion of the net offering proceeds from our Offeringmake loans to entities developing or acquiring self storage facilities, including affiliates of our Advisor, subject to the limitations in our charter. We may also invest in first or second mortgage loans, mezzanine loans secured by an interest in the entity owning the real estate or other similar real estate loans consistent with our REIT status. We may also invest in participating or convertible mortgages if our board of directors conclude that we and our stockholders may benefit from the cash flow or any appreciation in the value of the subject property. There can be no assurance that these loans 16
will be repaid to us in part or in full in accordance with the terms of the loan or that we will receive interest payments on the outstanding balance of the loan. We anticipate that these loans will be secured by mortgages on the self storage facilities, but in the event of a foreclosure, there can be no assurances that we will recover the outstanding balance of the loan. If there are defaults under these loans, we may not be able to repossess and sell the underlying properties quickly. The resulting time delay and associated costs could reduce the value of our investment in the defaulted loans. An action to foreclose on a property securing a mortgage loan is regulated by state statutes and regulations and is subject to many of the delays and expenses of other lawsuits if the defendant raises defenses or counterclaims. In the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the mortgage loan. Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees. Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that Court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, shall be the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders with respect to our Company, our directors, our officers, or our employees (we note we currently have no employees). This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder believes is favorable for disputes with us or our directors, officers, or employees, which may discourage meritorious claims from being asserted against us and our directors, officers, and employees. Alternatively, if a court were to find this provision of our bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition, or results of operations. Following the consummation of the SSGT Merger, our future results may suffer if we do not effectively manage our expanded operations. Following the consummation of the SSGT Merger, we may continue to expand our operations through additional acquisitions and other strategic transactions, some of which may involve complex challenges. Our future success will depend, in part, upon our ability to manage our expansion opportunities, integrate new operations into our existing business in an efficient and timely manner, successfully monitoring our operations, costs and service quality, and maintaining other necessary internal controls. There can be no assurance that our expansion or acquisition opportunities will be successful, or that we will realize our expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits. Risks Related to Conflicts of Interest Our Advisor, Property Manager and their officers and certain of our key personnel will face competing demands relating to their time, and this may cause our operating results to suffer. Our Advisor, Property Manager and their officers and certain of our key personnel and their respective affiliates are key personnel, advisors, managers and sponsors of other real estate programs having investment objectives and legal and financial obligations similar to ours, including SSGT and SST IV, and other private programs sponsored by our Sponsor may have other business interests as well. Because these persons have competing demands on their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities. During times of intense activity in other programs and ventures, they may devote less time and fewer resources to our business than is necessary or appropriate. If this occurs, the returns on our stockholders’ investments may suffer. Our officers and two of our directors face conflicts of interest related to the positions they hold with affiliated entities, which could hinder our ability to successfully implement our investment objectives and to generate returns to
our stockholders. Our executive officers and two of our directors are also officers of our Advisor, our Property Manager, and other affiliated entities, including our Sponsor, SSGTSST IV, and SST IV.other private programs sponsored by our Sponsor. As a result, these individuals owe fiduciary duties to these other entities and their owners, which fiduciary duties may conflict with the duties that they owe to our stockholders and us. Their loyalties to these other entities could result in actions or inactions that are detrimental to our business, which could harm the implementation of our investment objectives. Conflicts with our business and interests are most likely to arise from involvement in activities related to (1) allocation of new investments and management time and services between us and the other entities, (2) our purchase of properties from, or sale of properties to, 17
affiliated entities, (3) the timing and terms of the investment in or sale of an asset, (4) development of our properties by affiliates, (5) investments with affiliates (6) compensation to our Advisor, and (7) our relationship with our Dealer Manager and Property Manager. If we do not successfully implement our investment objectives, we may be unable to generate cash needed to make distributions to our stockholders and to maintain or increase the value of our assets. Our Advisor will face conflicts of interest relating to the purchase of properties, including conflicts with SSGT and SST IV, SSGT II, and such conflicts may not be resolved in our favor, which could adversely affect our investment opportunities. We may be buying properties at the same time as one or more of the other programs managed by officers and key personnel of our Advisor, including SSGT,SST IV, a publicnon-traded REIT sponsored by our Sponsor that registered its initial public offering on January 20, 2015,invests in self storage properties with assets of approximately $162 million as of December 31, 2018, SSGT II, which did not have any assets as of December 31, 2018, and SST IV, a publicnon-traded REITother private programs sponsored by our Sponsor that registered its initial public offering on March 17, 2017. As of December 31, 2016, SSGT had sold approximately $99.6 million in shares of its Class A and Class T common stock in connection with its public offering and a total of approximately $7.8 million in connection with a private offering. As of December 31, 2016, SST IV had not sold any of its shares in its public offering. Our Advisor and its affiliates are actively involved in five other real estate programs (four of which invest in self storage properties) that may compete with us or otherwise have similar business interests.Sponsor. Our Advisor and our Property Manager will have conflicts of interest in allocating potential properties, acquisition expenses, management time, services and other functions between various existing enterprises or future enterprises with which they may be or become involved and the Sponsor’s investment allocation policy may not mitigate these risks. There is a risk that our Advisor will choose a property that provides lower returns to us than a property purchased by another program sponsored by our Sponsor or its affiliates. We cannot be sure that officers and key personnel acting on behalf of our Advisor and on behalf of these other programs will act in our best interests when deciding whether to allocate any particular property to us. Such conflicts that are not resolved in our favor could result in a reduced level of distributions we may be able to pay to our stockholders and the value of their investment. If our Advisor or its affiliates breach their legal or other obligations or duties to us, or do not resolve conflicts of interest in the manner described herein, we may not meet our investment objectives, which could reduce our expected cash available for distribution to stockholders and the value of their investment. We may face a conflict of interest if we purchase properties from, or sell properties to, affiliates of our Advisor. We may purchase properties from, or sell properties to, one or more affiliates of our Advisor in the future. A conflict of interest may exist if such acquisition or disposition occurs. The business interests of our Advisor and its affiliates may be adverse to, or to the detriment of, our interests. Additionally, if we purchase properties from affiliates of our Advisor, the prices we pay to these affiliates for our properties may be equal to, or in excess of, the prices paid by them, plus the costs incurred by them relating to the acquisition and financing of the properties. If we sell properties to affiliates of our Advisor, the offers we receive from these affiliates for our properties may be equal to, or less than, the prices we paid for the properties. These prices will not be the subject ofarm’s-length negotiations, which could mean that the acquisitions may be on terms less favorable to us than those negotiated in anarm’s-length transaction. Even though we will use an independent third-party appraiser to determine fair market value when acquiring properties from, or selling properties to, our Advisor and its affiliates, we may pay more, or may not be offered as much, for particular properties than we would have in anarm’s-length transaction, which would reduce our cash available for investment in other properties or distribution to
our stockholders. Furthermore, because any agreement that we enter into with affiliates of our Advisor will not be negotiated in anarm’s-length transaction, our Advisor may be reluctant to enforce the agreements against its affiliated entities. Our Advisor will face conflicts of interest relating to the incentive feedistribution structure under our Operating Partnership Agreement, which could result in actions that are not necessarily in the long-term best interests of our stockholders. Pursuant to our Operating Partnership Agreement, our Advisor and its affiliates will be entitled to distributions that are structured in a manner intended to provide incentives to our Advisor to perform in our best interests and in the best interests of our stockholders. The amount of such compensation has not been determined as a result ofarm’s-length negotiations, and such amounts may be greater than otherwise would be payable to independent third parties. However, because our Advisor does not maintain a significant equity interest in us and is entitled to receive substantial minimum compensation regardless of performance, our Advisor’s interests will not be wholly aligned with those of our stockholders. In that regard, our Advisor could be motivated to recommend riskier or more speculative investments in order for us to generate the specified levels of performance or sales proceeds that would entitle our Advisor to distributions. In addition, our Advisor’s entitlement to distributions upon the sale of our assets and to participate in sale proceeds could result in our Advisor recommending sales of our investments at the earliest possible time at which sales of investments would produce the level of return that would entitle our Advisor to compensation relating to such sales, even if continued ownership of those investments might be in our best long-term interest. Our Operating Partnership Agreement requires us to pay a performance-based termination distribution to our Advisor in the event that we terminate our Advisor prior to the listing of our shares for trading on an exchange or, absent such listing, in respect of its participation in net sale proceeds. To avoid paying this distribution, our board of directors may decide against 18
terminating the Advisory Agreement prior to our listing of our shares or disposition of our investments even if, but for the termination distribution, termination of the Advisory Agreement would be in our best interest. In addition, the requirement to pay the distribution to our Advisor at termination could cause us to make different investment or disposition decisions than we would otherwise make in order to satisfy our obligation to pay the distribution to the terminated advisor. Our Advisor will face conflicts of interest relating to joint ventures that we may form with affiliates of our Advisor, which conflicts could result in a disproportionate benefit to other joint venture partners at our expense. We may enter into joint ventures with other programs sponsored by our Sponsor or its affiliates for the acquisition, development or improvement of properties. Our Advisor may have conflicts of interest in determining which program should enter into any particular joint venture agreement. Theco-venturer may have economic or business interests or goals that are or may become inconsistent with our business interests or goals. In addition, our Advisor may face a conflict in structuring the terms of the relationship between our interests and the interest of the affiliatedco-venturer and in managing the joint venture. Since our Advisor and its affiliates will control both the affiliatedco-venturer and, to a certain extent, us, agreements and transactions between theco-venturers with respect to any such joint venture will not have the benefit ofarm’s-length negotiation of the type normally conducted between unrelatedco-venturers, which may result in theco-venturer receiving benefits greater than the benefits that we receive. In addition, we may assume liabilities related to the joint venture that exceeds the percentage of our investment in the joint venture, and this could reduce the returns on investment. There is no separate counsel for us and our affiliates, which could result in conflicts of interest. Nelson Mullins Riley & Scarborough LLP (Nelson Mullins) acts as legal counsel to us and also represents our Sponsor, Advisor and some of their affiliates. There is a possibility in the future that the interests of the various parties may become adverse and, under the code of professional responsibility of the legal profession, Nelson Mullins may be precluded from representing any one or all of such parties. If any situation arises in which our interests appear to be in conflict with those of our Advisor or its affiliates, additional counsel may be retained by one or more of the parties to assure that their interests are adequately protected. Moreover, should a conflict of interest not be readily apparent, Nelson Mullins may inadvertently act in derogation of the interest of the parties, which could affect our ability to meet our investment objectives. Risks Related to Our Corporate Structure The limit on the number of shares a person may own may discourage a takeover that could otherwise result in a premium price to our stockholders. In order for us to qualify as a REIT, no more than 50% of our outstanding stock may be beneficially owned, directly or indirectly, by five or fewer individuals (including certain types of entities) at any time during the last half of each taxable year. To ensure that we do not fail to qualify as a REIT under this test, our charter restricts ownership by one person or entity to no more than 9.8% of the value of our then-outstanding capital stock or more than 9.8% of the value or number of shares, whichever is more restrictive, of our then outstanding common stock. This restriction may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock. Our charter permits our board of directors to issue stock with terms that may subordinate the rights of common stockholders or discourage a third party from acquiring us in a manner that might result in a premium price to
our stockholders. Our charter permits our board of directors to issue up to 900,000,000 shares of capital stock. In addition, our board of directors, without any action by our stockholders, may amend our charter from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series of stock that we have authority to issue. Our board of directors may classify or reclassify any unissued common stock or preferred stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption of any such stock. Thus, our board of directors could authorize the issuance of preferred stock with terms and conditions that could have a priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. Preferred stock could also have the effect of delaying, deferring or preventing a change in control of our company, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock. 19
We will not be afforded the protection of Maryland law relating to business combinations. Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as: any person who beneficially owns 10% or more of the voting power of the corporation’s shares; or an affiliate or associate of the corporation who, at any time within thetwo-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation. These prohibitions are intended to prevent a change of control by interested stockholders who do not have the support of our board of directors. Since our charter contains limitations on ownership of 9.8% or more of our common stock, we opted out of the business combinations statute in our charter. Therefore, we will not be afforded the protections of this statute and, accordingly, there is no guarantee that the ownership limitations in our charter would provide the same measure of protection as the business combinations statute and prevent an undesired change of control by an interested stockholder. Our stockholders’ investment returns may be reduced if we are required to register as an investment company under the Investment Company Act of 1940. If we lose our exemption from registration under the 1940 Act, we will not be able to continue our business. We do not intend to register as an investment company under the Investment Company Act of 1940 (1940 Act). We intend that our investments in real estate will represent the substantial majority of our total asset mix, which would not subject us to the 1940 Act. In order to maintain an exemption from regulation under the 1940 Act, we must engage primarily in the business of buying real estate. If we are unable to invest a significant portion of the proceeds of our Offering in properties within applicable time periods, we may avoid being required to register as an investment company by temporarily investing any unused proceeds in government securities with low returns, which would reduce the cash available for distribution to investors and possibly lower our stockholders’ returns. To maintain compliance with our 1940 Act exemption, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may be required to acquire additional income- or loss-generating assets that we might not otherwise acquire or forego opportunities to acquire interests in companies that we would otherwise want to acquire. If we are required to register as an investment company but fail to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of us and liquidate our business. Our stockholders are bound by the majority vote on matters on which our stockholders are entitled to vote and, therefore, each stockholder’s vote on a particular matter may be superseded by the vote of other stockholders. Our stockholders may vote on certain matters at any annual or special meeting of stockholders, including the election of directors. However, each stockholder will be bound by the majority vote on matters requiring approval of a majority of the stockholders even if the stockholder does not vote with the majority on any such matter.
If one of our stockholders does not agree with the decisions of our board of directors, the stockholder only hashave limited control over changes in our policies and operations and may not be able to change such policies and operations, except as provided for in our charter and under applicable law.operations.
Our board of directors determines our major policies, including our policies regarding investments, financing, growth, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of our stockholders. Under the Maryland General Corporation Law and our charter, our stockholders have a right to vote only on the following: the election or removal of directors; any amendment of our charter, except that our board of directors may amend our charter without stockholder approval to increase or decrease the aggregate number of our shares, to increase or decrease the number of our shares of any class or series that we have the authority to issue, or to classify or reclassify any unissued shares by terms and conditions of redemption of such shares, provided however, that any such amendment does not adversely affect the rights, preferences and privileges of the stockholders; our liquidation or dissolution; and any merger, consolidation or sale or other disposition of substantially all of our assets. 20
The board of directors must declare advisable any amendment to the charter or any merger, consolidation, transfer of assets, or share exchange, prior to such amendment or transaction, under the Maryland General Corporation Law. All other matters are subject to the discretion of our board of directors. Therefore, our stockholders are limited in their ability to change our policies and operations. Our rights and the rights of our stockholders to recover claims against our officers, directors and our Advisor are limited, which could reduce our stockholders’ and our recovery against them if they cause us to incur losses. Maryland law provides that a director has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the corporation’s best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our charter, in the case of our directors, officers, employees and agents, and our Advisory Agreement, in the case of our Advisor, requires us to indemnify our directors, officers, employees and agents, and our Advisor and its affiliates, for actions taken by them in good faith and without negligence or misconduct. Additionally, our charter limits the liability of our directors and officers for monetary damages to the maximum extent permitted under Maryland law. As a result, we and our stockholders may have more limited rights against our directors, officers, employees and agents, and our Advisor and its affiliates, than might otherwise exist under common law, which could reduce our stockholders’ and our recovery against them. In addition, we may be obligated to fund the defense costs incurred by our directors, officers, employees and agents or our Advisor and its affiliates in some cases which would decrease the cash otherwise available for distribution to our stockholders. Our board of directors may change any of our investment objectives, including our focus on self storage facilities. Our board of directors may change any of our investment objectives, including our focus on self storage facilities. If our stockholders do not agree with a decision of our board to change any of our investment objectives, our stockholders only have limited control over such changes. Additionally, we cannot assure our stockholders that we would be successful in attaining any of these investment objectives, which may adversely impact our financial performance and ability to make distributions to our stockholders. Our stockholders’ interests in us will be diluted as we issue additional shares. Our stockholders will not have preemptive rights to any shares issued by us in the future. Subject to any limitations set forth under Maryland law, our board of directors may increase the number of authorized shares of stock (currently 900,000,000 shares), increase or decrease the number of shares of any class or series of stock designated, or reclassify any unissued shares without the necessity of obtaining stockholder approval. All such shares may be issued in the discretion of our board of directors. Therefore, as we (1) sell additional shares in the future, including those issued pursuant to our distribution reinvestment plan, or sell additional shares in the future (2) sell securities that are convertible into shares of our common stock, (3) issue shares of our common stock in a private offering of securities, (4) issue restricted shares of our common stock to our independent directors, (5) issue shares to our Advisor, its successors or assigns, in payment of an outstanding fee obligation as set forth under our Advisory Agreement, or (6) issue shares of our common stock in a merger or to sellers of properties acquired by us in connection with an exchange of limited partnership interests of our Operating Partnership, existing stockholders will experience dilution of their equity investment in us. Because the limited partnership interests of our Operating Partnership may, in the discretion of our board of directors, be exchanged for shares of our common stock, any merger, exchange or conversion between our Operating Partnership and another entity ultimately could result in the issuance of a substantial number of shares of our common stock, thereby diluting the percentage ownership interest of other stockholders. Because of these and other reasons, our stockholders may experience substantial dilution in their percentage ownership of our shares. Payment of fees to our Advisor and its affiliates will reduce cash available for investment and distribution. Our Advisor and its affiliates perform services for us in connection with the selection and acquisition of our investments and the management of our properties. They are paid substantial fees for these services, which reduces the amount of cash available for investment in properties or distribution to stockholders. As additional compensation for having sold Class T shares in the Offering and for ongoing stockholder services, we pay our dealer manager a stockholder servicing fee. The amount available for distributions on all Class T shares will be reduced by the amount of stockholder servicing fees payable to our dealer manager with respect to the Class T shares issued in the primary offering.Primary Offering. Payment of these fees to our Advisor and its affiliates will reduce cash available for investment and distribution. 21
We are uncertain of our sources of debt or equity for funding our future capital needs. If we cannot obtain funding on acceptable terms, our ability to make necessary capital improvements to our properties, pay other expenses or expand our business may be impaired or delayed. Our primary use of capital has been, and will continue to be, primarily used to purchase real estate investments and to pay various fees and expenses. The gross proceeds of the Offering will be used to purchase real estate investments and to pay various fees and expenses. In addition, in order to continue to qualify as a REIT, we generally must distribute to our stockholders at least 90% of our taxable income each year, excluding capital gains. Because of this distribution requirement, it is not likely that we will be able to fund a significant portion of our future capital needs from retained earnings. We have not identified any additional sources of capital for future funding, and such sources of funding may not be available to us on favorable terms or at all. If we do not have access to sufficient funding in the future, we may not be able to make necessary capital improvements to our properties, pay other expenses or expand our business. Our Advisor may receive economic benefits from its status as a special limited partner without bearing any of the investment risk. Our Advisor is a special limited partner in our Operating Partnership. As the special limited partner, our Advisor is entitled to receive, among other distributions, an incentive distribution of net proceeds from the sale of properties after we have received and paid to our stockholders a specified threshold return. We will bear all of the risk associated with the properties but, as a result of the incentive distributions to our Advisor, we may not be entitled to all of the Operating Partnership’s proceeds from a property sale and certain other events. Risks Related to the Self Storage Industry Because we are focused on the self storage industry, our rental revenues will be significantly influenced by demand for self storage space generally, and a decrease in such demand would likely have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio. Because our portfolio of properties consists primarily of self storage facilities, we are subject to risks inherent in investments in a single industry. A decrease in the demand for self storage space would likely have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio. Demand for self storage space has been and could be adversely affected by weakness in the national, regional and local economies and changes in supply of or demand for similar or competing self storage facilities in an area. To the extent that any of these conditions occur, they are likely to affect demand, and market rents, for self storage space, which could cause a decrease in our rental revenue. Any such decrease could impair our ability to make distributions to our stockholders. We do not expect to invest in other real estate or businesses to hedge against the risk that industry trends might decrease the profitability of our self storage-related investments. We face significant competition in the self storage industry, which may increase the cost of acquisitions or developments or impede our ability to retain customers orre-let space when existing customers vacate. We face intense competition in every market in which we purchase self storage facilities. We compete with numerous national, regional, and local developers, owners and operators in the self storage industry, including SSGT and SST IV, other private programs sponsored by our sponsor, and other REITs, some of which own or may in the future own facilities similar to, or in the same markets as, the self storage properties we acquire, and some of which will have greater capital resources, greater cash reserves, less demanding rules governing distributions to stockholders and a greater ability to borrow funds to acquire facilities. In addition, due to the relatively low cost of each individual self storage facility, other developers, owners and operators have the capability to build additional facilities that may compete with our facilities. In addition, competition for suitable investments may reduce the number of suitable investment opportunities available to us, may increase acquisition costs and may reduce demand for self storage units in certain areas where our facilities are located, all of which may adversely affect our operating results. Additionally, an economic slowdown in a particular market could have a negative effect on our self storage revenues. If competitors build new facilities that compete with our facilities or offer space at rental rates below the rental rates we charge our customers, we may lose potential or existing customers and we may be pressured to discount our rental rates to retain customers. As a result, our rental revenues may become insufficient to make distributions to our stockholders. In addition, increased competition for customers may require us to make capital improvements to facilities that we would not otherwise make. 22
The acquisition of new properties may give rise to difficulties in predicting revenue potential. New acquisitions could fail to perform in accordance with our expectations. If we fail to accurately estimate occupancy levels, rental rates, operating costs or costs of improvements to bring an acquired facility up to our standards, the performance of the facility may be below expectations. Properties we acquire may have characteristics or deficiencies affecting their valuation or revenue potential that we have not yet discovered. We cannot assure our stockholders that the performance of properties we acquire will increase or be maintained under our management. We may be unable to promptlyre-let units within our facilities at satisfactory rental rates. Generally our unit leases will be on amonth-to-month basis. Delays inre-letting units as vacancies arise would reduce our revenues and could adversely affect our operating performance. In addition, lower-than-expected rental rates and higher rental concessions uponre-letting could adversely affect our rental revenues and impede our growth. We depend on theon-site personnel to maximize customer satisfaction at each of our facilities, and any difficulties our Property Manager orsub-property manager encounters in hiring, training and retaining skilled field personnel may adversely affect our rental revenues. The customer service, marketing skills, knowledge of local market demand and competitive dynamics of our facility managers will be contributing factors to our ability to maximize our rental income and to achieve the highest sustainable rent levels at each of our facilities. If our Property Manager orsub-property manager is unable to successfully recruit, train and retain qualified field personnel, our rental revenues may be adversely affected, which could impair our ability to make distributions to our stockholders. Legal claims related to moisture infiltration and mold could arise in one or more of our properties, which could adversely affect our revenues. There has been an increasing number of claims and litigation against owners and managers of rental and self storage properties relating to moisture infiltration, which can result in mold or other property damage. We cannot guarantee that moisture infiltration will not occur at one or more of our properties. When we receive a complaint concerning moisture infiltration, condensation or mold problems and/or become aware that an air quality concern exists, we will implement corrective measures in accordance with guidelines and protocols we have developed with the assistance of outside experts. We cannot assure our stockholders that material legal claims relating to moisture infiltration and the presence of, or exposure to, mold will not arise in the future. These legal claims could require significant expenditures for legal defense representation which could adversely affect our revenues. Delays in development andlease-up of our properties would reduce our profitability. We may acquire properties that require repositioning or redeveloping such properties with the goal of increasing cash flow, value or both. Construction delays to new or existing self storage properties due to weather, unforeseen site conditions, personnel problems, and other factors could delay our anticipated customer occupancy plan which could adversely affect our profitability and cash flow. Furthermore, our estimate of the costs of repositioning or redeveloping an acquired property may prove to be inaccurate, which may result in our failure to meet our profitability goals. Additionally, we may acquire a new property that has a relatively low physical occupancy, and the cash flow from existing operations may be insufficient to pay the operating expenses associated with that property until the property is adequately leased. If one or more of these properties do not perform as expected or we are unable to successfully integrate new properties into our existing operations, our financial performance and our ability to make distributions may be adversely affected. The risks associated with storage contents may increase our operating costs or expose us to potential liability that may not be covered by insurance, which may have adverse effects on our results of operations and returns to
our stockholders. The self storage facilities we intend to own and operate are leased directly to customers who store their belongings without any immediate inspections or oversight from us. We may unintentionally lease space to groups engaged in illegal and dangerous activities. Damage to storage contents may occur due to, among other occurrences, the following: war, acts of terrorism, earthquakes, floods, hurricanes, pollution, environmental matters, fires or events caused by fault of a customer, fault of a third party or fault of our own. Such damage may or may not be covered by insurance maintained by us, if any. Our Advisor will determine the amounts and types of insurance coverage that we will maintain, including any coverage over the contents of any properties in which we may invest. Such determinations will be made on acase-by-case basis by our Advisor based on 23
the type, value, location and risks associated with each investment, as well as any lender requirements, among any other factors our Advisor may consider relevant. There is no guarantee as to the type of insurance that we will obtain for any investments that we may make and there is no guarantee that any particular damage to storage contents would be covered by such insurance, even if obtained. The costs associated with maintaining such insurance, as well as any liability imposed upon us due to damage to storage contents, may have an adverse effect on our results of operations and returns to our stockholders. Additionally, although we require our customers to sign an agreement stating that they will not store flammable, hazardous, illegal or dangerous contents in the self storage units, we cannot ensure that our customers will abide by such agreement. The storage of such materials might cause destruction to a facility or impose liability on us for the costs of removal or remediation if these various contents or substances are released on, from or in a facility, which may have an adverse effect on our results of operations and returns to our stockholders. Our operating results may be affected by regulatory changes that have an adverse impact on our specific facilities, which may adversely affect our results of operations and returns to our stockholders. Certain regulatory changes may have a direct impact on our self storage facilities, including but not limited to, land use, zoning and permitting requirements by governmental authorities at the local level, which can restrict the availability of land for development, and special zoning codes which omit certain uses of property from a zoning category. These special uses (i.e., hospitals, schools, and self storage facilities) are allowed in that particular zoning classification only by obtaining a special use permit and the permission of local zoning authority. If we are delayed in obtaining or unable to obtain a special use permit where one is required, new developments or expansion of existing developments could be delayed or reduced. Additionally, certain municipalities require holders of a special use permit to have higher levels of liability coverage than is normally required. The acquisition of, or the inability to obtain, a special use permit and the possibility of higher levels of insurance coverage associated therewith may have an adverse effect on our results of operations and returns to our stockholders. A failure in, or breach of, our operational or security systems or infrastructure, or those of our third party vendors and other service providers or other third parties, including as a result of cyber attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs, and cause losses. We rely heavily on communications and information systems to conduct our business. Information security risks for our business have generally increased in recent years in part because of the proliferation of new technologies; the use of the Internet and telecommunications technologies to process, transmit and store electronic information, including the management and support of a variety of business processes, including financial transactions and records, personally identifiable information, and tenant and lease data; and the increased sophistication and activities of organized crime, hackers, and terrorists, activists, and other external parties. As customer, public, and regulatory expectations regarding operational and information security have increased, our operating systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions, and breakdowns. Our business, financial, accounting, and data processing systems, or other operating systems and facilities, may stop operating properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond our control. For example, there could be electrical or telecommunication outages; natural disasters such as earthquakes, tornadoes, and hurricanes; disease pandemics; events arising from local or larger scale political or social matters, including terrorist acts; and as described below, cyber attacks. Our business relies on its digital technologies, computer and email systems, software and networks to conduct its operations. Although we have information security procedures and controls in place, our technologies, systems and networks and, because the nature of our business involves the receipt and retention of personal information about our customers, our customers’ personal accounts may become the target of cyber attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss, or destruction of our or our customers’ or other third parties’ confidential information. Third parties with whom we do business or who facilitate our business activities, including intermediaries or vendors that provide service or security solutions for our operations, and other third parties, could also be sources of operational and information security risk to us, including from breakdowns or failures of their own systems or capacity constraints. In addition, hardware, software or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. 24
While we have disaster recovery and other policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. Our risk and exposure to these matters remain heightened because of the evolving nature of these threats. As a result, cyber security and the continued development and enhancement of our controls, processes, and practices designed to protect our systems, computers, software, data, and networks from attack, damage or unauthorized access remain a focus for us. As threats continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate information security vulnerabilities. Disruptions or failures in the physical infrastructure or operating systems that support our businesses and customers, or cyber attacks or security breaches of the networks, systems or devices that our customers use to access our products and services, could result in customer attrition, regulatory fines, penalties or intervention, reputation damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could have a material effect on our results of operations or financial condition. Furthermore, if such attacks are not detected immediately, their effect could be compounded. To date, to our knowledge, we have not experienced any material impact relating to cyber-attacks or other information security breaches. If we enter intonon-compete agreements with the sellers of the self storage properties that we acquire, and the terms of those agreements expire, the sellers may compete with us within the general location of one of our self storage facilities, which could have an adverse effect on our operating results and returns to our stockholders. We may enter intonon-compete agreements with the sellers of the self storage properties that we acquire in order to prohibit the seller from owning, operating, or being employed by a competing self storage property for a predetermined time frame and within a geographic radius of a self storage facility we acquire. When thesenon-compete agreements expire, we may face the risk that the seller will develop, own, operate or become employed by a competing self storage facility within the general location of one of our properties, which could have an adverse effect on our operating results and returns to
our stockholders. General Risks Related to Investments in Real Estate Our operating results will be affected by economic and regulatory changes that have an adverse impact on the real estate market in general, and we cannot assure our stockholders that we will be profitable or that we will realize growth in the value of our real estate properties. Our operating results will be subject to risks generally incident to the ownership of real estate, including: changes in general economic or local conditions; changes in supply of or demand for similar or competing properties in an area; changes in interest rates and availability of permanent mortgage funds that may render the sale of a property difficult or unattractive; changes in tax, real estate, environmental and zoning laws; changes in property tax assessments and insurance costs; and increases in interest rates and tight money supply. These and other reasons may prevent us from being profitable or from realizing growth or maintaining the value of our real estate properties. We may suffer reduced or delayed revenues for, or have difficulty selling, properties with vacancies. We anticipate that the majority of the properties we acquire will have stabilized occupancy levels (at or above 75%). However, certain of the real properties we acquire may have some level of vacancy at the time of closing either because the property is in the process of being developed and constructed, it is newly constructed and in the process of obtaining customers, or because of economic or competitive or other factors. Shortly after a new property is opened, during a time of development and construction, or because of economic or competitive or other factors, we may suffer reduced revenues resulting in lower cash distributions to our stockholders due to a lack of an optimum level of customers. The resale value of properties with prolonged low occupancy rates could suffer, which could further reduce our stockholders’ returns. 25
We may obtain only limited warranties when we purchase a property. The seller of a property will often sell such property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. Also, many sellers of real estate are single purpose entities without significant other assets. The purchase of properties with limited warranties or from undercapitalized sellers increases the risk that we may lose some or all of our invested capital in the property as well as rental income from that property. Our inability to sell a property when we desire to do so could adversely impact our ability to pay cash distributions to our stockholders. The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. Real estate generally cannot be sold quickly. Also, the tax laws applicable to REITs require that we hold our facilities for investment, rather than for sale in the ordinary course of business, which may cause us to forego or defer sales of facilities that otherwise would be in our best interest. Therefore, we may not be able to dispose of facilities promptly, or on favorable terms, in response to economic or other market conditions, and this may adversely impact our ability to make distributions to our stockholders. In addition, we may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure our stockholders that we will have funds available to correct such defects or to make
such improvements. In acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These provisions would also restrict our ability to sell a property. We may not be able to sell our properties at a price equal to, or greater than, the price for which we purchased such properties, which may lead to a decrease in the value of our assets. We may be purchasing our properties at a time when capitalization rates are at historically low levels and purchase prices are high. Therefore, the value of our properties may not increase over time, which may restrict our ability to sell our properties, or in the event we are able to sell such property, may lead to a sale price less than the price that we paid to purchase the properties. We may acquire or finance properties withlock-out provisions, which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties. Lock-out provisions are provisions that generally prohibit repayment of a loan balance for a certain number of years following the origination date of a loan. Such provisions are typically provided for by the Code or the terms of the agreement underlying a loan.Lock-out provisions could materially restrict us from selling or otherwise disposing of or refinancing properties. These provisions would affect our ability to turn our investments into cash and thus affect cash available for distribution to our stockholders.Lock-out provisions may prohibit us from reducing the outstanding indebtedness with respect to any properties, refinancing such indebtedness on anon-recourse basis at maturity, or increasing the amount of indebtedness with respect to such properties. Lock-out provisions could impair our ability to take actions during thelock-out period that would otherwise be in our stockholders’ best interests and, therefore, may have an adverse impact on the value of the shares, relative to the value that would result if thelock-out provisions did not exist. In particular,lock-out provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control, even though that disposition or change in control might be in our stockholders’ best interests. 26
Rising expenses could reduce cash available for future acquisitions. Any properties that we buy in the future will be subject to operating risks common to real estate in general, any or all of which may negatively affect us. If any property is not fully occupied or if rents are being paid in an amount that is insufficient to cover operating expenses, we could be required to expend funds for that property’s operating expenses. Our properties will be subject to increases in tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance and administrative expenses. If we are unable to offset such cost increases through rent increases, we could be required to fund those increases in operating costs which could adversely affect funds available for future acquisitions or cash available for distribution. Adverse economic conditions will negatively affect our returns and profitability. The following market and economic challenges may adversely affect our operating results: poor economic times may result in customer defaults under leases or bankruptcy; re-leasing may require reduced rental rates under the new leases; and increased insurance premiums, resulting in part from the increased risk of terrorism and natural disasters, may reduce funds available for distribution. We are susceptible to the effects of adverse macro-economic events that can result in higher unemployment, shrinking demand for products, large-scale business failures and tight credit markets. Because our portfolio of facilities consists of self storage facilities, we are subject to risks inherent in investments in a single industry, and our results of operations are sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending, as well as to increased bad debts due to recessionary pressures. A continuation of, or slow recovery from, ongoing adverse economic conditions affecting disposable consumer income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs, could reduce consumer spending or cause consumers to shift their spending to other products and services. A general reduction in the level of discretionary spending or shifts in consumer discretionary spending could adversely affect our growth and profitability. Since we cannot predict when real estate markets may recover, the value of the properties we acquire may decline if market conditions persist or worsen. Further, the results of operations for a property in any one period may not be indicative of results in future periods, and the long-term performance of such property generally may not be comparable to, and cash flows may not be as predictable as, other properties owned by third parties in the same or similar industry. We relyHistorically, we have relied on oursub-property manager to operate our self storage facilities in the United States, but we now operate all our self storage facilities through our Property Manager. Accordingly, we are subject to additional risks, such as inability to achieve similar results as our prior sub-property manager, as well as other risks inherent in managing the facilities.
Our property managerHistorically, our Property Manager has entered intosub-property management agreements with an affiliate of Extra Space. in connection with the management ofSpace to manage our self storage facilities. We do not supervisefacilities located in the United States. As of October 1, 2017, oursub-property manager or its personnel on aday-to-day basis, arrangement with Extra Space was terminated and we cannot assure youour Property Manager began managing all of our properties directly. Please see Note 7 — Related Party Transactions – Property Management Agreement. There can be no assurances that oursub-property manager Property Manager will manage our properties in a manner that is consistent with its obligations under thesub-property management agreements, thatas effectively as Extra Space. Accordingly, oursub-property manager will not be negligent in its performance or engage in other criminal or fraudulent activity, or that oursub-property manager will not otherwise default on its management obligations to us. If any of the foregoing occurs, we could incur liabilities resulting from loss or injury to our property or to persons at our properties, any of operating results may suffer, which could have a material adverse effect on our operating results and financial condition, as well as our ability to pay distributions to stockholders.
Our tenant insurance business is subject to significant governmental regulation, which may adversely affect our results. Our tenant insurance business is subject to significant governmental regulation. The regulatory authorities generally have broad discretion to grant, renew and revoke licenses and approvals, to promulgate, interpret and implement regulations, and to evaluate compliance with regulations through periodic examinations, audits and investigations of the affairs of insurance providers. As a result of regulatory or private action in any jurisdiction, we may be temporarily or permanently suspended from continuing some or all of our tenant insurance activities, or otherwise fined or penalized or suffer an adverse judgment, which could adversely affect our business and results of operations. 27
If we suffer losses that are not covered by insurance or that are in excess of insurance coverage, we could lose invested capital and anticipated profits. Material losses may occur in excess of insurance proceeds with respect to any property, as insurance may not be sufficient to fund the losses. However, there are types of losses, generally of a catastrophic nature, such as losses due to wars, acts of terrorism, earthquakes, floods, fires, hurricanes, pollution or environmental matters, which are either uninsurable or not economically insurable, or may be insured subject to limitations such as large deductibles orco-payments. Insurance risks associated with potential terrorist acts could sharply increase the premiums we pay for coverage against property and casualty claims. Additionally, mortgage lenders in some cases have begun to insist that commercial property owners purchase specific coverage against terrorism as a condition for providing mortgage loans. It is uncertain whether such insurance policies will be available, or available at reasonable cost, which could inhibit our ability to finance or refinance our potential properties. In these instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot assure our stockholders that we will have adequate coverage for such losses. The Terrorism Risk Insurance Act of 2002 is designed for a sharing of terrorism losses between insurance companies and the federal government. We cannot be certain how this act will impact us or what additional cost to us, if any, could result. If such an event damaged or destroyed one or more of our properties, we could lose both our invested capital and anticipated profits from such property. Delays in the acquisition, development and construction of properties may have adverse effects on our results of operations and returns to our stockholders. Delays we encounter in the selection, acquisition and development of real properties could adversely affect our stockholders’ returns. From time to time we may acquire unimproved real property, properties that are in need of redevelopment or properties that are under development or construction. Investments in such properties will be subject to the uncertainties associated with the development and construction of real property, including those related tore-zoning land for development, environmental concerns of governmental entities and/or community groups and our builders’ ability to build in conformity with plans, specifications, budgets and timetables. If a builder fails to perform, we may resort to legal action to rescind the purchase or the construction contract or to compel performance. A builder’s performance may also be affected or delayed by conditions beyond the builder’s control. Where properties are acquired prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and lease available space. Therefore, our stockholders could suffer delays in the receipt of cash distributions attributable to those particular real properties. We may incur additional risks when we make periodic progress payments or other advances to builders before they complete construction. These and other factors can result in increased costs of a project or loss of our investment. We also must rely on rental income and expense projections and estimates of the fair market value of a property upon completion of construction when agreeing upon a purchase price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and the return on our investment could suffer. We disclose funds from operations and modified funds from operations, each a non-GAAP financial measure, in communications with investors, including documents filed with the SEC; however, funds from operations and modified funds from operations are not equivalent to our net income or loss or cash flow from operations as determined under GAAP, and stockholders should consider GAAP measures to be more relevant to our operating performance. We use and we disclose to investors, funds from operations (“FFO”) and modified funds from operations (“MFFO”), which are non-GAAP financial measures. FFO and MFFO are not equivalent to our net income or loss or cash flow from operations as determined in accordance with GAAP, and investors should consider GAAP measures to be more relevant in evaluating our operating performance and ability to pay distributions. FFO and MFFO and GAAP net income differ because FFO and MFFO exclude gains or losses from sales of property and asset impairment write downs, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. MFFO is defined as FFO further adjusted for the following items included in the determination of GAAP net income (loss): acquisition fees and expenses; amounts relating to straight line rents and amortization of above or below intangible lease assets and liabilities; accretion of discounts and amortization of premiums on debt investments; non-recurring impairments of real estate related investments; mark-to-market adjustments included in net income; non-recurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, adjustments relating to contingent purchase price obligations included in net income, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the 28
same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income (loss) in calculating cash flows from operations and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. Because of these differences, FFO and MFFO may not be accurate indicators of our operating performance, especially during periods in which we are acquiring properties. In addition, FFO and MFFO are not indicative of cash flow available to fund cash needs and investors should not consider FFO and MFFO as alternatives to cash flows from operations or an indication of our liquidity, or indicative of funds available to fund our cash needs, including our ability to pay distributions to our stockholders. Neither the SEC nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO and MFFO. Also, because not all companies calculate FFO and MFFO the same way, comparisons with other companies may not be meaningful. Costs of complying with governmental laws and regulations, including those relating to environmental matters, may adversely affect our income and the cash available for distribution. All real property, including any self storage properties we acquire, and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. Some of these laws and regulations may impose joint and several liability on customers, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. This liability could be substantial. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may adversely affect our ability to sell or rent a property, or to pledge such property as collateral for future borrowings. Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our customers’ activities, the existing condition of land when we buy it, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply, and that may subject us to liability in the form of fines or damages for noncompliance. Any material expenditures, fines, or damages we must pay will reduce our ability to make distributions to our stockholders and may reduce the value of our stockholders’ investments. We cannot assure our stockholders that the independent third party environmental assessments we obtain prior to acquiring any properties we purchase will reveal all environmental liabilities or that a prior owner of a property did not create a material environmental condition not known to us. We cannot predict what other environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted, or what environmental conditions may be found to exist in the future. We cannot assure our stockholders that our business, assets, results of operations, liquidity or financial condition will not be adversely affected by these laws, which may adversely affect cash available for distribution, and the amount of distributions to our stockholders. Our costs associated with complying with the Americans with Disabilities Act may affect cash available
for distribution. Our properties will be subject to the Americans with Disabilities Act of 1990, or ADA. Under the ADA, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The ADA has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services, including restaurants and retail stores, be made accessible and available to people with disabilities. The ADA’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties, or, in some cases, an award of damages. We will attempt to acquire properties that comply with the ADA or place the burden on the seller or other third party to ensure compliance with the ADA. However, we cannot assure our stockholders that we will be able to acquire properties or allocate responsibilities in this manner. If we cannot, our funds used for ADA compliance may affect cash available for distribution and the amount of distributions to our stockholders. 29
If we sell properties by providing financing to purchasers, defaults by the purchasers would adversely affect our cash flows. In some instances we may sell our properties by providing financing to purchasers. When we provide financing to purchasers, we will bear the risk that the purchaser may default, which could negatively impact our cash distributions to stockholders. Additionally, the distribution of the proceeds of sales to our stockholders, or their reinvestment in other assets, will be delayed until the promissory notes or other property we may accept upon the sale are actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. If any purchaser defaults under a financing arrangement with us, it could negatively impact our ability to make distributions to
our stockholders. Property taxes may increase, which will adversely affect our net operating income and cash available
for distributions. Each of the properties we acquire will be subject to real property taxes. Some local real property tax assessors may seek to reassess some of our properties as a result of our acquisition of the property. From time to time, our property taxes may increase as property values or assessment rates change or for other reasons deemed relevant by the assessors. Recent local government shortfalls in tax revenue may cause pressure to increase tax rates or assessment levels. Increases in real property taxes will adversely affect our net operating income and cash available for distributions. We will be subject to additional risks if we continue to make international investments. We have acquired, and may continue to acquire, additional properties located outside the United States, and we may make or purchase loans or participations in loans secured by property located outside the United States. These investments may be affected by factors peculiar to the laws and business practices of the jurisdictions in which the properties are located. These laws and business practices may expose us to risks that are different from and in addition to those commonly found in the United States. Foreign investments pose the following risks: the burden of complying with a wide variety of foreign laws; changing governmental rules and policies, including changes in land use and zoning laws, more stringent environmental laws or changes in such laws; existing or new laws relating to the foreign ownership of real property or loans and laws restricting the ability of foreign persons or companies to remove profits earned from activities within the country to the person’s or company’s country of origin; the potential for expropriation; possible currency transfer restrictions; imposition of adverse or confiscatory taxes; changes in real estate and other tax rates or laws and changes in other operating expenses in particular countries; possible challenges to the anticipated tax treatment of the structures that allow us to acquire and hold investments; adverse market conditions caused by terrorism, civil unrest and changes in national or local governmental or economic conditions; the willingness of domestic or foreign lenders to make loans in certain countries and changes in the availability, cost and terms of loan funds resulting from varying national economic policies; general political and economic instability in certain regions; the potential difficulty of enforcing obligations in other countries; and the limited experience and expertise in foreign countries of our Advisor’s and its affiliates’ employees relative to their experience and expertise in the United States. 30
Investments in properties or other real estate investments outside the United States subject us to foreign currency risks, which may adversely affect distributions and our REIT status. Revenues generated from any properties or other real estate investments we acquire or ventures we enter into relating to transactions involving assets located in markets outside the United States likely will be denominated in the local currency. Therefore, any investments we make outside the United States may subject us to foreign currency risk due to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar. As a result, changes in exchange rates of any such foreign currency to U.S. dollars may affect our revenues, operating margins and distributions and may also affect the book value of our assets and the amount of stockholders’ equity. Changes in foreign currency exchange rates used to value a REIT’s foreign assets may be considered changes in the value of the REIT’s assets. These changes may adversely affect our ability to qualify as a REIT. Further, bank accounts in foreign currency which are not considered cash or cash equivalents may adversely affect our ability to qualify as a REIT. Changes in the Canadian Dollar/USD exchange rate could have a material adverse effect on our operating results and value of the investment of our stockholders. We have purchased and may continue to purchase properties in Canada. As a result, our financial results may be adversely affected by fluctuations in the Canadian Dollar/USD exchange rate. We cannot predict with any certainty changes in foreign currency exchange rates or our ability to mitigate these risks. Several factors may affect the Canadian Dollar/USD exchange rate, including: Sovereign debt levels and trade deficits; domestic and foreign inflation rates and interest rates and investors’ expectations concerning those rates; other currency exchange rates; changing supply and demand for a particular currency; monetary policies of governments; changes in balances of payments and trade; direct sovereign intervention, such as currency devaluations and revaluations; investment and trading activities of mutual funds, hedge funds and currency funds; and other global or regional political, economic or financial events and situations. These events and actions are unpredictable. In addition, the Canadian Dollar may not maintain its long term value in terms of purchasing power in the future. The resulting volatility in the Canadian Dollar/USD exchange rate could materially and adversely affect our performance. We are subject to additional risks due to the location of any of our properties in Canada. In addition to currency exchange rates, the value of any properties we purchase in Canada may be affected by factors peculiar to the laws and business practices of Canada. Canadian laws and customs may expose us to risks that are different from and in addition to those commonly found in the United States. Ownership and operation of foreign assets pose several risks, including, but not limited to the following: the burden of complying with both Canadian and United States’ laws; changing governmental rules and policies, including changes in land use and zoning laws, more stringent environmental laws or changes in such laws; existing or new Canadian laws relating to the foreign ownership of real property or loans and laws restricting the ability of Canadian persons or companies to remove profits earned from activities within the country to the person’s or company’s country of origin; the potential for expropriation; imposition of adverse or confiscatory taxes; 31
| • | changes in real estate and other tax rates or laws and changes in other operating expenses in Canada; |
possible challenges to the anticipated tax treatment of our revenue and our properties; adverse market conditions caused by terrorism, civil unrest and changes in national or local governmental or economic conditions; and our limited experience and expertise in foreign countries relative to our experience and expertise in
the United States. Risks Associated with Debt Financing We have broad authority to incur debt, and high debt levels could hinder our ability to make distributions and could decrease the value of our stockholders’ investments. Our charter generally limits us to incurring debt no greater than 300% of our net assets before deducting depreciation or othernon-cash reserves (equivalent to 75% leverage), unless any excess borrowing is approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report, along with a justification for such excess borrowing. High debt levels would cause us to incur higher interest charges, would result in higher debt service payments, and could be accompanied by restrictive covenants. These factors could limit the amount of cash we have available to distribute and could result in a decline in the value of our stockholders’ investments. If we or the other parties to our loans breach covenants thereunder, such loan or loans could be deemed in default, which could accelerate our repayment date and materially adversely affect the value of our stockholders’ investment in us. Certain of our loans are secured by first mortgages on some of our properties and other loans are secured by pledges of equity interests in the entities that own certain of our properties. Such loans also impose a number of financial or other covenant requirements on us. If we, or the other parties to these loans, should breach certain of those financial or other covenant requirements, or otherwise default on such loans, then the respective lenders, as the case may be, could accelerate our repayment dates. If we do not have sufficient cash to repay the applicable loan at that time, such lenders could foreclose on the property securing the applicable loan or take control of the pledged collateral, as the case may be. Such foreclosure could result in a material loss for us and would adversely affect the value of our stockholders’ investment in us. In addition, certain of these loans are cross-collateralized and cross-defaulted with each other such that a default under one loan would cause a default under the other loans. See Note 5, Debt, and Note 11—Subsequent Events—Merger with Strategic Storage Growth Trust, Inc., for more information on such loans. We have incurred and intend to incur, mortgage indebtedness and other borrowings, which may increase our business risks. We have placed, and intend to continue to place, permanent financing on our properties and we may obtain additional credit facilities or other similar financing arrangements in order to acquire additional properties. We may also decide to later further leverage our properties. We may incur mortgage debt and pledge all or some of our real properties as security for that debt to obtain funds to acquire real properties. WeIf we default on our secured indebtedness, the lender may foreclose and we could lose our entire investment in the properties securing such loan, which could adversely affect distributions to our stockholders. To the extent lenders require us to cross-collateralize our properties, or our loan agreements contain cross-default provisions, a default under a single loan agreement could subject multiple properties to foreclosure. In connection with the SSGT Merger on January 24, 2019, we entered into a series of new loans. See Note 11—Subsequent Events—Merger with Strategic Storage Growth Trust, Inc., for more information on such loans. Accordingly, we may be subject to an increased risk that our cash flow could be insufficient to meet required payments on our debt. Our increased indebtedness as a result of the SSGT Merger, compared to our level of indebtedness prior to the SSGT Merger, could have important consequences to our stockholders, including: increasing our vulnerability to general adverse economic and industry conditions; limiting our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements; requiring the use of a substantial portion of our cash flow from operations for the payment of principal and interest on its indebtedness, thereby reducing our ability to use our cash flow to fund working capital, acquisitions, capital expenditures and general corporate requirements; 32
| • | limiting our flexibility in planning for, or reacting to, changes in its business and its industry; and |
putting us at a disadvantage compared to our competitors with comparatively less indebtedness. In addition, we may borrow if we need funds to pay a desired distribution rate to our stockholders. We may also borrow if we deem it necessary or advisable to assure that we maintain our qualification as a REIT for federal income tax purposes. If there is a shortfall between the cash flow from our properties and the cash flow needed to service mortgage debt, then the amount available for distribution to our stockholders may be reduced. If we breach covenants under our loan agreements, weOur obligation to make balloon payments could be held in default, which could accelerate our repaymentincrease the risk of default.
Our debt may have balloon payments of up to 100% of the principal amount of such loans due on the respective maturity dates. Thus, such debt will have a substantial payment due at the scheduled maturity date, and materially adversely affect the value of our stockholders’ investment in us. On December 22, 2015, we entered into an amended and restated revolving credit facility (the “Amended KeyBank Credit Facility”) with KeyBankunless previously prepaid or refinanced. Loans with a maximum borrowing capacitysubstantial remaining principal balance on their stated maturity involve greater degrees of $105 million, which asrisk of December 31, 2016 had increasednon-payment at stated maturity than fully amortizing loans. As a result, our ability to $145 million. The Amended KeyBank Credit Facility mayrepay the such loans on their respective maturity dates will largely depend upon our ability either to prepay such loans, refinance such loans or to sell, to the extent permitted, all or a portion of the properties encumbered by such loans, if any. Our ability to accomplish any of these goals will be increased to a maximum credit facility size of $500 million, in minimum increments of $10 million, which KeyBank will arrange on a best efforts basis. The Amended KeyBank Credit Facility is securedaffected by cross-collateralized first mortgage liens or first lien deeds of trust on our current properties. The loan imposes a number of financial covenant requirements on us. If we should breach certain of those financial covenant requirements or otherwise default on this Amended KeyBank Credit Facility, KeyBank could accelerate our repayment dates.
On June 1, 2016, we, through certain affiliated entities (collectively, the “Borrower”) entered into a credit agreement (the “Property Loan Agreement”) for a secured loan in the amount of $105 million (the “KeyBank Property Loan”) with KeyBank, as administrative agent, KeyBanc Capital Markets, LLC, as the sole book runner and sole lead arranger, and the lenders party thereto. The Borrower borrowed $105 million in connection with the purchase of the properties in the First Phase of the 27 Property Portfolio. The KeyBank Property Loan is a term loan facility that has a maturity date extended to March 31, 2017. The KeyBank Property Loan is fully recourse, jointly and severally, to us and the Borrower and is secured by cross-collateralized first mortgage liens on 10 Mortgaged Properties (as defined in the Property Loan Agreement), which are the same properties acquired in the First Phase of the 27 Property Portfolio. The Borrower may prepay the KeyBank Property Loan at any time, without penalty, in whole or in part, with an exit fee payable under certain circumstances. We serve as the guarantor of all obligations due under the Property Loan Agreement. The Property Loan Agreement contains a number of other customary terms and covenants. If we should breach certain of those terms and covenants or otherwise default under the KeyBank Property Loan, KeyBank could accelerate our repayment dates.
On June 1, 2016, in conjunction with the acquisition of the First Phase of the 27 Property Portfolio, we entered into a credit agreement (the “Subordinate Loan Agreement”) in which we borrowed $30 million (the “KeyBank Subordinate Loan”) with KeyBank, as administrative agent, KeyBanc Capital Markets, LLC, as the sole book runner and sole lead arranger, and the lenders party thereto. The KeyBank Subordinate Loan is a term loan facility that has a maturity date extended to March 31, 2017. The KeyBank Subordinate Loan isnon-recourse and unsecured. We may prepay the KeyBank Subordinate Loan at any time, without penalty, in whole or in part, with an exit fee payable under certain circumstances. The KeyBank Subordinate Loan contains a number of other customary terms and covenants. If we should breach certain of those terms and covenants or otherwise default under the KeyBank Subordinate Loan, KeyBank could accelerate our repayment dates.
On July 28, 2016, we, through 29 special purpose entities wholly owned by our Operating Partnership, entered into a loan agreement with KeyBank in which we borrowed $95 million from KeyBank (the “KeyBank CMBS Loan”). Pursuant to the loan agreement, the collateral under the loan consists of our respective fee interests in 29 self storage properties (the “29 Mortgaged Properties”). The KeyBank CMBS Loan has an initial term of ten years, maturing on August 1, 2026. The KeyBank CMBS Loan is secured by first mortgage liens or deeds of trusts on the 29 Mortgaged Properties, an assignment of all leases/rents, perfected first priority security interests in all personal property, escrows, reserves and a cash management account. In addition, we have provided a guaranty in which we serves as a guarantor of all obligations due under the loan agreement. The KeyBank CMBS Loan may be repaid in whole or in part through a partial or full defeasance (releasing one or more of the 29 Mortgaged Properties from the liens) beginning two years after the Promissory Notes are securitized, which occurred in August, 2016. The KeyBank CMBS Loan contains a number of other customary terms and covenants. If we should breach certain of those terms and covenants or otherwise default under the KeyBank CMBS Loan, KeyBank could accelerate our repayment dates.
If we do not have sufficient cash to repay these loansfactors at the time of a default, KeyBank could foreclose onattempted prepayment, refinancing or sale, including, but not limited to: (i) the properties securing such loans. Such foreclosure could result in a material lossavailability of, and competition for, us and would adversely affectcredit for commercial real estate; (ii) prevailing interest rates; (iii) the net operating income generated by our properties; (iv) the fair market value of our stockholders’ investmentproperties; (v) our equity in us.
We have incurred,our properties; (vi) our financial condition; (vii) the operating history and intend to incur, indebtedness secured by our properties, which may result in foreclosure.
Mostoccupancy level of our borrowings to acquire properties have beenproperties; (viii) the tax laws; and will be secured by mortgages on our properties. If we default on our secured indebtedness,(ix) the lender may forecloseprevailing general and we could lose our entire investment in the properties securing such loan, which could adversely affect distributions to our stockholders. To the extent lenders require us to cross-collateralize our properties, or our loan agreements contain cross-default provisions, a default under a single loan agreement could subject multiple properties to foreclosure.regional economic conditions.
High interest rates may make it difficult for us to refinance properties, which could reduce the number of properties we can acquire and the amount of cash distributions we can make.
For mortgage debt we have placed on our properties, we run the risk of being unable to refinance the properties when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher when the properties are refinanced, we may not be able to refinance the properties and our income could be reduced. If any of these events occur, our cash flow would be reduced. This, in turn, would reduce cash available for distribution to our stockholders and may hinder our ability to raise capital by issuing more stock or by borrowing more money.
Lenders have required and will likely continue to require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders. When providing financing, lenders often impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt. Loan documents we enter into may contain covenants that limit our ability to further mortgage the property, discontinue insurance coverage or replace our Advisor. These or other limitations may adversely affect our flexibility and limit our ability to make distributions to our stockholders. If the limits set forth in these covenants prevent us from satisfying our distribution requirements, we could fail to qualify for federal income tax purposes as a REIT. If the limits set forth in these covenants do not jeopardize our qualification for taxation as a REIT, but prevent us from distributing 100% of our REIT taxable income, we will be subject to U.S. federal income tax, and potentially a nondeductible excise tax, on the retained amounts. Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to make distributions to our stockholders. We currently have outstanding debt payments which are indexed to variable interest rates. We may also incur additional debt or issue preferred equity in the future which rely on variable interest rates. Increases in these variable interest rates in the future would increase our interest costs and preferred equity distribution payments, which would likely reduce our cash flows and our ability to make distributions to our stockholders. In addition, if we need to make payments on instruments which contain variable interest during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times that may not permit realization of the maximum return on such investments. Disruptions in the credit markets could have a material adverse effect on our results of operations, financial condition and ability to pay distributions to our stockholders. Domestic and international financial markets recently experienced significant disruptions which were brought about in large part by failures in the U.S. banking system. These disruptions severely impacted the availability of credit and contributed to rising costs associated with obtaining credit. If debt financing is not available on terms and conditions we find acceptable, we may not be able to obtain financing for investments. If these disruptions in the credit markets resurface, our ability to borrow monies to finance the purchase of, or other activities related to, real estate assets will be negatively impacted. If we are unable to borrow monies on terms and conditions that we find acceptable, we may be forced to use a greater proportion of our Offering proceeds to finance our acquisitions, reduce the number of properties we can purchase, and/or dispose of some of our assets. These disruptions could also adversely affect the return on the properties we do purchase. In addition, if we pay fees to lock in a favorable interest rate, falling interest rates or other factors could require us 33
to forfeit these fees. All of these events would have a material adverse effect on our results of operations, financial condition and ability to pay distributions. Federal Income Tax Risks Failure to continue to qualify as a REIT would adversely affect our operations and our ability to make distributions at our current level as we will incur additional tax liabilities. We believe we operate in a manner that allows us to qualify as a REIT for U.S. federal income tax purposes under the Code. Qualification as a REIT involves highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. Our qualification as a REIT will depend upon our ability to meet, through investments, actual operating results, distributions and satisfaction of specific stockholder rules, the various tests imposed by the Code. If we fail to qualify as a REIT for any taxable year, we will be subject to federal income tax and any applicable alternative minimum tax on our taxable income at regular corporate rates. If our REIT status is terminated for any reason,In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of such termination.losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the distributions paid deduction, and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax. Qualification as a REIT is subject to the satisfaction of tax requirements and various factual matters and circumstances that are not entirely within our control. New legislation, regulations, administrative interpretations or court decisions could change the tax laws with respect to qualification as a REIT or the federal income tax consequences of being a REIT. Our failure to continue to qualify as a REIT would adversely affect the return of our stockholders’ investment. To qualify as a REIT, and to avoid the payment of federal income and excise taxes and maintain our REIT status, we may be forced to borrow funds, use proceeds from the issuance of securities, (including the Offering), or sell assets to pay distributions, which may result in our distributing amounts that may otherwise be used for our operations. To obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders at least 90% of our REIT taxable income, generally determined without regard to the deduction for distributions paid and by excluding net capital gains. We will be subject to federal income tax on our undistributed taxable income and net capital gain and subject to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income, and (3) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on acquisitionsthe acquisition, maintenance or development of properties and it is possible that we might be required to borrow funds, use proceeds from the issuance of securities or sell assets in order to distribute enough of our taxable income to maintain our REIT status and to avoid the payment of federal income and excise taxes. We may be required to make distributions to stockholders at times it would be more advantageous to reinvest cash in our business or when we do not have cash readily available for distribution, and we may be forced to liquidate assets on terms and at times unfavorable to us. These methods of obtaining funding could affect future distributions by increasing operating costs and decreasing available cash. In addition, such distributions may constitute a return of investors’investor’s capital for federal income tax purposes. Our stockholders may have tax liability on distributions they elect to reinvest in our common stock. If our stockholders participate in our distribution reinvestment plan, our stockholders will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in common stock to the extent the amount reinvested was not a tax-free return of capital. As a result, unless our stockholders are a tax-exempt entity, our stockholders may have to use funds from other sources to pay their tax liability on the value of the common stock received. If any of our partnerships fails to maintain its status as a partnership for federal income tax purposes, its income would be subject to taxation and our REIT status would be terminated. We intend to maintain the status of our partnerships, including our Operating Partnership, as partnerships for federal income tax purposes. However, if the Internal Revenue Service (IRS) were to successfully challenge the status of any of our partnerships as a partnership, it would be taxable as a corporation. Such an event would reduce the amount of distributions that such partnership could make to us. This would also result in our losing REIT status and becoming subject to a corporate level tax on our own income. This would substantially reduce our cash available to pay distributions and the return on our stockholders’ investments. In addition, if any of the entities through which any of our partnerships owns its properties, in whole or in part, loses its characterization as a partnership for federal income tax purposes, it would be subject to taxation as 34
a corporation, thereby reducing distributions to such partnership. Such a recharacterization of any of our partnerships or an underlying property owner could also threaten our ability to maintain REIT status. Our stockholders may have tax liability on distributions they elect to reinvest in our common stock.
If our stockholders participate in our distribution reinvestment plan, our stockholders will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in common stock to the extent the amount reinvested was not atax-free return of capital. As a result, unless our stockholders are atax-exempt entity, our stockholders may have to use funds from other sources to pay their tax liability on the value of the common stock received.
In certain circumstances, we may be subject to federal and state income taxes as a REIT, which would reduce our cash available for distribution to our stockholders. Even if we qualify and maintain our status as a REIT, we may be subject to federal income taxes or state taxes. For example, net income from a “prohibited transaction” will be subject to a 100% tax. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain income we earn from the sale or other disposition of our property and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that aretax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability. We may also be subject to state and local taxes on our income or property, either directly, at the level of our Operating Partnership, or at the level of any other companies through which we indirectly own our assets. Any federal or state taxes we pay will reduce our cash available for distribution to our stockholders. We may be required to pay some taxes due to actions of our taxable REIT subsidiaries, which would reduce our cash available for distribution to our stockholders. Any net taxable income earned directly by our taxable REIT subsidiaries, or through entities that are disregarded for federal income tax purposes as entities separate from our taxable REIT subsidiaries, will be subject to federal and possibly state corporate income tax. We have elected to treat Strategic Storage TRS II, Inc., as a taxable REIT subsidiary, and we may elect to treat other subsidiaries as taxable REIT subsidiaries in the future. In this regard, several provisions of the laws applicable to REITs and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation. For example, a taxable REIT subsidiary is limited in its ability to deduct certain interest payments made to an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on some deductions taken by a taxable REIT subsidiary if the economic arrangements between the REIT, the REIT’s customers, and the taxable REIT subsidiary are not comparable to similar arrangements between unrelated parties. Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to federal income tax on that income, because not all states and localities follow the federal income tax treatment of REITs. To the extent that we and our affiliates are required to pay federal, state and local taxes, we will have less cash available for distributions to our stockholders. Distributions totax-exempt investors may be classified as unrelated business taxable income. Neither ordinary nor capital gain distributions with respect to our common stock, nor gain from the sale of common stock, should generally constitute unrelated business taxable income (UBTI) to atax-exempt investor. However, there are certain exceptions to this rule. In particular: part of the income and gain recognized by certain qualified employee pension trusts with respect to our common stock may be treated as UBTI if shares of our common stock are predominately held by qualified employee pension trusts, and we are required to rely on a special look-through rule for purposes of meeting one of the REIT share ownership tests, and we are not operated in a manner to avoid treatment of such income or gain as UBTI; part of the income and gain recognized by a tax exempttax-exempt investor with respect to our common stock would constitute UBTI if the investor incurs debt in order to acquire the common stock; and part or all of the income or gain recognized with respect to our common stock by social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans which are exempt from federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) or (c)(20) of the Code may be treated as UBTI. Complying with the REIT requirements may cause us to forego otherwise attractive opportunities. To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of shares of our common stock. We may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution, or we may be required to liquidate 35
otherwise attractive investments in order to comply with the REIT tests. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits. Legislative or regulatory action could adversely affect investors. Individuals with incomes below certain thresholds are subject to federal income taxation on qualified dividends at a maximum rate of 15% qualified dividend rate.. For those with income above such thresholds, the qualified dividend rate is 20%. These tax rates are generally not applicable to distributions paid by a REIT, unless such distributions represent earnings on which the REIT itself has been taxed. As a result, distributions (other than capital gain distributions) we pay to individual investors generally will be subject to the tax rates that are otherwise applicable to ordinary income for federal income tax purposes, which currently aresubject to a 20% deduction for REIT dividends available as high as 39.6%. This disparityset forth in tax treatment may make an investment in our shares comparatively less attractive“An Act to individual investors than an investment inprovide for reconciliation pursuant to titles II and V of the shares ofnon-REIT corporations, and could have an adverse effectconcurrent resolution on the value of our common stock.budget for fiscal year 2018” (the “2017 Tax Act”). Our stockholders are urged to consult with their own tax advisoradvisors with respect to the impact of recent legislation on their investmentour stockholders’ investments in our common stock and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our common stock. Foreign purchasers of our common stock may be subject to FIRPTA tax upon the sale of their shares. A foreign person disposing of a U.S. real property interest, including shares of a U.S. corporation whose assets consist principally of U.S. real property interests, is generally subject to a tax, known as FIRPTA tax, on the gain recognized on the disposition. Such FIRPTA tax does not apply, however, to the disposition of stock in a REIT if the REIT is “domestically controlled.” A REIT is “domestically controlled” if less than 50% of the REIT’s stock, by value, has been owned directly or indirectly by persons who are not qualifying U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT’s existence. We cannot assure our stockholders that we will qualify as a “domestically controlled” REIT. If we were to fail to so qualify, gain realized by foreign investors on a sale of our shares would be subject to FIRPTA tax, unless our shares were traded on an established securities market and the foreign investor did not at any time during a specified testing period directly or indirectly own more than 5%10% of the value of our outstanding common stock. ERISA Risks There are special considerations that apply to qualified pension or profit-sharing trusts or IRAs investing in our shares which could cause an investment in our company to be a prohibited transaction and could result in additional tax consequences. If our stockholders are investing the assets of a qualified pension, profit-sharing, 401(k), Keogh or other qualified retirement plan or the assets of an IRA in our common stock, they should satisfy themselves that, among other things: their investment is consistent with their fiduciary obligations under ERISA and the Code; their investment is made in accordance with the documents and instruments governing their plan or IRA, including their plan’s investment policy; their investment satisfies the prudence and diversification requirements of ERISA; their investment will not impair the liquidity of the plan or IRA; their investment will not produce UBTI for the plan or IRA; they will be able to value the assets of the plan annually in accordance with ERISA requirements; and their investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of
the Code. 36
Persons investing the assets of employee benefit plans, IRAs, and other tax-favored benefit accounts should consider ERISA and related risks of investing in the shares. ERISA and Code Section 4975 prohibit certain transactions that involve (1) certain pension, profit-sharing, employee benefit, or retirement plans or individual retirement accounts and Keogh plans, and (2) any person who is a “party-in-interest” or “disqualified person” with respect to such a plan. Consequently, the fiduciary of a plan contemplating an investment in the shares should consider whether we, any other person associated with the issuance of the shares, or any of their affiliates is or might become a“party-in-interest” “party-in-interest” or “disqualified person” with respect to the plan and, if so, whether an exceptionexemption from such prohibited transaction rules is applicable. In addition, the Department of Labor (“DOL”) plan asset regulations provide that, subject to certain exceptions, the assets of an entity in which a plan holds an equity interest may be treated as assets of an investing plan, in which event the underlying assets of such entity (and transactions involving such assets) would be subject to the prohibited transaction provisions. We intend to take such steps as may be necessary to qualify us for one or more of the exceptionsexemptions available, and thereby prevent our assets as being treated as assets of any investing plan. ITEM 1B. | UNRESOLVED STAFF COMMENTS |
NoneNone.
As of December 31, 2016,2018, we owned 7783 self storage properties located in 14 states (Alabama, California, Colorado, Florida, Illinois, Indiana, Maryland, Michigan, New Jersey, Nevada, North Carolina, Ohio, South Carolina, and Washington) and Ontario, Canada (the Greater Toronto Area) comprising of approximately 46,92051,330 units and approximately 5.56.0 million rentable square feet. 37
As of December 31, 2016,2018, we owned the following 7783 self storage properties and two parcels of land: | Property | | Acquisition
Date | | Allocated
Purchase
Price | | | Year Built | | Approx.
Units | | | Approx.
Sq. Ft.
(net) | | | % of Total
Rentable
Sq. Ft. | | Physical
Occupancy
%(1) | | | Acquisition Date | | Allocated Purchase Price | | | Year Built | | Approx. Units(1) | | | Approx. Sq. Ft. (net)(2) | | | % of Total Rentable Sq. Ft. | | | Physical Occupancy %(3) | | Morrisville - NC | | 11/3/2014 | | $ | 2,442,000 | | | 2004 | | | 320 | | | | 36,900 | | | | 0.7 | % | | 91 | % | | 11/3/2014 | | $ | 2,442,000 | | | 2004 | | | 320 | | | | 36,900 | | | | 0.6 | % | | | 83 | % | Cary - NC | | 11/3/2014 | | $ | 4,398,500 | | | 1998/2005/2006 | | | 310 | | | | 62,100 | | | | 1.1 | % | | 86 | % | | 11/3/2014 | | | 4,398,500 | | | 1998/2005/2006 | | | 310 | | | | 62,100 | | | | 1.0 | % | | | 85 | % | Raleigh - NC | | 11/3/2014 | | $ | 3,763,500 | | | 1999 | | | 440 | | | | 60,600 | | | | 1.1 | % | | 91 | % | | 11/3/2014 | | | 3,763,500 | | | 1999 | | | 440 | | | | 60,600 | | | | 1.0 | % | | | 83 | % | Myrtle Beach I - SC | | 11/3/2014 | | $ | 6,052,000 | | | 1998/2005-2007 | | | 760 | | | | 100,100 | | | | 1.8 | % | | 94 | % | | 11/3/2014 | | | 6,052,000 | | | 1998/2005-2007 | | | 760 | | | | 100,100 | | | | 1.6 | % | | | 85 | % | Myrtle Beach II - SC | | 11/3/2014 | | $ | 5,444,000 | | | 1999/2006 | | | 660 | | | | 94,500 | | | | 1.7 | % | | 94 | % | | 11/3/2014 | | | 5,444,000 | | | 1999/2006 | | | 660 | | | | 94,500 | | | | 1.6 | % | | | 84 | % | La Verne - CA | | 1/23/2015 | | $ | 4,166,875 | | | 1986 | | | 520 | | | | 49,800 | | | | 0.9 | % | | 91 | % | | 1/23/2015 | | | 4,166,875 | | | 1986 | | | 520 | | | | 49,800 | | | | 0.8 | % | | | 90 | % | Chico - CA | | 1/23/2015 | | $ | 1,826,875 | | | 1984 | | | 360 | | | | 38,800 | | | | 0.7 | % | | 95 | % | | 1/23/2015 | | | 1,826,875 | | | 1984 | | | 360 | | | | 38,800 | | | | 0.6 | % | | | 97 | % | Riverside - CA | | 1/23/2015 | | $ | 2,806,875 | | | 1985 | | | 570 | | | | 61,000 | | | | 1.1 | % | | 93 | % | | 1/23/2015 | | | 2,806,875 | | | 1985 | | | 570 | | | | 61,000 | | | | 1.0 | % | | | 88 | % | Fairfield - CA | | 1/23/2015 | | $ | 3,926,875 | | | 1984 | | | 440 | | | | 41,000 | | | | 0.7 | % | | 92 | % | | 1/23/2015 | | | 3,926,875 | | | 1984 | | | 440 | | | | 41,000 | | | | 0.7 | % | | | 86 | % | Littleton - CO | | 1/23/2015 | | $ | 4,346,875 | | | 1985 | | | 400 | | | | 45,800 | | | | 0.8 | % | | 88 | % | | 1/23/2015 | | | 4,346,875 | | | 1985 | | | 400 | | | | 45,800 | | | | 0.8 | % | | | 80 | % | Crestwood - IL | | 1/23/2015 | | $ | 2,486,875 | | | 1987 | | | 460 | | | | 49,300 | | | | 0.9 | % | | 92 | % | | 1/23/2015 | | | 2,486,875 | | | 1987 | | | 460 | | | | 49,300 | | | | 0.8 | % | | | 88 | % | Forestville - MD | | 1/23/2015 | | $ | 6,696,875 | | | 1988 | | | 530 | | | | 55,200 | | | | 1.0 | % | | 88 | % | | 1/23/2015 | | | 6,696,875 | | | 1988 | | | 530 | | | | 55,200 | | | | 0.9 | % | | | 85 | % | Upland - CA | | 1/29/2015 | | $ | 6,276,875 | | | 1979 | | | 610 | | | | 56,500 | | | | 1.0 | % | | 96 | % | | 1/29/2015 | | | 6,276,875 | | | 1979 | | | 610 | | | | 56,500 | | | | 0.9 | % | | | 90 | % | Lancaster - CA | | 1/29/2015 | | $ | 1,806,875 | | | 1980 | | | 700 | | | | 64,700 | | | | 1.2 | % | | 95 | % | | 1/29/2015 | | | 1,806,875 | | | 1980 | | | 700 | | | | 64,700 | | | | 1.1 | % | | | 93 | % | Santa Rosa - CA | | 1/29/2015 | | $ | 10,466,875 | | | 1979-1981 | | | 1,150 | | | | 116,400 | | | | 2.1 | % | | 92 | % | | 1/29/2015 | | | 10,466,875 | | | 1979-1981 | | | 1,150 | | | | 116,400 | | | | 1.9 | % | | | 81 | % | Vallejo - CA | | 1/29/2015 | | $ | 5,286,875 | | | 1981 | | | 510 | | | | 54,400 | | | | 1.0 | % | | 84 | % | | 1/29/2015 | | | 5,286,875 | | | 1981 | | | 510 | | | | 54,400 | | | | 0.9 | % | | | 86 | % | Federal Heights - CO | | 1/29/2015 | | $ | 4,746,875 | | | 1983 | | | 450 | | | | 40,600 | | | | 0.7 | % | | 84 | % | | 1/29/2015 | | | 4,746,875 | | | 1983 | | | 450 | | | | 40,600 | | | | 0.7 | % | | | 82 | % | Santa Ana - CA | | 2/5/2015 | | $ | 9,276,875 | | | 1978 | | | 840 | | | | 84,500 | | | | 1.5 | % | | 94 | % | | 2/5/2015 | | | 9,276,875 | | | 1978 | | | 840 | | | | 84,500 | | | | 1.4 | % | | | 90 | % | La Habra - CA | | 2/5/2015 | | $ | 4,606,875 | | | 1981 | | | 420 | | | | 51,400 | | | | 0.9 | % | | 93 | % | | 2/5/2015 | | | 4,606,875 | | | 1981 | | | 420 | | | | 51,400 | | | | 0.9 | % | | | 89 | % | Monterey Park - CA | | 2/5/2015 | | $ | 4,426,875 | | | 1987 | | | 390 | | | | 31,200 | | | | 0.6 | % | | 92 | % | | 2/5/2015 | | | 4,426,875 | | | 1987 | | | 390 | | | | 31,200 | | | | 0.5 | % | | | 96 | % | Huntington Beach - CA | | 2/5/2015 | | $ | 10,876,875 | | | 1986 | | | 610 | | | | 61,000 | | | | 1.1 | % | | 95 | % | | 2/5/2015 | | | 10,876,875 | | | 1986 | | | 610 | | | | 61,000 | | | | 1.0 | % | | | 90 | % | Lompoc - CA | | 2/5/2015 | | $ | 4,036,875 | | | 1982 | | | 430 | | | | 46,500 | | | | 0.8 | % | | 93 | % | | 2/5/2015 | | | 4,036,875 | | | 1982 | | | 430 | | | | 46,500 | | | | 0.8 | % | | | 90 | % | Aurora - CO | | 2/5/2015 | | $ | 7,336,875 | | | 1984 | | | 890 | | | | 87,400 | | | | 1.6 | % | | 76 | % | | 2/5/2015 | | | 7,336,875 | | | 1984 | | | 890 | | | | 87,400 | | | | 1.4 | % | | | 74 | % | Everett - WA | | 2/5/2015 | | $ | 5,196,875 | | | 1986 | | | 490 | | | | 48,100 | | | | 0.9 | % | | 93 | % | | 2/5/2015 | | | 5,196,875 | | | 1986 | | | 490 | | | | 48,100 | | | | 0.8 | % | | | 86 | % | Whittier - CA | | 2/19/2015 | | $ | 5,916,875 | | | 1989 | | | 510 | | | | 58,600 | | | | 1.1 | % | | 95 | % | | 2/19/2015 | | | 5,916,875 | | | 1989 | | | 510 | | | | 58,600 | | | | 1.0 | % | | | 92 | % | Bloomingdale - IL | | 2/19/2015 | | $ | 4,996,874 | | | 1987 | | | 570 | | | | 58,200 | | | | 1.1 | % | | 92 | % | | 2/19/2015 | | | 4,996,874 | | | 1987 | | | 570 | | | | 58,200 | | | | 1.0 | % | | | 84 | % | Warren I - MI | | 5/8/2015 | | $ | 3,436,875 | | | 1996 | | | 500 | | | | 63,100 | | | | 1.1 | % | | 97 | % | | 5/8/2015 | | | 3,436,875 | | | 1996 | | | 500 | | | | 63,100 | | | | 1.0 | % | | | 88 | % | Warren II - MI | | | 5/8/2015 | | | 3,636,875 | | | 1987 | | | 490 | | | | 52,100 | | | | 0.9 | % | | | 86 | % | Troy - MI | | | 5/8/2015 | | | 4,816,875 | | | 1988 | | | 730 | | | | 82,200 | | | | 1.4 | % | | | 88 | % | Sterling Heights - MI | | | 5/21/2015 | | | 3,856,875 | | | 1977 | | | 460 | | | | 63,600 | | | | 1.1 | % | | | 91 | % | Beverly - NJ | | | 5/28/2015 | | | 2,176,875 | | | 1988 | | | 460 | | | | 51,000 | | | | 0.8 | % | | | 85 | % | Foley - AL | | | 9/11/2015 | | | 7,965,000 | | | 1985/1996/2006 | | | 1,080 | | | | 159,000 | | | | 2.6 | % | | | 87 | % | Tampa - FL | | | 11/3/2015 | | | 3,162,500 | | | 1985 | | | 510 | | | | 50,100 | | | | 0.8 | % | | | 91 | % | Boynton Beach – FL | | | 1/7/2016 | | | 17,900,000 | | | 2004 | | | 940 | | | | 74,800 | | | | 1.2 | % | | | 89 | % | Lancaster II – CA | | | 1/11/2016 | | | 4,650,000 | | | 1991 | | | 600 | | | | 86,200 | | | | 1.4 | % | | | 89 | % | Milton(4) | | | 2/11/2016 | | | 9,555,220 | | | 2006 | | | 850 | | | | 70,100 | | | | 1.2 | % | | | 90 | % | Burlington I(4) | | | 2/11/2016 | | | 13,910,898 | | | 2011 | | | 900 | | | | 79,700 | | | | 1.3 | % | | | 89 | % | Oakville I(4) | | | 2/11/2016 | | | 15,727,674 | | | 2016 | | | 820 | | | | 82,400 | | | | 1.4 | % | | | 90 | % | Oakville II(4) | | | 2/29/2016 | | | 12,913,885 | | | 2004 | | | 820 | | | | 92,700 | | | | 1.5 | % | | | 86 | % | Burlington II(4) | | | 2/29/2016 | | | 8,452,983 | | | 2008 | | | 460 | | | | 54,800 | | | | 0.9 | % | | | 87 | % | Xenia – OH | | | 4/20/2016 | | | 3,147,807 | | | 2003 | | | 470 | | | | 57,800 | | | | 1.0 | % | | | 83 | % | Sidney – OH | | | 4/20/2016 | | | 2,202,491 | | | 2003 | | | 410 | | | | 54,400 | | | | 0.9 | % | | | 86 | % | Troy – OH | | | 4/20/2016 | | | 2,923,660 | | | 2003 | | | 490 | | | | 59,200 | | | | 1.0 | % | | | 89 | % | Greenville – OH | | | 4/20/2016 | | | 2,124,526 | | | 2003 | | | 390 | | | | 46,700 | | | | 0.8 | % | | | 93 | % | Washington Court House - OH | | | 4/20/2016 | | | 2,309,691 | | | 2003 | | | 450 | | | | 54,200 | | | | 0.9 | % | | | 80 | % | Richmond – IN | | | 4/20/2016 | | | 3,362,209 | | | 2003 | | | 640 | | | | 64,700 | | | | 1.1 | % | | | 81 | % | Connersville – IN | | | 4/20/2016 | | | 1,929,616 | | | 2003 | | | 360 | | | | 47,400 | | | | 0.8 | % | | | 86 | % | Port St. Lucie I – FL | | | 4/29/2016 | | | 9,300,000 | | | 1999 | | | 530 | | | | 59,000 | | | | 1.0 | % | | | 87 | % | Sacramento – CA | | | 5/9/2016 | | | 8,150,000 | | | 2006 | | | 530 | | | | 62,200 | | | | 1.0 | % | | | 87 | % | Oakland – CA | | | 5/18/2016 | | | 12,912,774 | | | 1979 | | | 600 | | | | 67,200 | | | | 1.1 | % | | | 83 | % | Concord – CA | | | 5/18/2016 | | | 36,937,226 | | | 1988/1998 | | | 1,340 | | | | 157,400 | | | | 2.6 | % | | | 85 | % | Pompano Beach – FL | | | 6/1/2016 | | | 21,286,482 | | | 1979 | | | 870 | | | | 115,600 | | | | 1.9 | % | | | 87 | % |
38
Lake Worth – FL | | 6/1/2016 | | | 23,584,455 | | | 1998/2003 | | | 830 | | | | 126,800 | | | | 2.1 | % | | | 91 | % | Jupiter – FL | | 6/1/2016 | | | 27,434,567 | | | 1992/2012 | | | 820 | | | | 93,600 | | | | 1.6 | % | | | 91 | % | Royal Palm Beach – FL | | 6/1/2016 | | | 25,539,747 | | | 2001/2003 | | | 850 | | | | 111,000 | | | | 1.8 | % | | | 92 | % | Port St. Lucie II – FL | | 6/1/2016 | | | 14,059,963 | | | 2002 | | | 720 | | | | 108,000 | | | | 1.8 | % | | | 84 | % | Wellington – FL | | 6/1/2016 | | | 22,677,360 | | | 2005 | | | 730 | | | | 86,700 | | | | 1.4 | % | | | 86 | % | Doral – FL | | 6/1/2016 | | | 23,594,533 | | | 1998 | | | 1,030 | | | | 106,000 | | | | 1.8 | % | | | 88 | % | Plantation - FL | | 6/1/2016 | | | 33,250,050 | | | 2002/2012 | | | 910 | | | | 89,800 | | | | 1.5 | % | | | 89 | % | Naples – FL | | 6/1/2016 | | | 25,297,855 | | | 2002 | | | 800 | | | | 80,800 | | | | 1.3 | % | | | 82 | % | Delray – FL | | 6/1/2016 | | | 31,073,023 | | | 2003 | | | 900 | | | | 135,700 | | | | 2.3 | % | | | 91 | % | Baltimore – MD | | 6/1/2016 | | | 27,101,965 | | | 1990/2014 | | | 1,080 | | | | 117,700 | | | | 2.0 | % | | | 82 | % | Sonoma – CA | | 6/14/2016 | | | 7,425,000 | | | 1984 | | | 340 | | | | 44,600 | | | | 0.7 | % | | | 90 | % | Las Vegas I – NV | | 7/28/2016 | | | 13,935,000 | | | 2002 | | | 770 | | | | 106,800 | | | | 1.8 | % | | | 89 | % | Las Vegas II – NV | | 9/23/2016 | | | 14,200,000 | | | 2000 | | | 810 | | | | 101,400 | | | | 1.7 | % | | | 87 | % | Las Vegas III – NV | | 9/27/2016 | | | 9,250,000 | | | 1989 | | | 640 | | | | 82,200 | | | | 1.4 | % | | | 89 | % | Asheville I – NC | | 12/30/2016 | | | 15,094,379 | | | 1988/2005/2015 | | | 590 | | | | 95,600 | | | | 1.6 | % | | | 89 | % | Asheville II – NC | | 12/30/2016 | | | 5,010,839 | | | 1984 | | | 330 | | | | 43,400 | | | | 0.7 | % | | | 90 | % | Hendersonville I – NC | | 12/30/2016 | | | 4,639,666 | | | 1982 | | | 350 | | | | 39,400 | | | | 0.7 | % | | | 93 | % | Asheville III – NC | | 12/30/2016 | | | 9,970,126 | | | 1991/2002 | | | 420 | | | | 55,400 | | | | 0.9 | % | | | 91 | % | Arden – NC | | 12/30/2016 | | | 12,362,131 | | | 1973 | | | 570 | | | | 75,100 | | | | 1.2 | % | | | 79 | % | Asheville IV – NC | | 12/30/2016 | | | 9,238,090 | | | 1985/1986/2005 | | | 480 | | | | 58,300 | | | | 1.0 | % | | | 92 | % | Asheville V – NC | | 12/30/2016 | | | 10,485,644 | | | 1978/2009/2014 | | | 450 | | | | 98,100 | | | | 1.6 | % | | | 88 | % | Asheville VI – NC | | 12/30/2016 | | | 6,629,567 | | | 2004 | | | 380 | | | | 45,500 | | | | 0.8 | % | | | 91 | % | Asheville VII – NC | | 12/30/2016 | | | 3,031,249 | | | 1999 | | | 210 | | | | 26,700 | | | | 0.4 | % | | | 89 | % | Asheville VIII – NC | | 12/30/2016 | | | 8,145,191 | | | 1968/2002 | | | 380 | | | | 54,000 | | | | 0.9 | % | | | 92 | % | Hendersonville II – NC | | 12/30/2016 | | | 7,794,638 | | | 1989/2003 | | | 490 | | | | 71,000 | | | | 1.2 | % | | | 91 | % | Sweeten Creek Land – NC | | 12/30/2016 | | | 348,480 | | | N/A | | | — | | | | — | | | | 0.0 | % | | N/A | | Highland Center Land – NC | | 12/30/2016 | | | 50,000 | | | N/A | | | — | | | | — | | | | 0.0 | % | | N/A | | Aurora II - CO | | 1/11/2017 | | | 10,100,000 | | | 2012 | | | 400 | | | | 53,400 | | | | 0.9 | % | | | 85 | % | Dufferin(4) | | 2/1/2017 | | | 24,084,283 | | | 2015 | | | 1,070 | | | | 122,700 | | | | 2.0 | % | | | 89 | % | Mavis(4) | | 2/1/2017 | | | 20,519,378 | | | 2013 | | | 800 | | | | 99,900 | | | | 1.7 | % | | | 87 | % | Brewster(4) | | 2/1/2017 | | | 14,575,304 | | | 2013 | | | 770 | | | | 90,600 | | | | 1.5 | % | | | 89 | % | Granite(4) | | 2/1/2017 | | | 12,103,738 | | | 1998/2016 | | | 760 | | | | 80,700 | | | | 1.3 | % | | | 88 | % | Centennial(4) | | 2/1/2017 | | | 13,143,182 | | | 2016/2017 | | | 610 | | | | 66,500 | | | | 1.1 | % | | | 80 | % | Totals | | | | $ | 838,112,794 | | | | | | 51,330 | | | | 6,029,600 | | | | 100 | % | | | 87 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | Property | | Acquisition
Date | | Allocated
Purchase
Price | | | Year Built | | Approx.
Units | | | Approx.
Sq. Ft.
(net) | | | % of Total
Rentable
Sq. Ft. | | | Physical
Occupancy
%(1) | | Warren II - MI | | 5/8/2015 | | $ | 3,636,875 | | | 1987 | | | 490 | | | | 52,100 | | | | 0.9 | % | | | 93 | % | Troy - MI | | 5/8/2015 | | $ | 4,816,875 | | | 1988 | | | 730 | | | | 82,200 | | | | 1.5 | % | | | 95 | % | Sterling Heights - MI | | 5/21/2015 | | $ | 3,856,875 | | | 1977 | | | 460 | | | | 63,600 | | | | 1.2 | % | | | 92 | % | Beverly - NJ | | 5/28/2015 | | $ | 2,176,875 | | | 1988 | | | 460 | | | | 51,000 | | | | 0.9 | % | | | 89 | % | Foley - AL | | 9/11/2015 | | $ | 7,965,000 | | | 1985/1996/2006 | | | 1,080 | | | | 159,000 | | | | 2.9 | % | | | 92 | % | Tampa - FL | | 11/3/2015 | | $ | 3,162,500 | | | 1985 | | | 510 | | | | 50,100 | | | | 0.9 | % | | | 91 | % | Boynton Beach – FL | | 1/7/2016 | | $ | 17,900,000 | | | 2004 | | | 940 | | | | 74,800 | | | | 1.4 | % | | | 93 | % | Lancaster II – CA | | 1/11/2016 | | $ | 4,650,000 | | | 1991 | | | 600 | | | | 86,200 | | | | 1.6 | % | | | 94 | % | Milton(2) | | 2/11/2016 | | $ | 9,555,220 | | | 2006 | | | 850 | | | | 70,100 | | | | 1.3 | % | | | 85 | % | Burlington I(2) | | 2/11/2016 | | $ | 13,910,898 | | | 2011 | | | 900 | | | | 79,700 | | | | 1.4 | % | | | 89 | % | Oakville I(2) | | 2/11/2016 | | $ | 15,727,674 | | | 2016 | | | 820 | | | | 82,400 | | | | 1.5 | % | | | 46 | %(3) | Oakville II(2) | | 2/29/2016 | | $ | 12,913,885 | | | 2004 | | | 820 | | | | 92,700 | | | | 1.7 | % | | | 88 | % | Burlington II(2) | | 2/29/2016 | | $ | 8,452,983 | | | 2008 | | | 460 | | | | 54,800 | | | | 1.0 | % | | | 88 | % | Xenia – OH | | 4/20/2016 | | $ | 3,147,807 | | | 2003 | | | 470 | | | | 57,800 | | | | 1.0 | % | | | 89 | % | Sidney – OH | | 4/20/2016 | | $ | 2,202,491 | | | 2003 | | | 410 | | | | 54,400 | | | | 1.0 | % | | | 89 | % | Troy – OH | | 4/20/2016 | | $ | 2,923,660 | | | 2003 | | | 490 | | | | 59,200 | | | | 1.1 | % | | | 92 | % | Greenville – OH | | 4/20/2016 | | $ | 2,124,526 | | | 2003 | | | 390 | | | | 46,700 | | | | 0.8 | % | | | 90 | % | Washinton Court House - OH | | 4/20/2016 | | $ | 2,309,691 | | | 2003 | | | 450 | | | | 54,200 | | | | 1.0 | % | | | 92 | % | Richmond – IN | | 4/20/2016 | | $ | 3,362,209 | | | 2003 | | | 640 | | | | 64,700 | | | | 1.2 | % | | | 91 | % | Connersville – IN | | 4/20/2016 | | $ | 1,929,616 | | | 2003 | | | 360 | | | | 47,400 | | | | 0.9 | % | | | 96 | % | Port St. Lucie I – FL | | 4/29/2016 | | $ | 9,300,000 | | | 1999 | | | 530 | | | | 59,000 | | | | 1.1 | % | | | 92 | % | Sacramento – CA | | 5/9/2016 | | $ | 8,150,000 | | | 2006 | | | 530 | | | | 62,200 | | | | 1.1 | % | | | 94 | % | Oakland – CA | | 5/18/2016 | | $ | 12,912,774 | | | 1979 | | | 600 | | | | 67,200 | | | | 1.2 | % | | | 95 | % | Concord – CA | | 5/18/2016 | | $ | 36,937,226 | | | 1988/1998 | | | 1,340 | | | | 157,400 | | | | 2.9 | % | | | 92 | % | Pompano Beach – FL | | 6/1/2016 | | $ | 21,286,482 | | | 1979 | | | 870 | | | | 115,600 | | | | 2.1 | % | | | 94 | % | Lake Worth – FL | | 6/1/2016 | | $ | 23,584,455 | | | 1998/2003 | | | 830 | | | | 126,800 | | | | 2.3 | % | | | 96 | % | Jupiter – FL | | 6/1/2016 | | $ | 27,434,567 | | | 1992/2012 | | | 820 | | | | 93,600 | | | | 1.7 | % | | | 95 | % | Royal Palm Beach – FL | | 6/1/2016 | | $ | 25,539,747 | | | 2001/2003 | | | 850 | | | | 111,000 | | | | 2.0 | % | | | 97 | % | Port St. Lucie II – FL | | 6/1/2016 | | $ | 14,059,963 | | | 2002 | | | 720 | | | | 108,000 | | | | 2.0 | % | | | 96 | % | Wellington – FL | | 6/1/2016 | | $ | 22,677,360 | | | 2005 | | | 730 | | | | 86,700 | | | | 1.6 | % | | | 97 | % | Doral – FL | | 6/1/2016 | | $ | 23,594,533 | | | 1998 | | | 1,030 | | | | 106,000 | | | | 1.9 | % | | | 92 | % | Plantation - FL | | 6/1/2016 | | $ | 33,250,050 | | | 2002/2012 | | | 910 | | | | 89,800 | | | | 1.6 | % | | | 97 | % | Naples – FL | | 6/1/2016 | | $ | 25,297,855 | | | 2002 | | | 800 | | | | 80,800 | | | | 1.5 | % | | | 90 | % | Delray – FL | | 6/1/2016 | | $ | 31,073,023 | | | 2003 | | | 900 | | | | 135,700 | | | | 2.5 | % | | | 93 | % | Baltimore – MD | | 6/1/2016 | | $ | 27,101,965 | | | 1990/2014 | | | 1,080 | | | | 117,700 | | | | 2.1 | % | | | 89 | % | Sonoma – CA | | 6/14/2016 | | $ | 7,425,000 | | | 1984 | | | 340 | | | | 44,600 | | | | 0.8 | % | | | 96 | % | Las Vegas I – NV | | 7/28/2016 | | $ | 13,935,000 | | | 2002 | | | 770 | | | | 106,800 | | | | 1.9 | % | | | 92 | % | Las Vegas II – NV | | 9/23/2016 | | $ | 14,200,000 | | | 2000 | | | 810 | | | | 101,400 | | | | 1.8 | % | | | 89 | % | Las Vegas III – NV | | 9/27/2016 | | $ | 9,250,000 | | | 1989 | | | 640 | | | | 82,200 | | | | 1.5 | % | | | 91 | % | Asheville I – NC | | 12/30/2016 | | $ | 15,094,379 | | | 1988/2005/2015 | | | 590 | | | | 95,600 | | | | 1.7 | % | | | 93 | % | Asheville II – NC | | 12/30/2016 | | $ | 5,010,839 | | | 1984 | | | 330 | | | | 43,400 | | | | 0.8 | % | | | 97 | % | Hendersonville I – NC | | 12/30/2016 | | $ | 4,639,666 | | | 1982 | | | 350 | | | | 39,400 | | | | 0.7 | % | | | 93 | % | Asheville III – NC | | 12/30/2016 | | $ | 9,970,126 | | | 1991/2002 | | | 420 | | | | 55,400 | | | | 1.0 | % | | | 91 | % | Arden – NC | | 12/30/2016 | | $ | 12,362,131 | | | 1973 | | | 570 | | | | 75,100 | | | | 1.3 | % | | | 94 | % | Asheville IV – NC | | 12/30/2016 | | $ | 9,238,090 | | | 1985/1986/2005 | | | 480 | | | | 58,300 | | | | 1.1 | % | | | 91 | % | Asheville V – NC | | 12/30/2016 | | $ | 10,485,644 | | | 1978/2009/2014 | | | 450 | | | | 98,100 | | | | 1.8 | % | | | 90 | % | Asheville VI – NC | | 12/30/2016 | | $ | 6,629,567 | | | 2004 | | | 380 | | | | 45,500 | | | | 0.8 | % | | | 97 | % | Asheville VII – NC | | 12/30/2016 | | $ | 3,031,249 | | | 1999 | | | 210 | | | | 26,700 | | | | 0.5 | % | | | 90 | % | Asheville VIII – NC | | 12/30/2016 | | $ | 8,145,191 | | | 1968/2002 | | | 380 | | | | 54,000 | | | | 1.0 | % | | | 98 | % | Hendersonville II – NC | | 12/30/2016 | | $ | 7,794,638 | | | 1989/2003 | | | 490 | | | | 71,000 | | | | 1.3 | % | | | 93 | % | Sweeten Creek Land – NC | | 12/30/2016 | | $ | 348,480 | | | N/A | | | — | | | | — | | | | 0.0 | % | | | N/A | | Highland Center Land – NC | | 12/30/2016 | | $ | 50,000 | | | N/A | | | — | | | | — | | | | 0.0 | % | | | N/A | | | | | | | | | | | | | | | | | | | | | | | | | | | Totals | | | | $ | 743,586,909 | | | | | | 46,920 | | | | 5,515,800 | | | | 100 | % | | | 92 | % | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Includes all rentable units, consisting of storage units and parking (approximately 1,900 units). |
(2) | Includes all rentable square feet consisting of storage units and parking (approximately 540,000 square feet). |
(3) | Represents the occupied square feet divided by total rentable square feet as of December 31, 2016.2018. |
(2)(4) | This property isThese properties are located in Ontario, Canada (Greater Toronto Area). |
(3) | The Oakville I property opened in March of 2016 with occupancy at 0%. The property’s occupancy has increased to approximately 46% as of December 31, 2016. |
The weighted average capitalization rate at acquisition for the 7680 stabilized operating self storage facilities we owned as of December 31, 20162018 was approximately 5.4%5.3%. We also had three properties (Oakville I, Granite, and Centennial) that were lease up properties at acquisition. The weighted average capitalization rate is calculated as the estimated first year net operating income at the respective property divided by the property purchase price, exclusive of offering costs, closing costs and fees paid to our Advisor. Estimated first year net operating income on our real estate investments is total estimated revenues generally derived from the terms ofin-place leases, less property operating expenses generally based on the operating history of the property. In instances where management determines that historical amounts will not be representative of first year revenues or property operating expenses, management uses its best faith estimate of such amounts based on anticipated property operations. Estimated first year net operating income excludes interest expense, asset management fees, depreciation and amortization and our company-level general and administrative expenses. Historical operating income for these properties is not necessarily indicative of future operating results. 39
As of December 31, 2016,2018, our self storage portfolio was comprised as follows: | State | | No. of
Properties | | | Units(1) | | | Sq. Ft.
(net)(2) | | | % of Total
Rentable
Sq. Ft. | | Physical
Occupancy
%(3) | | Rental
Income
%(4) | | | No. of Properties | | | Units(1) | | | Sq. Ft. (net)(2) | | | % of Total Rentable Sq. Ft. | | | Physical Occupancy %(3) | | | Rental Income %(4) | | Alabama | | | 1 | | | | 1,080 | | | | 159,000 | | | | 2.9 | % | | 92 | % | | 2 | % | | | 1 | | | | 1,080 | | | | 159,000 | | | | 2.7 | % | | | 87 | % | | | 1.5 | % | California | | | 19 | | | | 11,470 | | | | 1,233,400 | | | | 22.4 | % | | 94 | % | | 30 | % | | | 19 | | | | 11,470 | | | | 1,233,400 | | | | 20.5 | % | | | 88 | % | | | 25.3 | % | Colorado | | | 3 | | | | 1,740 | | | | 173,800 | | | | 3.2 | % | | 81 | % | | 3 | % | | | 4 | | | | 2,140 | | | | 227,200 | | | | 3.8 | % | | | 79 | % | | | 3.2 | % | Florida | | | 13 | | | | 10,440 | | | | 1,237,900 | | | | 22.4 | % | | 93 | % | | 30 | % | | | 13 | | | | 10,440 | | | | 1,237,900 | | | | 20.5 | % | | | 88 | % | | | 24.5 | % | Illinois | | | 2 | | | | 1,030 | | | | 107,500 | | | | 1.9 | % | | 92 | % | | 2 | % | | | 2 | | | | 1,030 | | | | 107,500 | | | | 1.8 | % | | | 86 | % | | | 1.3 | % | Indiana | | | 2 | | | | 1,000 | | | | 112,100 | | | | 2.0 | % | | 93 | % | | 1 | % | | | 2 | | | | 1,000 | | | | 112,100 | | | | 1.9 | % | | | 83 | % | | | 1.1 | % | Maryland | | | 2 | | | | 1,610 | | | | 172,900 | | | | 3.1 | % | | 92 | % | | 4 | % | | | 2 | | | | 1,610 | | | | 172,900 | | | | 2.9 | % | | | 83 | % | | | 3.1 | % | Michigan | | | 4 | | | | 2,180 | | | | 261,000 | | | | 4.7 | % | | 94 | % | | 5 | % | | | 4 | | | | 2,180 | | | | 261,000 | | | | 4.3 | % | | | 89 | % | | | 3.7 | % | New Jersey | | | 1 | | | | 460 | | | | 51,000 | | | | 1.0 | % | | 89 | % | | 1 | % | | | 1 | | | | 460 | | | | 51,000 | | | | 0.8 | % | | | 85 | % | | | 0.8 | % | Nevada | | | 3 | | | | 2,220 | | | | 290,400 | | | | 5.3 | % | | 91 | % | | 5 | % | | | 3 | | | | 2,220 | | | | 290,400 | | | | 4.8 | % | | | 89 | % | | | 4.4 | % | North Carolina | | | 14 | | | | 5,720 | | | | 822,100 | | | | 14.9 | % | | 92 | % | | 3 | % | | | 14 | | | | 5,720 | | | | 822,100 | | | | 13.6 | % | | | 88 | % | | | 10.3 | % | Ohio | | | 5 | | | | 2,210 | | | | 272,300 | | | | 4.9 | % | | 90 | % | | 3 | % | | | 5 | | | | 2,210 | | | | 272,300 | | | | 4.5 | % | | | 86 | % | | | 2.6 | % | South Carolina | | | 2 | | | | 1,420 | | | | 194,600 | | | | 3.5 | % | | 94 | % | | 3 | % | | | 2 | | | | 1,420 | | | | 194,600 | | | | 3.2 | % | | | 85 | % | | | 2.7 | % | Washington | | | 1 | | | | 490 | | | | 48,100 | | | | 0.9 | % | | 93 | % | | 1 | % | | | 1 | | | | 490 | | | | 48,100 | | | | 0.8 | % | | | 86 | % | | | 0.9 | % | Ontario, Canada | | | 5 | | | | 3,850 | | | | 379,700 | | | | 6.9 | % | | | 79 | %(5) | | 7 | % | | | 10 | | | | 7,860 | | | | 840,100 | | | | 13.9 | % | | | 88 | % | | | | 14.6 | % | | | | | | | | | | | | | | | | | | | | | Total | | | 77 | | | | 46,920 | | | | 5,515,800 | | | | 100.0 | % | | | 92 | % | | | 100 | % | | | 83 | | | | 51,330 | | | | 6,029,600 | | | | 100 | % | | | 87 | % | | | | 100 | % | | | | | | | | | | | | | | | | | | | �� | |
(1) | Includes all rentable units, consisting of storage units and parking (approximately 1,900 units). |
(2) | Includes all rentable square feet consisting of storage units and parking (approximately 527,000540,000 square feet). |
(3) | Represents the occupied square feet of all facilities we owned in a state or province divided by total rentable square feet of all the facilities we owned in such state as of December 31, 2016.2018. |
(4) | Represents rental income (excludes administrative fees, late fees, and other ancillary income) for all facilities we owned in a state or province divided by our total rental income for the month of December 2016.2018. |
(5) | Physical occupancy includes the Oakville I property that opened in March of 2016 with occupancy at 0%. The property’s occupancy has increased to approximately 46% as of December 31, 2016. |
Subsequent Acquisitions
Acquisition of Aurora II PropertyOther Real Estate Investments
On January 11, 2017,June 28, 2018, we closed on a tract of land in East York ( the “East York Lot”), which is owned by a limited partnership (the “Limited Partnership”), in which we (through our subsidiary) and SmartCentres Real Estate Investment Trust (“SmartCentres”) (through its subsidiary) are each a 50% limited partner and each have an equal ranking general partner in the Limited Partnership. At closing, we subscribed for 50% of the units in the Limited Partnership at an agreed upon subscription price of approximately $3.8 million CAD, representing a contribution equivalent to 50% of the agreed upon fair market value of the land. The Limited Partnership intends to develop a self storage facility located in Aurora, Colorado (the “Aurora II Property”). We acquiredon the Aurora II Property fromEast York Lot. The value of the land contributed to the Limited Partnership had an unaffiliated third party for a purchase priceagreed upon fair market value of approximately $10.1$7.6 million plus closing costs and acquisition fees. Our Advisor earnedCAD. Subsequent to December 31, 2018, we sold our interest in the Limited Partnership to Strategic Storage Trust IV, Inc., a REIT sponsored by our Sponsor, for approximately $0.2$4.7 million in acquisition fees in connection with this acquisition. We financedCAD, which represented our total cost incurred related to the acquisition of the Aurora II Property with net proceeds from our Offering.Limited Partnership. Toronto Five Property PortfolioSubsequent Acquisitions
Strategic Storage Growth Trust, Inc. Merger On FebruaryOctober 1, 20172018, we, our Operating Partnership, and SST II Growth Acquisition, LLC, our wholly-owned subsidiary (“Merger Sub”), entered into a definitivean Agreement and Plan of Merger (the “Toronto“SSGT Merger Agreement”) pursuant to which SST II Toronto Acquisition, LLCwith Strategic Storage Growth Trust, Inc. (“Toronto Merger Sub”SSGT”), a wholly ownednon-traded REIT sponsored by our Sponsor, and newly formed subsidiarySS Growth Operating Partnership, L.P. (“SSGT OP”). Pursuant to the terms and conditions set forth in the Merger Agreement, on January 24, 2019: (i) we acquired SSGT by way of a merger of SSGT with and into Merger Sub, with Merger Sub being the surviving entity (the “SSGT REIT Merger”); and (ii) immediately after the SSGT REIT Merger, SSGT OP merged with and into our Operating Partnership, merged (the “Toronto Merger”) with the Operating Partnership continuing as the surviving entity and into Strategic Storage Toronto Properties REIT, Inc. (“SS Toronto”), with SS Toronto surviving the Toronto Merger and becomingremaining a wholly owned subsidiary of our Operating Partnership. In connectionthe Company (the “SSGT Partnership Merger” and, together with the TorontoSSGT REIT Merger, the “SSGT Mergers”).
40
As a result of the Mergers, we acquired fiveall of the real estate owned by SSGT, consisting of 28 operating self storage propertiesfacilities located in 10 states and in the Greater Toronto, Areas of North York, Mississauga, Brampton, PickeringCanada area, and Scarborough. Eachone development property is operated under the “SmartStop” brand. At the effective time of the Toronto Merger (the “Toronto Merger Effective Time”), each share of common stock, $0.001 par value per share, of SS Toronto issued and outstanding immediately prior to the Toronto Merger Effective Time was automatically converted into the right to receive $11.0651 USD in cash and 0.7311 Class A Units of our Operating Partnership (the “Toronto Merger Consideration”). We paid an aggregate of approximately $7.3 million USD in cash consideration and issued an aggregate of approximately 483,197 Class A Units of our Operating Partnership (the “Equity Consideration”) to the common stockholders of SS Toronto, consisting of Strategic 1031, LLC, a subsidiary of SmartStop Asset Management, LLC, our Sponsor, and SS Toronto REIT Advisors, Inc., an affiliate of our Sponsor.
In connection with the Toronto Merger, we entered into guarantees, dated as of February 1, 2017 (the “Guarantees”), under which we agreed to guarantee certain obligations of SS Toronto in an aggregate amount up to $52.5 million CAD (the “SS Toronto Loans”), with approximately $50.1 million CAD outstanding as of February 1, 2017. The SS Toronto Loans consist of (i) a term loan in the amountGreater Toronto Area, together comprising approximately 19,800 self storage units and approximately 2.2 million net rentable square feet of $34.8 million CAD pursuant to a promissory note executed by SS Toronto in favorstorage space. A summary of BankSSGT’s real estate portfolio is as follows (as of Montreal on June 3, 2016, and (ii) mortgage financings in the aggregate amount of up to $17.7 million CAD pursuant to two promissory notes executed by subsidiaries of SS Toronto in favor of DUCA Financial Services Credit Union Ltd. on June 3, 2016. In addition, on February 1, 2017, we paid approximately $33.1 million USD to an affiliate of Extra Space Storage, Inc. as repayment of outstanding debt and accrued interest owed by SS Toronto.December 31, 2018):
Property | | Approx. Units(1) | | | Approx. Sq. Ft. (net)(2) | | | Physical Occupancy %(3) | | | Ft. Pierce - FL | | 770 | | | | 88,400 | | | | 89 | % | | Russell Blvd , Las Vegas—NV | | | 1,210 | | | | 171,100 | | | | 92 | % | | Jones Blvd, Las Vegas—NV | | | 1,040 | | | | 89,000 | | | | 91 | % | | Airport Rd, Colorado Springs—CO | | 680 | | | | 61,800 | | | | 77 | % | | Riverside - CA | | 610 | | | | 60,100 | | | | 90 | % | | Stockton - CA | | 560 | | | | 49,100 | | | | 86 | % | | Azusa - CA | | 660 | | | | 64,400 | | | | 89 | % | | Romeoville - IL | | 680 | | | | 66,700 | | | | 86 | % | | Elgin - IL | | 410 | | | | 49,600 | | | | 84 | % | | San Antonio I - TX | | 490 | | | | 76,700 | | | | 86 | % | | Kingwood - TX | | 470 | | | | 60,100 | | | | 84 | % | | Aurora - CO | | 440 | | | | 59,500 | | | | 86 | % | | San Antonio II - TX | | 440 | | | | 83,400 | | | | 90 | % | | Stoney Creek I - TOR - CAN | | 780 | | | | 81,600 | | | | 36 | % | (3) | Torbarrie - TOR - CAN(4) | | 900 | | | | 85,000 | | | N/A | | | Baseline - AZ | | 840 | | | | 94,000 | | | | 90 | % | | 3173 Sweeten Creek Rd, Asheville—NC | | 650 | | | | 72,000 | | | | 45 | % | (3) | Elk Grove - IL | | 800 | | | | 82,000 | | | | 81 | % | (3) | Garden Grove - CA | | 960 | | | | 95,000 | | | | 86 | % | (3) | Deaverview Rd, Asheville—NC | | 370 | | | | 58,600 | | | | 81 | % | | Highland Center Blvd, Asheville—NC | | 490 | | | | 66,600 | | | | 84 | % | | Sarasota - FL | | 485 | | | | 48,000 | | | | 74 | % | (3) | Mount Pleasant - SC | | 500 | | | | 48,000 | | | | 64 | % | (3) | Nantucket - MA | | 840 | | | | 93,000 | | | | 88 | % | | Pembroke Pines - FL | | 870 | | | | 84,000 | | | | 51 | % | (3) | Riverview - FL | | 695 | | | | 54,000 | | | | 63 | % | (3) | Eastlake - CA | | 900 | | | | 86,000 | | | | 40 | % | (3) | McKinney - TX | | 730 | | | | 94,000 | | | | 83 | % | | Hualapai Way, Las Vegas—NV | | 570 | | | | 73,000 | | | | 15 | % | (3) | Totals | | | 19,840 | | | | 2,194,700 | | | | 77 | % | |
(1) | Includes all rentable units, consisting of storage units and parking units (approximately 520 units). |
(2) | Includes all rentable square feet consisting of storage units and parking units (approximately 154,000 square feet). |
(3) | Represents the occupied square feet divided by total rentable square feet as of December 31, 2018. The following properties were determined to be lease-up properties at acquisition due to their physical and economic occupancy: Elk Grove, Garden Grove, Sarasota, Mount Pleasant, Pembroke Pines, Riverview, Eastlake, 3173 Sweeten Creek Rd—Asheville, Stoney Creek, and the Hualapai Way—Las Vegas properties. |
(4) | The Torbarrie property in Toronto, Canada is a self storage property that is under construction as of December 31, 2018 with an expected completion date in the second half of 2019. |
41
(a) | (a) | From time to time, we are partymay become subject to legal proceedings that arisearising in the ordinary course of our business. We areAs of December 31, 2018, we were not aware ofparty to any material legal proceedings, of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor arewere we aware of any such legal proceedings contemplated by governmental authorities. |
(b) None.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not Applicable. 42
PART II ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information As of March 23, 2017,22, 2019, we had approximately 4850.6 million shares of Class A common stock outstanding and approximately 77.6 million shares of Class T common stock outstanding, held by a total of approximately 13,00012,700 stockholders of record. There is no established trading market for our common stock. Therefore, there is a risk that a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder, or at all. From April 14, 2016 toOur Offering terminated on January 9, 2017,2017. As of now, we were engaged in an offeringonly offer Class A and Class T shares pursuant to our DRP Offering, both of shares of our common stock to the publicwhich are offered at a price of $11.21$10.65 per Class A share and $10.62 per Class T share. As of January 10, 2017, we continue to issue shares at a price of approximately $10.09 per Class A share and approximately $10.09 per Class T share pursuant to our distribution reinvestment plan. Pursuant to the terms of our charter, certain restrictions are imposed on the ownership and transfer of shares. Unless and until our shares are listed for trading on a national securities exchange, it is not expected that a public market for our shares will develop. To assist fiduciaries of plans subject to the annual reporting requirements of ERISA and account trustees or custodians to prepare reports relating to an investment in our shares, we intend to provide reports of our quarterly and annual determinations of the current value of our net assets per outstanding share to those fiduciaries (including account trustees and custodians) who identify themselves to us and request the reports. Net Asset Value Determination On April 8, 2016,19, 2018, our board of directors, upon recommendation of the nominatingNominating and corporate governance committee,Corporate Governance Committee (the “Committee”), approved an estimated value per share of $10.09$10.65 for our Class A shares and Class T shares based on the estimated value of our assets less the estimated value of our liabilities, or net asset value, divided by the number of shares outstanding on an adjusted fully diluted basis, calculated as of December 31, 2015. The estimated value per share was based upon a valuation conducted by Duff & Phelps, LLC, a third party valuation and advisory firm, based on the methodologies and assumptions described further below. As a result of the calculation of our estimated value per share, effective on April 14, 2016, the offering price of Class A shares increased from $10.00 per share to $11.21 per share and the offering price of Class T shares increased from $9.47 per share to $10.62 per share. In addition, effective April 21, 2016, shares sold pursuant to our distribution reinvestment plan were sold at $10.09 per share for Class A and Class T shares.2017. On April 8, 2016, our board of directors approved an estimated value per share for our Class A shares and Class T shares of $10.09 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 December 31, 2015. We provided this estimated value per share to assist broker-dealers in connection with their obligations under applicable Financial Industry Regulatory Authority (“FINRA”) rules with respect to customer account statements and to assist fiduciaries in discharging their obligations under Employee Retirement Income Security Act (“ERISA”) reporting requirements. This valuation was performed in accordance with the provisions of Practice Guideline 2013-01, 2013-01,Valuations of Publicly RegisteredNon-Listed REITs REITs, issued by the Investment Program Association (“IPA”) in April 2013 (the
(the “IPA Guidelines”). Our board of directors previously approved an estimated value per share of our Class A shares and Class T shares of $10.22 as of December 31, 2016.
Our nominating and corporate governance committee (the “Committee”),The Committee comprised of our fourthree independent directors, was responsible for the oversight of the valuation process, including the review and approval of the valuation process and methodology used to determine our estimated value per share, the consistency of the valuation methodology with real estate standards and practices and the reasonableness of the assumptions used in the valuations and appraisals.
The Committee, approved the engagement of Duff & Phelps, LLC (“Duff & Phelps”), an independent third party real estate valuation and advisory firm, to provide appraisalsvaluation services for our assets and liabilities. In connection therewith, Duff & Phelps provided values for each of our properties owned as of December 31, 2017 and a calculation of a range of the estimated value per share of our Class A shares and Class T shares as of December 31, 2015.2017. The scope of work conducted by Duff & Phelps was in conformity with the requirements of the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute and each of the appraisals was prepared by Duff & Phelps personnel who are members of the Appraisal Institute and have the Member of Appraisal Institute (“MAI”) professional designation. We previously engaged Duff & Phelps to assist the Board in determining the estimated value per share of our common stock as of December 31, 2015 and 2016. Additionally, beginning in 2018 we engaged Duff & Phelps to provide valuations in connection with its allocations of purchase price for Generally Accepted Accounting Principles (“GAAP”) purposes for certain of our acquisitions. Other than its engagement asthe engagements described herein, Duff & Phelps does not have any direct or indirect material interest in any transaction with us or Strategic Storage Advisor II, LLC, our advisor.Advisor. We do not believe that there are any material conflicts of interest between Duff & Phelps, on the one hand, and us or our advisor,Advisor, on the other hand. We have agreed to indemnify Duff & Phelps against certain liabilities arising out of this engagement. 43
After considering all information provided, and based on the Committee’s extensive knowledge of our assets and liabilities, the Committee concluded that the range in estimated value per share of $9.47$9.98 to $10.69,$11.35, with an approximatemid-range value per share of $10.09,$10.65, as indicated in the valuation report provided by Duff & Phelps (the “Valuation Report”) was reasonable and recommended to our board of directors that it adopt $10.09$10.65 as the estimated value per share for our Class A shares and Class T shares. Our board of directors unanimously agreed upon the estimated value per share of $10.09$10.65 recommended by the Committee, which determination is ultimately and solely the responsibility of our board of directors. AsThe table below sets forth the calculation of December 31, 2015, our estimated value per share was calculated as follows:of December 31, 2017 and our previous estimated value per share as of December 31, 2016:
| | | | December 31, | | Assets | | | | 2017 | | | 2016 | | Real estate properties (on an individual property basis) | | $ | 207,600,000 | | | Cash and restricted cash | | | 28,514,962 | | | Real Estate Properties | | | $ | 999,660,000 | | | $ | 850,675,567 | | Additional assets | | | | | | | | | | Cash | | | | 7,355,422 | | | | 14,993,869 | | Restricted Cash | | | | 4,512,990 | | | | 3,040,936 | | Other assets | | | 5,828,183 | | | | 5,050,740 | | | | 5,120,318 | | | | | | | Total Assets | | $ | 241,943,145 | | | $ | 1,016,579,152 | | | $ | 873,830,690 | | | | | | | Liabilities | | | | | | | | | | | Mortgage debt | | $ | 22,437,841 | | | Debt | | | $ | 397,507,764 | | | $ | 321,356,434 | | Mark-to-market on mortgage debt | | | 934,475 | | | | (5,648,067 | ) | | | (4,887,361 | ) | Other liabilities | | | 3,341,621 | | | Accounts payable and accrued liabilities | | | | 7,451,848 | | | | 4,601,421 | | Due to affiliates | | | | 403,904 | | | | 218,958 | | Incentive distribution | | | 332,472 | | | | 4,491,853 | | | | — | | | | | | | Distributions payable | | | | 2,852,100 | | | | 2,608,609 | | Total Liabilities | | $ | 27,046,409 | | | $ | 407,059,402 | | | $ | 323,898,061 | | | | | | | Net Asset Value | | $ | 214,896,736 | | | $ | 609,519,750 | | | $ | 549,932,629 | | | | | | | Net Asset Value for Class A shares | | $ | 208,753,054 | | | $ | 531,251,035 | | | $ | 482,608,922 | | Number of Class A shares outstanding(1) | | | | 49,889,289 | | | | 47,210,195 | | Estimated value per Class A share | | | $ | 10.65 | | | $ | 10.22 | | Net Asset Value for Class T shares | | | $ | 78,268,715 | | | $ | 67,323,707 | | Number of Class T shares outstanding | | | | 7,350,142 | | | | 6,585,799 | | Estimated value per Class T share | | | $ | 10.65 | | | $ | 10.22 | |
| | | | | Number of Class A shares outstanding | | | 20,692,291 | | Estimated value per Class A share | | $ | 10.09 | | | | | | | Net Asset Value for Class T shares | | $ | 6,143,682 | | Number of Class T shares outstanding | | | 608,982 | | Estimated value per Class T share | | $ | 10.09 | | | | | | |
(1) | Includes outstanding units in our operating partnership (“OP Units”) and unvested restricted stock issued to our independent directors. |
Methodology and Key Assumptions In determining an estimated value per share, the board of directors considered information and analyses, including the Valuation Report provided by Duff & Phelps. Our goal in calculating an estimated value per share was to arrive at a value that was reasonable and supportable using what the board of directors deemed to be appropriate valuation methodologies and assumptions. The following is a summary of the valuation methodologies and assumptions used by the board of directors to value the Company’s assets and liabilities. Real Estate Properties As described above, weWe engaged Duff & Phelps to provide an appraisal, of our 33 self storage properties owned, as of December 31, 2015.2017, of our 83 self storage properties and two parcels of land being held for development (the “Appraised Properties”). Duff & Phelps’ opinion of value used in calculating our estimated value per share above is based on the individual asset values of each of the propertiesAppraised Properties in the portfolio on the valuation date in accordance with the IPA Guidelines. The appraisal was not intended to estimate or calculate our enterprise value. The appraisals were performed in accordance with the Code of Ethics and the Uniform Standards of Professional Appraisal Practice, or USPAP, the real estate appraisal industry standards created by The Appraisal Foundation, as well as the requirements of the state where each real property is located. Each appraisal was reviewed, approved and signed by an individual with the professional designation of MAI.
44
The scope of work by Duff & Phelps in performing the appraisal of our propertiesAppraised Properties included: reviewing and relying upon data provided by us regarding the number of units, size, year built, construction quality and construction type to understand the characteristics of the existing improvements and underlying land; reviewing and relying upon data provided by us regarding rent rolls, lease rates and terms, real estate taxes and operating expense data; reviewing and relying upon balance sheet items provided by us, such as cash and other assets as well as debt and other liabilities; reviewing and relying upon mortgage summaries and amortization schedules provided by us; researching the market by means of publications and other resources to measure current market conditions, supply and demand factors and growth patterns and their effect on our properties;the Appraised Properties; utilizing the income capitalization approach as the primary indicator of value with support from an aggregation and review of sales comparables to test Duff & Phelps’s income appraisal for reasonableness (with exception of the two vacant land parcels, for which Duff & Phelps used the sales comparison approach as a secondary methodology for each property;approach); and delivering a range of values with a midpoint estimate for each of the properties,Appraised Properties, as well as the underlying assumptions used in the analysis, including capitalization rates, discount rates, growth rates, and others as appropriate. The income capitalization approach is a valuation technique that provides an estimation of the value of an asset based on market expectations about the cash flows that an asset would generate over its remaining useful life. The income capitalization approach begins with an estimation of the annual cash flows a market participant would expect the subject asset to generate over a discrete projection period. The estimated cash flows for each of the years in the discrete projection period are then capitalized at an appropriate rate to derive an estimate of value (the “direct capitalization method”) or converted to their present value equivalent using a market-oriented discount rate appropriate for the risk of achieving the projected cash flows. Theflows (the “discounted cash flow method”). In the discounted cash flow method, the present value of the estimated cash flows are then added to the present value equivalent of the residual value of the asset which is calculated based upon applying a terminal capitalization rate to the projected net operating income of the property at the end of the discrete projection period to arrive at an estimate of value. Duff & Phelps utilized the direct capitalization method for the Appraised Properties that were deemed stabilized and the discounted cash flow method for the Appraised Properties that were not deemed stabilized. In utilizing the discounted cash flow method, Duff & Phelps estimated the value of the individual Appraised Properties primarily by using a multiple year discounted cash flow analysis. Duff & Phelps calculated the value of the individual Appraised Properties using our historical financial data and forecasts going forward, terminal capitalization rates and discount rates that fall within ranges Duff & Phelps believes would be used by similar investors to value each of the Appraised Properties. The capitalization rates and discount rates were calculated utilizing methodologies that adjust for market specific information and national trends in self storage. As a test of reasonableness, Duff & Phelps compared the metrics of the valuation of the Appraised Properties to current market activity of self storage properties. The sales comparison approach is a valuation technique that provides an estimation of value based on market prices in actual transactions and asking prices for assets. The valuation process is a comparison and correlation between the subject asset and other similar assets. Considerations such as time and condition of sale and terms of agreements are analyzed for comparable assets and are adjusted to arrive at an estimation of the fair value of the subject asset. In calculating the discounted cash flow valuation, Duff & Phelps estimatedutilized the value of our individual real estate assets primarily by using a multiple year discounted cash flow analysis. Duff & Phelps calculatedsales comparison approach only for the value of our individual real estate assets using our historical financial data and forecasts going forward, terminal capitalization rates and discount rates that fall within ranges Duff & Phelps believes would be used by similar investors to value each property we own. The capitalization rates and discount rates were calculated utilizing methodologies that adjust for market specific information and national trends in self storage. As a test of reasonableness, Duff & Phelps compared the metrics of the valuation of our assets to current market activity of self storage properties.two vacant land parcels.
From inception through December 31, 2015, we hadWe acquired the 33 self storage properties85 Appraised Properties for an aggregate purchase price of approximately $162.7 million, exclusive of acquisition fees and expenses.$838 million. As of December 31, 2015,2017, the total appraised midpoint value of ourthe individual real estate assetsAppraised Properties as provided by Duff & Phelps using the valuation method described above was approximately $207.6 million.$1.0 billion. This represents an approximate 27.6%19.3% increase in the total value of the real estate assetsAppraised Properties over the aggregate purchase price.
The following summarizes the range of overall capitalization rates used by Duff & Phelps to arrive at the estimated market values of the Appraised Properties valued using the direct capitalization method: Assumption | | Range in Values | | Weighted Average Basis | Overall Capitalization rate | | 4.75% to 6.50% | | 5.32% |
45
The following summarizes the key assumptions that were used by Duff & Phelps in the discounted cash flow models to estimate the value of our individual real estate assets:the Appraised Properties: | | | | | Assumption | | Range in Values | | Weighted��Average Basis | Terminal capitalization rate | | 5.75% to 7.25% | | 6.37% | Discount rate | | 7.0% to 8.5% | | 7.62% | Annual rent growth rate (market) | | 0.0% to 5.0% | | 0.1% | Annual expense growth rate | | 3.0% | | 3.0% | Holding Period | | 1 to 6 years | | N/A |
Assumption | | Range in Values | | Weighted Average Basis | Terminal capitalization rate | | 4.75% to 6.00% | | 5.38% | Discount rate | | 6.25% to 7.50% | | 6.83% | Annual rent growth rate (market) | | 0.0% to 20.00% | | 6.60% | Annual expense growth rate | | 3.41% to 6.94% | | 4.87% | Holding Period | | 1 to 2 years | | N/A |
While we believe that Duff & Phelps’ assumptions and inputs are reasonable, a change in these assumptions and inputs would change the estimated value of our real estate.the Appraised Properties. Assuming all other factors remain unchanged, a decrease in the overall capitalization rate used for the properties valued using the direct capitalization method of 50 basis points, together with a decrease in the terminal capitalization rate and discount rate used for the properties valued using the discounted cash flow method of 2550 basis points would increase our real estatethe value of the Appraised Properties to approximately $210.8 million and$1.099 billion. Similarly, an increase in the overall capitalization rate used for the properties valued using the direct capitalization method of 50 basis points, together with an increase in the terminal capitalization rate and discount rate used for the properties valued using the discounted cash flow method of 2550 basis points would decrease our real estatethe value of the Appraised Properties to approximately $204.0 million. Similarly, a decrease in the discount rate of 25 basis points would increase our real estate value to approximately $208.4 million and an increase in the discount rate of 25 basis points would decrease our real estate value to approximately $206.9$917 million. Mortgage Debt
The estimated value of ourthe aggregate mortgage debt was equal to the U.S. generally accepted accounting principles (“GAAP”) fair valueaggregate amount of all principal balances outstanding as of December 31, 2015.2017. The fair value of ourthe aggregate mortgage debt was determined by Duff & Phelps using a discounted cash flow analysis. The cash flows were based on the remaining loan terms, and on estimates of current market interest rates for instruments with similar characteristics, including remaining loan term,loan-to-value ratio, and type of collateral. As of December 31, 2015,2017, the fair value and carrying valueaggregate amount of our mortgageall principal balances outstanding of the debt were approximately $23.4$391.9 million and $23.2$397.5 million, respectively. Assuming all factors remain unchanged, a decrease in the interest rates of 2550 basis points would increase the fair value of ourthe mortgage debt by approximately $273,000$6.7 million and an increase in the interest rates of 2550 basis points would decrease the fair value of ourthe mortgage debt by approximately $269,000.$6.9 million. Other Assets and Liabilities The carrying values of the majority of our other assets and liabilities were considered to equal their book value. Adjustments to exclude the GAAP basis carrying value of certain assets were made to other assets in accordance with the IPA Guidelines. Our liability related to stockholder servicing fees has been valued using a liquidation value as of December 31, 2015.2017. The estimated value per share for the Class T Sharesshares does not reflect any obligation to pay future stockholder servicing fees since such fees would cease upon liquidation. Incentive Distribution The estimated value of the incentive distribution payabledue to our advisorthe Advisor and its affiliates is based on 15% of the appraisedamount by which our net asset value plus distributions paid exceeds a return of the real estate properties overstockholders’ capital plus a 6% cumulative, non-compounded, annual cumulative return to the stockholders. At the midpoint estimated value per share, Duff & Phelps assumed payment of an incentive distribution to affiliates and redemption of the applicable operatingspecial limited partnership unitsinterest held by our advisor. the Advisor.46
Limitations of Estimated Value Per Share FINRA rules provide no guidance on the methodology an issuer must use to determine its estimated value per share. As with any valuation methodology, the methodology considered by our board of directors is based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different estimated value per share, and these differences could be significant. Markets for real estate and real estate-related investments can fluctuate and values are expected to change in the future. The estimated value per share does not represent the fair value of our assets less its liabilities according to GAAP nor does it represent a liquidation value of our assets and liabilities or the amount at which our shares of common stock would trade on a national securities exchange. Accordingly, with respect to the estimated value per share, we can give no assurance that: a stockholder would be able to resell his or her shares at this estimated value; a stockholder would ultimately realize distributions per share equal to our estimated value per share upon liquidation of our assets and settlement of our liabilities or a sale of the company; our shares of common stock would trade at the estimated value per share on a national securities exchange; an independent third-party appraiser or other third-party valuation firm would agree with our estimated value per share; or the methodology used to estimate our value per share will be in compliance with any future FINRA rules or ERISA reporting requirements. Further, the estimated value per share is based on the estimated value of our assets less the estimated value of our liabilities divided by the number of shares outstanding on an adjusted fully diluted basis, calculated as of December 31, 2015.2017. The estimated net asset value per share was based upon 21,301,27357,239,431 shares of equity interests outstanding as of December 31, 2015,2017, which was comprised of (i) 20,684,79149,386,092 outstanding shares of our Class A common stock, plus (ii) 608,9827,350,142 outstanding shares of our Class T common stock, plus (iii) 7,500503,197 outstanding OP Units, which OP Units are exchangeable on a one-for-one basis into shares of unvested restricted Class A common stock issued to our independent directors which shares vest ratably over time.stock. The value of our shares will fluctuate over time in response to developments related to individual assets in the portfolio and the management of those assets, and in response to the real estate and finance markets. Distribution Reinvestment Plan In accordance with our DRP Offering, the price per share pursuant to the DRP Offering is equal to the estimated value per share approved by the Board and in effect on the date of purchase of shares under the DRP Offering. In connection with the estimated value per share described herein, the Board approved a share price for the purchase of shares under the DRP Offering equal to the estimated value per share of $10.65 for both Class A shares and Class T shares, to be effective for distribution payments being paid beginning in May 2018. Distributions We elected to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Code beginning with the taxable year ended December 31, 2014. By qualifying as a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the IRS grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT and intend to operate in the foreseeable future in such a manner that we will remain qualified as a REIT for federal income tax purposes. 47
For income tax purposes, distributions to common stockholders are characterized as ordinary dividends, capital gain dividends, or as nontaxable distributions. To the extent that we make a distribution in excess of our current or accumulated earnings and profits, the distribution will be anon-taxable return of capital, reducing the tax basis in each U.S. stockholder’s shares, and the amount of each distribution in excess of a U.S. stockholder’s tax basis in its shares will be taxable as gain realized from the sale of its shares. For 2014 and 2015, all of our distributions constitutednon-taxable returns of capital, which were paid from offering proceeds. For 2016, we paid a total of approximately $22.2 million in distributions, of which approximately $21.2 million constituted anon-taxable return of capital. Our Operating Partnership had issued For 2017, we paid a total of approximately 2.4$32.9 million Preferred Units forin distributions, of which approximately $59.5 million. The Preferred Units received current$27.9 million constituted a non-taxable return of capital. For 2018, we paid a total of approximately $33.6 million in distributions, (the “Current Distributions”) atof which approximately $31.4 million constituted a ratenon-taxable return ofone-month capital. LIBOR plus 6.5% per annum, payable monthly and calculated on an actual/360 basis. In addition to the Current Distributions, our Operating Partnership had the obligation to elect either to (A) pay the holder of the Preferred Units additional distributions monthly in an amount that will accrue at the rate of: (i) 4.35% until January 31, 2017; and (ii) thereafter, 6.35% or (B) defer the additional distributions in an amount that will accrue monthly at the rate of (i) for the period until January 31, 2017, LIBOR
plus 10.85% and (ii) thereafter, LIBOR plus 12.85% (the “Deferred Distributions”). On July 22, 2015, our Operating Partnership redeemed 240,000 Preferred Units for $6 million; on September 23, 2015, our Operating Partnership redeemed 340,000 Preferred Units for $8.5 million; and on October 30, 2015, our Operating Partnership redeemed 1.0 million Preferred Units for $25 million. The Redemption Price for the Preferred Units for the partial redemptions equaled the sum of the Liquidation Amount plus all accumulated and unpaid Current Distributions thereon to the date of redemption. On November 9, 2015, our Operating Partnership redeemed the remaining approximately 800,000 Preferred Units for approximately $22 million resulting in the redemption of all of the Preferred Units. The Redemption Price for the Preferred Units for the redemption of the remaining outstanding Preferred Units equaled the sum of the Liquidation Amount plus all accumulated and unpaid Current Distributions and any accumulated Deferred Distributions thereon to the date of redemption. As of November 9, 2015, there were no Preferred Units outstanding and we no longer have any obligations to the Preferred Investor, including the payment of any distributions.
The following table shows the distributions we have paid in cash and through our distribution reinvestment program throughplan for the years ended December 31, 2016:2017 and 2018: | | | | | | | | | | | | | | | | | Quarter | | Preferred
Unitholders | | | OP Unit
Holders | | | Common
Stockholders(1) | | | Distributions
Declared per
Common Share | | 1st Quarter 2014 | | $ | — | | | $ | — | | | $ | — | | | $ | 0.000 | | 2nd Quarter 2014 | | $ | — | | | $ | 1,282 | | | $ | 2,730 | | | $ | 0.062 | | 3rd Quarter 2014 | | $ | — | | | $ | 3,025 | | | $ | 57,157 | | | $ | 0.150 | | 4th Quarter 2014 | | $ | 33,306 | | | $ | 3,025 | | | $ | 171,664 | | | $ | 0.150 | | 1st Quarter 2015 | | $ | 123,931 | | | $ | 2,959 | | | $ | 280,049 | | | $ | 0.150 | | 2nd Quarter 2015 | | $ | 1,239,097 | | | $ | 3,025 | | | $ | 412,934 | | | $ | 0.150 | | 3rd Quarter 2015 | | $ | 970,499 | | | $ | 3,025 | | | $ | 588,688 | | | $ | 0.150 | | 4th Quarter 2015 | | $ | 2,575,778 | | | $ | 2,992 | | | $ | 1,393,420 | | | $ | 0.150 | | 1st Quarter 2016 | | $ | — | | | $ | 2,986 | | | $ | 3,319,251 | | | $ | 0.150 | | 2nd Quarter 2016 | | $ | — | | | $ | 3,017 | | | $ | 5,342,768 | | | $ | 0.150 | | 3rd Quarter 2016 | | $ | — | | | $ | 3,016 | | | $ | 6,411,358 | | | $ | 0.150 | | 4th Quarter 2016 | | $ | — | | | $ | 2,984 | | | $ | 7,076,707 | | | $ | 0.150 | |
Quarter | | OP Unit Holders(1) | | | Common Stockholders(1) | | | Distributions Declared per Common Share | | 1st Quarter 2017 | | $ | 25,197 | | | $ | 7,856,562 | | | $ | 0.150 | | 2nd Quarter 2017 | | $ | 76,100 | | | $ | 8,253,823 | | | $ | 0.150 | | 3rd Quarter 2017 | | $ | 76,100 | | | $ | 8,302,792 | | | $ | 0.150 | | 4th Quarter 2017 | | $ | 75,274 | | | $ | 8,264,124 | | | $ | 0.150 | | 1st Quarter 2018 | | $ | 74,446 | | | $ | 8,220,826 | | | $ | 0.150 | | 2nd Quarter 2018 | | $ | 76,100 | | | $ | 8,450,154 | | | $ | 0.150 | | 3rd Quarter 2018 | | $ | 76,100 | | | $ | 8,487,303 | | | $ | 0.150 | | 4th Quarter 2018 | | $ | 26,834 | | | $ | 8,465,629 | | | $ | 0.150 | |
(1) | Declared distributions are paid monthly in arrears |
The payment of distributions from sources other than cash flows from operations may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds. Over the long-term, we expect that a greater percentage of our distributions will be paid from cash flows from operations. However, our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including our ability to invest capital at favorable yields, the financial performance of our investments in the current real estate and financial environment and the types and mix of investments in our portfolio. As a result, future distributions declared and paid may exceed cash flow from operations. Securities Authorized for Issuance Under Equity Compensation Plans The following table provides details of our Employee and Director Long-Term Incentive Plan as of December 31, 2016,2018, under which shares of our Class A common stock are authorized for issuance. | | | | | | | | | | | | | Plan Category | | Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights | | | Weighted
Average Exercise
Price of
Outstanding
Options,
Warrants and
Rights | | | Number of Securities
Remaining for Future
Issuance Under
Equity Compensation
Plans(1) | | Equity Compensation Plans Approved by Security Holders | | | — | | | | — | | | | 5,358,5345,765,647 | | Equity Compensation Plans Not Approved by Security Holders | | | — | | | | — | | | | — | | | | | | | — | | | | — | | | | — | | Total | | | — | | | | — | | | | 5,358,534 | | | | | | | — | | | | — | | | | 5,765,647 | |
(1) | The total number of shares of our Class A common stock reserved for issuance under the Plan is equal to 10% of our outstanding shares of Class A and Class T common stock at any time, but not to exceed 10,000,000 shares in the aggregate. As of December 31, 2016,2018, we had 53,760,34257,970,849 outstanding shares of common stock. |
48
Recent Sales of Unregistered Securities On August 2, 2013, our Advisor purchased 100October 1, 2018, we issued approximately 483,124 shares of Class A common stock to Strategic 1031, LLC, a subsidiary of our Sponsor, in exchange for $1,000 and became483,124 Class A Units of our initial stockholder. These shares were issuedOperating Partnership in connection with the amalgamation of our Canadian entities. For more information, see Note 1—Overview to our Consolidated Financial Statements. Since this transaction was not considered to have involved a private transaction exempt from registration pursuant to“public offering” within the meaning of Section 4(2)4(a)(2) of the Securities Act of 1933, as amended. Use of Proceedsamended, the shares issued were exempt from Registered Securities
On January 10, 2014, our Initial Offering (SEC FileNo. 333-190983) for a maximum of 110 million shares of common stock, consisting of 100 million shares for sale to the public and 10 million shares for sale pursuant to our distribution reinvestment plan, was declared effective by the SEC. On September 28, 2015, we revised our Primary Offering and are now offering two classes of shares of common stock: Class A common stock, $0.001 par value per share (the “Class A Shares”) and Class T common stock, $0.001 par value per share (the “Class T Shares”). As of December 31, 2016, we had sold approximately 47 million Class A Shares and approximately 7 million Class T Shares in our Public Offering for gross proceeds of approximately $481 million and approximately $67 million, respectively. From this amount, we incurred approximately $51.2 million in selling commissions and dealer manager fees (of which approximately $37.2 million wasre-allowed to third party broker-dealers with an additional accrual of approximately $3.0 million in trailing service fees), and approximately $4.8 million in other organization and offering costs. With the net offering proceeds, Preferred Units and indebtedness, we acquired approximately $744 million in self storage facilities and made the other payments reflected under “Cash Flows from Financing Activities” in our consolidated statements of cash flows included in this report.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
As noted in Item 1 of this report and above, on August 2, 2013, our Advisor purchased 100 shares of common stock for $1,000 and became our initial stockholder.registration.
Redemption Program Our share redemption program enables our stockholders to have their shares redeemed by us, subject to the significant conditions and limitations described in our prospectus. For the year endedAs of December 31, 2016 we received2018, approximately $32.2 million of common stock was available for redemption requests totalingand approximately $1.3 million (approximately 138,000 shares), approximately $1.1 million of which was fulfilled during year ended December 31, 2016, with the remaining approximately $0.2 million included in accounts payableaccrued expenses and accruedother liabilities as of December 31, 2016 and fulfilled in January 2017. For2018. During the yearthree months ended December 31, 20152018, we received redemption requests totaling approximately $27,000, (approximately 2,850 shares), approximately $17,000 of which was fulfilled in July 2015, with the remaining approximately $10,000 fulfilled in January 2016. redeemed shares as follows:For the Month Ended | | Total Number of Shares Redeemed | | | Average Price Paid per Share | | | Total Number of Shares Redeemed as Part of Publicly Announced Plans or Programs | | | Maximum Number of Shares (or Units) That May Yet to be Purchased Under the Plans or Programs | October 31, 2018 | | | 464,592 | | | $ | 9.93 | | | | 464,592 | | | 2,085,222 | November 30, 2018 | | | — | | | $ | — | | | | — | | | 2,085,222 | December 31, 2018 | | | — | | | $ | — | | | | — | | | 2,085,222 |
49
ITEM 6. | SELECTED FINANCIAL DATA |
The following selected financial and operating information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the financial statements and related notes thereto included elsewhere in this Form10-K: | | | | As of and for the
Year Ended December 31, 2016 | | As of and for the
Year Ended December 31, 2015 | | As of and
for the Year Ended December 31, 2014 | | As of and for the Period January 8, 2013 (date of inception) through December 31, 2013 | | | As of and for the Year Ended December 31, 2018 | | | As of and for the Year Ended December 31, 2017 | | | As of and for the Year Ended December 31, 2016 | | | As of and for the Year Ended December 31, 2015 | | | As of and for the Year Ended December 31, 2014 | | Operating Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total revenues | | $ | 45,431,146 | | | $ | 17,905,699 | | | $ | 465,345 | | | $ | — | | | $ | 80,412,257 | | | $ | 76,108,906 | | | $ | 45,431,146 | | | $ | 17,905,699 | | | $ | 465,345 | | Operating loss | | | (14,910,503 | ) | | (5,076,880 | ) | | (2,256,865 | ) | | | — | | | Operating income (loss) | | | | 16,151,443 | | | | 3,575,111 | | | | (14,910,503 | ) | | | (5,076,880 | ) | | | (2,256,865 | ) | Net loss attributable to Strategic Storage Trust II, Inc. common stockholders | | | (26,090,385 | ) | | (15,290,941 | ) | | (2,396,385 | ) | | | — | | | | (3,698,377 | ) | | | (14,864,065 | ) | | | (26,090,385 | ) | | | (15,290,941 | ) | | | (2,396,385 | ) | Net loss per Class A common share-basic and diluted | | | (0.65 | ) | | (2.56 | ) | | (4.59 | ) | | | — | | | | (0.06 | ) | | | (0.27 | ) | | | (0.65 | ) | | | (2.56 | ) | | | (4.59 | ) | Net loss per Class T common share-basic and diluted | | | (0.65 | ) | | (2.56 | ) | | | — | | | | — | | | | (0.06 | ) | | | (0.27 | ) | | | (0.65 | ) | | | (2.56 | ) | | | — | | Dividends declared per common share | | | 0.60 | | | 0.60 | | | 0.60 | | | | — | | | | 0.60 | | | | 0.60 | | | | 0.60 | | | | 0.60 | | | | 0.60 | | Balance Sheet Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate facilities | | $ | 727,455,733 | | | $ | 156,244,550 | | | $ | 20,857,880 | | | $ | — | | | $ | 820,296,026 | | | $ | 829,679,477 | | | $ | 727,455,733 | | | $ | 156,244,550 | | | $ | 20,857,880 | | Total assets | | | 752,553,611 | | | 193,446,828 | | | 34,815,960 | | | 201,000 | | | | 796,354,037 | | | | 817,497,838 | | | | 752,553,611 | | | | 193,446,828 | | | | 34,815,960 | | Total debt | | | 320,820,740 | | | 23,029,775 | | | 13,260,182 | | | | — | | | | 406,084,103 | | | | 396,792,902 | | | | 320,820,740 | | | | 23,029,775 | | | | 13,260,182 | | Total liabilities | | | 331,209,006 | | | 26,371,397 | | | 18,334,234 | | | | — | | | | 418,870,325 | | | | 410,062,755 | | | | 331,209,006 | | | | 26,371,397 | | | | 18,334,234 | | Total equity | | | 410,632,923 | | | 165,851,948 | | | 11,380,097 | | | 201,000 | | | | 345,256,897 | | | | 382,938,024 | | | | 410,632,923 | | | | 165,851,948 | | | | 11,380,097 | | Other Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash used in operating activities | | $ | (1,587,221 | ) | | $ | (1,252,240 | ) | | $ | (334,442 | ) | | $ | — | | | Net cash provided by (used in) operating activities | | | $ | 18,359,125 | | | $ | 19,935,013 | | | $ | (874,470 | ) | | $ | (1,252,240 | ) | | $ | (334,442 | ) | Net cash used in investing activities | | | (510,295,408 | ) | | (140,865,350 | ) | | (13,688,652 | ) | | | — | | | | (3,179,291 | ) | | | (57,546,328 | ) | | | (508,377,715 | ) | | | (140,865,350 | ) | | | (13,688,652 | ) | Net cash provided by financing activities | | | 498,943,670 | | | 163,690,908 | | | 20,353,246 | | | 201,000 | | | Net cash (used in) provided by financing activities | | | | (12,541,473 | ) | | | 31,278,664 | | | | 498,943,670 | | | | 163,690,908 | | | | 20,353,246 | |
50
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis should be read in conjunction with the “Selected Financial Data” above and our accompanying consolidated financial statements and the notes thereto. See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I. Overview Strategic Storage Trust II, Inc., a Maryland corporation (the “Company”), was formed on January 8, 2013 under the Maryland General Corporation Law for the purpose of engaging in the business of investing in self storage facilities and related self storage real estate investments. Ouryear-end is December 31. As used in this report, “we,” “us,” “our,” and “Company” refer to Strategic Storage Trust II, Inc. and each of our subsidiaries. SmartStop Asset Management, LLC (our “Sponsor”), iswas the sponsor of our Offering (as defined below). Our Sponsor became our sponsor on October 1, 2015 in connection with the merger of SmartStop Self Storage, Inc. into Extra Space Storage, Inc. Our Sponsor owns 97.5% of the economic interests (and 100% of the voting membership interests) of Strategic Storage Advisor II, LLC, a Delaware limited liability company (our “Advisor”) and owns 100% of Strategic Storage Property Management II, LLC, a Delaware limited liability company (our(the “T2 Property Manager”). In addition, as a result of the SSGT Merger, certain of our properties are managed by SS Growth Property Management, LLC, which is also 100% owned by our Sponsor (the “GT Property Manager” and together with the T2 Property Manager, our “Property Manager”). See Note 1 of the Notes to the Consolidated Financial Statements contained in this report for further details about our affiliates. On January 10, 2014, we commenced a public offering of a maximum of $1.0 billion in common shares for sale to the public (the “Primary Offering”) and $95.0 million in common shares for sale pursuant to our distribution reinvestment plan (collectively, the “Offering”). On May 23, 2014, we satisfied the $1.5 million minimum offering requirements of our Offering and commenced formal operations. On September 28, 2015, we revised our Primary Offering and offered two classes of shares of common stock: Class A common stock, $0.001 par value per share (the “Class A Shares”) and Class T common stock, $0.001 par value per share (the “Class T Shares”). As of December 31, 2016, we hadOur Primary Offering terminated on January 9, 2017. We sold approximately 4748 million Class A Shares and approximately 7 million Class T Shares in our Offering for gross proceeds of approximately $481$493 million and approximately $67$73 million, respectively. Our Primary Offering terminated on January 9, 2017. In preparation forOn November 30, 2016, prior to the termination of our Offering, on November 30, 2016, we filed with the SEC a Registration Statement on FormS-3, which registered up to an additional $100.9 million in shares under our distribution reinvestment plan (our “DRP Offering”). The DRP Offering may be terminated at any time upon 10 days’ prior written notice to stockholders. As of December 31, 2018, we had sold approximately 2.7 million Class A Shares and approximately 0.4 million Class T Shares for approximately $27.8 million and $4.2 million, respectively, in our DRP Offering. As of December 31, 2016,2018, we owned 7783 self storage properties located in 14 states (Alabama, California, Colorado, Florida, Illinois, Indiana, Maryland, Michigan, New Jersey, Nevada, North Carolina, Ohio, South Carolina, and Washington) and Ontario, Canada (the Greater Toronto Area) comprising of approximately 46,92051,300 units and approximately 5.56.0 million rentable square feet. On October 1, 2018, we entered into a merger agreement with Strategic Storage Growth Trust, Inc., or SSGT, which we refer to as the SSGT Merger. The SSGT Merger was approved by SSGT's stockholders on January 18, 2019, and it was completed on January 24, 2019. Accordingly, the historical consolidated financial statements included herein represent the consolidated financial position, results of operations and cash flows of the Company prior to the SSGT Merger. As such, the consolidated financial statements included herein do not reflect the Company’s consolidated financial condition and results of operations in the future or what the Company’s financial condition and results of operations would have been had the SSGT Merger been completed during the historical periods presented. See Note 11, Subsequent Events—Merger with Strategic Storage Growth Trust, Inc., for additional information related to the SSGT Merger. Critical Accounting Policies We have established accounting policies which conform to generally accepted accounting principles (“GAAP”). Preparing financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. Following is a discussion of the estimates and assumptions 51
used in setting accounting policies that we consider critical in the presentation of our financial statements. Many estimates and assumptions involved in the application of GAAP may have a material impact on our financial condition or operating performance, or on the comparability of such information to amounts reported for other periods, because of the subjectivity and judgment required to account for highly uncertain items or the susceptibility of such items to change. These estimates and assumptions affect our reported amounts of assets and liabilities, our disclosure of contingent assets and liabilities at the dates of the financial statements and our reported amounts of revenue and expenses during the period covered by this report. If management’s judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied or different amounts of assets, liabilities, revenues and expenses would have been recorded, thus resulting in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements. Additionally, other companies may use different estimates and assumptions that may impact the comparability of our financial condition and results of operations to those companies. We believe that our critical accounting policies include the following: real estate purchase price allocations; the evaluation of whether any of our long-lived assets have been impaired; the determination of the useful lives of our long-lived assets; and the evaluation of the consolidation of our interests in joint ventures. The following discussion of these policies supplements, but does not supplant the description of our significant accounting policies, as contained in Note 2 of the Notes to the Consolidated Financial Statements contained in this report, and is intended to present our analysis of the uncertainties involved in arriving upon and applying each policy. Real Estate Purchase Price Allocation We account for acquisitions in accordance with GAAP which requires that we allocate the purchase pricesprice of acquired properties based on a number of estimates and assumptions. We allocate the purchase pricesproperty to the tangible and intangible assets acquired and the liabilities assumed based on estimatedtheir relative fair values. These estimatedThis guidance requires us to make significant estimates and assumptions, including fair values are based upon comparable market sales information forvalue estimates, which requires the use of significant unobservable inputs as of the acquisition date. The value of the tangible assets, consisting of land and estimates of depreciated replacement cost of equipment, building and site improvements. 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 we estimate based upon the relative size, age, and location of the individual property along with actual historical and estimated occupancy and rental rate levels, and other relevant factors. If available, andbuildings is determined by management to be appropriate, appraised values are used, rather than these estimated values.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 aremonth-to-month contracts, we do not expect to allocate any portion of the purchase prices to above or below market leases. The determinationWe also consider whether in-place, market leases represent an intangible asset. Acquisitions of marketportfolios of facilities are allocated to the individual facilities based upon an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates is also subject to a numberwhich take into account the relative size, age, and location of estimatesthe individual facility along with current and assumptions. 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, as such allocations may vary dramatically based on the estimates and assumptions we use. statements.Impairment of Long-Lived Assets The majority of our assets consist of long-lived real estate assets as well as intangible assets related to our acquisitions. We 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 financial statements or materially different amounts being reported in the financial statements, as the amount of impairment loss, if any, recognized may vary based on the estimates and assumptions we use. Estimated Useful Lives of Long-Lived Assets We assess the useful lives of the assets underlying our properties based upon a subjective determination of the period of future benefit for each asset. We record depreciation expense with respect to these assets based upon the estimated useful lives we determine. Our determinations of the useful lives of the assets could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements, as such determinations, 52
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 will evaluate the consolidation of our investments in joint ventures in accordance with relevant accounting guidance. This evaluation requires us to determine whether we have a controlling interest in a joint venture through a means other than voting rights, and, if so, such joint venture may be required to be consolidated in our financial statements. Our evaluation of our joint ventures under such accounting guidance could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements, as the joint venture entities included in our financial statements may vary based on the estimates and assumptions we use.use. REIT Qualification We made an election under Section 856(c) of the Internal Revenue Code of 1986 (the Code) to be taxed as a REIT under the Code, commencing with the taxable year ended December 31, 2014. By qualifying as a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is denied. Such an event could materially and adversely affect our net income and could have a material adverse impact on our financial condition and results of operations. However, we believe that we are organized and operate in a manner that will enable us to continue to qualify for treatment as a REIT for federal income tax purposes, and we intend to continue to operate as to remain qualified as a REIT for federal income tax purposes. Results of Operations Overview We derive revenues principally from: (i) rents received from tenants who rent storage units undermonth-to-month leases at each of our self storage facilities; and (ii) sales of packing- and storage-related supplies at our storage facilities.facilities; and (iii) our tenant insurance program. Therefore, our operating results depend significantly on our ability to retain our existing tenants and lease our available self storage units to new tenants, while maintaining and, where possible, increasing the prices for our self storage units. Additionally, our operating results depend on our tenants making their required rental payments to us.us, and, to a lesser degree, the success of our tenant insurance program. Competition in the market areas in which we operate is significant and affects the occupancy levels, rental rates, rental revenues and operating expenses of our facilities. Development of any new self storage facilities would intensify competition of self storage operators in markets in which we operate. As of December 31, 2016, 2015,2018, 2017, and 2014,2016, we owned 77, 33,83, 83, and five77 self storage facilities, respectively. Our operating results for the year ended December 31, 2014 include results for partial year periods for five self storage facilities that we owned as of December 31, 2014. Our operating results for the year ended December 31, 20152016 include full year periods for those five33 self storage facilities plus partial year periods for the 28 self storage facilities we acquired during 2015. Our operating results for the year ended December 31, 2016 included full year periods for the 33 properties owned as of December 31, 2015, plus partial year periods for the 44 self storage facilities we acquired during 2016. As such, we believe there is little basisOur operating results for comparison between the yearsyear ended December 31, 2017 included full year periods for the 77 self storage facilities owned as of December 31, 2016, 2015, and 2014.plus partial year periods for the six self storage facilities we acquired during 2017. Our operating results for the year ended December 31, 2018 included full year periods for the 83 self storage facilities owned as of December 31, 2017. Operating results in future periods will depend on the results of operations of these properties and of the real estate properties that we acquire in the future.
As discussed previously, the results of operations presented herein cover a period of time prior to the SSGT Merger. As such, this information does not reflect what the Company’s results of operations would have been had the SSGT Merger been completed during the historical periods presented. We expect our 2019 operating results to be significantly impacted by the SSGT Merger as a result of acquiring 28 operating self storage facilities. See Note 11 of the Notes to the Consolidated Financial Statements for more information regarding the SSGT Merger. Comparison of the Years Ended December 31, 20162018 and 20152017 Total Revenues Total revenues for the years ended December 31, 2018 and 2017 were approximately $80.4 million and $76.1 million, respectively. The increase in total revenue of approximately $4.3 million (or 5.7%) is primarily attributable to same-store 53
revenue growth of approximately $2.8 million and approximately $1.5 million related to a full year of operations for six self storage facilities acquired during the year ended December 31, 2017. Property Operating Expenses Property operating expenses for the years ended December 31, 2018 and 2017 were approximately $25.2 million (or 31.4% of total revenues) and $24.5 million (or 32.2% of total revenues), respectively. Property operating expenses includes the cost to operate our facilities including payroll, utilities, insurance, real estate taxes, and marketing. The increase in same-store property operating expenses of approximately $0.5 million is primarily attributable to an increase in advertising expense, repairs and maintenance, and property taxes, offset by a decrease in payroll. Property Operating Expenses – Affiliates Property operating expenses – affiliates for the years ended December 31, 2018 and 2017 were approximately $10.3 million and $10.6 million, respectively. Property operating expenses – affiliates includes property management fees and asset management fees. The decrease in property operating expenses – affiliates is primarily attributable to costs incurred in connection with the property management change (approximately $0.8 million) during the year ended December 31, 2017, offset by an increase in property management fees due to increased revenues (approximately $0.3 million). General and Administrative Expenses General and administrative expenses for the years ended December 31, 2018 and 2017 were approximately $4.8 million and $3.5 million, respectively. General and administrative expenses consist primarily of legal expenses, transfer agent fees, directors’ and officers’ insurance expense, an allocation of a portion of our Advisor’s payroll related costs, accounting expenses and board of directors’ related costs. The increase in general and administrative expenses is primarily attributable to increases in our Advisor’s payroll related and marketing costs as a result of the change in property management, board of directors’ costs related to the SSGT Merger, and legal costs related to the Canadian amalgamation. Depreciation and Amortization Expenses Depreciation and amortization expenses for the years ended December 31, 2018 and 2017 were approximately $22.8 million and $33.5 million, respectively. Depreciation expense consists primarily of depreciation on the buildings and site improvements at our properties. Amortization expense consists of the amortization of intangible assets resulting from our acquisitions. The decrease in depreciation and amortization expense is primarily attributable to certain of our intangible assets associated with in-place leases being fully amortized during 2017 and 2018. Acquisition Expenses – Affiliates Acquisition expenses – affiliates for the years ended December 31, 2018 and 2017 were approximately $0.1 million and $0.2 million, respectively. These acquisition expenses primarily relate to the costs associated with the SSGT Merger prior to such merger becoming probable in accordance with our capitalization policy during 2018, and the six self storage facilities acquired during 2017. Other Property Acquisition Expenses Other property acquisition expenses for the years ended December 31, 2018 and 2017 were approximately $1.1 million and $0.3 million, respectively. For the year ended December 31, 2018, these costs primarily relate to costs for the SSGT Merger prior to such merger becoming probable in accordance with our capitalization policy. Interest Expense and Accretion of Fair Market Value of Secured Debt Interest expense and the accretion of fair market value of secured debt for the years ended December 31, 2018 and 2017 were approximately $17.6 million and $16.0 million, respectively. The increase of approximately $1.6 million is primarily attributable to the additional debt obtained in conjunction with the six self storage facilities acquired during 2017, as well as an increase in interest rates as it relates to our variable rate debt. We expect interest expense to fluctuate in future periods commensurate with our future debt level and interest rates. 54
Interest Expense - Debt Issuance Costs Interest expense - debt issuance costs for the years ended December 31, 2018 and 2017 were approximately $1.6 million and $2.2 million, respectively. The decrease in interest expense – debt issuance costs is primarily attributable to approximately $0.8 million of debt issuance cost that were directly expensed in accordance with GAAP during 2017. We expect debt issuance costs to fluctuate commensurate with our future financing activity. Same-Store Facility Results – Years Ended December 31, 2018 and 2017 The following table sets forth operating data for our same-store facilities (those properties included in the consolidated results of operations since January 1, 2017, excluding Oakville I, which was a lease-up facility during 2017) for the years ended December 31, 2018 and 2017. We consider the following data to be meaningful as this allows for the comparison of results without the effects of acquisition or development activity. | | Same-Store Facilities | | | Non Same-Store Facilities | | Total | | | | 2018 | | | 2017 | | | % Change | | | 2018 | | | 2017 | | | % Change | | 2018 | | | 2017 | | | % Change | | Revenue (1) | | $ | 71,793,734 | | | $ | 69,021,588 | | | | 4.0 | % | | $ | 8,618,523 | | | $ | 7,087,318 | | | N/M | | $ | 80,412,257 | | | $ | 76,108,906 | | | | 5.7 | % | Property operating expenses (2) | | | 26,228,483 | | | | 25,525,292 | | | | 2.8 | % | | | 3,809,327 | | | | 3,471,935 | | | N/M | | | 30,037,810 | | | | 28,997,227 | | | | 3.6 | % | Property Operating income | | $ | 45,565,251 | | | $ | 43,496,296 | | | | 4.8 | % | | $ | 4,809,196 | | | $ | 3,615,383 | | | N/M | | $ | 50,374,447 | | | $ | 47,111,679 | | | | 6.9 | % | Number of facilities | | | 76 | | | | 76 | | | | | | | | 7 | | | | 7 | | | | | | 83 | | | | 83 | | | | | | Rentable square feet(3) | | | 5,433,400 | | | | 5,433,400 | | | | | | | | 596,200 | | | | 596,200 | | | | | | 6,029,600 | | | | 6,029,600 | | | | | | Average physical occupancy(4) | | | 88.5 | % | | | 92.7 | % | | | | | | N/M | | | N/M | | | | | | 88.5 | % | | | 91.5 | % | | | | | Annualized revenue per occupied square foot(5) | | $ | 15.81 | | | $ | 14.44 | | | | | | | N/M | | | N/M | | | | | $ | 15.89 | | | $ | 14.60 | | | | | |
N/M Not meaningful (1) | Revenue includes rental revenue, ancillary revenue, and administrative and late fees. |
(2) | Property operating expenses excludes corporate general and administrative expenses, asset management fees, interest expense, depreciation, amortization expense and acquisition expenses and costs incurred in connection with the property management transition during 2017, but includes property management fees. |
(3) | Of the total rentable square feet, parking represented approximately 540,000 as of December 31, 2018 and 2017. On a same-store basis, for the same periods, parking represented approximately 530,000 square feet. |
(4) | Determined by dividing the sum of the month-end occupied square feet for the applicable group of facilities for each applicable period by the sum of their month-end rentable square feet for the period. |
(5) | Determined by dividing the aggregate realized revenue for each applicable period by the aggregate of the month-end occupied square feet for the period. Properties are included in the respective calculations in their first full month of operations, as appropriate. We have excluded the realized rental revenue and occupied square feet related to parking herein for the purpose of calculating annualized rent per occupied square foot. |
Our increase in same-store revenue of approximately $2.8 million was primarily the result of increased revenue per occupied square foot of approximately 9.5% net of decreased average physical occupancy of approximately 4.2% for the year ended December 31, 2018 over the year ended December 31, 2017. Contributing to the increase was approximately $1.1 million of tenant insurance related revenue. Our same-store property operating expenses increased by approximately $0.7 million for the year ended December 31, 2018 compared to the year ended December 31, 2017 primarily due to an increase in property taxes, advertising expenses, and property management fees resulting from an increase in total revenue, partially offset by a decrease in payroll. 55
The following table presents a reconciliation of net loss, as presented on our consolidated statements of operations, to property operating income for the periods indicated: | | For the Year Ended December 31, | | | | 2018 | | | 2017 | | Net loss | | $ | (3,720,730 | ) | | $ | (14,986,290 | ) | Adjusted to exclude: | | | | | | | | | Costs incurred in connection with the property management changes (1) | | | — | | | | 775,709 | | Asset management fees (2) | | | 5,445,528 | | | | 5,346,280 | | General and administrative | | | 4,848,447 | | | | 3,457,907 | | Depreciation | | | 20,379,694 | | | | 19,939,856 | | Intangible amortization expense | | | 2,422,997 | | | | 13,512,217 | | Acquisition expenses—affiliates | | | 72,179 | | | | 212,577 | | Other property acquisition expenses | | | 1,054,159 | | | | 292,022 | | Interest expense | | | 18,002,274 | | | | 16,356,565 | | Interest expense—accretion of fair market value of secured debt | | | (413,353 | ) | | | (340,382 | ) | Interest expense—debt issuance costs | | | 1,582,049 | | | | 2,177,833 | | Other | | | 701,203 | | | | 367,385 | | Total property operating income | | $ | 50,374,447 | | | $ | 47,111,679 | |
(1) | Costs incurred in connection with the property management changes are included in Property operating expenses – affiliates in the consolidated statement of operations for the year ended December 31, 2017. |
(2) | Asset management fees are included in Property operating expenses – affiliates in the consolidated statements of operations. |
Comparison of the Years Ended December 31, 2017 and 2016 Total Revenues Total revenues for the years ended December 31, 20162017 and 20152016 were approximately $45.4$76.1 million and $17.9$45.4 million, respectively. The increase in total revenue is primarily attributable to a full year of operations for 33 properties77 self storage facilities and a partial year of operations for 44 propertiessix self storage facilities during the year ended December 31, 20162017 compared to a full year of operations for five properties33 self storage facilities and a partial year of operations of 28 properties44 self storage facilities during the year ended December 31, 2015. We expect total revenues to increase in future periods commensurate with our future acquisition activity.2016. Property Operating Expenses Property operating expenses for the years ended December 31, 20162017 and 20152016 were approximately $24.5 million (or 32.2% of total revenues) and $16.0 million and $6.8 million,(or 35.2% of total revenues), respectively. Property operating expenses includes the cost to operate our facilities including payroll, utilities, insurance, real estate taxes, and marketing. The increase in property operating expenses is primarily attributable to a full year of operations for 33 properties77 self storage facilities and a partial year of operations for 44 propertiessix self storage facilities during the year ended December 31, 20162017 compared to a full year of operations for five properties33 self storage facilities and a partial year of operations of 28 properties44 self storage facilities during the year ended December 31, 2015. We expect property operating expenses to increase in future periods commensurate with our future acquisition activity.2016. Property Operating Expenses – Affiliates Property operating expenses – affiliates for the years ended December 31, 20162017 and 20152016 were approximately $5.7$10.6 million and $2.1$5.7 million, respectively. Property operating expenses – affiliates includes property management fees and asset management fees. The increase in property operating expenses – affiliates is primarily attributable to a full year of operations for 33 properties77 self storage facilities and a partial year of operations for 44 propertiessix self storage facilities during the year ended December 31, 20162017 compared to a full year of operations for five properties33 self storage facilities and a partial year of operations of 28 properties44 self storage facilities during the year ended December 31, 2015. We expect2016, as well as costs incurred in connection with the property operating expenses – affiliates to increase in future periods commensurate with our future acquisition activity.management changes during the year ended December 31, 2017. 56
General and Administrative Expenses General and administrative expenses for the years ended December 31, 20162017 and 20152016 were approximately $2.9$3.5 million and $1.6$2.9 million, respectively. General and administrative expenses consist primarily of legal expenses, transfer agent fees, directors’ and officers’ insurance expense, an allocation of a portion of our Advisor’s payroll related costs, accounting expenses and board of directors’ related costs. The increase in general and administrative expenses is primarily attributable to increases in accounting, transfer agent, board of directors’, and legal costs commensurate with our increased operational activity. We expect general and administrative expenses to increase in the future as our operational activity increases, but decrease as a percentage of total revenues. Depreciation and Amortization Expenses Depreciation and amortization expenses for the years ended December 31, 20162017 and 20152016 were approximately $22.1$33.5 million and $9.1$22.1 million, respectively. Depreciation expense consists primarily of depreciation on the buildings and site improvements at our properties. Amortization expense consists of the amortization of intangible assets resulting from our acquisitions. The increase in depreciation and amortization expenses is primarily attributable to a full year of operations for 33 properties77 self storage facilities and a partial year of operations for 44 propertiessix self storage facilities during the year ended December 31, 20162017 compared to a full year of operations for five properties33 self storage facilities and a partial year of operations of 28 properties44 self storage facilities during the year ended December 31, 2015. We expect depreciation and amortization expenses to increase in future periods commensurate with our future acquisition activity. 2016.Acquisition Expenses – Affiliates Acquisition expenses – affiliates for the years ended December 31, 20162017 and 20152016 were approximately $10.7$0.2 million and $2.8$10.7 million, respectively. These acquisition expenses primarily relate to the costs associated with the 44 propertiessix self storage facilities acquired during 20162017 and 28 properties44 self storage facilities acquired during 2015. We expect acquisition expenses—affiliates to fluctuate commensurate with our acquisition activities.2016. Other Property Acquisition Expenses Other property acquisition expenses for the years ended December 31, 20162017 and 20152016 were approximately $3.0$0.3 million and $0.6$3.0 million, respectively. These acquisition expenses primarily relate to the due diligence costs associated with the 44 propertiessix self storage facilities acquired during 20162017 and 28 properties44 self storage facilities acquired during 2015. We expect other property acquisition expenses to fluctuate commensurate with our acquisition activities.2016. Interest Expense and Accretion of Fair Market Value of Secured Debt Interest expense and the accretion of fair market value of secured debt for the years ended December 31, 20162017 and 20152016 were approximately $7.1$16.0 million and $2.8$7.1 million, respectively. The increase is primarily attributable to the debt obtained in conjunction with the 44 propertiessix self storage facilities acquired during 20162017 and 28 properties44 self storage facilities acquired during 2015.2016. We expect interest expense and the accretion of fair market value of secured debt to increasefluctuate in future periods commensurate with our future debt level. Interest Expense - Debt Issuance Costs Interest expense - debt issuance costs for the years ended December 31, 20162017 and 20152016 were approximately $3.8$2.2 million and $1.0$3.8 million, respectively. The increasedecrease in interest expense - debt issuance costs is primarily attributable to the amortization of costs incurred in connection with obtaining financing for the acquisition of our self storage properties and approximately $0.8 million of costs incurred related to the KeyBank CMBS Loan that were expensed in accordance with GAAP.GAAP during 2016, and the amortization of debt issuance costs related to the Amended KeyBank Property Loan which were fully amortized in 2016. We expect debt issuance costs to fluctuate commensurate with our future financing activity. 57
Same-Store Facility Results – Years Ended December 31, 2017 and 2016 The following table sets forth operating data for our same-store facilities (those properties included in the consolidated results of operations since January 1, 2015)2016) for the years ended December 31, 20162017 and 2015.2016. We consider the following data to be meaningful as this allows for the comparison of results without the effects of acquisition or development activity. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Same-Store Facilities | | | Non Same-Store Facilities | | | Total | | | | | 2016 | | | 2015 | | | % Change | | | 2016 | | | 2015 | | | % Change | | | 2016 | | | 2015 | | | % Change | | Revenue (1) | | $ | 3,391,202 | | | $ | 3,021,667 | | | | 12.2 | % | | $ | 42,039,944 | | | $ | 14,884,032 | | | | N/M | | | $ | 45,431,146 | | | $ | 17,905,699 | | | | 153.7 | % | Property operating expenses (2) | | | 1,334,856 | | | | 1,215,923 | | | | 9.8 | % | | | 17,394,955 | | | | 6,660,899 | | | | N/M | | | | 18,729,811 | | | | 7,876,822 | | | | 137.8 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income | | $ | 2,056,346 | | | $ | 1,805,744 | | | | 13.9 | % | | $ | 24,644,989 | | | $ | 8,223,133 | | | | N/M | | | $ | 26,701,335 | | | $ | 10,028,877 | | | | 166.2 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of facilities | | | 5 | | | | 5 | | | | | | | | 72 | | | | 28 | | | | | | | | 77 | | | | 33 | | | | | | Rentable square feet (3) | | | 354,200 | | | | 354,200 | | | | | | | | 5,052,600 | | | | 1,671,400 | | | | | | | | 5,406,800 | | | | 2,025,600 | | | | | | Average physical occupancy (4) | | | 92.0 | % | | | 89.0 | % | | | | | | | N/M | | | | N/M | | | | | | | | 90.7 | % | | | 86.8 | % | | | | | Annualized rent per occupied square foot (5) | | $ | 11.30 | | | $ | 10.45 | | | | | | | | N/M | | | | N/M | | | | | | | $ | 13.90 | | | $ | 12.23 | | | | | |
| | Same-Store Facilities | | | Non Same-Store Facilities | | Total | | | | 2017 | | | 2016 | | | % Change | | | 2017 | | | 2016 | | | % Change | | 2017 | | | 2016 | | | % Change | | Revenue (1) | | $ | 25,720,362 | | | $ | 23,249,163 | | | | 10.6 | % | | $ | 50,388,544 | | | $ | 22,181,983 | | | N/M | | $ | 76,108,906 | | | $ | 45,431,146 | | | | 67.5 | % | Property operating expenses (2) | | | 9,626,363 | | | | 9,771,800 | | | | -1.5 | % | | | 19,370,864 | | | | 8,958,011 | | | N/M | | | 28,997,227 | | | | 18,729,811 | | | | 54.8 | % | Property Operating income | | $ | 16,093,999 | | | $ | 13,477,363 | | | | 19.4 | % | | $ | 31,017,680 | | | $ | 13,223,972 | | | N/M | | $ | 47,111,679 | | | $ | 26,701,335 | | | | 76.4 | % | Number of facilities | | | 33 | | | | 33 | | | | | | | | 50 | | | | 44 | | | | | | 83 | | | | 77 | | | | | | Rentable square feet(3) | | | 2,075,700 | | | | 2,075,700 | | | | | | | | 3,953,900 | | | | 3,331,100 | | | | | | 6,029,600 | | | | 5,406,800 | | | | | | Average physical occupancy(4) | | | 93.3 | % | | | 89.8 | % | | | | | | N/M | | | N/M | | | | | | 91.5 | % | | | 90.7 | % | | | | | Annualized revenue per occupied square foot(5) | | $ | 13.61 | | | $ | 12.80 | | | | | | | N/M | | | N/M | | | | | $ | 14.60 | | | $ | 13.90 | | | | | |
N/M Not meaningful (1) | Revenue includes rental revenue, ancillary revenue, and administrative and late fees. |
(2) | Property operating expenses excludes corporate general and administrative expenses, asset management fees, interest expense, depreciation, amortization expense, and acquisition expenses and costs incurred in connection with the property management transition during 2017, but includes property management fees. |
(3) | Of the total rentable square feet, parking represented approximately 527,000540,000 and approximately 100,000527,000 as of December 31, 20162017 and 2015,2016, respectively. On a same-store basis, for the same periods, parking represented approximately 43,000100,000 square feet. |
(4) | Determined by dividing the sum of themonth-end occupied square feet for the applicable group of facilities for each applicable period by the sum of theirmonth-end rentable square feet for the period. |
(5) | Determined by dividing the aggregate realized rental revenue for each applicable period by the aggregate of themonth-end occupied square feet for the period. Properties are included in the respective calculations in their first full month of operations, as appropriate. We have excluded the realized rental revenue and occupied square feet related to parking herein for the purpose of calculating annualized rent per occupied square foot. |
Our increase in same-store revenue of approximately $370,000$2.5 million was primarily the result of increased average physical occupancy of approximately 3%3.5% and increased rent per occupied square foot of approximately 8.1%6.3% for the year ended December 31, 20162017 over the year ended December 31, 2015.2016. Our same-store property operating expenses increaseddecreased by approximately $120,000$0.1 million for the year ended December 31, 20162017 compared to the year ended December 31, 20152016 primarily due to increased payrolldecreased repair and maintenance expense. 58
The following table presents a reconciliation of net loss as presented on our consolidated statements of operations to property tax expenses. Comparison of the Years Ended December 31, 2015 and 2014
Total Revenues
Total revenuesoperating income for the years ended December 31, 2015 and 2014 were approximately $17.9 million and $0.5 million, respectively. The increase in total revenues is primarily attributable to the acquisition of 28 self storage properties during 2015 and, to a lesser extent, a full year of operations from the five properties acquired during 2014. We expect total revenues to increase in future periods.periods indicated:
Property Operating Expenses
| | For the Year Ended December 31, | | | | 2017 | | | 2016 | | Net loss | | $ | (14,986,290 | ) | | $ | (26,103,609 | ) | Adjusted to exclude: | | | | | | | | | Costs incurred in connection with the property management changes (1) | | | 775,709 | | | | — | | Asset management fees (2) | | | 5,346,280 | | | | 2,970,847 | | General and administrative | | | 3,457,907 | | | | 2,860,653 | | Depreciation | | | 19,939,856 | | | | 11,213,663 | | Intangible amortization expense | | | 13,512,217 | | | | 10,864,617 | | Acquisition expenses—affiliates | | | 212,577 | | | | 10,729,535 | | Other property acquisition expenses | | | 292,022 | | | | 2,972,523 | | Interest expense | | | 16,356,565 | | | | 7,445,230 | | Interest expense—accretion of fair market value of secured debt | | | (340,382 | ) | | | (386,848 | ) | Interest expense—debt issuance costs | | | 2,177,833 | | | | 3,848,286 | | Other | | | 367,385 | | | | 286,438 | | Total property operating income | | $ | 47,111,679 | | | $ | 26,701,335 | |
Property operating expenses for the years ended December 31, 2015 and 2014 were approximately $6.8 million and $0.2 million, respectively. Property operating expenses includes the cost to operate our facilities including payroll, utilities, insurance, real estate taxes, and marketing. The increase in property operating expenses is primarily attributable to the acquisition of 28 self storage properties during 2015 and, to a lesser extent, a full year of operations from the five properties acquired during 2014.
(1) | Costs incurred in connection with the property management changes are included in Property operating expenses – affiliates in the consolidated statement of operations for the year ended December 31, 2017. |
(2) | Asset management fees are included in Property operating expenses – affiliates in the consolidated statements of operations. |
Property Operating Expenses – Affiliates
Property operating expenses – affiliates for the years ended December 31, 2015 and 2014 were approximately $2.1 million and $0.1 million, respectively. Property operating expenses – affiliates includes property management fees and asset management fees. The increase in property operating expenses – affiliates is primarily attributable to the acquisition of 28 self storage properties during 2015 and, to a lesser extent, a full year of operations from the five properties acquired during 2014.
General and Administrative Expenses
General and administrative expenses for the years ended December 31, 2015 and 2014 were approximately $1.6 million and $0.9 million, respectively. General and administrative expenses consist primarily of legal expenses, transfer agent fees, directors’ and officers’ insurance expense, an allocation of a portion of our Advisor’s payroll related costs, accounting expenses and board of directors’ related costs.
Depreciation and Amortization Expenses
Depreciation and amortization expenses for the years ended December 31, 2015 and 2014 were approximately $9.1 million and $0.3 million, respectively. Depreciation expense consists primarily of depreciation on the buildings and site improvements at our properties. Amortization expense consists of the amortization of intangible assets resulting from our acquisitions. The increase in depreciation and amortization expense is attributable to the acquisition of 28 self storage properties during 2015 and, to a lesser extent, a full year of operations from the five properties acquired during 2014.
Acquisition Expenses – Affiliates
Acquisition expenses – affiliates for the years ended December 31, 2015 and 2014 were approximately $2.8 million and $1.1 million, respectively. These acquisition expenses relate to the costs associated with the 28 properties acquired during 2015 and the five properties acquired in the fourth quarter of 2014.
Other Property Acquisition Expenses
Other property acquisition expenses for the years ended December 31, 2015 and 2014 were approximately $0.6 million and $0.2 million, respectively. These other property acquisition expenses relate to the costs associated with the 28 properties acquired during 2015 and the five properties acquired in the fourth quarter of 2014.
Interest Expense and Accretion of Fair Market Value of Secured Debt
Interest expense and the accretion of fair market value of secured debt for the years ended December 31, 2015 and 2014 were approximately $2.8 million and $0.1 million, respectively. The increase is attributable to the interest incurred on the debt used to finance the acquisitions of 28 properties acquired during 2015 and the five properties acquired in the fourth quarter of 2014.
Interest Expense - Debt Issuance Costs
Debt issuance costs for the years ended December 31, 2015 and 2014 were approximately $1.0 million and $4,000, respectively. The increase in debt issuance costs is attributable to the costs incurred in connection with obtaining financing for the acquisition of the 28 self storage properties during 2015 and approximately $0.5 million of costs incurred related to the Amended KeyBank Credit Facility that were expensed in accordance with GAAP.
Non-GAAP Financial Measures Funds from Operations and Modified Funds from Operations Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a measure known as funds from operations, or FFO, which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to our net income (loss) as determined under GAAP. We define FFO, anon-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004, or the White Paper. The White Paper defines FFO as net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of property and asset impairment write downs, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. Our FFO calculation complies with NAREIT’s policy described above. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Diminution in value may occur if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances or other measures necessary to maintain the assets are not undertaken. However, we believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. In addition, in the determination of FFO, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time. An asset will only be evaluated for impairment if certain impairment indications exist and if the carrying value, or book value, exceeds the total estimated undiscounted future cash flows (including net rental revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset. Testing for impairment is a continuous process and is analyzed on a quarterly basis. Investors should note, however, that 59
determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and that we intend to have a relatively limited term of our operations; it could be difficult to recover any impairment charges through the eventual sale of the property. To date, we have not recognized any impairments. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization and impairments, assists in providing a more complete understanding of our performance to investors and to our management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income (loss). However, FFO or modified funds from operations (“MFFO”), discussed below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be considered a more relevant measure of operational performance and is, therefore, given more prominence than thenon-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO. Changes in the accounting and reporting rules under GAAP that were put into effect and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, that areexpenses. Prior to January 1, 2018, when we adopted new accounting guidance, such costs were entirely expensed as operating expenses under GAAP. Subsequent to January 1, 2018, certain of such costs continue to be expensed. We believe these fees and expenses do not affect our overall long-term operating performance. Publicly registered,non-traded REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. The purchase of properties, and the corresponding expensesexpenditures associated with that process, is a key feature of our business plan in order to generate operational income and cash flow in order to make distributions to investors. While otherstart-up entities may also experience significant acquisition activity during their initial years, we believe that publicly registered,non-traded REITs are unique in that they typically have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases. As disclosed in the prospectus for our Offering, we will useWe have used the proceeds raised in our Offering, including our DRP Offering, to acquire properties, and we expect to begin the process of achieving a liquidity event (i.e., listing of our shares of common stock on a national securities exchange, a merger or sale, the sale of all or substantially all of our assets, or another similar transaction) within three to five years after the completion of our Primary Offering, which is generally comparable to other publicly registered,non-traded REITs. Thus, we do not intend to continuously purchase assets and intend to have a limited life. The decision whether to engage in any liquidity event is in the sole discretion of our board of directors. Due to the above factors and other unique features of publicly registered,non-traded REITs, the Investment Program Association, or the IPA, an industry trade group, has standardized a measure known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered,non-traded REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a publicly registered,non-traded REIT having the characteristics described above. MFFO is not equivalent to our net income (loss) as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not ultimately engage in a liquidity event. We believe that, because MFFO excludes any acquisition fees and expenses that affect our operations only in periods in which properties are acquired and that we consider more reflective of investing activities, as well as othernon-operating items included in FFO, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring our properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our Primary Offering has been completed and our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the publicly registered,non-traded REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our Primary Offering and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our Primary Offering has been completed and properties have been acquired, as it excludes any acquisition fees and expenses that have a negative effect on our operating performance during the periods in which properties are acquired. 60
We define MFFO, anon-GAAP measure, consistent with the IPA’s Guideline2010-01, Supplemental Performance Measure for Publicly Registered,Non-Listed REITs: Modified Funds From Operations (the “Practice Guideline”) issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items included in the determination of GAAP net income (loss): acquisition fees and expenses; amounts relating to straight line rents and amortization of above or below intangible lease assets and liabilities; accretion of discounts and amortization of premiums on debt investments;non-recurring impairments of real estate related investments;mark-to-market adjustments included in net income;non-recurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, adjustments relating to contingent purchase price obligations included in net income, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income (loss) in calculating cash flows from operations and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. Our MFFO calculation complies with the IPA’s Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses, the amortization of fair value adjustments related to debt, realized and unrealized gains and losses onmark to market adjustments recorded in net income related to our derivatives, adjustments from changes in foreign exchange holdingscurrency rates, and the adjustments of such items related to noncontrolling interests. The other adjustments included in the IPA’s Practice Guideline are not applicable to us for the periods presented. Acquisition fees and expenses are paid in cash by us, and we have not set aside or put into escrow any specific amount of proceeds from our Offering to be used to fund acquisition fees and expenses. We do not intend to fund acquisition fees and expenses in the future from operating revenues and cash flows, nor from the sale of properties and subsequentre-deployment of capital and concurrent incurringincurrence of acquisition fees and expenses. Acquisition fees and expenses include payments to our Advisor and third parties. AcquisitionCertain acquisition related expenses under GAAP are considered operating expenses and as expenses included in the determination of net income (loss) and income (loss) from continuing operations, both of which are performance measures under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. In the future, if we are not able to raise additional proceeds from our DRP Offering or other offerings, this could result in us paying acquisition fees or reimbursing acquisition expenses due to our Advisor, or a portion thereof, with net proceeds from borrowed funds, operational earnings or cash flows, net proceeds from the sale of properties, or ancillary cash flows. As a result, the amount of proceeds available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds. Further, under GAAP, certain contemplatednon-cash fair value and othernon-cash adjustments are considered operatingnon-cash adjustments to net income (loss) in determining cash flows from operations. In addition, we view fair value adjustments of derivatives and the amortization of fair value adjustments related to debt as items which are unrealized and may not ultimately be realized or as items which are not reflective ofon-going operations and are therefore typically adjusted for when assessing operating performance. We use MFFO and the adjustments used to calculate it in order to evaluate our performance against other publicly registered,non-traded REITs which intend to have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to publicly registered,non-traded REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures may be useful to investors. For example, acquisition fees and expenses are intended to be funded from the proceeds of our Offering and other financing sources and not from operations. By excluding any expensed acquisition fees and expenses, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such charges that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information. 61
Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations, which is an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other measurements as an indication of our performance. MFFO may be useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete. Neither the SEC, NAREIT, nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the publicly registered,non-traded REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO. The following is a reconciliation of net income (loss), which is the most directly comparable GAAP financial measure, to FFO and MFFO for each of the periods presented below: | | | | | | | | Year Ended December 31, 2018 | | | Year Ended December 31, 2017 | | | Year Ended December 31, 2016 | | | | | Year Ended
December 31,
2016 | | | Year Ended
December 31,
2015 | | | Year Ended
December 31,
2014 | | | Net loss attributable to Strategic Storage Trust II, Inc. common stockholders(1) | | $ | (26,090,385 | ) | | $ | (15,290,941 | ) | | $ | (2,396,385 | ) | | Net loss (attributable to common stockholders) | | | $ | (3,698,377 | ) | | $ | (14,864,065 | ) | | $ | (26,090,385 | ) | Add: | | | | | | | | | | | | | | | | | | | Depreciation | | | 11,132,336 | | | | 3,939,676 | | | | 93,433 | | | Depreciation of real estate | | | | 20,134,068 | | | | 19,777,620 | | | | 11,132,336 | | Amortization of intangible assets | | | 10,864,617 | | | | 5,142,417 | | | | 158,617 | | | | 2,422,997 | | | | 13,512,217 | | | | 10,864,617 | | Deduct: | | | | | | | | | | | | | | | | | | | Adjustment for noncontrolling interests | | | (10,818 | ) | | | (45,976 | ) | | | (3,414 | ) | | | (154,213 | ) | | | (274,222 | ) | | | (10,818 | ) | | | | | | | | | | | | FFO | | | (4,104,250 | ) | | | (6,254,824 | ) | | | (2,147,749 | ) | | FFO (attributable to common stockholders) | | | | 18,704,475 | | | | 18,151,550 | | | | (4,104,250 | ) | Other Adjustments: | | | | | | | | | | | | | | | | | | | Acquisition expenses(2) | | | 13,702,058 | | | | 3,401,321 | | | | 1,288,690 | | | Accretion of fair market value of secured debt(3) | | | (386,848 | ) | | | (91,061 | ) | | | (16,543 | ) | | Acquisition expenses(1) | | | | 1,126,338 | | | | 504,599 | | | | 13,702,058 | | Accretion of fair market value of secured debt(2) | | | | (413,353 | ) | | | (340,382 | ) | | | (386,848 | ) | Foreign currency and interest rate derivative (gains) losses, net(3) | | | | 151,777 | | | | (163,571 | ) | | | — | | Adjustment for noncontrolling interests | | | (7,145 | ) | | | (26,775 | ) | | | (7,007 | ) | | | (3,957 | ) | | | (3,773 | ) | | | (7,145 | ) | | | | | | | | | | | | MFFO | | $ | 9,203,815 | | | $ | (2,971,339 | ) | | $ | (882,609 | ) | | | | | | | | | | | | | MFFO (attributable to common stockholders) | | | $ | 19,565,280 | | | $ | 18,148,423 | | | $ | 9,203,815 | |
As discussed above, our results of operations for the years ended December 31, 2016, 2015,2018 and 20142017 have been significantly impacted by our acquisitions during each year.and an increase in same-store property net operating income, offset by increased interest and general and administrative expenses. The information below should be read in conjunction with the discussion regarding the acquisitions above. (1) | Net loss attributable to Strategic Storage Trust II, Inc. common stockholders for the years ended December 31, 2015, and 2014 included approximately $4.8 million, and $0.1 million, respectively, in distributions to Preferred Unitholders in our Operating Partnership and approximately $1.6 million and $28,000, respectively, in accretion of preferred equity costs. As of December 31, 2015, we had redeemed all of the Preferred Units. |
(2)
| In evaluating investments in real estate, we differentiate the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for publicly registered,non-traded REITs that have generally completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition related expenses, we believe MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our Advisor and third parties. Acquisition related expenses under GAAP are considered operating expenses and as expenses included in the determination of net income (loss) and income (loss) from continuing operations, both of which are performance measures under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. |
(3)(2)
| This represents the difference between the stated interest rate and the estimated market interest rate on assumed notes as of the date of acquisition. Such amounts have been excluded from MFFO because we believe MFFO provides useful supplementary information by focusing on operating fundamentals, rather than events not related to our normal operations. We are responsible for managing interest rate risk and do not rely on another party to manage such risk. |
62
(3) | This represents the mark-to-market adjustment for our derivative instruments not designated for hedge accounting and the ineffective portion of the change in fair value of derivatives recognized in earnings, as well as changes in foreign currency related to our foreign equity investments not classified as long term. These derivative contracts are intended to manage the Company’s exposure to interest rate and foreign currency risk which may not be reflective of our ongoing performance and may reflect unrealized impacts on our operating performance. Such amounts are recorded in “Other” within our consolidated statements of operations. |
Non-cash Items Included in Net Loss: Provided below is additional information related to selectednon-cash items included in net loss above, which may be helpful in assessing our operating results: DebtInterest expense - debt issuance costs of approximately $3.8$1.6 million, $1.0$2.2 million, and $4,000$3.8 million respectively, were recognized for the years ended December 31, 2016, 2015,2018, 2017, and 2014.2016.
Cash Flows A comparison of cash flows for operating, investing and financing activities for the years ended December 31, 20162018 and 20152017 are as follows: | | | | Year Ended
December 31, 2016 | | | Year Ended
December 31, 2015 | | | Change | | | Year Ended December 31, 2018 | | | Year Ended December 31, 2017 | | | Change | | Net cash flow provided by (used in): | | | | | | | | | | | | | | | | | | | Operating activities | | $ | (1,587,221 | ) | | $ | (1,252,240 | ) | | $ | (334,981 | ) | | $ | 18,359,125 | | | $ | 19,935,013 | | | $ | (1,575,888 | ) | Investing activities | | | (510,295,408 | ) | | | (140,865,350 | ) | | | (369,430,058 | ) | | $ | (3,179,291 | ) | | $ | (57,546,328 | ) | | $ | 54,367,037 | | Financing activities | | | 498,943,670 | | | | 163,690,908 | | | | 335,252,762 | | | $ | (12,541,473 | ) | | $ | 31,278,664 | | | $ | (43,820,137 | ) |
Cash flows used inprovided by operating activities for the years ended December 31, 20162018 and 20152017 were approximately $1.6$18.4 million and $1.3$19.9 million, respectively, a changedecrease of approximately $0.3$1.6 million. The changedecrease in cash used inprovided by our operating activities is primarily the result of an increase in net loss,income of $0.6 million, when excluding depreciation and amortization, and accretion of approximately $2.0 million (primarily the result of increased acquisition expense of approximately $10.3 million), offset by a changedecrease in working capital of approximately $1.6 million.$2.8 million. Cash flows used in investing activities for the years ended December 31, 20162018 and 20152017 were approximately $510$3.2 million and $141$57.5 million, respectively, an increasea decrease in the use of cash of approximately $369$54.4 million. The changedecrease in cash used in investing activities primarily relates to cash consideration paid of approximately $500$49.4 million for our acquisitions during the year ended December 31, 2016,2017, compared to $136 million for the purchase of our acquisitionsnone during the year ended December 31, 2015.2018. Cash flows provided by (used in) financing activities for the years ended December 31, 20162018 and 20152017 were approximately $499 million($12.5 million) and $164$31.3 million, respectively, an increase in the cash provideda decrease of approximately $335$43.8 million. The change in cash provided by (used in) financing activities was comprised ofis primarily attributable to approximately $128$18.9 million more in net proceeds from the issuance of common stock during the year ended December 31, 2017, compared to none for the same period in 2018, and approximately $207$17.1 million moreless in net proceeds from debt during the issuance of debt.year ended December 31, 2018 compared to the same period in 2017. Liquidity and Capital Resources Short-Term Liquidity and Capital Resources Our Primary Offering terminated on January 9, 2017. We generally expect that we will meet our short-term operating liquidity requirements from the combination of proceeds of our Offering,the proceeds from secured or unsecured financing from banks or other lenders, net cash provided by property operations and advances from our Advisor which will be repaid, without interest, as funds are available after meeting our current liquidity requirements, subject to the limitations on reimbursement set forth in our Advisory Agreement with our Advisor. Per the Advisory Agreement, all advances from our Advisor shall be reimbursed no less frequently than monthly, although our Advisor has indicated that it may waive such a requirement on amonth-by-month basis. 63
Subsequent to December 31, 2018, we repaid approximately $141.1 million of debt (approximately $99.5 million of which was due during 2019) in conjunction with the new financing used to fund the SSGT Merger. See Notes 5 and 11 of the Notes to the Consolidated Financial Statements for more information. Distribution Policy and Distributions On December 20, 2016,2018, our board of directors declared a distribution rate for the first quarter of 20172019 of $0.00164383561$0.001644 per day per share on the outstanding shares of common stock payable to both Class A and Class T stockholders of record of such shares as shown on our books at the close of business on each day during the period, commencing on January 1, 20172019 and continuing on each day thereafter through and including March 31, 2017.2019. In connection with this distribution, after the stockholder servicing fee is paid, approximately $0.0014 per day will be paid per Class T share. Such distributions payable to each stockholder of record during a month will be paid the following month. Currently,Historically, we are makinghave primarily made distributions to our stockholders using proceeds of the Offering in anticipation of future cash flow. As such, this reducesreduced the amount of capital we will ultimately had available to invest in properties. Because substantially all of our operations will be performed indirectly through our Operating Partnership, our ability to pay distributions depends in large part on our Operating Partnership’s ability to pay distributions to its partners, including to us. In the event we do not have enough cash from operations to fund cash distributions, we may borrow, issue additional securities or sell assets in order to fund the distributions. Though we presently intend to pay only cash distributions, and potentially stock distributions, we are authorized by our charter to payin-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 suchin-kind distributions; and(c) in-kind distributions are only made to those stockholders who accept such offer.
For some period after our Offering, we may not be able to pay distributions from our cash flows from operations, in which case distributions may be paid in part from debt financing. Over the long-term, we expect that a greater percentage of our distributions will be paid from cash flows from operations. However, our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including our ability to raise and invest capital at favorable yields, the financial performance of our investments in the current real estate and financial environment and the types and mix of investments in our portfolio. As a result, future distributions declared and paid may exceed cash flow from operations.
Distributions are paid to our stockholders based on the record date selected by our board of directors. We currently declare and pay distributions monthly based on daily declaration and record dates so that investors may be entitled to distributions immediately upon purchasing our shares. We expect to continue to regularly pay distributions unless our results of operations, our general financial condition, general economic conditions, or other factors inhibit us from doing so. Distributions will beare authorized at the discretion of our board of directors, which will beare directed, in substantial part, by its obligation to cause us to comply with the REIT requirements of the Code. Our board of directors may increase, decrease or eliminate the distribution rate that is being paid at any time. Distributions will beare made on all classes of our common stock at the same time. The per share amount of distributions on Class A Shares and Class T Shares will likely differ because of different allocations of class-specific expenses. Specifically, distributions on Class T Shares will likely beare lower than distributions on Class A Shares because Class T Shares are subject to ongoing stockholder servicing fees. The funds we receive from operations that are available for distribution may be affected by a number of factors, including the following: the amount of time required for us to invest the funds received in the Offering;
our operating and interest expenses; the amount of distributions or dividends received by us from our indirect real estate investments; our ability to keep our properties occupied; our ability to maintain or increase rental rates; construction defects or capital improvements; capital expenditures and reserves for such expenditures; the issuance of additional shares; and financings and refinancings. 64
The following shows our distributions paid and the sources of such distributions for the respective periods presented: | | | | Year Ended
December 31, 2016 | | | | | Year Ended
December 31, 2015 | | | | | | Year Ended December 31, 2018 | | | | | | | Year Ended December 31, 2017 | | | | | | Distributions paid in cash – common stockholders | | $ | 11,358,337 | | | | | $ | 1,497,802 | | | | | $ | 17,566,799 | | | | | | | $ | 16,671,024 | | | | | | Distributions paid in cash – Operating Partnership unitholders | | | 12,003 | | | | | 12,001 | | | | | | 253,480 | | | | | | | | 252,671 | | | | | | Distributions paid in cash – preferred unitholders | | | — | | | | | 4,909,305 | | | | | Distributions reinvested | | | 10,791,747 | | | | | 1,177,289 | | | | | | 16,057,113 | | | | | | | | 16,006,277 | | | | | | | | | | | | | | | | | | Total distributions | | $ | 22,162,087 | | | | | $ | 7,596,397 | | | | | $ | 33,877,392 | | | | | | | $ | 32,929,972 | | | | | | | | | | | | | | | | | | Source of distributions | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows provided by operations | | $ | — | | | | — | | | $ | — | | | | — | | | $ | 18,359,125 | | | | 54 | % | | $ | 19,935,013 | | | | 61 | % | Offering proceeds from Primary Offering | | | 11,370,340 | | | | 51 | % | | 6,419,108 | | | | 85 | % | | Offering proceeds from distribution reinvestment plan | | | 10,791,747 | | | | 49 | % | | 1,177,289 | | | | 15 | % | | | 15,518,267 | | | | 46 | % | | | 12,994,959 | | | | 39 | % | | | | | | | | | | | | | Total sources | | $ | 22,162,087 | | | | 100 | % | | $ | 7,596,397 | | | | 100 | % | | $ | 33,877,392 | | | | 100 | % | | $ | 32,929,972 | | | | 100 | % | | | | | | | | | | | | |
From our inception through December 31, 2016,2018, we paid cumulative distributions of approximately $30.0$96.8 million, as compared to cumulative negative FFO of approximately $12.5$24.3 million. For the year ended December 31, 2016,2018, we paid distributions of approximately $22.2$33.9 million, as compared to a negative FFO of approximately $4.1$18.7 million which reflects acquisition related expenses of approximately $13.7$1.1 million. For the year ended December 31, 2015,2017, we paid distributions of approximately $7.6$32.9 million, as compared to a negative FFO of approximately $6.3$18.2 million which reflects acquisition related expenses of approximately $3.4$0.5 million. The payment of distributions from sources other than FFO 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. We must distribute to our stockholders at least 90% of our taxable income each year in order to meet the requirements for being treated as a REIT under the Code. Our directors may authorize distributions in excess of this percentage as they deem appropriate. Because we may receive income from interest or rents at various times during our fiscal year, distributions may not reflect our income earned in that particular distribution period, but may be made in anticipation of cash flow that we expect to receive during a later period and may be made in advance of actual receipt of funds in an attempt to make distributions relatively uniform. To allow for such differences in timing between the receipt of income and the payment of expenses, and the effect of required debt payments, among other things, we could be required to borrow funds from third parties on a short-term basis, issue new securities, or sell assets to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT. We are not prohibited from undertaking such activities by our charter, bylaws or investment policies, and we may use an unlimited amount from any source to pay our distributions. These methods of obtaining funding could affect future distributions by increasing operating costs and decreasing available cash, which could reduce the value of our stockholders’ investment in our shares. In addition, such distributions may constitute a return of investors’ capital. We have not been able to and may not be able to pay distributions from our cash flows from operations, in which case distributions may be paid in part from debt financing or from proceeds from the issuance of common stock in our Primary Offering and pursuant to our distribution reinvestment plan. The payment of distributions from sources other than cash flows from operations may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds. Over the long-term, we expect that a greater percentage of our distributions will be paid from cash flows from operations. However, our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including our ability to raise and invest capital at favorable yields, the financial performance of our investments in the current real estate and financial environment and the types and mix of investments in our portfolio. As a result, future distributions declared and paid may exceed cash flow from operations. 65
Indebtedness As of December 31, 2016,2018, our total indebtedness was approximately $320.8$406.1 million, which included approximately $184.3$225.6 million in fixed rate debt, $137.0$182.6 million in variable rate debt and approximately $2.1$1.2 million in net debt premium less approximately $2.6$3.4 million in net debt issuance costs. As of December 31, 2018, $99.7 million of outstanding debt principal was due within one year; however, $99.5 million of this was repaid subsequent to December 31, 2018 in connection with the SSGT Merger. See Note 11 of the Notes to the Consolidated Financial Statements for more information regarding the SSGT Merger. Long-Term Liquidity and Capital Resources On a long-term basis, our principal demands for funds will be for property acquisitions, either directly or through entity interests, for the payment of operating expenses and distributions, and for the payment of interest on our outstanding indebtedness, if any. Long-term potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, issuance of equity instruments, undistributed funds from operations, and additional public or private offerings. To the extent we are not able to secure requisite financing in the form of a credit facility or other debt, we will be dependent upon proceeds from the issuance of equity securities and cash flows from operating activities in order to meet our long-term liquidity requirements and to fund our distributions. Contractual Obligations The following table summarizes our contractual obligations as of December 31, 2016:2018: | | | | Payments due during the years ending December 31: | | | Payments due during the years ending December 31: | | | | | Total | | | 2017 | | | 2018-2019 | | | 2020-2021 | | | Thereafter | | | Total | | | 2019 | | | 2020-2021 | | | 2022-2023 | | | Thereafter | | Debt interest(1) | | $ | 68,776,563 | | | $ | 10,544,304 | | | $ | 17,304,143 | | | $ | 15,786,780 | | | $ | 25,141,336 | | | $ | 77,449,470 | | | $ | 16,154,476 | | | $ | 23,339,909 | | | $ | 19,093,409 | | | $ | 18,861,676 | | Debt principal(2) | | | 321,356,435 | | | | 110,873,322 | | | | 26,296,992 | | | | 14,828,279 | | | | 169,357,842 | | | | | | | | | | | | | | | | | | | | Debt principal(2)(3) | | | | 408,240,502 | | | | 99,690,629 | | | | 87,192,030 | | | | 35,264,632 | | | | 186,093,211 | | Total contractual obligations | | $ | 390,132,998 | | | $ | 121,417,626 | | | $ | 43,601,135 | | | $ | 30,615,059 | | | $ | 194,499,178 | | | $ | 485,689,972 | | | $ | 115,845,105 | | | $ | 110,531,939 | | | $ | 54,358,041 | | | $ | 204,954,887 | | | | | | | | | | | | | | | | | | |
(1) | Interest expense for fixed rate debt was calculated based upon the contractual rate and the interest expense on variable rate debt was calculated based on the rate in effect on December 31, 2016.2018. Interest expense on the Amended KeyBank Credit Facility was calculated presuming the amount outstanding as of December 31, 20162018 would remain outstanding through the maturity date of February 20, 2019. Debt denominated in foreign currency has been converted based on the rate in effect as of December 22,31, 2018. |
(2) | Amount represents principal payments only, excluding debt premium.premium and debt issuance costs. |
(3) | On January 24, 2019, in conjunction with the SSGT Merger, we entered into financing for an aggregate initial draw of approximately $500.2 million and repaid approximately $141.1 million of existing debt ($99.5 million of which was due in 2019). See Notes 5 and Note 11 of the Notes to the Consolidated Financial Statements for more information regarding the financing related to the SSGT Merger. |
Off-Balance Sheet Arrangements WeOther than our joint venture with SmartCentres and our tenant insurance joint venture, both of which are accounted for using the equity method of accounting, we do not currently have any relationships with unconsolidated entities or financial partnerships. Such entities are often referred to as structured finance or special purpose entities, which typically are established for the purpose of facilitatingoff-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.
Subsequent Events Please see Note 11 of the Notes to the Consolidated Financial Statements contained in this report. Seasonality We believe that we will experience minor seasonal fluctuations in the occupancy levels of our facilities, which we believe will be slightly higher over the summer months due to increased moving activity. 66
ITEM 7A. | QUANTITATIVE AND QUALITATIVEQUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk and to a lesser extent, foreign currency risk. We may be exposed to the effects of interest rate changes primarily as a result of borrowings used to maintain liquidity and fund acquisition, expansion, and financing of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve our objectives, we may borrow at fixed rates or variable rates. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes. As of December 31, 2016,2018, our total indebtedness was approximately $320.8$406.1 million, which included approximately $184.3$225.6 million in fixed rate debt, $137.0$182.6 million in variable rate debt and approximately $2.1$1.2 million in net debt premium less approximately $2.6$3.4 million in net debt issuance costs. As of December 31, 2015,2017, our total indebtedness was approximately $23$396.8 million, which included approximately $10$263.4 million in fixed rate debt, approximately $134.1 million in variable rate debt, approximately $12.4$1.7 million in fixed rate debt, approximately $0.8 million innet debt premium, less $0.2$2.4 million in net debt issuance costs. Our debt instruments were entered into for other than trading purposes. Changes in interest rates have different impacts on the 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 variable debt could impact the interest incurred and cash flows and its fair value. If the underlying rate of the related index on our variable rate debt were to increase by 100 basis points, the increase in interest would decrease future earnings and cash flows by approximately $1.4$0.8 million annually. Interest rate risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure. The following table summarizes annual debt maturities and average interest rates on our outstanding debt as of December 31, 2016:2018: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ending December 31, | | | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 | | | Thereafter | | | Total | | Fixed rate debt | | $ | 382,951 | | | $ | 10,346,217 | | | $ | 908,129 | | | $ | 1,362,535 | | | $ | 1,983,016 | | | $ | 169,357,842 | | | $ | 184,340,690 | | Average interest rate | | | 4.49 | % | | | 4.47 | % | | | 4.41 | % | | | 4.41 | % | | | 4.40 | % | | | 4.40 | % | | | | | Variable rate debt | | | 110,490,371 | | | | 14,792,763 | | | | 249,883 | | | | 249,883 | | | | 11,232,845 | | | | — | | | | 137,015,745 | | Average interest rate(1) | | | 3.39 | % | | | 3.24 | % | | | 3.38 | % | | | 3.38 | % | | | 3.38 | % | | | — | | | | | |
| | Year Ending December 31, | | | | 2019 | | | 2020 | | | 2021 | | | 2022 | | | 2023 | | | Thereafter | | | Total | | Fixed rate debt(2) | | $ | 908,129 | | | $ | 1,362,534 | | | $ | 1,983,016 | | | $ | 3,635,428 | | | $ | 31,629,204 | | | $ | 186,093,211 | | | $ | 225,611,522 | | Average interest rate(1) | | | 4.46 | % | | | 4.46 | % | | | 4.46 | % | | | 4.46 | % | | | 4.47 | % | | | 4.44 | % | | | | | Variable rate debt(2) | | $ | 98,782,500 | | | $ | 83,846,480 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 182,628,980 | | Average interest rate(1) | | | 4.74 | % | | | 4.60 | % | | N/A | | | N/A | | | N/A | | | N/A | | | | | |
(1) | Interest expense for fixed rate isdebt was calculated based upon the contractual rate and the interest expense on variable rate debt was calculated based on the rate in effect on December 31, 2016.2018. Interest expense on the Amended KeyBank Credit Facility is calculated presuming the amount outstanding as of December 31, 2018 would remain outstanding through the maturity date of February 20, 2019. Debt denominated in foreign currency has been converted based on the rate in effect as of December 31, 2018. |
(2) | On January 24, 2019, in conjunction with the SSGT Merger, we entered into financing for an aggregate initial draw of approximately $500.2 million and repaid approximately $141.1 million of existing debt ($99.5 million of which was due in 2019) in conjunction with the SSGT Merger and related financings. See Notes 5 and Note 11 of the Notes to the Consolidated Financial Statements for more information regarding the financing related to the SSGT Merger. |
Currently, our only foreign exchange rate risk comes from our Canadian properties and the Canadian Dollar (“CAD”). Our existing foreign currency hedge mitigates most of our foreign currency exposure of our net CAD denominated investments; however, we generate all of our revenues and expend essentially all of our operating expenses and third party debt service costs related to our Canadian Properties in CAD. As a result of fluctuations in currency exchange, our cash flows and results of operations could be affected. 67
ITEM 8. | FINANCIAL STATEMENTSSTATEMENTS AND SUPPLEMENTARY DATA |
The financial statements and supplementary data filed as part of this report are set forth below beginning onpage F-1 of this report. ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None. ITEM 9A. | 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 Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and15d-15(f)) for us. Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated, as of December 31, 2016,2018, the effectiveness of our internal control over financial reporting using the framework inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2016.2018. There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 20162018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. | OTHER INFORMATION |
For the year ended December 31, 2016,2018, there was no information required to be disclosed in a report on Form8-K which was not disclosed in a report on Form8-K. 68
PART III We expect to file a definitive Proxy Statement for our 2017 Annual Meeting of Stockholders (the “2017 Proxy Statement”) with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instructions G(3) to Form10-K and is incorporated by reference to the 2017 Proxy Statement. Only those sections of the 2017 Proxy Statement that specifically address the items required to be set forth herein are incorporated by reference.
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Information Concerning Executive Officers and Directors Included below is certain information regarding our executive officers and directors. All of our directors, including our three independent directors, have been nominated for re-election at the 2019 annual meeting of stockholders. All of our executive officers serve at the pleasure of our board of directors. Name | | Age | | Position(s) | | Period with Company | H. Michael Schwartz | | 52 | | Chairman of the Board of Directors and Chief Executive Officer | | 1/2013 – present | Michael S. McClure | | 56 | | President | | 1/2013 – present | Matt F. Lopez | | 41 | | Chief Financial Officer and Treasurer | | 11/2014 – present | Wayne Johnson | | 61 | | Chief Investment Officer | | 1/2013 – present | James L. Berg | | 66 | | Secretary | | 1/2013 – present | Paula Mathews | | 67 | | Director | | 1/2013 – present | David J. Mueller | | 66 | | Independent Director | | 10/2013 – present | Timothy S. Morris | | 58 | | Independent Director | | 1/2016 – present | Harold “Skip” Perry | | 72 | | Independent Director | | 1/2016 – present |
H. Michael Schwartz. Mr. Schwartz is the Chairman of our board of directors and our Chief Executive Officer. Mr. Schwartz has been an officer and director since our initial formation in January 2013. Mr. Schwartz was appointed Chief Executive Officer of our Advisor in January 2013. Mr. Schwartz served as our President and the President of our Advisor from January 2013 through January 2017. Mr. Schwartz is also the Chief Executive Officer of our Sponsor. He served as President of our Sponsor from August 2007 through January 2017. Mr. Schwartz also served as Chief Executive Officer, President, and Chairman of SmartStop Self Storage, Inc. (“SmartStop Self Storage”), our prior sponsor, from August 2007 until the merger of SmartStop Self Storage with Extra Space Storage, Inc. (“Extra Space”) on October 1, 2015. He also served as Chief Executive Officer and Chairman of SSGT, a public non-traded self storage REIT sponsored by our Sponsor, until the merger of SSGT with us on January 24, 2019. In addition, he serves as Chief Executive Officer and Chairman of SST II. Since February 2008, Mr. Schwartz has also served as Chief Executive Officer and President of Strategic Storage Holdings, LLC (“SSH”). He was appointed President of Strategic Capital Holdings, LLC in July 2004. Previously, he held the positions of Vice Chairman or Co-President of U.S. Advisor from July 2004 until April 2007. He has more than 26 years of real estate, securities and corporate financial management experience. His real estate experience includes international investment opportunities, including self storage acquisitions in Canada. From 2002 to 2004, Mr. Schwartz was the Managing Director of Private Structured Offerings for Triple Net Properties, LLC (now an indirect subsidiary of Grubb & Ellis Company). In addition, he served on the board of their affiliated broker-dealer, NNN Capital Corp. (subsequently known as Grubb & Ellis Securities, Inc.). From 2000 to 2001, Mr. Schwartz was Chief Financial Officer for Futurist Entertainment, a diversified entertainment company. From 1995 to 2000, he was President and Chief Financial Officer of Spider Securities, Inc. (now Merriman Curhan Ford & Co.), a registered broker-dealer that developed one of the first online distribution outlets for fixed and variable annuity products. From 1990 to 1995, Mr. Schwartz served as the Vice President and Chief Financial Officer of Western Capital Financial (an affiliate of Spider Securities), and from 1994 to 1998 Mr. Schwartz was also President of Palladian Advisors, Inc. (an affiliate of Spider Securities). Mr. Schwartz holds a B.S. in Business Administration with an emphasis in Finance from the University of Southern California. 69
Michael S. McClure. Mr. McClure is our President, a position he has held since January 2017. From our initial formation in January 2013 until January 2017, Mr. McClure served as our Chief Financial Officer, Treasurer and Executive Vice President. Mr. McClure is also the President of our Advisor and our Sponsor. Mr. McClure also serves as the President of SST IV and served as President of SSGT until its merger with us on January 24, 2019. From January 2013 until January 2017, Mr. McClure served as the Chief Financial Officer of our Sponsor. From January 2008 through October 1, 2015, Mr. McClure served as Chief Financial Officer and Treasurer of SmartStop Self Storage and served as an Executive Vice President of such entity from June 2011 until the merger of SmartStop Self Storage with Extra Space on October 1, 2015. Mr. McClure is currently President of SSH and was Chief Financial Officer and Treasurer from January 2008 until January 2017. From 2004 to June 2007, Mr. McClure held various positions, including Vice President of Finance, at the North Inland Empire Division of Pulte Homes, Inc. At Pulte Homes, he was responsible for all finance, accounting, human resources and office administration functions. From 2002 to 2004, Mr. McClure was a Director in the Audit Business Advisory Services practice for PricewaterhouseCoopers LLP. From 1985 to 2002, Mr. McClure was with Arthur Andersen LLP, holding various positions including Partner. In his 20 years of experience in the public accounting field, Mr. McClure had extensive experience in the real estate industry working with REITs, homebuilders and land development companies and worked on numerous registration statements and public offerings. He is a member of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants. Mr. McClure holds a B.S.B.A. degree from California State University, Fullerton. Matt F. Lopez. Mr. Lopez is our Chief Financial Officer and Treasurer, positions he has held since January 2017. He also serves as the Chief Financial Officer and Treasurer of our Advisor. Mr. Lopez is responsible for overseeing our budgeting, forecasting and financial management policies, along with directing all SEC and regulatory reporting. He is also the Chief Financial Officer and Treasurer of SST IV. Previously, from October 2015 to January 2017, Mr. Lopez served as a Controller for our Sponsor and was most recently assigned to our accounting, financial management and SEC and regulatory reporting. He also served as a Controller of SmartStop Self Storage from November 2014 until its merger with Extra Space on October 1, 2015. From 2000 to November 2014, Mr. Lopez was with PricewaterhouseCoopers LLP, holding various positions including audit senior manager from 2008 to November 2014. In his 14 years in public accounting, Mr. Lopez had extensive experience in the real estate industry working with REITs, real estate investment funds, homebuilders and land development companies. He is a Certified Public Accountant, licensed in California, and a member of the American Institute of Certified Public Accountants. Mr. Lopez holds a B.A. degree from the University of California, Los Angeles. Wayne Johnson. Mr. Johnson has been our Chief Investment Officer since June 2015. Prior to that, he served as our Senior Vice President — Acquisitions, focusing on self storage acquisitions, which position he held since our initial formation in January of 2013. Mr. Johnson also serves as the Chief Investment Officer for our Advisor and our Sponsor. Mr. Johnson served as Senior Vice President — Acquisitions for SmartStop Self Storage from August 2007 until January 2015 when he was elected Chief Investment Officer until the merger of SmartStop Self Storage with Extra Space on October 1, 2015. Mr. Johnson also served in various roles at SSGT, including most recently as its Chief Investment Officer until the merger with us on January 24, 2019. In addition, Mr. Johnson serves as the Chief Investment Officer of SST IV. Prior to joining Strategic Capital Holdings, LLC, Mr. Johnson was involved in all aspects of commercial development and leasing, including office, office warehouse, retail and self storage facilities. During such time, Mr. Johnson developed, managed and operated 14 self storage facilities in excess of one million square feet. Mr. Johnson served on the board and is the past President of the Texas Self Storage Association (TSSA), which is the trade organization for self storage development, ownership and management with approximately 3,800 members consisting of storage owners, developers, operators and vendors throughout Texas. Mr. Johnson entered the commercial real estate business in 1979 after graduating from Southern Methodist University with a B.B.A. in Finance and Real Estate. James L. Berg. Mr. Berg is our Secretary, a position he has held since June 2018. Previously, he served as our Assistant Secretary from our formation until June 2018. Mr. Berg is also the General Counsel of our Sponsor. Mr. Berg was the Secretary of SmartStop Self Storage from June 2011 until the merger of SmartStop Self Storage with Extra Space on October 1, 2015. Mr. Berg also served in various roles at SSGT, including most recently as its Secretary until the merger with us on January 24, 2019. In addition, Mr. Berg serves as the Secretary of SST IV. Since April 2011, Mr. Berg has also served as General Counsel of SSH. Mr. Berg has over 25 years of experience in general business, corporate, securities, venture capital and intellectual property law. From November 2004 to April 2011, he was General Counsel of U.S. Advisor, LLC. During 2004, Mr. Berg was Senior Vice President and General Counsel of LoanCity.com, a wholesale mortgage lender based in San Jose, California. Prior to that, Mr. Berg was a partner in several laws firms in Oakland, California. Mr. Berg received a J.D. (magna cum laude) from the University of Michigan Law School in 1978 and a B.S. (with high distinction) from the University of Michigan Business School in 1975. He is a member of the State Bar of California, Business Law Section. 70
Paula Mathews. Ms. Mathews has been a member of our board of directors since January 2016. Previously, Ms. Mathews served as our Secretary and an Executive Vice President from our formation until June 2018. Ms. Mathews also served as Executive Vice President of our Advisor from January 2013 until June 2018. In addition, she served as an Executive Vice President and Secretary of SSGT and SST IV until June 2018. Ms. Mathews is an Executive Vice President of our Sponsor. Ms. Mathews served as an Executive Vice President and Assistant Secretary for SmartStop Self Storage, positions she held from August 2007 and June 2011, respectively, until the merger of SmartStop Self Storage with Extra Space on October 1, 2015. Since January 2008, Ms. Mathews has also served as Secretary for SSH. Since 2005, she has also served as Vice President — Commercial Operations for Strategic Capital Holdings, LLC. Prior to joining Strategic Capital Holdings, LLC, Ms. Mathews was a private consultant from 2003 to 2005 providing due diligence services on the acquisition and disposition of assets for real estate firms. Prior to that, Ms. Mathews held senior level executive positions with several pension investment advisors, including the following: a real estate company specializing in 1031 transactions from 2002 to 2003 where she was the Director of Operations; KBS Realty Advisors from 1995 to 2001 where she was responsible for the management of $600 million in “value added” commercial assets in seven states; TCW Realty Advisors (now CBRE Investors) from 1985 to 1992 as a Senior Vice President where her focus was retail assets within closed end equity funds; and PMRealty Advisors from 1983 to 1985 in a portfolio management role. She began her real estate career in 1977 with The Irvine Company, the largest land holder in Orange County, California, where she held several positions within the Commercial/Industrial Division structuring industrial build-to-suits, ground leases and land sales. Ms. Mathews holds a B.S. degree from the University of North Carolina, Chapel Hill. Timothy S. Morris. Mr. Morris is one of our independent directors and is a member and Chairman of the Compensation Committee and a member of the Audit Committee and the Nominating and Corporate Governance Committee. Mr. Morris previously served as an independent director of SmartStop Self Storage from February 2008 until the merger of SmartStop Self Storage with Extra Space on October 1, 2015. Mr. Morris has more than 30 years of financial and management experience with several international organizations. In March 2014, Mr. Morris assumed a part-time executive position as finance director of Tomorrow’s Company, a London-based global think tank focusing on business leadership. In May 2008, Mr. Morris founded AMDG Worldwide Ltd., a consultancy business for the philanthropic sector. From June 2007 to April 2008, Mr. Morris was the Chief Financial Officer for Geneva Global, Inc., a philanthropic advisor and broker which invests funds into developing countries. Prior to joining Geneva Global, Inc., from 2002 to June 2007, Mr. Morris was the director of corporate services for Care International UK Ltd. where he was responsible for the finance, internal audit, risk management, human resources, legal insurance and information technology functions during the financial turnaround period of that organization. From 2000 to 2002, Mr. Morris was the Controller for Royal Society Mencap, a learning disability charity. From 1996 to 1999, Mr. Morris was the head of global management reporting for Adidas Group AG in Germany and was later the International Controller for Taylor Made Golf Company, Inc., a subsidiary of Adidas Group AG. Prior to 1996, Mr. Morris held various management and senior finance roles within organizations such as the International Leisure Group, Halliburton/KBR and the Bank for International Settlements in Basel, Switzerland. Mr. Morris has his Bachelor of Science in Economics from Bristol University in the United Kingdom, his MBA from the Cranfield School of Management in the United Kingdom, and he is a Chartered Management Accountant (ACMA). David J. Mueller. Mr. Mueller is one of our independent directors and is a member and Chairman of the Audit Committee and a member of the Compensation Committee and Nominating and Corporate Governance Committee. Mr. Mueller has more than 25 years of financial management experience with several firms in the financial services industry. In June 2009, Mr. Mueller founded his own CPA firm, specializing in consulting, audit, and tax services for small businesses and non-profits, where he continues to serve as Managing Partner. From June 2001 to May 2009, he worked for Manulife Financial Corporation, serving in several capacities including Controller of Annuities and Chief Financial Officer of Distribution for Manulife Wood Logan, where he was heavily involved in the company’s due diligence and subsequent integration with John Hancock Financial Services. Prior to his time with Manulife Financial Corporation, Mr. Mueller served as Chief Financial Officer of Allmerica Financial Services, the insurance and investment arm of Allmerica Financial Corporation. He began his career in the Boston office of Coopers and Lybrand, specializing in financial services, real estate, and non-profits. Mr. Mueller is a CPA and graduated from the University of Wisconsin with a degree in Finance. Harold “Skip” Perry. Mr. Perry is one of our independent directors and is a member and Chairman of the Nominating and Corporate Governance Committee and a member of the Audit Committee and Compensation Committee. Mr. Perry previously served as one of our independent directors from October 2013 until June 2014 and served as an independent director of SmartStop Self Storage from February 2008 until the merger of SmartStop Self Storage with Extra Space on October 1, 2015. Mr. Perry has over 40 years of financial accounting, management and consulting experience for domestic and international organizations in the real estate industry. He is currently the Executive Managing Director of Real Globe Advisors, LLC, a commercial real estate advisory firm which he founded. Mr. Perry also held the same position with Real Globe Advisors, LLC from July 2007 to June 2009. From June 2009 to March 2011, he was the Managing Director of 71
Alvarez & Marsal Real Estate Advisory Services. From 1995 to June 2007, Mr. Perry was a national partner in Ernst & Young LLP’s Transactional Real Estate Advisory Services Group and held a number of leadership positions within Ernst & Young. While at Ernst & Young, he handled complex acquisition and disposition due diligence matters for private equity funds and corporate clients, complex real estate portfolio optimization studies, and monetization strategies within the capital markets arena, including valuation of self storage facilities. Prior to 1995, Mr. Perry headed the Real Estate Consulting Practice of the Chicago office of Kenneth Leventhal & Co. Prior to his time with Kenneth Leventhal & Co., Mr. Perry was a senior principal with Pannell Kerr Forester, a national accounting and consulting firm specializing in the hospitality industry. He is a CPA and holds an MAI designation with the Appraisal Institute and a CRE designation with the Counselors of Real Estate. He graduated with a Bachelor of Arts in Russian and Economics from the University of Illinois, and has a Masters of Business Administration with a concentration in finance from Loyola University in Illinois. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires our directors and officers and any person beneficially owning more than 10% of our shares to file reports of their ownership and changes in ownership of our shares and to furnish us with copies of all such reports that they file with the SEC. Based solely upon a review of the copies of such reports furnished to us during and with respect to the fiscal year ended December 31, 2018, or written representations that no additional reports were required, to the best of our knowledge, we believe that our directors and officers were in compliance with the reporting requirements of Section 16(a) during 2018 and know of no stockholder who beneficially owned more than 10% of our stock. Code of Ethics Our board of directors adopted an amended Code of Ethics and Business Conduct on June 12, 2018 (the “Code of Ethics”), which contains general guidelines applicable to our executive officers, including our principal executive officer, principal financial officer and principal accounting officer, our directors and employees and officers of our Advisor, and its affiliates who perform material functions for us. We adopted our Code of Ethics with the purpose of promoting the following: (1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (2) full, fair, accurate, timely and understandable disclosure in reports and documents that we file with or submit to the SEC and in other public communications made by us; (3) compliance with applicable laws and governmental rules and regulations; (4) the prompt internal reporting of violations of the Code of Ethics to our Code of Ethics Compliance Officer; and (5) accountability for adherence to the Code of Ethics. A copy of the Code of Ethics is available in the “Governance Documents” section of our website located at www.strategicreit.com/site/sst2/page/information#gov. Audit Committee Our board of directors adopted an amended charter for the Audit Committee on June 12, 2018 (the “Audit Committee Charter”). A copy of our Audit Committee Charter is available in the “Governance Documents” section of our website located at www.strategicreit.com/site/sst2/page/information#gov. The Audit Committee assists our board of directors by: (1) selecting an independent registered public accounting firm to audit our annual financial statements; (2) reviewing with the independent registered public accounting firm the plans and results of the audit engagement; (3) approving the audit and non-audit services provided by the independent registered public accounting firm; (4) reviewing the independence of the independent registered public accounting firm; and (5) considering the range of audit and non-audit fees and reviewing the adequacy of our internal accounting controls. The Audit Committee fulfills these responsibilities primarily by carrying out the activities enumerated in the Audit Committee Charter and in accordance with current laws, rules and regulations. The informationmembers of the Audit Committee are our three independent directors, Timothy S. Morris, David J. Mueller and Harold “Skip” Perry, with Mr. Mueller currently serving as Chairman of the Audit Committee. Our board of directors has determined that Mr. Mueller satisfies the requirements for an “Audit Committee financial expert” and has designated Mr. Mueller as the audit committee financial expert in accordance with applicable SEC rules. 72
ITEM 11. | EXECUTIVE COMPENSATION |
Compensation Discussion and Analysis – Executive Compensation We do not directly compensate our executive officers, including our Named Executive Officers, for services rendered to us. We do not currently intend to pay any compensation directly to our executive officers. As a result, we do not have, and the Compensation Committee has not considered, a compensation policy or program for our executive officers. If we determine to compensate our executive officers directly in the future, the Compensation Committee will review all forms of compensation to our executive officers and approve all equity-based awards to our executive officers. A majority of our executive officers also are officers of our Advisor and its affiliates, and are compensated by such entities for their services to us. We pay these entities fees and reimburse expenses pursuant to our Advisory Agreement. Our Offering closed on January 9, 2017, and accordingly, none of our Named Executive Officers’ time was spent on matters connected to our Offering for the year ended December 31, 2018. In addition, we reimbursed our sponsor for $245, which is the amount of premiums paid on a life insurance policy our sponsor has purchased for the benefit of each of H. Michael Schwartz’s beneficiaries. See “—Director Compensation for the Year Ended December 31, 2018—Director Life Insurance Policies,” below. Compensation Committee Report The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis – Executive Compensation set forth above be included in this ItemForm 10-K. Timothy S. Morris (Chairman) | David J. Mueller | Harold “Skip” Perry |
March 18, 2019 The preceding Compensation Committee Report to stockholders is not “soliciting material” and is not deemed “filed” with the SEC and is not to be incorporated by reference in any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof, except to the 2017 Proxy Statementextent that we specifically incorporate this information by reference. Director Compensation for the Year Ended December 31, 2018 Summary The following table provides a summary of the compensation earned by or paid to our directors for the year ended December 31, 2018: Name | | Fees Earned or Paid in Cash | | | | Stock Awards(1) | | | Option Awards | | | Non-Equity Incentive Plan Compensation | | | Change in Pension Value and Nonqualified Deferred Compensation | | | All Other Compensation(2) | | | Total | | H. Michael Schwartz | | $ | — | | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 245 | | | $ | 245 | | Paula M. Mathews | | $ | — | | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 160 | | | $ | 160 | | Timothy S. Morris | | $ | 158,500 | | (3) | | $ | 37,275 | | | $ | — | | | $ | — | | | $ | — | | | $ | 982 | | | $ | 196,757 | | David J. Mueller | | $ | 164,000 | | (4) | | $ | 37,275 | | | $ | — | | | $ | — | | | $ | — | | | $ | 638 | | | $ | 201,913 | | Harold “Skip” Perry | | $ | 167,750 | | (5) | | $ | 37,275 | | | $ | — | | | $ | — | | | $ | — | | | $ | 393 | | | $ | 205,418 | |
(1) | This column represents the full grant date fair value in accordance with FASB ASC Topic 718. |
(2) | Represents payment of life insurance premiums, as discussed below. |
(3) | Amount includes total fees earned or paid during the year ended December 31, 2018, of which $7,500 was paid during 2019. |
(4) | Amount includes total fees earned or paid during the year ended December 31, 2018, of which $3,500 was earned during the year ended December 31, 2017, and $8,000 was paid during 2019. |
73
(5) | Amount includes total fees earned or paid during the year ended December 31, 2018, of which $3,000 was earned during the year ended December 31, 2017, and 9,000 was paid during 2019. |
The Compensation Committee assists our board of directors in fulfilling its responsibilities with respect to employee, officer, and director compensation. Because we do not have any employees and our executive officers do not receive any compensation directly from us, these responsibilities are limited to setting director compensation and administering the Plan. Our non-director officers have no role in determining or recommending director compensation. Directors who are also officers of the Company do not receive any special or additional remuneration for services on our board of directors or any of its committees, other than with respect to premiums paid on life insurance policies. See “—Director Life Insurance Policies,” below. Each non-employee independent director received compensation for services on our board of directors and its committees as provided below. Cash Compensation to Directors Each of our independent directors was entitled to a retainer of $45,000 per year plus $1,500 for each board or board committee meeting the director attends in person or by telephone ($1,750 for attendance of any committee of the board at each committee meeting in which they are a chairperson). In the event there are multiple meetings of the board and one or more committees in a single day, the fees are limited to $3,000 per day ($3,500 for the chairperson of the Audit Committee if there is a meeting of such committee). In addition, during fiscal year 2018, members of the Compensation Committee formed a Special Committee for the purpose of evaluating strategic transactions. The Compensation Committee established the compensation for such committee, with each member thereof receiving retainers equal to an aggregate of $70,000, plus $1,500 for each meeting of the Special Committee ($2,000 for the chairperson). For the year ended December 31, 2018, the directors earned an aggregate of $483,750. All directors will receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Employee and Director Long-Term Incentive Plan Awards Pursuant to the Plan, we issued 2,500 shares of restricted stock to each independent director upon their appointment to the board, which vest ratably over a period of four years from the date such initial award was awarded to the independent directors (the “Initial Restricted Stock Awards”). We also issued additional restricted stock awards to each independent director upon each of their re-elections to our board of directors, which vest ratably over a period of four years from the date of re-election (the “Annual Restricted Stock Awards”). Mr. Mueller has received a total of 11,000 shares of restricted stock of which 4,063 shares have vested as of December 31, 2018. Mr. Morris and Mr. Perry have each received a total of 9,750 shares of restricted stock of which 2,500 shares have vested each as of December 31, 2018. Both the Initial Restricted Stock Awards and the Annual Restricted Stock Awards are subject to a number of other conditions set forth in such awards. The Plan was approved and adopted prior to the commencement of the Offering in order to (1) provide incentives to individuals who are granted awards because of their ability to improve our operations and increase profits; (2) encourage selected persons to accept or continue employment with us or with our Advisor or its affiliates that we deem important to our long-term success; and (3) increase the interest of our independent directors in our success through their participation in the growth in value of our stock. Pursuant to the Plan, we may issue options, stock appreciation rights, distribution equivalent rights and other equity-based awards, including, but not limited to, restricted stock. The total number of shares of our Class A common stock reserved for issuance under the Plan is equal to 10% of our outstanding shares of Class A and Class T common stock at any time, net of any shares already issued under the plan, but not to exceed 10,000,000 shares in the aggregate. As of December 31, 2018, there were approximately 5.8 million shares available for issuance under the Plan. The term of the Plan is 10 years. Upon our earlier dissolution or liquidation, reorganization, merger or consolidation with one or more corporations as a result of which we are not the surviving corporation, or sale of all or substantially all of our properties, the Plan will terminate, and provisions will be made for the assumption by the successor corporation of the awards granted under the Plan or the replacement of such awards with similar awards with respect to the stock of the successor corporation, with appropriate adjustments as to the number and kind of shares and exercise prices. Alternatively, rather than providing for the assumption of such awards, the board of directors may either (1) shorten the period during which awards are exercisable, or (2) cancel an award upon payment to the participant of an amount in cash that the Compensation Committee determines is equivalent to the fair market value of the consideration 74
that the participant would have received if the participant exercised the award immediately prior to the effective time of the transaction. In the event our board of directors or Compensation Committee determines that any distribution, recapitalization, stock split, reorganization, merger, liquidation, dissolution or sale, transfer, exchange or other disposition of all or substantially all of our assets, or other similar corporate transaction or event, affects our stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be filedmade available under the Plan or with respect to an award, then the SEC.board of directors or Compensation Committee shall, in such manner as it may deem equitable, adjust the number and kind of shares or the exercise price with respect to any award. Director Life Insurance Policies ITEM 11. | EXECUTIVE COMPENSATION |
The information required byOur sponsor has purchased life insurance policies covering each of the members of our board of directors for the benefit of such director’s beneficiaries. For the year ended December 31, 2018, we reimbursed our sponsor for the total premiums paid on such life insurance policies, which was $2,418. Of this Item is incorporated by referenceamount, $245 was attributed to the 2017 Proxy Statementpolicy covering H. Michael Schwartz, $160 was attributed to be filed with the SEC.policy covering Paula M. Mathews, $982 was attributed to the policy covering Timothy S. Morris, $638 was attributed to the policy covering David J. Mueller and $393 was attributed to the policy covering Harold “Skip” Perry. At the present time, we intend to continue maintaining these life insurance policies for our directors.
Compensation Committee Interlocks and Insider Participation No member of the Compensation Committee has been an officer or employee of us, and none had any relationship requiring disclosure by us under Item 404 of Regulation S-K under the Exchange Act. None of our executive officers has served on the board of directors or Compensation Committee of any other entity that has or has had one or more executive officers who served as a member of our board of directors or our Compensation Committee during the fiscal year ended December 31, 2018. ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Beneficial Ownership of the Company’s Stock The information requiredfollowing table sets forth, as of December 31, 2018, the amount of our common stock beneficially owned by: (1) any person who is known by this Item is incorporated by reference to the 2017 Proxy Statementus to be filed with the SEC.beneficial owner of more than 5% of the outstanding shares of our common stock; (2) each of our directors; (3) each of our executive officers; and (4) all of our directors and executive officers as a group. There were a total of approximately 58.0 million shares of common stock issued and outstanding as of December 31, 2018. | | Common Stock Beneficially Owned (1) | | Name and Address(2) of Beneficial Owner | | Number of Shares of Common Stock | | | Percentage | | H. Michael Schwartz, Chairman of the Board of Directors and Chief Executive Officer | | 483,224(3) | |
| * | | Michael S. McClure, President | | | — | | | | — | | Matt F. Lopez, Chief Financial Officer and Treasurer | | | — | | | | — | | Wayne Johnson, Chief Investment Officer | | | — | | | | — | | James L. Berg, Secretary | | | — | | | | — | | Paula Mathews, Director | | | 8,446 | | | * | | David J. Mueller, Independent Director | | | 4,063 | | | * | | Timothy S. Morris, Independent Director | | | 2,500 | | | * | | Harold “Skip” Perry, Independent Director | | | 2,500 | | | * | | All directors and executive officers as a group | | | 500,733 | | | * | |
* | Represents less than 1% of our outstanding common stock as of December 31, 2018. |
(1) | Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities and shares issuable pursuant to options, warrants and similar rights held by the respective person or group that may be exercised within 60 days following December 31, 2018. Except as otherwise indicated by footnote, and |
75
| subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. |
(2) | The address of each of the beneficial owners is 10 Terrace Road, Ladera Ranch, California 92694. |
(3) | Consists of 100 Class A Shares owned by Strategic Storage Advisor II, LLC, and 483,124 Class A Shares owned by Strategic 1031, LLC, which are indirectly owned and controlled by Mr. Schwartz. |
Securities Authorized for Issuance under Equity Compensation Plans Information regarding our equity compensation plan and the securities authorized under the plan is included in Item 11 above. ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
Certain Relationships and Related Transaction General Certain of our executive officers and two of our directors hold ownership interests in and/or are officers of our Sponsor, our Advisor, our Property Manager, our Dealer Manager, our Transfer Agent and other affiliated entities. As a result, these individuals owe fiduciary duties to these other entities and their owners, which fiduciary duties may conflict with the duties that they owe to our stockholders and us. Their loyalties to these other entities could result in actions or inactions that are detrimental to our business, which could harm the implementation of our investment objectives. Conflicts with our business and interests are most likely to arise from involvement in activities related to: (1) allocation of new investments and management time and services between us and the other entities; (2) our purchase of properties from, or sale of properties to, affiliated entities; (3) the timing and terms of the investment in or sale of an asset; (4) development of our properties by affiliates; (5) investments with affiliates of our Advisor; (6) compensation to our Advisor; and (7) our relationship with our Dealer Manager and Property Manager. We either were or are a party to agreements giving rise to material transactions between us and our affiliates, including our Advisory Agreement, our Property Management Agreements, our Dealer Manager Agreement, and our Transfer Agent Agreement. Our independent directors reviewed the material transactions between us and our affiliates arising out of these agreements during the year ended December 31, 2018. Set forth below is a description of the relevant transactions with our affiliates, which we believe have been executed on terms that are fair to the Company. Advisory Agreement SmartStop Asset Management, LLC, our Sponsor, is the sole voting member of Strategic Storage Advisor II, LLC, our Advisor. Certain of our executives, including Mr. Schwartz, serve as officers of our Advisor and our Sponsor. Our Advisor and its affiliates perform services for us in connection with the offer and sale of our shares and the selection, acquisition and management of our properties pursuant to our Advisory Agreement. The informationterm of our Advisory Agreement will end on January 10, 2020, but may be renewed for an unlimited number of successive one-year periods. Many of the services performed by our Advisor in managing our day-to-day activities are summarized below. This summary is provided to illustrate the material functions that our Advisor performs for us as our Advisor, and it is not intended to include all of the services that may be provided to us by third parties. Under the terms of the Advisory Agreement, our Advisor undertakes to use its commercially reasonable best efforts to present to us investment opportunities consistent with our investment policies and objectives as adopted by our board of directors. In its performance of this undertaking, our Advisor, either directly or indirectly by engaging an affiliate, performs the following, among other duties and subject to the authority of our board of directors: finding, evaluating, presenting and recommending to us investment opportunities consistent with our investment policies and objectives; serving as our investment and financial advisor and providing research and economic and statistical data in connection with our assets and our investment policies; acquiring properties and making investments on our behalf in compliance with our investment objectives and policies; structuring and negotiating the terms and conditions of our real estate acquisitions, sales or joint ventures; 76
| • | reviewing and analyzing each property’s operating and capital budget; |
arranging, structuring and negotiating financing and refinancing of properties; performing all operational functions for the maintenance and administration of our assets, including the servicing of mortgages; consulting with our officers and board of directors and assisting the board of directors in formulating and implementing our financial policies; preparing and reviewing on our behalf, with the participation of one designated principal executive officer and principal financial officer, all reports and returns required by this Item is incorporated by referencethe SEC, IRS and other state or federal governmental agencies; providing the daily management and performing and supervising the various administrative functions reasonably necessary for our management and operations; and investigating, selecting, and, on our behalf, engaging and conducting business with such third parties as our Advisor deems necessary to the proper performance of its obligations under the Advisory Agreement. Organization and offering costs of the Offering were paid by our Advisor on our behalf and reimbursed to our Advisor from the proceeds of the Offering. Organization and offering costs consisted of all expenses (other than sales commissions, dealer manager fees and stockholder servicing fees) paid by us in connection with the Offering, including our legal, accounting, printing, mailing and filing fees, charges of our escrow holder and other accountable offering expenses, including, but not limited to: (i) amounts reimbursed to our Advisor for all marketing related costs and expenses such as salaries and direct expenses of employees of our Advisor and its affiliates in connection with registering and marketing our shares; (ii) technology costs associated with the Offering; (iii) our costs of conducting our training and education meetings; (iv) our costs of attending retail seminars conducted by participating broker-dealers; and (v) payment or reimbursement of bona fide due diligence expenses. Our Advisor was required to reimburse us within 60 days after the end of the month in which the Offering terminated to the extent we paid or reimbursed organization and offering costs (excluding sales commissions, dealer manager fees and stockholder servicing fees) in excess of 3.5% of the gross offering proceeds from the primary offering portion of the Offering (the “Primary Offering”). However, subsequent to the close down of our Primary Offering, we determined that total organization and offering costs did not exceed 3.5% of the gross proceeds received from the Primary Offering, and thus there was no reimbursement. Our Advisory Agreement also required our Advisor to reimburse us to the extent that organization and offering expenses, including sales commissions, dealer manager fees and stockholder servicing fees, were in excess of 15% of gross proceeds from the Offering. Our Advisor receives acquisition fees equal to 1.75% of the contract purchase price of each property we acquire plus reimbursement of any acquisition expenses the Advisor incurs. Our Advisor also receives a monthly asset management fee equal to one-twelfth of 0.625% of our average invested assets, as defined in our Advisory Agreement. Under our Advisory Agreement, our Advisor receives disposition fees in an amount equal to the lesser of: (a) 1% of the contract sale price for each property or (b) 50% of the competitive real estate commission for each property we sell as long as our Advisor provides substantial assistance in connection with the sale. Any disposition fee may be paid in addition to real estate commissions paid to non-affiliates, provided that the total real estate commissions (including the disposition fee) paid to all persons for each property does not exceed an amount equal to the lesser of: (i) 6% of the aggregate contract sales price of each property or (ii) the competitive real estate commission for each property. The disposition fee is paid at the time the property is sold. There were no such disposition fees for the year ended December 31, 2018. 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) terminate our Advisory Agreement, (3) liquidate our portfolio, or (4) enter into an Extraordinary Transaction, as defined in the operating partnership agreement. There were no such distributions for the year ended December 31, 2018. 77
Our Advisory Agreement provides for reimbursement of our Advisor’s direct and indirect costs of providing administrative and management services to us. Beginning four fiscal quarters after the acquisition of our first real estate asset, our Advisor must pay or reimburse us the amount by which our aggregate annual operating expenses, as defined, exceed the greater of 2% of our average invested assets or 25% of our net income, as defined, unless a majority of our independent directors determine that such excess expenses were justified based on unusual and non-recurring factors. For any fiscal quarter for which total operating expenses for the 12 months then ended exceeds the limitation, we will disclose this fact in our next quarterly report or within 60 days of the end of that quarter and send a written disclosure of this fact to our stockholders. In each case the disclosure will include an explanation of the factors that the independent directors considered in arriving at the conclusion that the excess expenses were justified. For the year ended December 31, 2018, our Advisor paid approximately $2.2 million in operating expenses on our behalf. For the year ended December 31, 2018, we reimbursed approximately $2.3 million in operating expenses to our Advisor, some of which included reimbursements for operating expenses incurred during the year ended December 31, 2017. Property Management Agreements SmartStop Asset Management, LLC, our Sponsor, is the sole voting member of each of the T2 Property Manager and the GT Property Manager, and each of the respective property management agreements between us and either the T2 Property Manager or the GT Property Manager are on substantially similar terms. Accordingly, any discussion contained herein with respect to our Property Manager shall be deemed to include both the T2 Property Manager and the GT Property Manager. Each of our self storage properties located in the United States is subject to separate property management agreements with our Property Manager. Pursuant our various property management agreements, our Property Manager receives: (i) a monthly management fee for each property equal to the greater of $3,000 or 6% of the gross revenues from the properties plus reimbursement of the Property Manager’s costs of managing the properties and (ii) a construction management fee equal to 5% of the cost of construction or capital improvement work in excess of $10,000. In addition, we have agreed with our Property Manager to share equally in the net revenue attributable to the sale of tenant insurance at our properties. See the section below titled, “—Tenant Insurance Joint Venture” for more information. The property management agreements have a three year term and automatically renew for successive three year periods thereafter, unless we or our Property Manager provide prior written notice at least 90 days prior to the expiration of the term. After the end of the initial three year term, either party may terminate a property management agreement generally upon 60 days prior written notice. With respect to each new property we acquire for which we enter into a property management agreement with our Property Manager, such property management agreement will have substantially the same terms as described above. In addition, we will also pay our Property Manager a one-time start-up fee in the amount of $3,750. Our self storage properties located in Canada are subject to separate property management agreements with our Property Manager. Under each agreement, our Property Manager receives a fee for its services in managing our properties, generally equal to the greater of $3,000 or 6% of the gross revenues from the properties plus reimbursement of the Property Manager’s costs of managing the properties. Reimbursable costs and expenses include wages and salaries and other expenses of employees engaged in operating, managing and maintaining our properties. Our Property Manager also receives a one-time fee for each property acquired by us that is managed by our Property Manager in the amount of $3,750. In the event that our Property Manager assists with the development or redevelopment of a property, we pay a separate market-based fee for such services. In addition, our Property Manager is entitled to a construction management fee equal to 5% of the cost of construction or capital improvement work in excess of $10,000. In addition, we agreed with our Property Manager to share net tenant protection plan revenues equally between us and our Property Manager. See the section below titled, “—Tenant Insurance Joint Venture” for more information. Dealer Manager Agreement Our Sponsor indirectly owns a 15% beneficial non-voting equity interest in Select Capital Corporation, our Dealer Manager. Our Dealer Manager served as our Dealer Manager pursuant to our Dealer Manager Agreement. The Dealer Manager Agreement terminated upon the termination of our Offering. Our Dealer Manager provided wholesaling, sales promotional and marketing services to us in connection with our Offering. Specifically, our Dealer Manager ensured compliance with 78
SEC rules and regulations and FINRA rules relating to the sale process and participating broker-dealer relationships, assisted in the assembling of prospectus kits, assisted in the due diligence process and ensured proper handling of investment proceeds. Our Dealer Manager was entitled to a sales commission of up to 7.0% of gross proceeds from sales of Class A Shares and up to 2.0% of gross proceeds from the sales of Class T shares in the Primary Offering and a dealer manager fee up to 3.0% of gross proceeds from sales of both Class A Shares and Class T Shares in the Primary Offering. In addition, our Dealer Manager continues to receive an ongoing stockholder servicing fee that is payable monthly and accrues daily in an amount equal to 1/365th of 1% of the purchase price per share of Class T shares sold in the primary offering portion of the Offering. Our Dealer Manager entered into participating dealer agreements with certain other broker-dealers authorizing them to sell our shares. Upon sale of our shares by such broker-dealers, our Dealer Manager re-allowed all of the sales commissions paid in connection with sales made by these broker-dealers. Our Dealer Manager also re-allowed to these broker-dealers a portion of the 3% dealer manager fee as marketing fees, reimbursement of certain costs and expenses of attending training and education meetings sponsored by our Dealer Manager, payment of attendance fees required for employees of our Dealer Manager or other affiliates to attend retail seminars and public seminars sponsored by these broker-dealers, or to defray other distribution-related expenses. Our Dealer Manager generally re-allows 100% of the stockholder servicing fee to participating broker-dealers, provided, however, that our Dealer Manager does not re-allow the stockholder servicing fee to any registered representative of a participating broker-dealer if such registered representative ceases to serve as the representative for an investor in our Offering. In accordance with FINRA rules, in no event will our total underwriting compensation, including, but not limited to, sales commissions, stockholder servicing fees, the dealer manager fee and expense reimbursements to our Dealer Manager and participating broker-dealers, exceed 10% of our gross offering proceeds, in the aggregate. We paid additional amounts of gross offering proceeds for bona fide accountable due diligence expenses; however, to the extent the due diligence expenses could not be justified, any excess over actual due diligence expenses are considered underwriting compensation subject to the above 10% limitation and, when aggregated with all other non-accountable expenses may not exceed 3% of gross offering proceeds. We could also reimburse our Advisor for all expenses incurred by our Advisor and its affiliates in connection with the Offering and our organization, but in no event could such amounts exceed (i) 3.5% of the gross offering proceeds raised by us in the terminated or completed Offering (excluding sales commissions and dealer manager fees), or (ii) 15% of the gross offering proceeds raised by us in the terminated or completed Offering (including sales commissions and dealer manager fees). If the organization and offering expenses exceeded such limits, within 60 days after the end of the month in which the offering terminated, our Advisor was required to reimburse us for any excess amounts. FINRA and many states also limited our total organization and offering expenses to 15% of gross offering proceeds. However, subsequent to the termination of our Primary Offering on January 9, 2017, Proxy Statementwe determined that organization and offering costs did not exceed 3.5% of the gross proceeds from the Primary Offering, and thus there was no reimbursement. Transfer Agent Agreement Our Sponsor is the manager and sole member of Strategic Transfer Agent Services, LLC, our Transfer Agent. Pursuant to our Transfer Agent Agreement, which was approved by a majority of our independent directors, our Transfer Agent provides transfer agent and registrar services to us. These services are substantially similar to what a third party transfer agent would provide in the ordinary course of performing its functions as a transfer agent, including, but not limited to: processing subscription agreements, providing customer service to our stockholders, processing payment of any sales commission and dealer manager fees associated with a particular purchase, processing the distributions and any servicing fees with respect to our shares and issuing regular reports to our stockholders. Our Transfer Agent may retain and supervise third party vendors in its efforts to administer certain services. Our Transfer Agent conducts transfer agent and registrar services for other non-traded REITs sponsored by our Sponsor. The initial term of the Transfer Agent Agreement is 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 fileda 12 month period starting from the date of the most recent annual anniversary date. We paid our Transfer Agent a one-time setup fee. In addition, the other fees to be paid to our Transfer Agent are based on a fixed quarterly fee, one-time account setup fees and monthly open account fees. In addition, we will reimburse our Transfer Agent for all reasonable expenses or other changes incurred by it in connection with the provision of its services to 79
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. Tenant Insurance Joint Venture We offer a tenant insurance plan to customers at our properties. In connection with the property management agreement amendments effective as of October 1, 2017, we agreed with the T2 Property Manager or an affiliate to share equally in the net revenue attributable to the sale of tenant insurance at our properties. To facilitate such revenue sharing, we and an affiliate of the T2 Property Manager agreed to transfer our respective rights in such tenant insurance revenue to a newly created joint venture in March 2018, Strategic Storage TI Services II JV, LLC (the “TI Joint Venture”), a Delaware limited liability company owned 50% by our TRS subsidiary and 50% by the T2 Property Manager’s affiliate SmartStop TI II, LLC (“SS TI II”). Under the terms of the TI Joint Venture agreement, the TRS receives 50% of the net economics generated from such tenant insurance and SS TI II receives the other 50% of such net economics. The TI Joint Venture further provides, among other things, that if a member or its affiliate terminates all or substantially all of the property management agreements or defaults in its material obligations under the agreement or undergoes a change of control, as defined, (the “Triggering Member”), the other member generally shall have the right (but not the obligation) to either (i) sell its 50% interest in the TI Joint Venture to the Triggering Member at fair market value (as agreed upon or as determined under an appraisal process) or (ii) purchase the Triggering Member’s 50% interest in the TI Joint Venture at 95% of fair market value. In addition, as a result of the SSGT Merger, we acquired a joint venture arrangement that SSGT had formed with the GT Property Manager on similar terms as described above. Accordingly, such references herein to the TI Joint Venture shall be deemed to include such arrangement with the GT Property Manager. Fees Paid to Our Affiliates For details regarding the related party costs and fees incurred, paid and payable to affiliates as of December 31, 2018 and 2017, please see Note 7, Related Party Transactions, to the consolidated financial statements. SSGT Merger On January 24, 2019, we completed the SSGT Merger for total consideration of approximately $350 million, which includes SSGT debt that was assumed or repaid. In addition, and pursuant to the special limited partner interest held by SSGT’s advisor in its operating partnership, SSGT’s advisor received, in redemption of that special limited partner interest, a subordinated distribution upon the closing of the SSGT Merger equal to approximately $4.0 million, which was paid in units of the SSGT operating partnership. Upon the closing of the SSGT Merger, such units were converted into units of partnership interest in our Operating Partnership in accordance with the terms of the merger agreement related to the SSGT Merger. Other Consideration On October 1, 2018, we issued approximately 483,124 shares of Class A common stock to Strategic 1031, LLC, a subsidiary of our Sponsor, in exchange for 483,124 Class A Units of our Operating Partnership in connection with the amalgamation of our Canadian entities. For more information, see Note 1—Overview to our Consolidated Financial Statements. Since this transaction was not considered to have involved a “public offering” within the meaning of Section 4(a)(2) of the Securities Act of 1933, as amended, the shares issued were exempt from registration. Director Independence While our shares are not listed for trading on any national securities exchange, as required by our charter, a majority of the members of our board of directors and each committee of our board of directors are “independent” as determined by our board of directors by applying the definition of “independent” adopted by the New York Stock Exchange (NYSE), consistent with the North American Securities Administrators Association’s Statement of Policy Regarding Real Estate Investment Trusts and applicable rules and regulations of the SEC. Our board of directors has determined that Messrs. Morris, Mueller and Perry all meet the relevant definition of “independent.” 80
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
Fees to Principal Auditor The Audit Committee reviewed the audit and audit-related services performed by BDO and our predecessor auditor, CohnReznick, as well as the fees charged by BDO and CohnReznick for such services. The aggregate fees for professional accounting services provided by BDO, including the audit of our annual financial statements for the years ended December 31, 2018 and 2017, and services provided by our predecessor auditor, CohnReznick, for their consent in 2018 and 2017 related to their previous audit report covering the year ended December 31, 2016, as well as other auditor transition fees in 2017, are set forth in the table below: | | BDO USA, LLP For the Year Ended December 31, 2018 | | | CohnReznick, LLP For the Year Ended December 31, 2018 | | | BDO USA, LLP For the Year Ended December 31, 2017 | | | CohnReznick, LLP For the Year Ended December 31, 2017 | | Audit Fees | | $ | 187,199 | | | $ | 17,500 | | | $ | 141,888 | | | $ | 61,500 | | Audit-Related Fees | | | — | | | | — | | | | — | | | | 30,000 | | Tax Fees | | | — | | | | — | | | | — | | | | 25,500 | | All Other Fees | | | — | | | | — | | | | — | | | | — | | Total | | $ | 187,199 | | | $ | 17,500 | | | $ | 141,888 | | | $ | 117,000 | |
For purposes of the preceding table, the professional fees are classified as follows: Audit Fees – These are fees for professional services performed for the audit of our annual financial statements and the required review of our quarterly financial statements and other procedures performed by the independent auditors to be able to form an opinion on our consolidated financial statements. These fees also cover services that are normally provided by independent auditors in connection with statutory and regulatory filings or engagements, and services that generally only an independent auditor reasonably can provide, such as services associated with filing registration statements, periodic reports and other filings with the SEC. ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The informationAudit-Related Fees – These are fees for assurance and related services that traditionally are performed by an independent auditor, such as due diligence related to acquisitions and dispositions, audits related to acquisitions, attestation services that are not required by this Item is incorporatedstatute or regulation, internal control reviews and consultation concerning financial accounting and reporting standards.
Tax Fees – These are fees for all professional services performed by referenceprofessional staff in our independent auditor’s tax division, except those services related to the 2017 Proxy Statementaudit of our financial statements. These include fees for tax compliance, tax planning and tax advice, including federal, state and local issues. Such services may also include assistance with tax audits and appeals before the Internal Revenue Service (IRS) and similar state and local agencies, as well as federal, state and local tax issues related to due diligence. All Other Fees – These are fees for other permissible work performed that do not meet one of the above-described categories. Audit Committee Pre-Approval Policies The Audit Committee Charter imposes a duty on the Audit Committee to pre-approve all auditing services performed by the Company by our independent auditor, as well as all permitted non-audit services (including the fees and terms thereof) in order to ensure that the provision of such services does not impair the auditor’s independence. In determining whether or not to pre-approve services, the Audit Committee considers whether the service is permissible under applicable SEC rules. The Audit Committee may, in its discretion, delegate one or more of its members the authority to pre-approve any services to be filedperformed by our independent auditor, provided such pre-approval is presented to the full Audit Committee at its next scheduled meeting. All services rendered by BDO in the year ended December 31, 2018 were pre-approved in accordance with the SEC.policies set forth above. 81
PART IV ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
| (a) | List of Documents Filed. |
| 1. | The list of the financial statements contained herein is set forth on pageF-1 hereof. |
| 2. | Schedule III – Real Estate and Accumulated Depreciation is set forth beginning on pageS-1 hereof. All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are not applicable and therefore have been omitted. |
| 3. | The Exhibits filed in response to Item 601 of RegulationS-K are listed on the Exhibit Index below. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Ladera Ranch, State of California, on March 31, 2017.
| | | STRATEGIC STORAGE TRUST II, INC. | | | By: | ITEM 16. | /s/ H. Michael SchwartzFORM 10-K SUMMARY
| | | H. Michael Schwartz | | | Chief Executive Officer and Director |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:None.
| | | | | Signature
| | Title
| | Date
| | | | /s/ H. Michael Schwartz
H. Michael Schwartz
| | Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)
| | March 31, 2017 | | | | /s/ Matt F. Lopez
Matt F. Lopez
| | Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
| | March 31, 2017 | | | | /s/ David J. Mueller
David J. Mueller
| | Independent Director
| | March 31, 2017 | | | | /s/ Harold “Skip” Perry
Harold “Skip” Perry
| | Independent Director
| | March 31, 2017 | | | | /s/ Timothy S. Morris
Timothy S. Morris
| | Independent Director
| | March 31, 2017 | | | | /s/ Paula Mathews
Paula Mathews
| | Director
| | March 31, 2017 |
82
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 20162018 F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Strategic Storage Trust II, Inc. Ladera Ranch, California Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Strategic Storage Trust II, Inc. (the “Company”) and subsidiaries as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive loss, equity, and cash flows for the years then ended, and the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2018 and 2017, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ BDO USA, LLP We have served as the Company’s auditor since 2017. Costa Mesa, California March 22, 2019 F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Strategic Storage Trust II, Inc. We have audited the accompanying consolidated balance sheetsstatements of operations, comprehensive loss, equity, and cash flows of Strategic Storage Trust II, Inc. and Subsidiaries (the “Company”) as of December 31, 2016 and 2015, andfor the related consolidated statements of operations, comprehensive loss, equity, and cash flows for each of the years in the three-year periodyear ended December 31, 2016. Our audits of the consolidated financial statements included the financial statement schedule listed in the accompanying index. The Company’s management is responsible for these consolidated financial statements and the financial statement schedule.statements. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.audit. We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The companyCompany is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’scompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provideaudit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial positionresults of Strategic Storage Trust II, Inc. and Subsidiaries as of December 31, 2016 and 2015 and the results of theirSubsidiaries’ operations and their cash flows for each of the years in the three-year periodyear ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. | /s/ CohnReznick LLP | | Los Angeles, California | March 31, 2017 |
Los Angeles, California March 31, 2017 F-3
STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 20162018 and 20152017 | | | | December 31, | | | December 31, | | | | | 2016 | | 2015 | | | 2018 | | | 2017 | | | ASSETS | | | | | | | | | | | | | Real estate facilities: | | | | | | | | | | | | | Land | | $ | 249,051,278 | | | $ | 47,653,000 | | | $ | 269,522,776 | | | $ | 272,313,395 | | Buildings | | | 439,426,157 | | | 97,941,472 | | | | 507,580,145 | | | | 514,648,107 | | Site improvements | | | 38,978,298 | | | 10,650,078 | | | | 43,193,105 | | | | 42,717,975 | | | | | | | | | | | 820,296,026 | | | | 829,679,477 | | | | | 727,455,733 | | | 156,244,550 | | | Accumulated depreciation | | | (14,855,188 | ) | | (3,755,709 | ) | | | (54,264,685 | ) | | | (34,686,973 | ) | | | | | | | | | | 766,031,341 | | | | 794,992,504 | | | | | 712,600,545 | | | 152,488,841 | | | Construction in process | | | 1,740,139 | | | 385,408 | | | | 130,383 | | | | 92,519 | | | | | | | | | | Real estate facilities, net | | | 714,340,684 | | | 152,874,249 | | | | 766,161,724 | | | | 795,085,023 | | Cash and cash equivalents | | | 14,993,869 | | | 28,104,470 | | | | 10,272,020 | | | | 7,355,422 | | Restricted cash | | | 3,040,936 | | | 410,492 | | | | 3,740,188 | | | | 4,512,990 | | Other assets | | | 5,533,182 | | | 6,017,845 | | | Other assets, net | | | | 14,580,417 | | | | 5,563,600 | | Debt issuance costs, net of accumulated amortization | | | 1,550,410 | | | 2,128,806 | | | | 36,907 | | | | 836,202 | | Intangible assets, net of accumulated amortization | | | 13,094,530 | | | 3,910,966 | | | | 1,562,781 | | | | 4,144,601 | | | | | | | | | | Total assets | | $ | 752,553,611 | | | $ | 193,446,828 | | | $ | 796,354,037 | | | $ | 817,497,838 | | | | | | | | | | | LIABILITIES AND EQUITY | | | | | | | | | | | | | Debt, net | | $ | 320,820,740 | | | $ | 23,029,775 | | | $ | 406,084,103 | | | $ | 396,792,902 | | Accounts payable and accrued liabilities | | | 4,601,422 | | | 2,146,253 | | | | 7,691,990 | | | | 7,451,849 | | Due to affiliates | | | 3,178,235 | | | 208,483 | | | | 2,203,837 | | | | 2,965,904 | | Distributions payable | | | 2,608,609 | | | 986,886 | | | | 2,890,395 | | | | 2,852,100 | | | | | | | | | | Total liabilities | | | 331,209,006 | | | | 26,371,397 | | | | 418,870,325 | | | | 410,062,755 | | | | | | | | | | Commitments and contingencies (Note 8) | | | | | | | | | | | | | Redeemable common stock | | | 10,711,682 | | | 1,223,483 | | | | 32,226,815 | | | | 24,497,059 | | | | | | | | | | Equity: | | | | | | | | | | | | | Strategic Storage Trust II, Inc. equity: | | | | | | | | | | | | | Preferred stock, $0.001 par value; 200,000,000 shares authorized; none issued and outstanding at December 31, 2016 and 2015 | | | — | | | | — | | | Class A common stock, $0.001 par value; 350,000,000 shares authorized; 47,174,543 and 20,684,791 shares issued and outstanding at December 31, 2016 and 2015, respectively | | | 47,174 | | | 20,685 | | | Class T common stock, $0.001 par value; 350,000,000 shares authorized; 6,585,799 and 608,982 issued and outstanding at December 31, 2016 and 2015, respectively | | | 6,586 | | | 609 | | | Preferred stock, $0.001 par value; 200,000,000 shares authorized; none issued and outstanding at December 31, 2018 and 2017 | | | | — | | | | — | | Class A common stock, $0.001 par value; 350,000,000 shares authorized; 50,437,059 and 49,386,092 shares issued and outstanding at December 31, 2018 and 2017, respectively | | | | 50,437 | | | | 49,386 | | Class T common stock, $0.001 par value; 350,000,000 shares authorized; 7,533,790 and 7,350,142 issued and outstanding at December 31, 2018 and 2017, respectively | | | | 7,534 | | | | 7,351 | | Additionalpaid-in capital | | | 480,692,731 | | | 187,434,752 | | | | 500,474,807 | | | | 496,287,890 | | Distributions | | | (27,665,337 | ) | | (3,893,528 | ) | | | (94,248,326 | ) | | | (60,561,504 | ) | Accumulated deficit | | | (43,777,711 | ) | | (17,687,326 | ) | | | (62,340,153 | ) | | | (58,641,776 | ) | Accumulated other comprehensive income | | | 1,377,950 | | | | — | | | | 1,390,354 | | | | 1,369,208 | | | | | | | | | | Total Strategic Storage Trust II, Inc. equity | | | 410,681,393 | | | 165,875,192 | | | | 345,334,653 | | | | 378,510,555 | | | | | | | | | | Noncontrolling interests in our Operating Partnership | | | (48,470 | ) | | (23,244 | ) | | | (77,756 | ) | | | 4,427,469 | | | | | | | | | | Total equity | | | 410,632,923 | | | | 165,851,948 | | | | 345,256,897 | | | | 382,938,024 | | | | | | | | | | Total liabilities and equity | | $ | 752,553,611 | | | $ | 193,446,828 | | | $ | 796,354,037 | | | $ | 817,497,838 | | | | | | | | | |
See notes to consolidated financial statements. F-4
STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2016, 20152018, 2017 and 20142016 | | | | Year Ended
December 31,
2016 | | Year Ended
December 31,
2015 | | Year Ended
December 31,
2014 | | | Year Ended December 31, 2018 | | | Year Ended December 31, 2017 | | | Year Ended December 31, 2016 | | Revenues: | | | | | | | | | | | | | | | | | | | Self storage rental revenue | | $ | 45,169,831 | | | $ | 17,547,235 | | | $ | 450,963 | | | $ | 78,473,091 | | | $ | 75,408,257 | | | $ | 45,169,831 | | Ancillary operating revenue | | | 261,315 | | | 358,464 | | | 14,382 | | | | 1,939,166 | | | | 700,649 | | | | 261,315 | | | | | | | | | | | | | Total revenues | | | 45,431,146 | | | 17,905,699 | | | 465,345 | | | | 80,412,257 | | | | 76,108,906 | | | | 45,431,146 | | | | | | | | | | | | | Operating expenses: | | | | | | | | | | | | | | | | | | | Property operating expenses | | | 15,976,950 | | | 6,754,391 | | | 167,434 | | | | 25,228,704 | | | | 24,487,854 | | | | 15,976,950 | | Property operating expenses – affiliates | | | 5,723,708 | | | 2,124,892 | | | 69,541 | | | | 10,254,634 | | | | 10,631,362 | | | | 5,723,708 | | General and administrative | | | 2,860,653 | | | 1,591,577 | | | 943,865 | | | | 4,848,447 | | | | 3,457,907 | | | | 2,860,653 | | Depreciation | | | 11,213,663 | | | 3,967,981 | | | 94,063 | | | | 20,379,694 | | | | 19,939,856 | | | | 11,213,663 | | Intangible amortization expense | | | 10,864,617 | | | 5,142,417 | | | 158,617 | | | | 2,422,997 | | | | 13,512,217 | | | | 10,864,617 | | Acquisition expenses – affiliates | | | 10,729,535 | | | 2,776,679 | | | 1,089,783 | | | | 72,179 | | | | 212,577 | | | | 10,729,535 | | Other property acquisition expenses | | | 2,972,523 | | | 624,642 | | | 198,907 | | | | 1,054,159 | | | | 292,022 | | | | 2,972,523 | | | | | | | | | | | | | Total operating expenses | | | 60,341,649 | | | 22,982,579 | | | 2,722,210 | | | | 64,260,814 | | | | 72,533,795 | | | | 60,341,649 | | | | | | | | | | | | | Operating loss | | | (14,910,503 | ) | | (5,076,880 | ) | | (2,256,865 | ) | | Operating income (loss) | | | | 16,151,443 | | | | 3,575,111 | | | | (14,910,503 | ) | Other income (expense): | | | | | | | | | | | | | | | | | | | Interest expense | | | (7,445,230 | ) | | (2,908,171 | ) | | (116,920 | ) | | | (18,002,274 | ) | | | (16,356,565 | ) | | | (7,445,230 | ) | Interest expense—accretion of fair market value of secured debt | | | 386,848 | | | 91,061 | | | 16,543 | | | | 413,353 | | | | 340,382 | | | | 386,848 | | Interest expense—debt issuance costs | | | (3,848,286 | ) | | (1,011,121 | ) | | (4,343 | ) | | | (1,582,049 | ) | | | (2,177,833 | ) | | | (3,848,286 | ) | Other | | | (286,438 | ) | | (32,430 | ) | | | — | | | | (701,203 | ) | | | (367,385 | ) | | | (286,438 | ) | | | | | | | | | | | | Net loss | | | (26,103,609 | ) | | (8,937,541 | ) | | (2,361,585 | ) | | | (3,720,730 | ) | | | (14,986,290 | ) | | | (26,103,609 | ) | Less: Distributions to preferred unitholders in our Operating Partnership | | | — | | | (4,825,139 | ) | | (117,472 | ) | | Less: Accretion of preferred equity costs | | | — | | | (1,621,385 | ) | | (28,115 | ) | | Net loss attributable to the noncontrolling interests in our Operating Partnership | | | 13,224 | | | 93,124 | | | 110,787 | | | | 22,353 | | | | 122,225 | | | | 13,224 | | | | | | | | | | | | | Net loss attributable to Strategic Storage Trust II, Inc. common stockholders | | $ | (26,090,385 | ) | | $ | (15,290,941 | ) | | $ | (2,396,385 | ) | | $ | (3,698,377 | ) | | $ | (14,864,065 | ) | | $ | (26,090,385 | ) | | | | | | | | | | | | Net loss per Class A share – basic and diluted | | $ | (0.65 | ) | | $ | (2.56 | ) | | $ | (4.59 | ) | | $ | (0.06 | ) | | $ | (0.27 | ) | | $ | (0.65 | ) | Net loss per Class T share – basic and diluted | | $ | (0.65 | ) | | $ | (2.56 | ) | | $ | — | | | $ | (0.06 | ) | | $ | (0.27 | ) | | $ | (0.65 | ) | | | | | | | | | | | | Weighted average Class A shares outstanding – basic and diluted | | | 36,828,765 | | | 5,923,286 | | | 522,223 | | | | 49,902,967 | | | | 48,781,865 | | | | 36,828,765 | | Weighted average Class T shares outstanding – basic and diluted | | | 3,431,714 | | | 45,924 | | | | — | | | | 7,441,250 | | | | 7,240,953 | | | | 3,431,714 | | | | | | | | | | | | |
See notes to consolidated financial statements. F-5
STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Years Ended December 31, 2016, 20152018, 2017 and 20142016 | | | | | | | | | | | | | | | | Year Ended
December 31,
2016 | | | Year Ended
December 31,
2015 | | | Year Ended
December 31,
2014 | | Net loss | | $ | (26,103,609 | ) | | $ | (8,937,541 | ) | | $ | (2,361,585 | ) | Other comprehensive income: | | | | | | | | | | | | | Foreign currency translation adjustment | | | 591,721 | | | | — | | | | — | | Foreign currency forward contract gain | | | 86,315 | | | | — | | | | — | | Interest rate swap contract gain | | | 699,914 | | | | — | | | | — | | | | | | | | | | | | | | | Other comprehensive income | | | 1,377,950 | | | | — | | | | — | | | | | | | | | | | | | | | Comprehensive loss | | | (24,725,659 | ) | | | (8,937,541 | ) | | | (2,361,585 | ) | Less: Distributions to preferred unitholders in our Operating Partnership | | | — | | | | (4,825,139 | ) | | | (117,472 | ) | Less: Accretion of preferred equity costs | | | — | | | | (1,621,385 | ) | | | (28,115 | ) | Comprehensive loss attributable to noncontrolling interests: | | | | | | | | | | | | | Comprehensive loss attributable to the noncontrolling interests in our Operating Partnership | | | 12,526 | | | | 93,124 | | | | 110,787 | | | | | | | | | | | | | | | Comprehensive loss attributable to Strategic Storage Trust II, Inc. common stockholders. | | $ | (24,713,133 | ) | | $ | (15,290,941 | ) | | $ | (2,396,385 | ) | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 | | | Year Ended December 31, 2017 | | | Year Ended December 31, 2016 | | Net loss | | $ | (3,720,730 | ) | | $ | (14,986,290 | ) | | $ | (26,103,609 | ) | Other comprehensive income (loss): | | | | | | | | | | | | | Foreign currency translation adjustment | | | (4,850,547 | ) | | | 3,947,683 | | | | 591,721 | | Foreign currency forward contract gain (loss) | | | 5,251,438 | | | | (4,101,495 | ) | | | 86,315 | | Interest rate swap and cap contract gains (losses) | | | (379,745 | ) | | | 145,070 | | | | 699,914 | | Other comprehensive income (loss) | | | 21,146 | | | | (8,742 | ) | | | 1,377,950 | | Comprehensive loss | | | (3,699,584 | ) | | | (14,995,032 | ) | | | (24,725,659 | ) | Comprehensive loss attributable to noncontrolling interests: | | | | | | | | | | | | | Comprehensive loss attributable to the noncontrolling interests in our Operating Partnership | | | 22,226 | | | | 122,296 | | | | 12,526 | | Comprehensive loss attributable to Strategic Storage Trust II, Inc. common stockholders | | $ | (3,677,358 | ) | | $ | (14,872,736 | ) | | $ | (24,713,133 | ) |
See notes to consolidated financial statements. F-6
STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY Years Ended December 31, 2016, 2015,2018, 2017 and 20142016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Class A | | | Class T | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of
Shares | | | Common
Stock
Par Value | | | Number
of Shares | | | Common
Stock
Par Value | | | Additional
Paid-in
Capital | | | Distributions | | | Accumulated
Deficit | | | Accumulated
Other
Comprehensive
Income | | | Total
Strategic
Storage
Trust II, Inc.
Equity | | | Noncontrolling
Interests in
our Operating
Partnership | | | Total Equity | | | Preferred
Equity in our
Operating
Partnership | | | Redeemable
Common
Stock | | Balance as of December 31, 2013 | | | 100 | | | $ | 1 | | | | — | | | $ | — | | | $ | 999 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,000 | | | $ | 200,000 | | | $ | 201,000 | | | $ | — | | | $ | — | | Gross proceeds from issuance of common stock | | | 1,757,677 | | | | 1,757 | | | | — | | | | — | | | | 17,535,145 | | | | — | | | | — | | | | — | | | | 17,536,902 | | | | — | | | | 17,536,902 | | | | — | | | | — | | Offering costs | | | — | | | | — | | | | — | | | | — | | | | (3,531,326 | ) | | | — | | | | — | | | | — | | | | (3,531,326 | ) | | | — | | | | (3,531,326 | ) | | | — | | | | — | | Changes to redeemable common stock | | | — | | | | — | | | | — | | | | — | | | | (73,514 | ) | | | — | | | | — | | | | — | | | | (73,514 | ) | | | — | | | | (73,514 | ) | | | — | | | | 73,514 | | Distributions ($0.60 per share) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (311,975 | ) | | | — | | | | — | | | | (311,975 | ) | | | — | | | | (311,975 | ) | | | — | | | | — | | Distributions for noncontrolling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (7,332 | ) | | | (7,332 | ) | | | — | | | | — | | Issuance of shares for distribution reinvestment plan | | | 7,738 | | | | 8 | | | | — | | | | — | | | | 73,506 | | | | — | | | | — | | | | — | | | | 73,514 | | | | — | | | | 73,514 | | | | — | | | | — | | Net loss attributable to Strategic Storage II Trust, Inc. | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,396,385 | ) | | | — | | | | (2,396,385 | ) | | | — | | | | (2,396,385 | ) | | | — | | | | — | | Net loss attributable to the noncontrolling interests in our Operating Partnership | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (110,787 | ) | | | (110,787 | ) | | | — | | | | — | | Gross proceeds from issuance of preferred equity in our Operating Partnership | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 6,517,119 | | | | — | | Preferred equity issuance costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,517,119 | ) | | | — | | Accretion of preferred equity issuance costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 28,115 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of December 31, 2014 | | | 1,765,515 | | | | 1,766 | | | | — | | | | — | | | | 14,004,810 | | | | (311,975 | ) | | | (2,396,385 | ) | | | — | | | | 11,298,216 | | | | 81,881 | | | | 11,380,097 | | | | 5,028,115 | | | | 73,514 | | Gross proceeds from issuance of common stock | | | 18,797,161 | | | | 18,796 | | | | 608,918 | | | | 608 | | | | 193,085,902 | | | | — | | | | — | | | | — | | | | 193,105,306 | | | | — | | | | 193,105,306 | | | | — | | | | — | | Offering costs | | | — | | | | — | | | | — | | | | — | | | | (19,667,131 | ) | | | — | | | | — | | | | — | | | | (19,667,131 | ) | | | — | | | | (19,667,131 | ) | | | — | | | | — | | Changes to redeemable common
stock | | | — | | | | — | | | | — | | | | — | | | | (1,177,289 | ) | | | — | | | | — | | | | — | | | | (1,177,289 | ) | | | — | | | | (1,177,289 | ) | | | — | | | | 1,177,289 | | Redemptions of common stock | | | (1,750 | ) | | | (1 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1 | ) | | | — | | | | (1 | ) | | | — | | | | (27,320 | ) | Distributions ($0.60 per share) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (3,581,553 | ) | | | — | | | | — | | | | (3,581,553 | ) | | | — | | | | (3,581,553 | ) | | | — | | | | — | | Distributions for noncontrolling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (12,001 | ) | | | (12,001 | ) | | | — | | | | — | | Issuance of shares for distribution reinvestment plan | | | 123,865 | | | | 124 | | | | 64 | | | | 1 | | | | 1,177,164 | | | | — | | | | — | | | | — | | | | 1,177,289 | | | | — | | | | 1,177,289 | | | | — | | | | — | | Stock compensation expense | | | — | | | | — | | | | — | | | | — | | | | 11,296 | | | | — | | | | — | | | | — | | | | 11,296 | | | | — | | | | 11,296 | | | | — | | | | — | | Net loss attributable to Strategic Storage II Trust, Inc. | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (15,290,941 | ) | | | — | | | | (15,290,941 | ) | | | — | | | | (15,290,941 | ) | | | — | | | | — | | Net loss attributable to the noncontrolling interests in our Operating Partnership | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (93,124 | ) | | | (93,124 | ) | | | — | | | | — | | Gross proceeds from issuance of preferred equity in our Operating Partnership | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 52,952,380 | | | | — | | Redemption of preferred equity in our Operating Partnership | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (59,469,500 | ) | | | — | | Preferred equity issuance costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (132,380 | ) | | | — | | Accretion of preferred equity issuance costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,621,385 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of December 31, 2015 | | | 20,684,791 | | | | 20,685 | | | | 608,982 | | | | 609 | | | | 187,434,752 | | | | (3,893,528 | ) | | | (17,687,326 | ) | | | — | | | | 165,875,192 | | | | (23,244 | ) | | | 165,851,948 | | | | — | | | | 1,223,483 | | Gross proceeds from issuance of common stock | | | 25,601,685 | | | | 25,601 | | | | 5,892,439 | | | | 5,892 | | | | 325,996,530 | | | | — | | | | — | | | | — | | | | 326,028,023 | | | | — | | | | 326,028,023 | | | | — | | | | — | | Offering costs | | | — | | | | — | | | | — | | | | — | | | | (32,776,126 | ) | | | — | | | | — | | | | — | | | | (32,776,126 | ) | | | — | | | | (32,776,126 | ) | | | — | | | | — | | Changes to redeemable common stock | | | — | | | | — | | | | — | | | | — | | | | (10,790,662 | ) | | | — | | | | — | | | | — | | | | (10,790,662 | ) | | | — | | | | (10,790,662 | ) | | | — | | | | 10,790,662 | | Redemptions of common stock | | | (112,340 | ) | | | (112 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (112 | ) | | | — | | | | (112 | ) | | | — | | | | (1,302,463 | ) | Distributions ($0.60 per share) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (23,771,809 | ) | | | — | | | | — | | | | (23,771,809 | ) | | | — | | | | (23,771,809 | ) | | | — | | | | — | | Distributions for noncontrolling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (12,002 | ) | | | (12,002 | ) | | | — | | | | — | |
| | Common Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Class A | | | Class T | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of Shares | | | Common Stock Par Value | | | Number of Shares | | | Common Stock Par Value | | | Additional Paid-in Capital | | | Distributions | | | Accumulated Deficit | | | Accumulated Other Comprehensive Income | | | Total Strategic Storage Trust II, Inc. Equity | | | Noncontrolling Interests in our Operating Partnership | | | Total Equity | | | Redeemable Common Stock | | Balance as of December 31, 2015 | | | 20,684,791 | | | $ | 20,685 | | | | 608,982 | | | $ | 609 | | | $ | 187,434,752 | | | $ | (3,893,528 | ) | | $ | (17,687,326 | ) | | $ | — | | | $ | 165,875,192 | | | $ | (23,244 | ) | | $ | 165,851,948 | | | $ | 1,223,483 | | Gross proceeds from issuance of common stock | | | 25,601,685 | | | | 25,601 | | | | 5,892,439 | | | | 5,892 | | | | 325,996,530 | | | | — | | | | — | | | | — | | | | 326,028,023 | | | | — | | | | 326,028,023 | | | | — | | Offering costs | | | — | | | | — | | | | — | | | | — | | | | (32,776,126 | ) | | | — | | | | — | | | | — | | | | (32,776,126 | ) | | | — | | | | (32,776,126 | ) | | | — | | Changes to redeemable common stock | | | — | | | | — | | | | — | | | | — | | | | (10,790,662 | ) | | | — | | | | — | | | | — | | | | (10,790,662 | ) | | | — | | | | (10,790,662 | ) | | | 10,790,662 | | Redemptions of common stock | | | (112,340 | ) | | | (112 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (112 | ) | | | — | | | | (112 | ) | | | (1,302,463 | ) | Distributions | | | — | | | | — | | | | — | | | | — | | | | — | | | | (23,771,809 | ) | | | — | | | | — | | | | (23,771,809 | ) | | | — | | | | (23,771,809 | ) | | | — | | Distributions for noncontrolling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (12,002 | ) | | | (12,002 | ) | | | — | | Issuance of shares for distribution reinvestment plan | | | 1,000,407 | | | | 1,000 | | | | 84,378 | | | | 85 | | | | 10,790,662 | | | | — | | | | — | | | | — | | | | 10,791,747 | | | | — | | | | 10,791,747 | | | | — | | Stock compensation expense | | | — | | | | — | | | | — | | | | — | | | | 37,575 | | | | — | | | | — | | | | — | | | | 37,575 | | | | — | | | | 37,575 | | | | — | | Net loss attributable to Strategic Storage II Trust, Inc. | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (26,090,385 | ) | | | — | | | | (26,090,385 | ) | | | — | | | | (26,090,385 | ) | | | — | | Net loss attributable to the noncontrolling interests in our Operating Partnership | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (13,224 | ) | | | (13,224 | ) | | | — | | Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 591,721 | | | | 591,721 | | | | — | | | | 591,721 | | | | — | | Foreign currency forward contract gain | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 86,315 | | | | 86,315 | | | | — | | | | 86,315 | | | | — | | Interest rate swap contract gain | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 699,914 | | | | 699,914 | | | | — | | | | 699,914 | | | | — | | Balance as of December 31, 2016 | | | 47,174,543 | | | | 47,174 | | | | 6,585,799 | | | | 6,586 | | | | 480,692,731 | | | | (27,665,337 | ) | | | (43,777,711 | ) | | | 1,377,950 | | | | 410,681,393 | | | | (48,470 | ) | | | 410,632,923 | | | | 10,711,682 | | Gross proceeds from issuance of common stock | | | 1,027,612 | | | | 1,028 | | | | 564,591 | | | | 565 | | | | 17,309,777 | | | | — | | | | — | | | | — | | | | 17,311,370 | | | | — | | | | 17,311,370 | | | | — | | Offering costs | | | — | | | | — | | | | — | | | | — | | | | (1,748,589 | ) | | | — | | | | — | | | | — | | | | (1,748,589 | ) | | | — | | | | (1,748,589 | ) | | | — | | Issuance of limited partnership units in our Operating Partnership | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 4,875,454 | | | | 4,875,454 | | | | — | | Changes to redeemable common stock | | | — | | | | — | | | | — | | | | — | | | | (16,004,705 | ) | | | — | | | | — | | | | — | | | | (16,004,705 | ) | | | — | | | | (16,004,705 | ) | | | 16,004,705 | | Redemptions of common stock | | | (181,413 | ) | | | (181 | ) | | | (7,360 | ) | | | (7 | ) | | | — | | | | — | | | | — | | | | — | | | | (188 | ) | | | — | | | | (188 | ) | | | (2,219,328 | ) | Distributions | | | — | | | | — | | | | — | | | | — | | | | — | | | | (32,896,167 | ) | | | — | | | | — | | | | (32,896,167 | ) | | | — | | | | (32,896,167 | ) | | | — | | Distributions for noncontrolling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (277,290 | ) | | | (277,290 | ) | | | — | | Issuance of shares for distribution reinvestment plan | | | 1,365,350 | | | | 1,365 | | | | 207,112 | | | | 207 | | | | 16,004,705 | | | | — | | | | — | | | | — | | | | 16,006,277 | | | | — | | | | 16,006,277 | | | | — | | Stock compensation expense | | | — | | | | — | | | | — | | | | — | | | | 33,971 | | | | — | | | | — | | | | — | | | | 33,971 | | | | — | | | | 33,971 | | | | — | | Net loss attributable to Strategic Storage II Trust, Inc. | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (14,864,065 | ) | | | — | | | | (14,864,065 | ) | | | — | | | | (14,864,065 | ) | | | — | | Net loss attributable to the noncontrolling interests in our Operating Partnership | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (122,225 | ) | | | (122,225 | ) | | | — | |
F-7
| | Common Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Class A | | | Class T | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of Shares | | | Common Stock Par Value | | | Number of Shares | | | Common Stock Par Value | | | Additional Paid-in Capital | | | Distributions | | | Accumulated Deficit | | | Accumulated Other Comprehensive Income | | | Total Strategic Storage Trust II, Inc. Equity | | | Noncontrolling Interests in our Operating Partnership | | | Total Equity | | | Redeemable Common Stock | | Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,947,683 | | | | 3,947,683 | | | | — | | | | 3,947,683 | | | | — | | Foreign currency forward contract loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (4,101,495 | ) | | | (4,101,495 | ) | | | — | | | | (4,101,495 | ) | | | — | | Interest rate swap contract gain and cap contract gain | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 145,070 | | | | 145,070 | | | | — | | | | 145,070 | | | | — | | Balance as of December 31, 2017 | | | 49,386,092 | | | | 49,386 | | | | 7,350,142 | | | | 7,351 | | | | 496,287,890 | | | | (60,561,504 | ) | | | (58,641,776 | ) | | | 1,369,208 | | | | 378,510,555 | | | | 4,427,469 | | | | 382,938,024 | | | | 24,497,059 | | Conversion of OP Units to common stock | | | 483,124 | | | | 483 | | | | — | | | | — | | | | 4,253,526 | | | | — | | | | — | | | | — | | | | 4,254,009 | | | | (4,254,009 | ) | | | — | | | | — | | Redemption of interest in subsidiary | | | — | | | | — | | | | — | | | | — | | | | (125,000 | ) | | | — | | | | — | | | | — | | | | (125,000 | ) | | | — | | | | (125,000 | ) | | | — | | Offering costs | | | — | | | | — | | | | — | | | | — | | | | (16,902 | ) | | | — | | | | — | | | | — | | | | (16,902 | ) | | | — | | | | (16,902 | ) | | | — | | Issuance of restricted stock | | | 10,500 | | | | 11 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 11 | | | | — | | | | 11 | | | | — | | Changes to redeemable common stock | | | — | | | | — | | | | — | | | | — | | | | (16,055,585 | ) | | | — | | | | — | | | | — | | | | (16,055,585 | ) | | | — | | | | (16,055,585 | ) | | | 16,055,585 | | Redemptions of common stock | | | (768,313 | ) | | | (768 | ) | | | (19,664 | ) | | | (20 | ) | | | — | | | | — | | | | — | | | | — | | | | (788 | ) | | | — | | | | (788 | ) | | | (8,325,829 | ) | Distributions | | | — | | | | — | | | | — | | | | — | | | | — | | | | (33,686,822 | ) | | | — | | | | — | | | | (33,686,822 | ) | | | — | | | | (33,686,822 | ) | | | — | | Distributions for noncontrolling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (228,863 | ) | | | (228,863 | ) | | | — | | Issuance of shares for distribution reinvestment plan | | | 1,325,656 | | | | 1,325 | | | | 203,312 | | | | 203 | | | | 16,055,585 | | | | — | | | | — | | | | — | | | | 16,057,113 | | | | — | | | | 16,057,113 | | | | — | | Stock compensation expense | | | — | | | | — | | | | — | | | | — | | | | 75,293 | | | | — | | | | — | | | | — | | | | 75,293 | | | | — | | | | 75,293 | | | | — | | Net loss attributable to Strategic Storage II Trust, Inc. | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (3,698,377 | ) | | | — | | | | (3,698,377 | ) | | | — | | | | (3,698,377 | ) | | | — | | Net loss attributable to the noncontrolling interests in our Operating Partnership | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (22,353 | ) | | | (22,353 | ) | | | — | | Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (4,850,547 | ) | | | (4,850,547 | ) | | | — | | | | (4,850,547 | ) | | | — | | Foreign currency forward contract gain | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5,251,438 | | | | 5,251,438 | | | | — | | | | 5,251,438 | | | | — | | Interest rate swap and cap contract losses | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (379,745 | ) | | | (379,745 | ) | | | — | | | | (379,745 | ) | | | — | | Balance as of December 31, 2018 | | | 50,437,059 | | | $ | 50,437 | | | | 7,533,790 | | | $ | 7,534 | | | $ | 500,474,807 | | | $ | (94,248,326 | ) | | $ | (62,340,153 | ) | | $ | 1,390,354 | | | $ | 345,334,653 | | | $ | (77,756 | ) | | $ | 345,256,897 | | | $ | 32,226,815 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Class A | | | Class T | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of
Shares | | | Common
Stock
Par Value | | | Number of
Shares | | | Common
Stock
Par Value | | | Additional
Paid-in
Capital | | | Distributions | | | Accumulated
Deficit | | | Accumulated
Other
Comprehensive
Income | | | Total
Strategic
Storage
Trust II, Inc.
Equity | | | Noncontrolling
Interests in
our Operating
Partnership | | | Total Equity | | | Preferred
Equity in our
Operating
Partnership | | | Redeemable
Common
Stock | | Issuance of shares for distribution reinvestment plan | | | 1,000,407 | | | | 1,000 | | | | 84,378 | | | | 85 | | | | 10,790,662 | | | | — | | | | — | | | | — | | | | 10,791,747 | | | | — | | | | 10,791,747 | | | | — | | | | — | | Stock compensation expense | | | — | | | | — | | | | — | | | | — | | | | 37,575 | | | | — | | | | — | | | | — | | | | 37,575 | | | | — | | | | 37,575 | | | | — | | | | — | | Net loss attributable to Strategic Storage II Trust, Inc. | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (26,090,385 | ) | | | — | | | | (26,090,385 | ) | | | — | | | | (26,090,385 | ) | | | — | | | | — | | Net loss attributable to the noncontrolling interests in our Operating Partnership | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (13,224 | ) | | | (13,224 | ) | | | — | | | | — | | Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 591,721 | | | | 591,721 | | | | — | | | | 591,721 | | | | — | | | | — | | Foreign currency forward contract gain | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 86,315 | | | | 86,315 | | | | — | | | | 86,315 | | | | — | | | | — | | Interest rate swap
contract gain | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 699,914 | | | | 699,914 | | | | — | | | | 699,914 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of December 31, 2016 | | | 47,174,543 | | | $ | 47,174 | | | | 6,585,799 | | | $ | 6,586 | | | $ | 480,692,731 | | | $ | (27,665,337 | ) | | $ | (43,777,711 | ) | | $ | 1,377,950 | | | $ | 410,681,393 | | | $ | (48,470 | ) | | $ | 410,632,923 | | | $ | — | | | $ | 10,711,682 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See notes to consolidated financial statements. F-8
STRATEGIC STORAGE TRUSTStrategic Storage Trust II, INC.Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2016, 2015,2018, 2017 and 20142016 | | | | Year Ended
December 31, 2016 | | Year Ended
December 31, 2015 | | Year Ended
December 31, 2014 | | | Year Ended December 31, 2018 | | | Year Ended December 31, 2017 | | | Year Ended December 31, 2016 | | Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | Net loss | | $ | (26,103,609 | ) | | $ | (8,937,541 | ) | | $ | (2,361,585 | ) | | $ | (3,720,730 | ) | | $ | (14,986,290 | ) | | $ | (26,103,609 | ) | Adjustments to reconcile net loss to cash used in operating activities: | | | | | | | | Adjustments to reconcile net loss to cash provided by (used in) operating activities: | | | | | | | | | | | | | | Depreciation and amortization | | | 22,078,280 | | | 9,110,398 | | | 252,680 | | | | 22,802,691 | | | | 33,452,073 | | | | 22,078,280 | | Accretion of fair market value adjustment of secured debt | | | (386,848 | ) | | (91,061 | ) | | (16,543 | ) | | | (413,353 | ) | | | (340,382 | ) | | | (386,848 | ) | Amortization of debt issuance costs | | | 3,041,890 | | | 546,932 | | | 4,343 | | | | 1,582,049 | | | | 1,424,790 | | | | 3,041,890 | | Expense related to issuance of restricted stock | | | 37,575 | | | 11,296 | | | | — | | | | 75,293 | | | | 33,971 | | | | 37,575 | | Unrealized foreign currency and derivative gains | | | | 151,777 | | | | (288,603 | ) | | | — | | Increase (decrease) in cash from changes in assets and liabilities: | | | | | | | | | | | | | | | | | | | Other assets | | | (2,171,412 | ) | | (1,516,214 | ) | | (145,776 | ) | | Restricted cash | | | (712,751 | ) | | 59,215 | | | (177,701 | ) | | Other assets, net | | | | (1,237,429 | ) | | | (1,421,813 | ) | | | (2,171,412 | ) | Accounts payable and accrued liabilities | | | 2,670,699 | | | 1,125,839 | | | 501,065 | | | | (794,156 | ) | | | 1,721,910 | | | | 2,670,699 | | Due to affiliates | | | (41,045 | ) | | (1,561,104 | ) | | 1,609,075 | | | | (87,017 | ) | | | 339,357 | | | | (41,045 | ) | | | | | | | | | | | | Net cash used in operating activities | | | (1,587,221 | ) | | (1,252,240 | ) | | (334,442 | ) | | | | | | | | | | | | | Net cash provided by (used in) operating activities | | | | 18,359,125 | | | | 19,935,013 | | | | (874,470 | ) | Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | Purchase of real estate | | | (499,863,176 | ) | | (136,121,758 | ) | | (9,481,306 | ) | | | — | | | | (49,432,644 | ) | | | (499,863,176 | ) | Additions to real estate facilities | | | (8,264,539 | ) | | (2,170,514 | ) | | (2,255 | ) | | Deposits on acquisition of real estate facilities | | | (250,000 | ) | | (2,486,163 | ) | | (4,000,000 | ) | | Restricted cash | | | (1,917,693 | ) | | (86,915 | ) | | (205,091 | ) | | | | | | | | | | | | | Additions to real estate | | | | (1,952,738 | ) | | | (4,165,926 | ) | | | (8,264,539 | ) | Deposits on acquisition of real estate | | | | — | | | | — | | | | (250,000 | ) | Investment in joint venture | | | | (3,358,814 | ) | | | — | | | | — | | Settlement of foreign currency hedges | | | | 2,132,261 | | | | (3,947,758 | ) | | | — | | Net cash used in investing activities | | | (510,295,408 | ) | | (140,865,350 | ) | | (13,688,652 | ) | | | (3,179,291 | ) | | | (57,546,328 | ) | | | (508,377,715 | ) | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | Gross proceeds from issuance of debt | | | 366,898,908 | | | 71,981,167 | | | | — | | | | 91,229,806 | | | | 166,186,951 | | | | 366,898,908 | | Pay down of debt | | | (147,246,450 | ) | | (61,981,167 | ) | | | — | | | | (72,513,082 | ) | | | (130,671,050 | ) | | | (147,246,450 | ) | Scheduled principal payments on secured debt | | | (430,078 | ) | | (166,573 | ) | | (14,280 | ) | | Scheduled principal payments on debt | | | | (1,892,622 | ) | | | (1,564,587 | ) | | | (430,078 | ) | Debt issuance costs | | | (4,876,499 | ) | | (2,582,779 | ) | | (200,842 | ) | | | (1,892,495 | ) | | | (548,206 | ) | | | (4,876,499 | ) | Prepaid debt issuance costs | | | | (1,075,000 | ) | | | — | | | | — | | Gross proceeds from issuance of common stock | | | 326,806,655 | | | 190,817,800 | | | 17,477,102 | | | | — | | | | 18,879,477 | | | | 326,806,655 | | Offering costs | | | (29,771,573 | ) | | (21,291,432 | ) | | (1,710,059 | ) | | | (693,971 | ) | | | (2,339,113 | ) | | | (29,771,573 | ) | Redemption of common stock | | | (1,066,953 | ) | | (17,500 | ) | | | — | | | | (7,758,830 | ) | | | (1,741,113 | ) | | | (1,066,953 | ) | Distributions paid to common stockholders | | | (11,358,337 | ) | | (1,497,802 | ) | | (158,037 | ) | | | (17,566,799 | ) | | | (16,671,024 | ) | | | (11,358,337 | ) | Proceeds from issuance of preferred equity in our Operating Partnership | | | — | | | 52,820,000 | | | 5,000,000 | | | Redemption of preferred equity in our Operating Partnership | | | — | | | (59,469,500 | ) | | | — | | | Distributions paid to preferred unitholders in our Operating Partnership | | | — | | | (4,909,305 | ) | | (33,306 | ) | | Redemption of noncontrolling interest in subsidiary | | | | (125,000 | ) | | | — | | | | — | | Distributions paid to noncontrolling interests in our Operating Partnership | | | (12,003 | ) | | (12,001 | ) | | (7,332 | ) | | | (253,480 | ) | | | (252,671 | ) | | | (12,003 | ) | | | | | | | | | | | | Net cash provided by financing activities | | | 498,943,670 | | | 163,690,908 | | | 20,353,246 | | | | | | | | | | | | | | Impact of foreign exchange rate changes on cash | | | (171,642 | ) | | | — | | | | — | | | | | | | | | | | | | | Change in cash and cash equivalents | | | (13,110,601 | ) | | 21,573,318 | | | 6,330,152 | | | Cash and cash equivalents, beginning of period | | | 28,104,470 | | | 6,531,152 | | | 201,000 | | | | | | | | | | | | | | Cash and cash equivalents, end of period | | $ | 14,993,869 | | | $ | 28,104,470 | | | $ | 6,531,152 | | | | | | | | | | | | | | Net cash provided by (used in) financing activities | | | | (12,541,473 | ) | | | 31,278,664 | | | | 498,943,670 | | Impact of foreign exchange rate changes on cash and restricted cash | | | | (494,565 | ) | | | 166,258 | | | | (171,642 | ) | Change in cash, cash equivalents, and restricted cash | | | | 2,143,796 | | | | (6,166,393 | ) | | | (10,480,157 | ) | Cash, cash equivalents, and restricted cash beginning of period | | | | 11,868,412 | | | | 18,034,805 | | | | 28,514,962 | | Cash, cash equivalents, and restricted cash end of period | | | $ | 14,012,208 | | | $ | 11,868,412 | | | $ | 18,034,805 | | Supplemental disclosures andnon-cash transactions: | | | | | | | | | | | | | | | | | | | Cash paid for interest | | $ | 6,597,500 | | | $ | 2,807,997 | | | $ | 116,920 | | | $ | 17,976,018 | | | $ | 15,994,203 | | | $ | 6,597,500 | | Interest Capitalized | | $ | 72,588 | | | $ | — | | | $ | — | | | Supplemental disclosure of noncash activities: | | | | | | | | | | | | | | | | | | | Deposit applied to the purchase of real estate facilities | | $ | 2,066,260 | | | $ | 4,444,491 | | | $ | — | | | Issuance of shares pursuant to distribution reinvestment plan | | | $ | 16,057,113 | | | $ | 16,006,277 | | | $ | 10,791,747 | | Issuance of common stock in exchange for units in our Operating Partnership | | | $ | 4,254,009 | | | $ | — | | | $ | — | | Distributions payable | | | $ | 2,890,395 | | | $ | 2,852,100 | | | $ | 2,608,609 | | Foreign currency contracts, interest rate swaps, and interest rate cap contract in accounts payable and accrued liabilities and other assets | | | $ | 2,774,111 | | | $ | 76,955 | | | $ | 786,229 | | Redemption of common stock included in accounts payable and accrued liabilities | | | $ | 1,291,520 | | | $ | 723,733 | | | $ | 245,330 | | Real estate and construction in process included in accounts payable and accrued liabilities | | | $ | 617,667 | | | $ | 165,806 | | | $ | — | | Debt and accrued liabilities assumed during purchase of real estate | | | $ | — | | | $ | 39,967,787 | | | $ | 81,356,425 | | Issuance of units in our Operating Partnership for purchase of real estate facilities | | | $ | — | | | $ | 4,875,454 | | | $ | — | | Offering costs included in due to affiliates | | | $ | — | | | $ | 299,299 | | | $ | 3,171,727 | | Deposit applied to the purchase of real estate | | | $ | — | | | $ | 250,000 | | | $ | 2,066,260 | | Offering costs included in accounts payable and accrued liabilities | | | $ | — | | | $ | 1,410 | | | $ | 38,511 | | Transfer from intangibles to real estate to finalize purchase price allocations | | | $ | — | | | $ | — | | | $ | 45,785 | | Proceeds from issuance of common stock in other assets | | $ | 1,567,461 | | | $ | 2,346,306 | | | $ | 59,800 | | | $ | — | | | $ | — | | | $ | 1,567,461 | | Disposal of site improvements | | $ | — | | | $ | 273,963 | | | $ | — | | | Transfer from intangibles to real estate facilities to finalize purchase price allocations | | $ | 45,785 | | | $ | 958,000 | | | $ | — | | | Additions to real estate and construction in process included in accounts payable and accrued liabilities | | $ | 836,664 | | | $ | 369,903 | | | $ | — | | | Offering costs included in due to affiliates | | $ | 3,171,727 | | | $ | 160,512 | | | $ | 1,811,795 | | | Debt issuance costs included in due to affiliates | | $ | — | | | $ | — | | | $ | 441,873 | | | Offering costs included in accounts payable and accrued liabilities | | $ | 38,511 | | | $ | 45,275 | | | $ | 9,472 | | | Redemption of common stock | | $ | 245,330 | | | $ | 9,820 | | | $ | — | | | Foreign currency contract and interest rate swap contract gain included in accounts payable and accrued liabilities | | $ | 786,229 | | | $ | — | | | $ | — | | | Issuance of shares pursuant to distribution reinvestment plan | | $ | 10,791,747 | | | $ | 1,177,289 | | | $ | 73,514 | | | Distributions payable | | $ | 2,608,609 | | | $ | 986,886 | | | $ | 80,424 | | | Preferred equity issuance cost | | $ | — | | | $ | — | | | $ | 1,517,119 | | | Secured debt assumed during the purchase of real estate | | $ | 80,519,761 | | | $ | — | | | $ | 12,618,694 | | | Other assets included in due to affiliates | | $ | — | | | $ | — | | | $ | 461,492 | | | Debt issuance costs included in accounts payable and accrued liabilities | | $ | 94,000 | | | $ | 104,171 | | | $ | 74,690 | | | $ | — | | | $ | — | | | $ | 94,000 | | Distributions payable to preferred unitholders in our Operating Partnership | | $ | — | | | $ | — | | | $ | 84,166 | | |
See notes to consolidated financial statements. F-9
STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2016, 2015,2018, 2017 and 20142016 Note 1. Organization Strategic Storage Trust II, Inc., a Maryland corporation (the “Company”), was formed on January 8, 2013 under the Maryland General Corporation Law for the purpose of engaging in the business of investing in self storage facilities. The Company’syear-end is December 31. As used in this report, “we,” “us,” “our,” and “Company” refer to Strategic Storage Trust II, Inc. and each of our subsidiaries. Strategic Storage Holdings,SmartStop Asset Management, LLC, a Delaware limited liability company (“SSH”(our “Sponsor”), organized in 2013, was the sponsor of our Offering (as defined below) through August 31, 2014. Effective August 31, 2014, SmartStop Self Storage, Inc. (“SmartStop”), entered intoof shares of common stock, as described below. Our Sponsor is a series of transactions, agreements and amendments to its existing agreements and arrangements (such agreements and amendments hereinafter referred to collectively as the “Self Administration and Investment Management Transaction”) with SSH and its affiliates, pursuant to which, effective August 31, 2014, SmartStop acquired the self storagecompany focused on providing real estate advisory, asset management, and property management and investment management businesses of SSH. SmartStop also acquired SSH’s sole membership interest in SmartStop Asset Management, LLC (formerly Strategic Storage Realty Group, LLC), whichservices. Our Sponsor owns 97.5% of the economic interests (and 100% of the voting membership interests) of Strategic Storage Advisor II, LLC (our “Advisor”) and owns 100% of Strategic Storage Property Management II, LLC (our “Property Manager”).
On October 1, 2015, SmartStop Self Storage, Inc. (“SmartStop”) and Extra Space Storage Inc. (“Extra Space”), along with subsidiaries of each of SmartStop and Extra Space, closed on a merger transaction (the “Merger”“Extra Space Merger”) in which SmartStop was acquired by Extra Space for $13.75 per share in cash, representing an enterprise value of approximately $1.4 billion. At the closing of the Extra Space Merger, SmartStop Asset Management, LLC, the owner of our Property Manager and majority and sole voting member of our Advisor,Sponsor, which was previously owned by SmartStop, was sold to an entity controlled by H. Michael Schwartz, our Chairman of the Board of Directors and Chief Executive Officer, and became our sponsor (our “Sponsor”).Sponsor. The former executive management team of SmartStop continuescontinued to serve ason the executive management team for our Sponsor. In addition, the majority of our management team remainsat the same,time of the Extra Space Merger continues to serve on our management team, as well as the management team of our Advisor and Property Manager. We have no employees. Our Advisor, a Delaware limited liability company, was formed on January 8, 2013. Our Advisor is responsible for managing our affairs on aday-to-day basis and identifying and making acquisitions and investments on our behalf under the terms of the advisory agreement we have with our Advisor (our “Advisory Agreement”). The officers of our Advisor, as well as a majority of the officers of our Sponsor, are also officers of us and our Sponsor.us. On August 2, 2013, our Advisor purchased 100 shares of our common stock for $1,000 and became our initial stockholder. Our Articles of Amendment and Restatement, as amended, authorizedauthorize 350,000,000 shares of Class A common stock, $0.001 par value per share (the “Class A Shares”) and 350,000,000 shares of Class T common stock, $0.001 par value per share (the “Class T Shares”) and 200,000,000 shares of preferred stock with a par value of $0.001. We offered a maximum of $1.0 billion in common shares for sale to the public (the “Primary Offering”) and $95.0 million in common shares for sale pursuant to our distribution reinvestment plan (collectively, the “Offering”).
On January 10, 2014, the Securities and Exchange Commission (“SEC”) declared our registration statement effective. On May 23, 2014, we satisfied the $1.5 million minimum offering requirements of our Offering and commenced formal operations. On September 28, 2015, we revisedJanuary 9, 2017, our Primary Offering to offer two classes of shares of common stock:terminated. We sold approximately 48 million Class A Shares and approximately 7 million Class T Shares.Shares for approximately $493 million and $73 million respectively, in our Offering. On January 9, 2017, our Primary Offering terminated. In preparation forNovember 30, 2016, prior to the termination of our Primary Offering, on November 30, 2016, we filed with the SEC a Registration Statement on FormS-3, which registered up to an additional $100.9 million in shares under our distribution reinvestment plan (our “DRP Offering”). The DRP Offering may be terminated at any time upon 10 days’ prior written notice to stockholders. As of December 31, 2016,2018, we had issuedsold approximately 472.7 million Class A Shares and approximately 70.4 million Class T Shares for approximately $481$27.8 million and $67$4.2 million, respectively, in our DRP Offering. We invested the net proceeds from our Offering primarily in self storage facilities. As of December 31, 20162018, we owned 7783 self storage propertiesfacilities located in 14 states (Alabama, California, Colorado, Florida, Illinois, Indiana, Maryland, Michigan, New Jersey, Nevada, North Carolina, Ohio, South Carolina and subsequent to December 31, 2016 we acquired an additional six self storage properties (See Note 11)Washington) and Canada (the Greater Toronto Area). F-10
On April 8, 2016,19, 2018, our board of directors, upon recommendation of its nominatingour Nominating and corporate governance committee,Corporate Governance Committee, approved an estimated value per share of our common stock of $10.09$10.65 for our Class A Shares and Class T Shares based on the estimated value of our assets less the estimated value of our liabilities, or net asset value, divided by the number of shares outstanding on a fully diluted basis, calculated as of December 31, 2015. See Item 5, Market Information, for a description of the methodologies and assumptions used to determine, and the limitations of, the estimated value per share.2017. As a result of the calculation of our estimated value per share, effective on April 14, 2016, the offering price of Class A Shares increased from $10.00 per share to $11.21 per share and the offering price of Class T Shares increased from $9.47 per STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
share to $10.62 per share. Our board of directors determined the new per share offering price of each class of stock by taking the $10.09 estimated value per share and adding the per shareup-front sales commissions and dealer manager fees to be paid with respect to the Class A Shares and Class T Shares, respectively, such that after the payment of such commissions and dealer manager fees, the net proceeds to us will be the same for both Class A Shares and Class T Shares. In addition, effective April 21, 2016,beginning in May 2018, shares sold pursuant to our distribution reinvestment plan are being sold at $10.09the estimated value per share of $10.65 for both Class A Shares and Class T Shares.
Our operating partnership, Strategic Storage Operating Partnership II, L.P., a Delaware limited partnership (our “Operating Partnership”), was formed on January 9, 2013. During 2013, our Advisor purchased limited partnership interests in our Operating Partnership for $200,000 and on August 2, 2013, we contributed the initial $1,000 capital contribution we received to our Operating Partnership in exchange for the general partner interest. In conjunction with the Toronto Merger (as defined in Note 7) we issued an aggregate of approximately 483,197 Class A Units of our Operating Partnership to the common stockholders of Strategic Storage Toronto Properties REIT, Inc. (“SS Toronto”), consisting of Strategic 1031, LLC (“Strategic 1031”), a subsidiary of our Sponsor, and SS Toronto REIT Advisors, Inc., an affiliate of our Sponsor. On October 1, 2018, in conjunction with the amalgamation of our Canadian entities, Strategic 1031 exchanged 483,124 Class A Units of our Operating Partnership and received 483,124 shares of our Class A common stock. Our Operating Partnership owns, directly or indirectly through one or more special purpose entities, all of the self storage properties that we have acquired and the self storage properties we will acquire in the future.acquire. As of December 31, 2016,2018 we owned approximately 99.96% of the common units of limited partnership interests of our Operating Partnership. The remaining approximately 0.04% of the common units are owned by our Advisor. Our Operating Partnership had issued approximately 2.4 million Series A Cumulative Redeemable Preferred Units (the “Preferred Units”) to SSTI Preferred Investor, LLC (the “Preferred Investor”), a wholly-owned subsidiary of SmartStop Self Storage Operating Partnership, L.P., the former operating partnership of SmartStop, in exchange for an investment in our Operating Partnership of approximately $59.5 million. Such Preferred Units were owned by Extra Space subsequent to the Merger. As of December 31, 2015, we had redeemed all of the Preferred Units.Advisor, and SS Toronto REIT Advisors, Inc. As the sole general partner of our Operating Partnership, we have the exclusive power to manage and conduct the business of our Operating Partnership. We conduct certain activities through our taxable REIT subsidiary, Strategic Storage TRS II, Inc., a Delaware corporation (the “TRS”), which is a wholly-owned subsidiary of our Operating Partnership. Our Property Manager was formed on January 8, 2013 to manage our properties. In addition, the properties we acquired in the SSGT Merger will continue to be operated by the property manager in place at the time of the SSGT Merger. For additional information, see “Subsequent Events—Merger with Strategic Storage Growth Trust, Inc.—Property Manager.” Our Property Manager derives substantially all of its income from the property management services it performs for us. Our Property Manager may enter intosub-property management agreements with third party management companies and pay part of its management fee to suchsub-property manager. AtFrom October 1, 2015 through September 30, 2017, our Property Manager contracted with Extra Space for Extra Space to serve as the closingsub-property manager for each of our properties located in the Merger, we entered into new propertyUnited States pursuant to separate sub-property management agreements for each property. On October 1, 2017, our Property Manager terminated its sub-property management agreements with our Property ManagerExtra Space and our Property Manager entered intosub-property management agreements with an affiliate of Extra Space for the managementbegan managing all of our properties in the United States. Furthermore, Extra Space acquiredStates directly. In connection therewith, an affiliate of our Property Manager reacquired the rights to the “SmartStop®“SmartStop® Self Storage” brand in the United States. As a result, we began using the “SmartStop® Self Storage” brand at our United States through the Merger and we can no longer utilize this brand in the United States. The properties we own werere-branded under the Extra Space name subsequent to the Merger. However, anyeffective October 1, 2017. Please see Note 7 – Related Party Transactions – Property Management Agreement. All properties owned or acquired in Canada arehave been and will continue to be managed by a subsidiary of our Sponsor and will continue to beare branded using the SmartStop®SmartStop® Self Storage brand. Our dealer manager wasis Select Capital Corporation, a California corporation (our “Dealer Manager”). Our Dealer Manager was responsible for marketing our shares offered pursuant to our Primary Offering. Our president owned, throughSponsor owns a wholly-owned limited liability company, a 15%non-voting equity interest in our Dealer Manager through August 31, 2014. Effective August 31, 2014, SmartStop indirectly owned the 15%non-voting equity interest in our Dealer Manager, pursuant to the Self Administration and Investment Management Transaction. Effective October 1, 2015, in connection with the Merger, the 15%non-voting equity interest in our Dealer Manager is now owned by our Sponsor. An affiliateManager. Affiliates of our Dealer Manager continues to own a 2.5%non-voting membership interest in our Advisor. Our Sponsor owns 100% of the membership interests of Strategic Transfer Agent Services, LLC, our transfer agent (our “Transfer Agent”). On May 31, 2018, the Company executed an agreement (the “Transfer Agent Agreement”), with our Transfer Agent to provide transfer agent and registrar services to us that are substantially similar to what a third party transfer agent would provide in the ordinary course of performing its functions as a transfer agent. Our Transfer Agent may retain and supervise third party vendors in its efforts to administer certain services. Please see Note 7 – Related Party Transactions – Transfer Agent Agreement. F-11
As we acceptaccepted subscriptions for shares of our common stock, we transfer substantiallytransferred all of the net offering proceeds to our Operating Partnership as capital contributions in exchange for additional units of interest in our Operating Partnership. However, we arewere deemed to have made capital contributions in the amount of gross proceeds received from investors, and our Operating Partnership iswas 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 made to holders of common stock. Finally, a limited partner in our Operating Partnership may later exchange his or her limited partnership units in our Operating Partnership for shares of our common stock at any time after one year following the date of issuance of their limited partnership units, subject to certain restrictions outlined in our Operating Partnership’s limited partnership agreement (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. STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015,On October 1, 2018, we entered into a merger agreement with Strategic Storage Growth Trust, Inc., or SSGT, which we refer to as the SSGT Merger. The SSGT Merger was approved by SSGT's stockholders on January 18, 2019, and 2014it was completed on January 24, 2019. See Note 11, Subsequent Events—Merger with Strategic Storage Growth Trust, Inc., for additional information related to the SSGT Merger.
Note 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC. Principles of Consolidation Our financial statements, and the financial statements of our Operating Partnership, including its wholly-owned subsidiaries, are consolidated in the accompanying consolidated financial statements. The portion of these entities not wholly-owned by us is presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated in consolidation. 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. In February 2015, the FASB issuedASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.”ASU 2015-02 modifies (i) the criteria for and the analysis of the identification of consolidation of variable interest entities, particularly when fee arrangements and related party relationships are involved, and (ii) the consolidation analysis for partnerships. We adopted this standard effective January 1, 2016. The adoption of this standard did not change the consolidation status of any entities in which we have an interest; however, our Our Operating Partnership is now considereddeemed to be a VIE and is consolidated by the Company as a result of the change.primary beneficiary.
As of December 31, 2016 and 2015,2017, we had not entered into any other contracts/interests that would be deemed to be variable interests in VIEs.VIEs other than our Operating Partnership. As of December 31, 2018, we had not entered into any other contracts/interest that would be deemed to be variable interest in VIEs other than our tenant insurance joint venture and a real estate joint venture, both of which are accounted for under the equity method of accounting. Please see Note 3 – Real Estate Facilities for further discussion regarding our joint venture with SmartCentres and Note 7 – Related Party Transactions for further discussions regarding our tenant insurance joint venture. Other than these joint ventures, we do not currently have any variable interest relationships with unconsolidated entities or financial partnerships. F-12
Under the equity method, our investments in real estate joint ventures will be stated at cost and adjusted for our share of net earnings or losses and reduced by distributions. Equity in earnings of real estate joint ventures will generally be recognized based on our ownership interest in the earnings of each of the unconsolidated real estate joint ventures. Noncontrolling Interest in Consolidated Entities We account for the noncontrolling interest in our Operating Partnership in accordance with the related accounting guidance. Due to our control through our general partnership interest in our Operating Partnership and the limited rights of the limited partner, our Operating Partnership, including its wholly-owned subsidiaries, are consolidated with the Company and the limited partner interest is reflected as a noncontrolling interest in the accompanying consolidated balance sheets. The noncontrolling interest shall be attributed its share of income and losses, even if that attribution results in a deficit noncontrolling interest balance. Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions. Management will adjust such estimates when facts and circumstances dictate. Actual results could materially differ from those estimates. The most significant estimates made include the allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed at relative fair value, the determination if certain entities should be consolidated, the evaluation of potential impairment of long-lived assets, and the estimated useful lives of real estate assets and intangibles. STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
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 amended accounting guidanceGAAP which requires that we allocate the purchase price of thea property to the tangible and intangible assets acquired and the liabilities assumed based on estimatedtheir 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 datedate. The value of the tangible assets, consisting of land and buildings is determined as if vacant. Substantially all of the leases in place at acquired properties are at market rates, as the majority of the leases are month-to-month contracts. We also consider whether in-place, market leases represent an intangible asset. We recorded $0 and approximately $4.4 million in intangible assets to adjust those estimates as necessaryrecognize the value of in-place leases related to our acquisitions during the measurement period (defined asyears ended December 31, 2018 and 2017, respectively. We do not expect, nor to date have we recorded, intangible assets for the period,value of customer relationships because we expect we will not have concentrations of significant customers and the average customer turnover will be fairly frequent. F-13
Allocation of purchase price to exceed one year, in which we may adjust the provisional amounts recognized for an acquisition). Acquisitionsacquisitions of portfolios of facilities are allocated to the individual facilities based upon an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates which take into account the relative size, age, and location of the individual facility along with current and projected occupancy and rental rate levels or appraised values, if available. Allocations to In January 2017, the individualFASB issued Accounting Standards Update 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). ASU 2017-01 clarifies the framework for determining whether an integrated set of assets and liabilitiesactivities meets the definition of a business. The revised framework provides guidance for determining whether an integrated set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are based upon comparable market sales informationaccounted for land and estimatesas asset acquisitions. We adopted this ASU on January 1, 2018. We expect that acquisitions of depreciated replacement costreal estate or in-substance real estate will not meet the revised definition of equipment, building and site improvements. In allocating the purchase price, we determine whether the acquisition includes intangible assets or liabilities. Substantiallya business because substantially all of the leasesfair value is concentrated in place ata single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related intangible assets) or because the acquisition does not include a substantive process in the form of an acquired properties are at market rates, as the majority of the leases aremonth-to-month contracts. We also consider whetherin-place, market leases representworkforce or an intangible asset. We recorded approximately $19.9 million and approximately $8.1 million in intangible assets to recognize the value ofin-place leases related to our acquisitions during 2016 and 2015, respectively. We do not expect, nor to date have we recorded, intangible assets for the value of customer relationships because we expect we will not have concentrations ofacquired contract that cannot be replaced without significant customers and the average customer turnover will be fairly frequent. Our acquisition-relatedcost, effort or delay. As a result, once an acquisition is deemed probable, transaction costs are requiredcapitalized rather than expensed. During 2018, we did not acquire any properties that require capitalization of acquisition related transaction costs that would have previously been expensed under the guidance in effect prior to be expensed as incurred. January 1, 2018. During the years ended December 31, 2016, 2015,2018, 2017, and 20142016 we expensed approximately $13.7$1.1 million, $3.4$0.5 million, and $1.3$13.7 million respectively, of acquisition-related transaction costs. Should the initial accounting for an acquisition be incomplete by the end of a reporting periodcosts that falls within the measurement period, we will report provisional amounts indid not meet our consolidated financial statements. During the measurement period, we will adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date and we will record those adjustments to our consolidated financial statements. We will recognize any measurement adjustmentscapitalization policy during the period in which we determine the amount of the adjustment to our consolidated financial statements, potentially including adjustments to interest, depreciation and amortization expense.respective periods.
Evaluation of Possible Impairment of Long-Lived Assets Management monitors events and changes in circumstances that could indicate that the carrying amounts of our long-lived assets may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of the assets may not be recoverable, we will assess the recoverability of the assets by determining whether the carrying value of the long-lived assets will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, we will adjust the value of the long-lived assets to the fair value and recognize an impairment loss. For the years ended December 31, 2016, 2015,2018, 2017, and 2014,2016, no impairment losses were recognized. Revenue Recognition Management believes that all of our leases are operating leases. Rental income is recognized in accordance with the terms of the leases, which generally aremonth-to-month. Revenues from any long-term operating leases are recognized on a straight-line basis over the term of the lease. The excess of rents received over amounts contractually due pursuant to the underlying leases is included in accounts payable and accrued liabilities in our consolidated balance sheets and contractually due but unpaid rent is included in other assets. STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
Allowance for Doubtful Accounts Tenant accounts receivable is reported net of an allowance for doubtful accounts. Management’s estimate of the allowance is based upon a review of the current status of tenant accounts receivable. It is reasonably possible that management’s estimate of the allowance will change in the future. Real Estate Facilities Real estate facilities are recorded based on relative fair value as of the date of acquisition. We capitalize costs incurred to develop, construct, renovate and improve properties, including interest and property taxes incurred during the construction period. The construction period begins when expenditures for the real estate assets have been made and activities that are necessary to prepare the asset for its intended use are in progress. The construction period ends when the asset is substantially complete and ready for its intended use. F-14
Depreciation of Real Property Assets Our management is required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives. Depreciation of our real property assets is charged to expense on a straight-line basis over the estimated useful lives
as follows: | | | Description | | Standard Depreciable Life | Land | | Not Depreciated | Buildings | | 30-35 years | Site Improvements | | 7-10 years |
Depreciation of Personal Property Assets Personal property assets consist primarily of furniture, fixtures and equipment and are depreciated on a straight-line basis over the estimated useful lives generally ranging from 3 to 5 years, and are included in other assets on our consolidated balance sheets. Intangible Assets We have allocated a portion of our real estate purchase price toin-place lease intangibles. We are amortizingin-place lease intangibles on a straight-line basis over the estimated future benefit period. As of December 31, 2016,2018, the gross amounts allocated toin-place lease intangibles was approximately $29.2$33.4 million and accumulated amortization ofin-place lease intangibles totaled approximately $16.1$31.9 million. As of December 31, 2015,2017, the gross amounts allocated toin-place lease intangibles was approximately $9.2$34.0 million and accumulated amortization ofin-place lease intangibles totaled approximately $5.3$29.8 million. The total estimated future amortization expense of intangible assets for the years ending December 31, 2017, 2018, 2019, 2020, 2021, 2022, 2023, and 2021thereafter is approximately $11.7$0.1 million, $1.2$0.1 million, $13,000, $13,000,$0.1 million, $0.1 million, $0.1 million, and $13,000,$1.1 million respectively. Debt Issuance Costs The net carrying value of costs incurred in connection with our revolving credit facility are presented as debt issuance costs on our consolidated balance sheets. Debt issuance costs are amortized on a straight-line basis over the term of the related loan, which is not materially different than the effective interest method. As of December 31, 20162018 and 2015,2017, accumulated amortization of debt issuance costs related to our revolving credit facility totaled approximately $0.7$45,000 and $1.5 million, and $20,000, respectively. STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
The net carrying value of costs incurred in connection with obtaining non revolving debt are presented on the balance sheet as a deduction from secured debt (see Note 5). Debt issuance costs are amortized on a straight-line basis over the term of the related loan, which is not materially different than the effective interest method. As of December 31, 20162018 and 2015,2017, accumulated amortization of debt issuance costs related to non revolving debt totaled approximately $0.2$1.0 million and $30,000,$0.6 million, respectively. F-15
Organizational and Offering Costs Our Advisor may fundfunded organization and offering costs on our behalf. We will bewere required to reimburse our Advisor for such organization and offering costs; provided, however, our Advisor mustwas required to reimburse us within 60 days after the end of the month in which the Offering terminatesterminated to the extent we paid or reimbursed organization and offering costs (excluding sales commissions, dealer manager fees and stockholder servicing fees) in excess of 3.5% of the gross offering proceeds from the Primary Offering. Such costs will bewould have been recognized as a liability when we havehad a present responsibility to reimburse our Advisor, which is defined in our Advisory Agreement as the date we satisfied the minimum offering requirements of our Offering (which occurred on May 23, 2014). If at any point in time we determinedetermined that the total organization and offering costs arewere expected to exceed 3.5% of the gross proceeds anticipated to be received from the Primary Offering, we will recognizewould have recognized such excess as a capital contribution from our Advisor. SubsequentHowever, subsequent to the termination of our Primary Offering on January 9, 2017, we determined that organization and offering costs did not exceed 3.5% of the gross proceeds from the Primary Offering.Offering, and thus there was no reimbursement. Offering costs are recorded as an offset to additionalpaid-in capital, and organization costs are recorded as an expense. The Company paysWe pay our Dealer Manager an ongoing stockholder servicing fee that is payable monthly and accrues daily in an amount equal to 1/365th of 1% of the purchase price per share of the Class T Shares sold in the Primary Offering. We will cease paying the stockholder servicing fee with respect to the Class T Shares sold in the Primary Offering at the earlier of (i) the date we list our shares on a national securities exchange, merge or consolidate with or into another entity, or sell or dispose of all or substantially all of our assets, (ii) the date at which the aggregate underwriting compensation from all sources equals 10% of the gross proceeds from the sale of both Class A Shares and Class T Shares in our Primary Offering (i.e., excluding proceeds from sales pursuant to our distribution reinvestment plan), which calculation shall be made by us with the assistance of our Dealer Manager commencing after the termination of the Primary Offering; (iii) the fifth anniversary of the last day of the fiscal quarter in which our Primary Offering (i.e., excluding our distribution reinvestment plan offering) terminates;terminated; and (iv) the date that such Class T Share is redeemed or is no longer outstanding. Our Dealer Manager entered into participating dealer agreements with certain other broker-dealers which authorized them to sell our shares. Upon sale of our shares by such broker-dealers, our Dealer Managerre-allows re-allowed all of the sales commissions and, subject to certain limitations, the stockholder servicing fees paid in connection with sales made by these broker-dealers. Our Dealer Manager maywas also permitted to re-allow to these broker-dealers a portion of their dealer manager fee as marketing fees, reimbursement of certain costs and expenses of attending training and education meetings sponsored by our Dealer Manager, payment of attendance fees required for employees of our Dealer Manager or other affiliates to attend retail seminars and public seminars sponsored by these broker-dealers, or to defray other distribution-related expenses. Our Dealer Manager also receivesreceived reimbursement of bona fide due diligence expenses; however, to the extent thesethe due diligence expenses cannotcould not be justified, any excess over actual due diligence expenses will bewould have been considered underwriting compensation subject to a 10% FINRA limitation and, when aggregated with all othernon-accountable expenses in connection with our Public Offering, maycould not exceed 3% of gross offering proceeds from sales in the Public Offering. We recordrecorded a liability within Due to affiliates for the future estimated stockholder servicing fees at the time of sale of a Class T ShareShares as an offering cost.
Foreign Currency Translation Fornon-U.S. functional currency operations, assets and liabilities are translated to U.S. dollars at current exchange rates. Revenues and expenses are translated at the average rates for the period. All adjustments related adjustmentsto amounts classified as long term equity investments are recorded in accumulated other comprehensive income (loss) as a separate component of equity. Transactions denominated in a currency other than the functional currency of the related operation are recorded at rates of exchange in effect at the date of the transaction. Gains or losses on foreign currency transactionsChanges in equity investments not classified as long term are recorded in other income (expense). and totaled approximately ($1.2 million) and none for the years ended December 31, 2018 and 2017, respectively. Redeemable Common Stock We adopted a share redemption program that will enableenables stockholders to sell their shares to us in limited circumstances. F-16
We record amounts that are redeemable under the share redemption program as redeemable common stock in the accompanying consolidated balance sheetsheets since the shares are redeemable at the option of the holder and therefore their STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
redemption is outside our control. The maximum amount redeemable under our share redemption program is limited to the number of shares we can repurchase with the amount of the net proceeds from the sale of shares under the distribution reinvestment plan. However, accounting guidance states that determinable amounts that can become redeemable but that are contingent on an event that is likely to occur (e.g., the passage of time) should be presented as redeemable when such amount is known. Therefore, the net proceeds from the distribution reinvestment plan are considered to be temporary equity and are presented as redeemable common stock in the accompanying consolidated balance sheets. In addition, current accounting guidance requires, among other things, that financial instruments that represent a mandatory obligation of us to repurchase shares be classified as liabilities and reported at settlement value. Our redeemable common shares will beare contingently redeemable at the option of the holder. When we determine we have a mandatory obligation to repurchase shares under the share redemption program, we will reclassify such obligations from temporary equity to a liability based upon their respective settlement values. For the year ended December 31, 20162018, we received redemption requests totaling approximately $1.3$8.3 million (approximately 138,0000.9 million shares), approximately $1.1$7.0 million of which waswere fulfilled during the year ended December 31, 2016,2018, with the remaining approximately $0.2$1.3 million included in accounts payable and accrued liabilities as of December 31, 20162018 and fulfilled in January 2017.2019. For the year ended December 31, 20152017 we received redemption requests totaling approximately $27,000,$2.2 million, (approximately 2,8500.2 million shares), approximately $17,000$1.5 million of which waswere fulfilled in July 2015,during the year ended December 31, 2017, with the remaining approximately $10,000$0.7 million included in accounts payable and accrued liabilities as of December 31, 2017 and fulfilled in January 2016.2018. Accounting for Equity Awards The cost of restricted stock is required to be measured based on the grant date fair value and the cost recognized over the relevant service period. Fair Value Measurements Under GAAP, the Company iswe are required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company iswe are required to measure other financial instruments and balances at fair value on anon-recurring basis. Fair value is defined by the accounting standard for fair value measurements and disclosures as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels. The following summarizes the three levels of inputs and hierarchy of fair value we will use when measuring fair value: Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access; Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as interest rates and yield curves that are observable at commonly quoted intervals; and Level 3 inputs are unobservable inputs for the assets or liabilities that are typically based on an entity’sentity���s own assumptions as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the fair value measurement will fall within the lowest level that is significant to the fair value measurement in its entirety. The accounting guidance for fair value measurements and disclosures provides a framework for measuring fair value and establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In determining fair value, we will utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment will be necessary to interpret Level 2 and 3 inputs in determining fair value of our financial andnon-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. STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIESF-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
Financial andnon-financial assets and liabilities measured at fair value on anon-recurring basis in our consolidated financial statements consist of real estate and related liabilities assumed related to our acquisitions. The fair values of these assets and liabilities were determined as of the acquisition dates using widely accepted valuation techniques, including (i) discounted cash flow analysis, which considers, among other things, leasing assumptions, growth rates, discount rates and terminal capitalization rates, (ii) income capitalization approach, which considers prevailing market capitalization rates, and (iii) comparable sales activity. In general, we consider multiple valuation techniques when measuring fair values. However, in certain circumstances, a single valuation technique may be appropriate. All of the fair values of the assets and liabilities as of the acquisition dates were derived using Level 3 inputs. The carrying amounts of cash and cash equivalents, tenant accounts receivable,restricted cash, other assets, variable-rate debt, accounts payable and accrued liabilities, distributions payable and amounts due to affiliates will approximate fair value because of their relatively short-term nature.value. The table below summarizes our fixed rate notes payable at December 31, 20162018 and 2015.2017. 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 valuesvalue of the fixed rate notes payable werewas estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented below are not necessarily indicative of the amounts we would realize in a current market exchange. | | | | | | | | | | | | | | | | | | | | December 31, 2016 | | | December 31, 2015 | | | | | Fair Value | | | Carrying Value | | | Fair Value | | | Carrying Value | | Fixed Rate Secured Debt | | $ | 158,700,000 | | | $ | 166,410,537 | | | $ | 13,300,000 | | | $ | 13,237,237 | |
| | December 31, 2018 | | | December 31, 2017 | | | | Fair Value | | | Carrying Value | | | Fair Value | | | Carrying Value | | Fixed Rate Secured Debt | | $ | 200,600,000 | | | $ | 207,357,391 | | | $ | 213,300,000 | | | $ | 218,332,483 | |
As of December 31, 2016,2018, we had an interest rate swap, on one of our loansan interest rate cap, and a net investment hedge (See Note 5)Notes 5 and 6). The valuationvaluations of this instrument wasthese instruments were determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative. The analysis reflected the contractual terms of the derivative, including the period to maturity, and used observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities. The fair value of the interest rate swap wasswaps were determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash payments. The variable cash payments wereOur fair values of our net investment hedges are based on an expectationthe change in the spot rate at the end of future interest rates (forward curves) derived from observable market interest rate curves. the period as compared with the strike price at inception. To comply with GAAP, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of derivative contracts for the effect ofnon-performance risk, we will consider the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although we had determined that the majority of the inputs used to value our derivatives were within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, through December 31, 2018, we had assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of our derivatives. As a result, we determined that our derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy. Derivative Instruments and Hedging Activities We record all derivatives on our balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. We may enter into derivative contracts that are intended to economically hedge certain of our risks, even though hedge accounting does not apply or we elect not to apply hedge accounting. F-18
For derivatives designated as net investment hedges, the effective portion of changes in the fair value of the derivatives are reported in accumulated other comprehensive income. The ineffective portion of the change in fair value of the derivatives areis recognized directly in earnings. Amounts are reclassified out of other comprehensive income into earnings when the hedged net investment is either sold or substantially liquidated. As of December 31, 2016, all of our derivative instruments met the criteria for hedge accounting. Interest Rate Swap
In connection with the loan we assumed with the purchase of the properties we acquired in Oakland and Concord, California, we also assumed an interest rate swap with USAmeriBank that fixes the interest rate at 3.95% through the loan
STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
maturity on April 10, 2023. In conjunction with our purchase price allocation, the interest rate swap was valued at approximately $760,000 and recorded as a liability within accounts payable and accrued liabilities. We have designated the interest rate swap as a cash flow hedge and changes in the fair value of the hedge subsequent to acquisition are reported in other comprehensive income. From the date of acquisition through December 31, 2016, the interest rate swap’s liability has decreased approximately $700,000. The characteristics of this financial instrument, market data, and other comparative metrics utilized in determining this fair value are “Level 2” inputs as the term is defined in the accounting standard for fair value measurement.
Foreign Currency Forward
During the first quarter of 2016, we entered into a foreign currency forward contract in order to hedge foreign currency exposure related to our investment in subsidiaries that hold properties we acquired in Canada. A foreign currency forward contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future. By entering into the forward contract and holding it to maturity, we are locked into a future currency exchange rate in an amount equal to and for the term of the forward contract. We have designated the foreign currency forward as a net investment hedge and changes in the fair value of the derivative are reported in other comprehensive income.
The forward contract has a notional amount of $42.5 million CAD, a duration of 12 months, and a forward rate of approximately 1.339. As of December 31, 2016, the forward contract has a fair market value representing an asset of approximately $0.1 million USD which is recorded in the accompanying consolidated balance sheets. The characteristics of this financial instrument, market data, and other comparative metrics utilized in determining this fair value are “Level 2” inputs as the term is defined in the accounting standard for fair value measurement. See Note 11 for settlement of the forward contract.
Income Taxes We made an election to be taxed as a Real Estate Investment Trust (“REIT”), under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ended December 31, 2014. To qualify as a REIT, we must continue to meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the REIT’s ordinary taxable income to stockholders (which is computed without regard to the dividends paid deduction or net capital gains and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the IRS grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT and intend to operate in the foreseeable future in such a manner that we will remain qualified as a REIT for federal income tax purposes. Even if we continue to qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income. We filed electionsan election to treat our TRS as a taxable REIT subsidiary effective January 1, 2014. In general, the TRS performs additional services for our customers and generally engages in any real estate ornon-real estate related business. The TRS is subject to corporate federal and state income tax. The TRS follows accounting guidance which requires the use of the asset and liability method. Deferred income taxes represent the tax effect of future differences between the book and tax bases of assets and liabilities. Per Share Data Basic earnings per share attributable to our common stockholders for all periods presented are computed by dividing net income (loss) attributable to our common stockholders by the weighted average number of shares outstanding during the period, excluding unvested restricted stock. Diluted earnings per share is computed by including the dilutive effect of unvested restricted stock, utilizing the treasury stock method. For all periods presented, the dilutive effect of unrestricted stock was not included in the diluted weighted average shares as such shares were antidilutive. STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
Recently Issued Accounting Guidance In May 2014, the FASB issuedASU 2014-09 “Revenue from Contracts with Customers” as ASC Topic 606. The objective ofASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new standard, companies will perform a five-step analysis of transactions to determine when and how revenue is recognized.ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB ASC. In July 2015, the FASB voted to defer the effective date by one year to annual reporting periods (including interim periods within those periods) beginning after December 15, 2017 and early adoption is permitted. This ASU shall still be applied using either a full retrospective or modified retrospective approach. We have determined that our self storage rental revenues are in the process of evaluating the impact of this standard on our consolidated financial statements. In February 2015, the FASB issuedASU 2015-02, “Consolidation (Topic 810): Amendmentsnot subject to the Consolidation Analysis.”guidance in ASU 2015-02 modifies (i) the criteria for and the analysis of the identification of consolidation of variable interest entities, particularly when fee arrangements and related party relationships2014-09, as they qualify as lease contracts, which are involved, and (ii) the consolidation analysis for partnerships. We adopted this standard effective January 1, 2016. The adoption of this standard did not change the consolidation status of any entities in which we have an interest; however, our Operating Partnership is now considered a VIE as a result of the change.
In April 2015, the FASB issuedASU 2015-03, “Interest – Imputation of Interest(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.”ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deductionexcluded from the carrying amount of debt liability, consistent with debt discounts or premiums. Given the absence of authoritative guidance withinASU 2015-03 for debt issuance costs related toline-of-credit arrangements, in August 2015, the FASB issuedASU 2015-15, “Interest – Imputation of Interest(Subtopic 835-30), Presentation and Subsequent Measurement of Debt Issuance Costs Associated withLine-of-Credit Arrangements”, which clarifies ASUNo. 2015-03 by stating that the staff of the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of theline-of-credit arrangement, regardless of whether there are any outstanding borrowings on theline-of-credit arrangement.ASU 2015-03 andASU 2015-15 are effective for periods beginning after December 15, 2015 and early adoption is permitted.its scope. We adopted this ASU on January 1, 2016 and retrospectively applied2018 using the guidance to our secured debt. Unamortized debt issuance costs, which were previously included in debt issuance costs on our consolidated balance sheets, of approximately $0.2 million are included in secured debt as of December 31, 2015.
In September 2015, the FASB issued ASU2015-16, “Business Combinations (Topic 805).” ASU2015-16 updates guidance related to Topic 805, which requires that an acquirer retrospectively adjust provisional amounts recognized in a business combination during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in the ASU2015-16 require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition, an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU2015-16 is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption of this guidance is permitted for financial statements that have not been previously issued, and an entity should apply the new guidance on a prospective basis. We adopted this ASU in the interim period ended December 31, 2015modified retrospective approach and its adoption did not have a material impact on our consolidated financial statements.
STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIESF-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
In January 2016, the FASB issued ASU2016-01, “Financial Instruments–Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU2016-01 updates guidance related to recognition and measurement of financial assets and financial liabilities. ASU2016-01 requires all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in ASU2016-01 also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in ASU2016-01 eliminate the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. ASU2016-01 is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. We are in the process of evaluating the impact of this standard on our consolidated financial statements.
In February 2016, the FASB issuedASU 2016-02, “Leases (Topic 842).” ASU2016-02 amends the guidance on accounting for leases. UnderASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease; and (2) aright-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. UnderASU 2016-02, lessor accounting is largely unchanged. It also includes extensive amendments to the disclosure requirements.ASU 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted for financial statements that have not yet been made available for issuance.ASU 2016-02 requires aWe adopted this standard on January 1, 2019 using the modified retrospective transition approach, for leases existing at, or entered into after,without applying the beginning of the earliestprovisions to comparative period presented in the financial statements. We are in the process of evaluating theperiods presented. Its adoption did not have a material impact of this standard on our consolidated financial statements. In August 2016, the FASB issuedASU 2016-15, “Statementstatements as substantially all of Cash Flows (Topic 230): Classification of Certain Cash Receiptsour lease revenues are derived from month-to-month leases and, Cash Payments.”ASU 2016-15as lessee, we have no significant leases. addresses eight classification issues related to the statement of cash flows. The guidance will become effective for periods beginning after December 15, 2017 and early adoption is permitted. We are in the process of evaluating the impact of this standard on our consolidated financial statements.
In November 2016, the FASB issued ASUNo. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” ASU2016-18 will require requires companies to include restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling thebeginning-of-period andend-of-period total amounts shown on the statement of cash flows. ASU2016-18 will require a disclosure of a reconciliation between the statement of financial position and the statement of cash flows when the statement of financial position includes more than one line item for cash, cash equivalents, restricted cash, and restricted cash equivalents. Entities with material restricted cash and restricted cash equivalents balances will be required to disclose the nature of the restrictions. ASU2016-18 is effective for reporting periods beginning after December 15, 2017, with early adoption permitted, and will beis applied retrospectively to all periods presented. We adopted this guidance on January 1, 2018 present restricted cash along with cash and cash equivalents in our consolidated statements of cash flows. As a result of adopting the new guidance, approximately $0.5 million and $0.7 million of restricted cash which was previously included as operating cash outflows during the years ended December 31, 2017 and 2016 respectively, and approximately $0.9 million and $1.9 million of restricted cash which was previously included as investing cash outflows during the years ended December 31, 2017 and 2016, respectively, within the consolidated statements of cash flows have been removed and are now included in the processcash, cash equivalents, and restricted cash line items at the beginning and end of evaluating the impact the adoption will have on its consolidated financial statements.period. In JanuaryAugust 2017, the FASB issued ASU2017-01, “Business Combinations 2017-12, “Derivatives and Hedging (Topic 805)815): ClarifyingTargeted Improvements to Accounting for Hedging Activities”. ASU 2017-12 is intended to improve the Definitionfinancial reporting of a Business.”hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and to simplify the application of the hedge accounting guidance under previous GAAP. ASU 2017-01 clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework provides guidance for determining whether an integrated set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. This update2017-12 is effective for fiscal years and for interim periods within those fiscal years beginning after December 15, 2017,2018, with early adoption permitted for transactions that have not been reportedpermitted. For cash flow and net investment hedges existing at the date of adoption, a reporting entity must apply the amendments in previously issued (or availableASU 2017-12 using the modified retrospective approach by recording a cumulative-effect adjustment to be issued) financial statements and shall be applied on a prospective basis.equity as of the beginning of the fiscal year of adoption. The Company plans to apply the guidance inadopted ASU2017-01 to new acquisitions 2017-12 effective beginning on January 1, 2017. The Company expects that acquisitions of real estate orin-substance real estate will2019. Its adoption did not meet the revised definition ofhave a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related intangible assets) or because the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. The adoption of this guidance will result in a decrease in acquisition related costs being expensed, as the Company’s acquisition of real estate properties will likely be considered asset acquisitions rather than business combinations under ASU2017-01.material impact on our consolidated financial statements. STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
Note 3. Real Estate Facilities The following summarizes the activity in real estate facilities during the years ended December 31, 20162018 and 2015:2017: | Real estate facilities | | | | | | | Balance at December 31, 2014 | | $ | 20,857,880 | | | Balance at December 31, 2016 | | | $ | 727,455,733 | | Facility acquisitions | | | 132,546,249 | | | | 90,112,135 | | Finalized purchase price allocations related to 2014 acquisitions | | | 958,000 | | | Impact of foreign exchange rate changes | | | | 7,731,429 | | Improvements and additions | | | 2,156,384 | | | | 4,521,592 | | Asset disposals | | | (273,963 | ) | | | (141,412 | ) | | | | | | Balance at December 31, 2015 | | | 156,244,550 | | | Facility acquisitions | | | 563,278,685 | | | Balance at December 31, 2017 | | | | 829,679,477 | | Impact of foreign exchange rate changes | | | 1,406,663 | | | | (11,915,703 | ) | Finalized purchase price allocations related to 2015 acquisitions | | | (45,785 | ) | | Improvements and additions | | | 6,571,620 | | | | 2,532,252 | | | | | | | Balance at December 31, 2018 | | | $ | 820,296,026 | | Accumulated depreciation | | | | | | Balance at December 31, 2016 | | $ | 727,455,733 | | | $ | (14,855,188 | ) | | | | | | Accumulated depreciation | | | | Balance at December 31, 2014 | | $ | (93,433 | ) | | Asset disposals | | | | 141,412 | | Depreciation expense | | | (3,936,239 | ) | | | (19,777,620 | ) | Asset disposals | | | 273,963 | | | | | | | | Balance at December 31, 2015 | | | (3,755,709 | ) | | Depreciation expense and impact of foreign exchange rate changes | | | (11,099,479 | ) | | | | | | | Balance at December 31, 2016 | | $ | (14,855,188 | ) | | | | | | | Impact of foreign exchange rate changes | | | | (195,577 | ) | Balance at December 31, 2017 | | | | (34,686,973 | ) | Depreciation expense | | | | (20,134,068 | ) | Impact of foreign exchange rate changes | | | | 556,356 | | Balance at December 31, 2018 | | | $ | (54,264,685 | ) |
F-20
Joint Venture with SmartCentres In January 2018, a subsidiary of our Sponsor entered into a contribution agreement (the “Contribution Agreement”) with a subsidiary of SmartCentres Real Estate Investment Trust, an unaffiliated third party (“SmartCentres”), for a tract of land owned by SmartCentres and located in East York, Ontario (the “East York Lot”) in Canada. In March 2018, the interest in the Contribution Agreement was assigned to one of our subsidiaries. On June 28, 2018, we closed on the East York Lot, which is owned by a limited partnership (the “Limited Partnership”), in which we (through our subsidiary) and SmartCentres (through its subsidiary) are each a 50% limited partner and each have an equal ranking general partner in the Limited Partnership. At closing, we subscribed for 50% of the units in the Limited Partnership at an agreed upon subscription price of approximately $3.8 million CAD, representing a contribution equivalent to 50% of the agreed upon fair market value of the land. The following table summarizesLimited Partnership intends to develop a self storage facility on the purchase price allocation for our acquisitions duringEast York Lot. The value of the year endedland contributed to the Limited Partnership had an agreed upon fair market value of approximately $7.6 million CAD. Subsequent to December 31, 2016: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Property | | Acquisition
Date | | | Real Estate
Assets | | | Intangibles | | | Total | | | Debt Issued or
Assumed | | | 2016
Revenue(1) | | | 2016
Property
Operating
Income(2) | | Boynton Beach – FL | | | 1/7/16 | | | $ | 17,216,308 | | | $ | 683,692 | | | $ | 17,900,000 | | | $ | — | | | $ | 1,380,868 | | | | 831,069 | | Lancaster II – CA | | | 1/11/16 | | | | 4,381,816 | | | | 268,184 | | | | 4,650,000 | | | | — | | | | 633,864 | | | | 367,208 | | Milton – ON (CAN) (3) | | | 2/11/16 | | | | 9,382,679 | | | | 435,162 | | | | 9,817,841 | | | | 4,820,717 | | | | 801,638 | | | | 462,423 | | Burlington I – ON (CAN) (3) | | | 2/11/16 | | | | 13,572,128 | | | | 617,940 | | | | 14,190,068 | | | | 6,917,253 | | | | 894,067 | | | | 489,001 | | Oakville I – ON (CAN) (3) | | | 2/11/16 | | | | 15,727,673 | | | | — | | | | 15,727,673 | | | | 7,243,413 | | | | 192,250 | | | | (138,177 | ) | Oakville II – ON (CAN) (3) | | | 2/29/16 | | | | 12,329,590 | | | | 584,295 | | | | 12,913,885 | | | | 7,392,762 | | | | 873,172 | | | | 547,559 | | Burlington II – ON (CAN) (3) | | | 2/29/16 | | | | 8,069,874 | | | | 383,109 | | | | 8,452,983 | | | | 4,962,733 | | | | 639,781 | | | | 385,012 | | Xenia – OH | | | 4/20/16 | | | | 2,940,185 | | | | 207,622 | | | | 3,147,807 | | | | — | | | | 320,574 | | | | 186,670 | | Sidney – OH | | | 4/20/16 | | | | 2,061,595 | | | | 140,896 | | | | 2,202,491 | | | | — | | | | 239,177 | | | | 107,612 | | Troy – OH | | | 4/20/16 | | | | 2,746,676 | | | | 176,984 | | | | 2,923,660 | | | | — | | | | 323,562 | | | | 183,352 | | Greenville – OH | | | 4/20/16 | | | | 1,992,064 | | | | 132,462 | | | | 2,124,526 | | | | — | | | | 232,716 | | | | 113,902 | | Washington Court House – OH | | | 4/20/16 | | | | 2,137,658 | | | | 172,033 | | | | 2,309,691 | | | | — | | | | 267,877 | | | | 146,595 | | Richmond – IN | | | 4/20/16 | | | | 3,167,538 | | | | 194,671 | | | | 3,362,209 | | | | — | | | | 334,750 | | | | 170,187 | | Connersville – IN | | | 4/20/16 | | | | 1,807,824 | | | | 121,792 | | | | 1,929,616 | | | | — | | | | 224,183 | | | | 101,140 | | Port St. Lucie I – FL | | | 4/29/16 | | | | 8,929,360 | | | | 370,640 | | | | 9,300,000 | | | | — | | | | 520,274 | | | | 248,884 | | Sacramento – CA | | | 5/09/16 | | | | 7,821,975 | | | | 328,025 | | | | 8,150,000 | | | | — | | | | 485,624 | | | | 209,183 | | Oakland – CA | | | 5/18/16 | | | | 12,613,636 | | | | 501,197 | | | | 13,114,833 | | | | 5,315,948 | | | | 759,385 | | | | 412,947 | | Concord – CA | | | 5/18/16 | | | | 36,292,871 | | | | 1,202,494 | | | | 37,495,365 | | | | 14,684,052 | | | | 1,680,111 | | | | 1,102,628 | | Pompano Beach – FL | | | 6/1/16 | | | | 20,603,718 | | | | 682,764 | | | | 21,286,482 | | | | 13,714,676 | | | | 813,850 | | | | 497,015 | |
STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Property | | Acquisition
Date | | | Real Estate
Assets | | | Intangibles | | | Total | | | Debt Issued or
Assumed | | | 2016
Revenue(1) | | | 2016
Property
Operating
Income(2) | | Lake Worth – FL | | | 6/1/16 | | | | 22,912,381 | | | | 672,074 | | | | 23,584,455 | | | | 11,089,560 | | | | 850,056 | | | | 551,889 | | Jupiter – FL | | | 6/1/16 | | | | 26,586,715 | | | | 847,852 | | �� | | 27,434,567 | | | | 12,469,383 | | | | 1,027,609 | | | | 699,721 | | Royal Palm Beach – FL | | | 6/1/16 | | | | 24,700,716 | | | | 839,031 | | | | 25,539,747 | | | | 12,097,235 | | | | 932,729 | | | | 599,065 | | Port St. Lucie II – FL | | | 6/1/16 | | | | 13,541,095 | | | | 518,868 | | | | 14,059,963 | | | | 7,280,380 | | | | 609,242 | | | | 311,291 | | Wellington – FL | | | 6/1/16 | | | | 21,896,312 | | | | 781,048 | | | | 22,677,360 | | | | 10,644,805 | | | | 840,932 | | | | 540,030 | | Doral – FL | | | 6/1/16 | | | | 22,820,702 | | | | 773,831 | | | | 23,594,533 | | | | 12,081,860 | | | | 845,835 | | | | 522,374 | | Plantation – FL | | | 6/1/16 | | | | 32,213,998 | | | | 1,036,052 | | | | 33,250,050 | | | | 15,624,241 | | | | 1,190,931 | | | | 806,283 | | Naples – FL | | | 6/1/16 | | | | 24,560,390 | | | | 737,465 | | | | 25,297,855 | | | | 13,504,110 | | | | 858,655 | | | | 621,830 | | Delray – FL | | | 6/1/16 | | | | 30,080,319 | | | | 992,704 | | | | 31,073,023 | | | | 11,160,313 | | | | 1,139,020 | | | | 775,964 | | Baltimore – MD | | | 6/1/16 | | | | 26,325,715 | | | | 776,250 | | | | 27,101,965 | | | | 15,333,437 | | | | 987,789 | | | | 665,997 | | Sonoma – CA | | | 6/14/16 | | | | 7,148,092 | | | | 276,908 | | | | 7,425,000 | | | | — | | | | 329,208 | | | | 174,641 | | Las Vegas I – NV | | | 7/28/16 | | | | 13,509,112 | | | | 425,888 | | | | 13,935,000 | | | | — | | | | 434,740 | | | | 292,195 | | Las Vegas II – NV | | | 9/23/16 | | | | 13,757,025 | | | | 442,975 | | | | 14,200,000 | | | | — | | | | 261,704 | | | | 163,354 | | Las Vegas III – NV | | | 9/27/16 | | | | 8,904,522 | | | | 345,478 | | | | 9,250,000 | | | | — | | | | 218,952 | | | | 136,518 | | Asheville I – NC | | | 12/30/16 | | | | 14,793,279 | | | | 450,775 | | | | 15,244,054 | | | | 7,143,593 | | | | 5,600 | | | | (1,852 | ) | Asheville II – NC | | | 12/30/16 | | | | 4,872,280 | | | | 206,656 | | | | 5,078,936 | | | | 3,250,087 | | | | 2,649 | | | | (3,431 | ) | Hendersonville I – NC | | | 12/30/16 | | | | 4,522,751 | | | | 163,926 | | | | 4,686,677 | | | | 2,243,715 | | | | 1,900 | | | | (3,370 | ) | Asheville III – NC | | | 12/30/16 | | | | 9,716,847 | | | | 351,277 | | | | 10,068,124 | | | | 4,677,156 | | | | 3,677 | | | | (2,616 | ) | Arden – NC | | | 12/30/16 | | | | 12,055,859 | | | | 443,676 | | | | 12,499,535 | | | | 6,557,917 | | | | 4,599 | | | | (1,696 | ) | Asheville IV – NC | | | 12/30/16 | | | | 9,013,256 | | | | 317,301 | | | | 9,330,557 | | | | 4,413,190 | | | | 3,275 | | | | (6,621 | ) | Asheville V – NC | | | 12/30/16 | | | | 10,241,097 | | | | 350,841 | | | | 10,591,938 | | | | 5,073,106 | | | | 3,976 | | | | (2,710 | ) | Asheville VI – NC | | | 12/30/16 | | | | 6,427,572 | | | | 275,104 | | | | 6,702,676 | | | | 3,489,307 | | | | 2,995 | | | | (3,162 | ) | Asheville VII – NC | | | 12/30/16 | | | | 2,922,248 | | | | 142,357 | | | | 3,064,605 | | | | 1,592,048 | | | | 1,460 | | | | (4,284 | ) | Asheville VIII – NC | | | 12/30/16 | | | | 7,927,820 | | | | 312,430 | | | | 8,240,250 | | | | 4,536,924 | | | | 3,685 | | | | (2,375 | ) | Hendersonville II – NC | | | 12/30/16 | | | | 7,634,934 | | | | 249,233 | | | | 7,884,167 | | | | 4,272,956 | | | | 3,043 | | | | (2,611 | ) | Sweeten Creek Land – NC | | | 12/30/16 | | | | 348,480 | | | | — | | | | 348,480 | | | | — | | | | — | | | | — | | Highland Center Land – NC | | | 12/30/16 | | | | 50,000 | | | | — | | | | 50,000 | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2016 Total | | | | | | $ | 563,278,685 | | | $ | 19,933,962 | | | $ | 583,212,647 | | | $ | 233,586,877 | | | $ | 22,181,984 | | | $ | 13,250,634 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | The operating results of the facilities acquired above have been included in our consolidated statement of operations since their respective acquisition date. |
(2) | Property operating income excludes corporate general and administrative expenses, asset management fees, interest expense, depreciation, amortization, and acquisition expenses. |
(3) | Allocation based on CAD/USD exchange rates as of date of acquisition. |
Certain purchase price allocations included above are preliminary and therefore, subject2018, we sold our interest in the Limited Partnership to change upon the completion ofStrategic Storage Trust IV, Inc. (“SST IV”), a REIT sponsored by our analysis of appraisals and other informationSponsor, for approximately $4.7 million CAD, which represented our total cost incurred related to the acquisitions. We anticipate finalizing the purchase price allocations within one year of their acquisition date, as further evaluations are completed and additional information is received from third parties.Limited Partnership.
STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
2017 Acquisitions The following table summarizes our purchase price allocation for our acquisitions during the year ended December 31, 2015:2017: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Property | | Acquisition
Date | | | Real Estate
Assets | | | Intangibles | | | Total | | | Debt Issued
or Assumed | | | 2015
Revenue(1) | | | 2015
Property
Operating
Income(2) | | La Verne -CA | | | 1/23/2015 | | | $ | 3,986,875 | | | $ | 180,000 | | | $ | 4,166,875 | | | $ | 2,370,000 | | | $ | 705,564 | | | $ | 444,668 | | Chico -CA | | | 1/23/2015 | | | | 1,736,875 | | | | 90,000 | | | | 1,826,875 | | | | 1,230,000 | | | | 553,611 | | | | 313,050 | | Riverside -CA | | | 1/23/2015 | | | | 2,696,875 | | | | 110,000 | | | | 2,806,875 | | | | 1,740,000 | | | | 862,574 | | | | 482,506 | | Fairfield -CA | | | 1/23/2015 | | | | 3,676,875 | | | | 250,000 | | | | 3,926,875 | | | | 2,250,000 | | | | 621,060 | | | | 366,104 | | Littleton -CO | | | 1/23/2015 | | | | 4,136,875 | | | | 210,000 | | | | 4,346,875 | | | | 2,310,000 | | | | 568,008 | | | | 354,357 | | Crestwood -IL | | | 1/23/2015 | | | | 2,346,875 | | | | 140,000 | | | | 2,486,875 | | | | 1,650,000 | | | | 489,340 | | | | 246,268 | | Forestville -MD | | | 1/23/2015 | | | | 6,286,875 | | | | 410,000 | | | | 6,696,875 | | | | 3,870,000 | | | | 1,033,216 | | | | 716,896 | | Upland -CA | | | 1/29/2015 | | | | 5,966,875 | | | | 310,000 | | | | 6,276,875 | | | | 3,540,000 | | | | 310,001 | | | | 134,707 | | Lancaster -CA | | | 1/29/2015 | | | | 1,716,875 | | | | 90,000 | | | | 1,806,875 | | | | 1,140,000 | | | | 411,394 | | | | 174,715 | | Santa Rosa -CA | | | 1/29/2015 | | | | 9,866,875 | | | | 600,000 | | | | 10,466,875 | | | | 5,760,000 | | | | 475,487 | | | | 258,042 | | Vallejo -CA | | | 1/29/2015 | | | | 4,936,875 | | | | 350,000 | | | | 5,286,875 | | | | 3,360,000 | | | | 511,791 | | | | 293,887 | | Federal Heights -CO | | | 1/29/2015 | | | | 4,446,875 | | | | 300,000 | | | | 4,746,875 | | | | 2,550,000 | | | | 557,445 | | | | 348,501 | | Santa Ana -CA | | | 2/5/2015 | | | | 8,896,875 | | | | 380,000 | | | | 9,276,875 | | | | 4,350,000 | | | | 1,149,866 | | | | 714,694 | | La Habra -CA | | | 2/5/2015 | | | | 4,416,875 | | | | 190,000 | | | | 4,606,875 | | | | 2,340,000 | | | | 667,218 | | | | 428,452 | | Monterey Park -CA | | | 2/5/2015 | | | | 4,236,875 | | | | 190,000 | | | | 4,426,875 | | | | 2,340,000 | | | | 482,731 | | | | 251,907 | | Huntington Beach - CA | | | 2/5/2015 | | | | 10,316,875 | | | | 560,000 | | | | 10,876,875 | | | | 5,760,000 | | | | 841,183 | | | | 550,143 | | Lompoc -CA | | | 2/5/2015 | | | | 3,746,875 | | | | 290,000 | | | | 4,036,875 | | | | 2,460,000 | | | | 508,933 | | | | 248,116 | | Aurora -CO | | | 2/5/2015 | | | | 6,716,875 | | | | 620,000 | | | | 7,336,875 | | | | 4,140,000 | | | | 503,657 | | | | 281,333 | | Everett -WA | | | 2/5/2015 | | | | 4,966,875 | | | | 230,000 | | | | 5,196,875 | | | | 2,190,000 | | | | 476,990 | | | | 196,759 | | Whittier -CA | | | 2/19/2015 | | | | 5,646,875 | | | | 270,000 | | | | 5,916,875 | | | | 3,330,000 | | | | 623,323 | | | | 333,470 | | Bloomingdale -IL | | | 2/19/2015 | | | | 4,666,874 | | | | 330,000 | | | | 4,996,874 | | | | 2,520,000 | | | | 323,982 | | | | 160,580 | | Warren I -MI | | | 5/8/2015 | | | | 3,196,875 | | | | 240,000 | | | | 3,436,875 | | | | 1,620,000 | | | | 328,826 | | | | 187,575 | | Warren II -MI | | | 5/8/2015 | | | | 3,306,875 | | | | 330,000 | | | | 3,636,875 | | | | 2,040,000 | | | | 480,171 | | | | 311,680 | | Troy -MI | | | 5/8/2015 | | | | 4,416,875 | | | | 400,000 | | | | 4,816,875 | | | | 2,880,000 | | | | 343,136 | | | | 190,639 | | Sterling Heights -MI | | | 5/21/2015 | | | | 3,536,875 | | | | 320,000 | | | | 3,856,875 | | | | 2,190,000 | | | | 251,168 | | | | 114,146 | | Beverly -NJ | | | 5/28/2015 | | | | 2,096,875 | | | | 80,000 | | | | 2,176,875 | | | | 1,365,000 | | | | 451,703 | | | | 229,891 | | Foley -AL | | | 9/11/2015 | | | | 7,556,000 | | | | 409,000 | | | | 7,965,000 | | | | — | | | | 290,184 | | | | 171,265 | | Tampa -FL | | | 11/3/2015 | | | | 2,975,715 | | | | 186,785 | | | | 3,162,500 | | | | — | | | | 61,468 | | | | 14,446 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2015 Total | | | | | | $ | 132,500,464 | | | $ | 8,065,785 | | | $ | 140,566,249 | | | $ | 71,295,000 | | | $ | 14,884,030 | | | $ | 8,518,797 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property | | Acquisition Date | | Real Estate Assets | | | Intangibles | | | Total | | | Debt Issued or Assumed | | | 2017 Revenue(1) | | | 2017 Property Operating Income (loss)(2) | | Aurora II – CO | | 1/11/17 | | $ | 9,780,754 | | | $ | 319,246 | | | $ | 10,100,000 | | | $ | — | | | $ | 794,762 | | | $ | 444,113 | | Dufferin – ONT(3) | | 2/1/17 | | | 22,545,843 | | | | 1,538,440 | | | | 24,084,283 | | | | 11,111,469 | | | | 1,884,548 | | | | 1,243,009 | | Mavis – ONT(3) | | 2/1/17 | | | 19,150,741 | | | | 1,368,637 | | | | 20,519,378 | | | | 9,366,048 | | | | 1,522,352 | | | | 959,505 | | Brewster – ONT(3) | | 2/1/17 | | | 13,663,740 | | | | 911,564 | | | | 14,575,304 | | | | 6,121,600 | | | | 1,197,613 | | | | 623,084 | | Granite – ONT(3) | | 2/1/17 | | | 11,827,875 | | | | 275,863 | | | | 12,103,738 | | | | 6,821,686 | | | | 719,275 | | | | 229,117 | | Centennial – ONT(3)(4) | | 2/1/17 | | | 13,143,182 | | | | — | | | | 13,143,182 | | | | 4,939,433 | | | | 279,366 | | | | (114,344 | ) | 2017 Total | | | | $ | 90,112,135 | | | $ | 4,413,750 | | | $ | 94,525,885 | | | $ | 38,360,236 | | | $ | 6,397,916 | | | $ | 3,384,484 | |
(1) | The operating results of the facilities acquired above have been included in our statementconsolidated statements of operations since their respective acquisition date. |
(2) | Property operating income (loss) excludes corporate general and administrative expenses, asset management fees, interest expense, depreciation, amortization, acquisition expenses, and acquisition expenses.costs incurred in connection with the property management changes. |
(3) | Allocation based on CAD/USD exchange rates as of date of acquisition. See Note 7 for further discussion regarding the Toronto Merger. |
(4) | The Centennial property was acquired on February 1, 2017 with an occupancy of approximately 11% (unaudited) and the property’s occupancy has increased to approximately 63% (unaudited) as of December 31, 2017. |
We incurred acquisition fees to our Advisor related to the above propertiesAurora II property of approximately $10.2 million and $2.5 million$200,000 for the yearsyear ended December 31, 2016 and 2015, respectively. During 2015 we completed the purchase price allocations for our five properties acquired in 2014 and recognized the adjustments during the fourth quarter measurement period in 2015. These adjustments had the aggregate impact of increasing our allocation to land by approximately $1.2 million and site improvements by approximately $140,000, with reductions to buildings and intangible assets of approximately $380,000 and $960,000 respectively. The impact of such reclassifications was that we recognized measurement period adjustments during the fourth quarter of 2015 to our consolidated statement of
STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
2017. operations, which had the net impact of an increase to depreciation expense of approximately $2,000 and a decrease to intangible amortization expense of approximately $180,000. During 2015, we also completed the purchase price allocation for the properties acquired during the first and second quarters of 2015 and recognized adjustments during the fourth quarter measurement period, which had the aggregate impact of increasing our allocation to land by approximately $1.2 million, building by approximately $4.2 million, and site improvements by approximately $0.7 million, with reductions to intangible assets of approximately $6.1 million. The impact of such reclassifications was that we recognized measurement period adjustments during the fourth quarter of 2015 to our consolidated statement of operations, which had the net impact of an increase to depreciation expense of approximately $130,000 and a decrease to intangible amortization expense of approximately $450,000.F-21
During 2016 we completed the purchase price allocations for our Foley, AL and Tampa, FL properties acquired in 2015 and recognized the adjustments during the third and fourth quarter of 2016 respectively. These adjustments had the aggregate impact of decreasing our allocation to land by approximately $300,000, with increases to site improvements, buildings, and intangible assets of approximately $100,000, $100,000 and $50,000 respectively. The impact of such reclassifications was that we recognized measurement period adjustments during the third and fourth quarters of 2016 to our consolidated statement of operations. This had the net impact of an increase to amortization expense of approximately $30,000 and an increase to depreciation expense of approximately $5,000 during the third quarter of 2016, and a decrease of approximately $10,000 to amortization expense and an increase to depreciation expense of $10,000 during the fourth quarter of 2016. During 2016, we also completed the purchase price allocation for the properties acquired during the first, second, and third quarters of 2016 and recognized adjustments during the fourth quarter measurement period, which had the aggregate impact of increasing our allocation to building by approximately $2.1 million, and decreasing land, site improvements, and intangible assets by approximately $0.6 million, $1.1 million, and $0.4 million respectively. The impact of such reclassifications was that we recognized measurement period adjustments during the fourth quarter of 2016 to our consolidated statement of operations, which had the net impact of a decrease to depreciation expense of approximately $40,000 and a decrease to intangible amortization expense of approximately $300,000.
Note 4. Pro Forma Financial Information (Unaudited) The table set forth below summarizes on an unaudited pro forma basis the combined results of operations of the Company for the years ended December 31, 20162018, and 20152017 as if the Company’s acquisitions discussed in Note 3 were completedthat occurred during 2017 had occurred as of January 1, 2015.2016. However, for acquisitions of lease-up properties that were not operational as of these dates, the pro forma information includes these acquisitions as of the date that formal operations began. There were no acquisitions completed during the year ended December 31, 2018. This pro forma information does not purport to represent what theour actual results of operations of the Company would have been for the periods indicated, nor do theydoes it purport to predict the results of operations for future periods. | | | | Year Ended
December 31, 2016 | | | Year Ended
December 31, 2015 | | | Year Ended December 31, 2018 | | | Year Ended December 31, 2017 | | Pro forma revenue | | $ | 64,449,988 | | | $ | 60,935,092 | | | $ | 80,412,257 | | | $ | 76,573,381 | | Pro forma operating expenses | | $ | (60,171,072) | | | $ | (68,720,237) | | | $ | (61,938,281 | ) | | $ | (59,932,625 | ) | Pro forma net loss attributable to common stockholders | | $ | (10,170,334) | | | $ | (28,318,064) | | | $ | (1,389,798 | ) | | $ | (2,194,550 | ) |
The pro forma financial information for the years ended December 31, 20162018 and 20152017 were adjusted to exclude none and approximately $13.5 million and $3.4$0.5 million, respectively, for acquisition related expenses. STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
Note 5. Debt The Company’s debt is summarized as follows: | Encumbered Property | | December 31,
2016 | | | December 31,
2015 | | | Interest
Rate | | Maturity
Date | | | December 31, 2018 | | | December 31, 2017 | | | Interest Rate | | | Maturity Date | | Raleigh/Myrtle Beach promissory note(1) | | $ | 12,263,391 | | | $ | 12,437,841 | | | | 5.73 | % | | 9/1/2023 | | | $ | 11,878,396 | | | $ | 12,076,470 | | | | 5.73 | % | | 9/1/2023 | (10) | Amended KeyBank Credit Facility(2) | | | 12,300,000 | | | | 10,000,000 | | | | 2.87 | % | | 12/22/2018 | | | | 98,782,500 | | | | 86,382,500 | | | | 5.00 | % | | 2/20/2019 | (10) | Milton fixed rate(3) | | | 4,956,483 | | | | — | | | | 5.81 | % | | 10/15/2018 | | | | — | | | | 5,238,606 | | | N/A | | | N/A | | Burlington I fixed rate(3) | | | 4,870,817 | | | | — | | | | 5.98 | % | | 10/15/2018 | | | | — | | | | 5,120,423 | | | N/A | | | N/A | | Burlington I variable rate(3) | | | 2,242,880 | | | | — | | | | 4.88 | % | | 10/15/2018 | | | | — | | | | 2,402,418 | | | N/A | | | N/A | | Oakville I variable rate(3) | | | 7,486,937 | | | | — | | | | 4.45 | % | | 12/31/2017 | | | | — | | | | 8,019,489 | | | N/A | | | N/A | | Burlington II and Oakville II variable rate(3) | | | 12,232,378 | | | | — | | | | 3.38 | % | | 2/28/2021 | | | | — | | | | 12,834,819 | | | N/A | | | N/A | | Oakland and Concord loan(4) | | | 20,000,000 | | | | — | | | | 3.95 | % | | 4/10/2023 | | | | 19,483,127 | | | | 19,960,190 | | | | 3.95 | % | | 4/10/2023 | (10) | Amended KeyBank Property Loan(5) | | | 92,753,550 | | | | — | | | | 2.87 | % | | 3/31/2017 | | | KeyBank CMBS Loan(6) | | | 95,000,000 | | | | — | | | | 3.89 | % | | 8/1/2026 | | | KeyBank CMBS Loan(5) | | | | 95,000,000 | | | | 95,000,000 | | | | 3.89 | % | | 8/1/2026 | | KeyBank Florida CMBS Loan(6) | | | | 52,000,000 | | | | 52,000,000 | | | | 4.65 | % | | 5/1/2027 | | $11M KeyBank Subordinate Loan(7) | | | | 11,000,000 | | | | 11,000,000 | | | | 6.25 | % | | 6/1/2020 | (10) | Midland North Carolina CMBS Loan(7)(8) | | | 47,249,999 | | | | — | | | | 5.31 | % | | 8/1/2024 | | | | 47,249,999 | | | | 47,249,999 | | | | 5.31 | % | | 8/1/2024 | | Dufferin loan(3) | | | | — | | | | 11,172,315 | | | N/A | | | N/A | | Mavis loan(3) | | | | — | | | | 9,416,609 | | | N/A | | | N/A | | Brewster loan(3) | | | | — | | | | 6,154,532 | | | N/A | | | N/A | | Granite variable rate loan(3) | | | | — | | | | 7,101,614 | | | N/A | | | N/A | | Centennial variable rate loan(3) | | | | — | | | | 6,377,780 | | | N/A | | | N/A | | Canadian CitiBank Loan(9) | | | | 72,846,480 | | | | — | | | | 4.46 | % | | 10/9/2020 | | Premium on secured debt, net | | | 2,069,847 | | | | 799,396 | | | | | | | | 1,228,996 | | | | 1,646,988 | | | | | | | | | Debt issuance costs, net | | | (2,605,542 | ) | | | (207,462 | ) | | | | | | | (3,385,395 | ) | | | (2,361,850 | ) | | | | | | | | | | | | | | | | | | | | Total secured debt | | | 310,820,740 | | | | 23,029,775 | | | | | | | | | | | | | | | | | | | Amended KeyBank Subordinate Loan(8) | | | 10,000,000 | | | | — | | | | 6.25 | % | | 3/31/2017 | | | | | | | | | | | | | | | Total debt | | $ | 320,820,740 | | | $ | 23,029,775 | | | | | | | $ | 406,084,103 | | | $ | 396,792,902 | | | | | | | | | | | | | | | | | | | | |
(1) | Fixed rate debt with principal and interest payments due monthly. This promissory note is encumbered by five properties, Morrisville, Cary, Raleigh, Myrtle Beach I, and Myrtle Beach II. |
(2) | As of December 31, 2016,2018, this facility encumbers fifteen21 properties (Xenia, Sidney, Troy, Greenville, Washington Court House, Richmond, Connersville, Vallejo, Port St. Lucie I, Sacramento, Sonoma, Las Vegas I, Las Vegas II, Las Vegas III, Baltimore, Aurora II, Plantation, Wellington, Naples, Port St. Lucie II, and Baltimore)Doral). |
F-22
(3) | Canadian Dollar denominated loans.loans shown above in USD based on the foreign exchange rate in effect as of December 31, 2017. Variable rate loans are based on Canadian Prime or the Canadian Dealer Offered Rate (“CDOR”). These loans were paid off in full with the proceeds from the Canadian CitiBank loan in October 2018. |
(4) | This loan was assumed during the acquisition of the Oakland and Concord properties, along with an interest rate swap with USAmeriBank that fixes the interest rate at 3.95%. |
(5) | As of December 31, 2016 thisThis fixed rate loan encumbers 10 properties (Pompano Beach, Lake Worth, Jupiter, Royal Palm Beach, Port St. Lucie II, Wellington, Doral, Plantation, Naples, and Delray). |
(6) | This loan is encumbered by 29 properties (Whittier, La Verne, Santa Ana, Upland, La Habra, Monterey Park, Huntington Beach, Chico, Lancaster I, Riverside, Fairfield, Lompoc, Santa Rosa, Federal Heights, Aurora, Littleton, Bloomingdale, Crestwood, Forestville, Warren I, Sterling Heights, Troy, Warren II, Beverly, Everett, Foley, Tampa, Boynton Beach, and Lancaster II). with monthly interest only payments until September 2021, at which time both interest and principal payments will be due monthly. The separate assets and credit of these encumbered properties are not available to pay our other debts. The equity interests in the entities that own these encumbered properties are pledged as collateral in the $11M KeyBank Subordinate Loan. See footnote 7, below. |
(6) | This fixed rate loan encumbers five properties (Pompano Beach, Lake Worth, Jupiter, Royal Palm Beach, and Delray) with monthly interest only payments until June 2022, at which time both interest and principal payments will be due monthly. The separate assets of these encumbered properties are not available to pay our other debts. The equity interests in the entities that own these encumbered properties are pledged as collateral in the $11M KeyBank Subordinate Loan. See footnote 7, below. |
(7) | This variable rate loan encumbers 49% of the equity interest in the entities that own the 34 properties (the 29 properties encumbered by the KeyBank CMBS Loan and the five properties encumbered by the KeyBank Florida CMBS Loan), and is subordinate to the existing KeyBank CMBS Loan and KeyBank Florida CMBS Loan. |
(8) | This fixed rate loan encumbers 11 self storage properties (Asheville I, Arden, Asheville II, Hendersonville I, Asheville III, Asheville IV, Asheville V, Asheville VI, Asheville VII, Asheville VIII, and Hendersonville II) with monthly interest only payments until September 2019, at which time both interest and principal payments will be due monthly. |
(8)(9)
| This variable rate loan encumbers our 10 Canadian properties and the amount shown above is in USD based on the foreign exchange rate in effect as of December 31, 2018. We have a CAD $99.3 million interest rate cap that caps CDOR at 3.0% until October 15, 2021. The Amended KeyBank Subordinate Loan is unsecured.separate assets of these encumbered properties are not available to pay our other debts. |
(10) | On January 24, 2019, these loans were paid off in full in conjunction with the SSGT Mergers. See Note 11 for additional information. |
AsThe weighted average interest rate on our consolidated debt as of December 31, 2016, we provided recourse guarantees totaling2018 was approximately $38.6 million in connection with certain of our loans.4.64%. We are subject to certain restrictive covenants relating to the outstanding debt.
Amended KeyBank Credit Facility On December 22, 2015, we, through our Operating Partnership, and certain affiliated entities, entered into an amended and restated revolving credit facility (the “Amended KeyBank Credit Facility”) with KeyBank National Association (“KeyBank”), as administrative agent and KeyBanc Capital Markets, LLC, as the sole book runner and sole lead arranger, and Texas Capital Bank, N.A., and Comerica Bank asco-lenders. The Amended KeyBank Credit Facility replaced our term credit facility with KeyBank in which we had a maximum borrowing capacity of approximately $71.3 million. STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
Under the terms of the Amended KeyBank Credit Facility, we initially had a maximum borrowing capacity of $105 million. It is anticipated that the Amended KeyBank Credit Facility will be used to fund our future self storage property acquisitions. The Amended KeyBank Credit Facility may be increased to a maximum credit facility size of $500 million, in minimum increments of $10 million, which KeyBank will arrange on a best efforts basis. On February 18, 2016, we entered into a first amendment and joinder to the amended and restated credit agreement (the “First Amendment”) with KeyBank. Under the terms of the First Amendment, we added an additional $40 million to our maximum borrowing capacity for a total of $145 million with the admission of US Bank National Association (the “Subsequent Lender”). It is anticipated that the additional borrowing capacity will be used to fund our future self storage property acquisitions. The Subsequent Lender also became a party to the Amended KeyBank Credit Facility through a joinder agreement in the First Amendment. As of December 31, 2016 we had $12.3 million in borrowings outstanding under the Amended KeyBank Credit Facility. Subsequent to year end, we added properties to and drew on the Amended KeyBank Credit Facility (see Note 11).F-23
The Amended KeyBank Credit Facility is a revolving loan with an initial term of three years, maturing on December 22, 2018, with twoone-year extension options subject to certain conditions outlined further in the credit agreement for the Amended KeyBank Credit Facility (the “Amended Credit Agreement”). On October 29, 2018, we amended our Amended KeyBank Credit Facility to extend the maturity date until February 20, 2019 and reduce the maximum borrowing capacity from $145 million to $110 million. As of December 31, 2018, we had approximately $98.8 million in borrowings outstanding under the Amended KeyBank Credit Facility. On January 24, 2019, we paid off and terminated the Amended KeyBank Credit Facility in conjunction with the SSGT Mergers. See Note 11 for additional information. Payments due pursuant to the Amended KeyBank Credit Facility are interest-only for the first 36 months and a30-year amortization schedule thereafter.interest-only. The Amended KeyBank Credit Facility bears interest based on the type of borrowing. The ABR Loans bear interest at the lesser of (x) the Alternate Base Rate (as defined in the Amended Credit Agreement) plus the Applicable Rate, or (y) the Maximum Rate (as defined in the Amended Credit Agreement). The Eurodollar Loans bear interest at the lesser of (a) the Adjusted LIBO Rate (as defined in the Amended Credit Agreement) for the Interest Period in effect plus the Applicable Rate, or (b) the Maximum Rate (as defined in the Amended Credit Agreement). The Applicable Rate corresponds to our total leverage, as specified in the Amended Credit Agreement. For any ABR Loans, the Applicable Rate is 125 basis points if our total leverage is less than 50%, and 150 basis points if our leverage is greater than 50%. For any Eurodollar Loan, the Applicable Rate is 225 basis points if our total leverage is less than 50% and 250 basis points if our total leverage is greater than 50%. The Amended KeyBank Credit Facility is fully recourse and is secured by cross-collateralized first mortgage liens on the mortgaged properties. The Amended KeyBank Credit Facility may be prepaid or terminated at any time without penalty, provided, however, that the Lenders (as defined in the Amended Credit Agreement) shall be indemnified for any breakage costs. Pursuant to that certain guaranty (the “KeyBank Guaranty”), dated December 22, 2015, in favor of the Lenders, we serve as a guarantor of all obligations due under the Amended KeyBank Credit Facility. Under certain conditions, the Borrower may cause the release of one or more of the properties serving as collateral for the Amended KeyBank Credit Facility, provided that no default or event of default is then outstanding or would reasonably occur as a result of such release, and after taking into account any prepayment of outstanding Loans (as defined in the Amended Credit Agreement) necessary to maintain compliance with the financial covenants.
The Amended KeyBank Credit Facility contains a number of other customary terms and covenants, including the following (capitalized terms are as defined in the Amended Credit Agreement): the aggregate borrowing base availability under the Amended KeyBank Facility is limited to the lesser of: (1) 60% of the Pool Value of the properties in the collateral pool, or (2) an amount that would provide a minimum Debt Service Coverage Ratio of no less than 1.35 to 1.0; and we must meet the following financial tests, calculated as of the close of each fiscal quarter: (1) a Total Leverage Ratio of no more than 60%; (2) a Tangible Net Worth not at any time to be less than the Base Amount plus 80% of Net Equity Proceeds received after the Effective Date; (3) an Interest Coverage Ratio of no less than 1.85 to 1.0; (4) a Fixed Charge Ratio of no less than 1.6 to 1.0; (5) a ratio of varying rate Indebtedness to total Indebtedness not in excess of 30%; (6) a Loan to Value Ratio of not greater than 60%; and (7) a Debt Service Coverage Ratio of not less than 1.35 to 1.0.
On December 30, 2016,During 2017, our Operating Partnership purchased an interest rate swapcap with an effective date of July 1, 2017 and a notional amount of $100$90 million such that in no event will the interest rate on ourcapped LIBOR based debt exceed 3.75% thereonat 1.25% through July 3, 2017.December 22, 2018.
STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
The Amended KeyBank PropertyCanadian CitiBank Loan
On March 25, 2016, one of our subsidiaries executed purchase and sale agreements with unaffiliated third parties for the acquisition of 22 self storage facilities (10 in Florida,October 11, in North Carolina, and one in Maryland), two parcels of land adjacent to the North Carolina properties and one redevelopment property in North Carolina, which was subsequently assigned to Strategic Storage Growth Trust, Inc., (the “27 Property Portfolio”). On June 1, 2016 we closed on 11 self storage facilities in Florida and Maryland for approximately $275 million representing the first phase (“First Phase”) of the 27 Property Portfolio. On June 1, 2016, 2018, we, through certain affiliated entities (collectively, the “Borrower”) entered into a credit agreement (the “Property Loan Agreement”) for a secured loan in the amount of $105 million (the “KeyBank Property Loan”) with KeyBank, as administrative agent, KeyBanc Capital Markets, LLC, as the sole book runner and sole lead arranger, and the lenders party thereto. The Borrower borrowed $105 million in connection with the purchase of the properties in the First Phase of the 27 Property Portfolio. The KeyBank Property Loan is a term loan facility with an original maturity date of December 31, 2016. On December 29, 2016, we entered into a First Amendment to the Credit Agreement (the “First Amendment to the KeyBank Property Loan”) in connection with the KeyBank Property Loan. Prior to the First Amendment to the KeyBank Property Loan, one of the properties held as collateral was removed and added to the Amended KeyBank Credit Facility and the KeyBank Property Loan was reduced to approximately $92.8 million. The First Amendment to the KeyBank Property Loan extended the maturity date of the loan (the “Amended KeyBank Property Loan”) from December 31, 2016 to March 31, 2017. We paid an extension fee in connection with such extension.
On March 8, 2017 we removed five of the properties held as collateral (Plantation, Wellington, Naples, Port St. Lucie II, and Doral) under the Amended KeyBank Property Loan and added them to the Amended KeyBank Credit Facility. In conjunction with adding these five properties to the Amended KeyBank Credit Facility, we borrowed approximately $56 million on the Amended KeyBank Credit Facility which was used to pay down approximately $45.7 million of principal on the Amended KeyBank Property Loan and the remaining outstanding principal balance of $10 million on the Amended KeyBank Subordinate Loan. As a result, the outstanding balance on the Amended KeyBank Property Loan was reduced to approximately $47.1 million and the outstanding balance on the Amended KeyBank Credit Facility was increased to approximately $98.3 million.
In order to repay the remaining outstanding balance on the Amended KeyBank Property Loan, we have the ability to move the remaining five properties (Pompano Beach, Lake Worth, Jupiter, Royal Palm Beach, and Delray) held as collateral to the Amended KeyBank Credit Facility which would increase its outstanding balance to $145 million. With the capacity on the Amended KeyBank Credit Facility and available cash, we have the ability to repay the amount outstanding on the Amended KeyBank Property Loan. However, we have entered into a term sheet with KeyBank for a 10 year fixed rate loan, the proceeds of which will be used to repay the remaining outstanding balance on the Amended KeyBank Property Loan. The remaining five properties currently held as collateral under the Amended KeyBank Property Loan will serve as collateral for the new fixed rate loan. On March 30, 2017 we entered into a Second Amendment to the Amended KeyBank Property Loan to extend the maturity date from March 31, 2017 to May 1, 2017 which will allow appropriate time for the new fixed rate loan agreement to be finalized.
Payments due under the Amended KeyBank Property Loan are interest-only due on the first day of each month. The Amended KeyBank Property Loan bears interest based on the type of borrowing elected by the Borrower. An ABR Borrowing bears interest at the lesser of (x) the Alternate Base Rate (as defined in the Amended Property Loan Agreement) plus the Applicable Rate, or (y) the Maximum Rate (as defined in the Amended Property Loan Agreement). A Eurodollar Borrowing bears interest at the lesser of (a) the Adjusted LIBO Rate (as defined in the Amended Property Loan Agreement) for the Interest Period in effect plus the Applicable Rate, or (b) the Maximum Rate (as defined in the Amended Property Loan Agreement). The Applicable Rate means 225 basis points for any Eurodollar Borrowing and 125 basis points for any ABR Borrowing. The Borrower elected a Eurodollar Borrowing. The Borrower paid certain fees to the lenders in connection with the Amended KeyBank Property Loan.
As of December 31, 2016, the Amended KeyBank Property Loan was fully recourse, jointly and severally, to us and the Borrower and was secured by cross-collateralized first mortgage liens on 10 Mortgaged Properties (as defined in the First Amendment to the Property Loan Agreement), which were the 10 Florida properties acquired in the First Phase of the 27 Property Portfolio. The Borrower may prepay the Amended KeyBank Property Loan at any time, without penalty, in whole or in part, with an exit fee payable under certain circumstances. Pursuant to that certain guaranty (the “Property Loan Guaranty”), dated June 1, 2016, in favor of the lenders, we serve as the guarantor of all obligations due under the Amended Property Loan Agreement.
The Amended Property Loan Agreement contains a number of other customary terms and covenants, including the following (capitalized terms are as defined in the Amended Property Loan Agreement) financial tests the Borrower must maintain, on a consolidated basis in accordance with GAAP: (i) a Loan to Value Ratio of not greater than fifty five percent (55%); and (ii) a Pool Debt Yield of at least ten and one half percent (10.5%), tested in September 30, 2016 and as of the close of each fiscal quarter thereafter. Throughout the terms of the Amended Property Loan Agreement, we shall have and maintain, on a consolidated basis in accordance with GAAP, tested as of the close of each fiscal quarter: (i) a total Leverage Ratio no greater than sixty percent (60%); (ii) a Tangible Net Worth not at any time to be less than approximately $260 million, plus eighty-five percent (85%) of the Net Equity Proceeds received after the Effective Date; (iii) an Interest Coverage Ratio of not less than 1.85:1.00; (iv) a Fixed Charge Ratio of not less than 1.60:1.00; and (v) a ratio of the Indebtedness that bears interest at a varying rate of interest or that does not have the interest rate fixed, capped or swapped pursuant to a hedging agreement to the sum of the Indebtedness, not in excess of thirty percent (30%).
The Amended KeyBank Subordinate Loan
On June 1, 2016, in conjunction with the acquisition of the First Phase of the 27 Property Portfolio, we entered into a credit agreement (the “Subordinate Loan Agreement”) in which we borrowed $30 million (the “KeyBank Subordinate Loan”) with KeyBank, as administrative agent, KeyBanc Capital Markets, LLC, as the sole book runner and sole lead arranger, and
STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
the lenders party thereto. The KeyBank Subordinate Loan is a term loan facility with an original maturity date of December 31, 2016. During the third and fourth quarters of 2016, we made payments totaling $20 million on the KeyBank Subordinate Loan, reducing the loan amount to $10 million as of December 29, 2016. On December 29, 2016, we entered into a First Amendment to the Subordinate Loan Agreement (the “First Amendment to the Subordinate Loan”), which extended the maturity date of the Subordinate Loan Agreement (subsequently, the “Amended Subordinate Loan”) from December 31, 2016 to March 31, 2017. We paid an extension fee in connection with amended Subordinate Loan Agreement (“Amended Subordinate Loan Agreement”). On March 8, 2017 we repaid the outstanding balance of $10 million on the Amended Subordinate Loan through a draw on the Amended KeyBank Credit Facility (See Note 11).
Payments due pursuant to the Amended KeyBank Subordinate Loan are interest-only due on the first day of each month. The Amended KeyBank Subordinate Loan bears interest based on the type of borrowing elected by us. An ABR Borrowing bears interest at the lesser of (x) the Alternate Base Rate (as defined in the Amended Subordinate Loan Agreement) plus the Applicable Rate, or (y) the Maximum Rate (as defined in the Amended Subordinate Loan Agreement). A Eurodollar Borrowing bears interest at the lesser of (a) the Adjusted LIBO Rate (as defined in the Amended Subordinate Loan Agreement) for the Interest Period in effect plus the Applicable Rate, or (b) the Maximum Rate (as defined in the Amended Subordinate Loan Agreement). The Applicable Rate means 563 basis points for any Eurodollar Borrowing and 463 basis points for any ABR Borrowing. We elected a Eurodollar Borrowing. We paid certain fees to the lenders in connection with the Amended KeyBank Subordinate Loan.
The Amended KeyBank Subordinate Loan isnon-recourse and unsecured. We may prepay the Amended KeyBank Subordinate Loan at any time, without penalty, in whole or in part, with an exit fee payable under certain circumstances. The Amended KeyBank Subordinate Loan contains a number of other customary terms and covenants, including the following (capitalized terms are as defined in the Amended Subordinate Loan Agreement) financial tests we must maintain, on a consolidated basis in accordance with GAAP, tested as of the close of each fiscal quarter: (i) a Total Leverage Ratio no greater than sixty percent (60%); (ii) a Tangible Net Worth not at any time to be less than approximately $260 million, plus eighty-five percent (85%) of the Net Equity Proceeds received after the Effective Date; (iii) an Interest Coverage Ratio of not less than 1.85:1.00; (iv) a Fixed Charge Ratio of not less than 1.60:1.00; and (v) a ratio of the Indebtedness that bears interest at a varying rate of interest or that does not have the interest rate fixed, capped or swapped pursuant to a hedging agreement to the sum of the Indebtedness, not in excess of thirty percent (30%). It will be an event of default under the Amended Subordinate Loan Agreement if an event of default is in existence under our Amended KeyBank Credit Facility or under the Amended Property Loan Agreement.
KeyBank CMBS Loan
On July 28, 2016, we, through 29 special purpose entities wholly owned by our Operating Partnership, entered into a loan agreement with KeyBank in which we borrowed $95 million from KeyBank (the “KeyBank CMBS Loan”CitiBank, N.A. (“CitiBank”). Pursuant to, as lender. Under the terms of the loan agreement the collateral under the loan consists(the “CitiBank Loan Agreement”), we have a maximum borrowing capacity of our respective fee interests in 29 self storage properties$112 million CAD, of which we initially borrowed $99.3 million CAD (the “29 Mortgaged Properties”“Initial Proceeds”). The proceeds of the KeyBank CMBS LoanInitial Proceeds were primarily used to pay downoff all of the existing loans encumbering our Amended KeyBank Credit Facility, after10 properties located in the greater Toronto area, Canada, all of which the 29 Mortgaged Properties were releasednow serve as collateral under the Amended KeyBank Credit Facility.CitiBank Loan Agreement. We also have the right to receive future advances in the aggregate amount of up to $12.7 million CAD, subject to certain conditions as set forth in the CitiBank Loan Agreement.
The KeyBank CMBSCitiBank Loan has an initialAgreement is a term loan that matures on October 9, 2020, which may, in certain circumstances, be extended at our option for three consecutive terms of ten years, maturing on August 1, 2026. In connection with the KeyBank CMBS Loan, we entered into two promissory notes, dated July 28, 2016, in the amounts of $70 million and $25 million (the “Promissory Notes”).one year each. Monthly payments due under the Promissory NotesCitiBank Loan Agreement are interest-only, forwith the first five yearsfull principal amount becoming due and payments reflecting a30-year amortization schedule begin thereafter. payable on the maturity date. The Promissory Notesamounts outstanding under the CitiBank Loan Agreement bear interest at 3.89%. The KeyBank CMBSa rate equal to the sum of the “CDOR” (as defined in the CitiBank Loan is securedAgreement) and 2.25%. If we exercise our third extension option, the interest rate shall be increased by first mortgage liens or deeds of trusts on the 29 Mortgaged Properties, an assignment of all leases/rents, perfected first priority security interests in all personal property, escrows, reserves and a cash management account.0.25%. In addition, we have provided a guaranty, dated July 28, 2016, in favor of KeyBank, in which we serves as a guarantor of all obligations due underpursuant to the loan agreement.
The KeyBank CMBS Loan may be repaid in whole or in part through a partial or full defeasance (releasing one or morerequirements of the 29 Mortgaged Properties fromCitiBank Loan Agreement, we purchased an interest rate cap with a notional amount of $99.3 million CAD, with an effective date of October 11, 2018, whereby the liens) beginning two years after the Promissory Notes are securitized, which occurred in August, 2016CDOR is capped at 3.00% through October 15, 2021.
STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIESF-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
The following table presents the future principal payment requirements on outstanding debt as of December 31, 2016:2018: | 2017 | | $ | 110,873,322 | | | 2018 | | | 25,138,980 | | | 2019 | | | 1,158,012 | | | $ | 99,690,629 | | 2020 | | | 1,612,418 | | | | 85,209,014 | | 2021 | | | 13,215,861 | | | | 1,983,016 | | 2022 and thereafter | | | 169,357,842 | | | | | | | | 2022 | | | | 3,635,428 | | 2023 | | | | 31,629,204 | | 2024 and thereafter | | | | 186,093,211 | | Total payments | | | 321,356,435 | | | | 408,240,502 | | Premium on secured debt, net | | | 2,069,847 | | | | 1,228,996 | | Debt issuance costs, net | | | (2,605,542 | ) | | | (3,385,395 | ) | | | | | | Total | | $ | 320,820,740 | | | $ | 406,084,103 | | | | | | |
On January 24, 2019, in conjunction with the SSGT Mergers, we entered into various financings and repaid the Raleigh/Myrtle Beach promissory note, the Amended KeyBank Credit Facility, the Oakland and Concord loan, and the $11M KeyBank Subordinate Loan. See Note 11 – Subsequent Events. The following table presents the future principal payment requirements on outstanding debt subsequent to these debt transactions: 2019 | | $ | 201,712 | | 2020 | | | 73,473,891 | | 2021 | | | 6,144,512 | | 2022 | | | 399,004,091 | | 2023 | | | 3,291,903 | | 2024 and thereafter | | | 290,093,211 | | Total payments | | $ | 772,209,320 | |
Note 6. Preferred EquityDerivative Instruments IssuanceInterest Rate Derivatives
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we use interest rate swaps and caps as part of Preferred Units by our Operating Partnershipinterest rate risk management strategy. The effective portion of the change in the fair value of the derivative that qualifies as a cash flow hedge is recorded in accumulated other comprehensive income (“AOCI”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. On November 3, 2014,We do not use derivatives for trading or speculative purposes. Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements and other identified risks but we have elected not to apply hedge accounting. Changes in the fair value of interest rate derivatives not designated in hedging relationships are recorded in other income (expense) as income within our consolidated statements of operations and were none and approximately $290,000 for the years ended December 31, 2018 and 2017 respectively.
Foreign Currency Forward Our objectives in using foreign currency derivatives are to add stability to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar and to manage our Operating Partnership enteredexposure to exchange rate movements. To accomplish this objective, we use foreign currency forwards as part of our exchange rate risk management strategy. A foreign currency forward contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future. By entering into the forward contract and holding it to maturity, we are locked into a Series A Cumulative Redeemable Preferred Unit Purchase Agreement (the “Unit Purchase Agreement”) with the Preferred Investor, a wholly-owned subsidiary of SmartStop Self Storage Operating Partnership, L.P. Pursuant to the Unit Purchase Agreement, the Preferred Investor agreed to provide up to $65 million through a preferred equity investment in our Operating Partnership (the “Preferred Equity Investment”), to be used solely for investments in self storage properties, as described in the underlying documents, infuture currency exchange for up to 2.6 million preferred units of limited partnership interest of our Operating Partnership (the “Preferred Units”), each having a liquidation preference of $25.00 per Preferred Unit (the “Liquidation Amount”), plus all accumulated and unpaid distributions. 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 Amended and Restated Limited Partnership Agreement (the “Amendment”). The Second Amended and Restated Limited Partnership Agreement authorizes the issuance of additional classes of units of limited partnership interest in the Operating Partnership, establishes a new series of preferred 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. The Amendment sets forth key terms of the Preferred Units, some of which are discussed below.
In a number of transactions, the Preferred Investor invested a total of $59.5 million in our Operating Partnership and was issued approximately 2.4 million preferred units. As of December 31, 2015, we had redeemed all of the Preferred Units.
The holders of the Preferred Units received current distributions (the “Current Distributions”) at a rate of aone-month LIBOR plus 6.5% per annum on the Liquidation Amount, payable monthly and calculated on an actual/360 basis. In addition to the Current Distributions, our Operating Partnership had the obligation to elect either (A) to pay the holder of the Preferred Units additional distributions monthly in an amount equal to: (i) 4.35% per annum of the Liquidation Amount through March 31, 2017; and (ii) beginning April 1, 2017, 6.35% per annum of the Liquidation Amount or (B) defer the additional distributions ( the “Deferred Distributions”) in an amount that accumulated monthly in an amount equal to (i) LIBOR plus 10.85%and for the term of the Deferred Distributions through March 31, 2017; and (ii) beginning April 1, 2017, LIBOR plus 12.85%forward contract. For derivatives designated as net investment hedges, the changes in the fair value of the Deferred Distributions.derivatives are reported in accumulated other comprehensive income. Amounts are reclassified out of accumulated other comprehensive income into earnings when the hedged net investment is either sold or substantially liquidated.
F-25
The following table summarizes the terms of our derivative financial instruments as of December 31, 2018: | | Notional Amount | | | Strike | | | Effective Date or Date Assumed | | Maturity Date | | Interest Rate Swaps: | | | | | | | | | | | | | | Oakland and Concord loan | | $ | 19,483,127 | | (2) | | 3.95 | % | | May 18, 2016 | | April 10, 2023 | | Interest Rate Cap: | | | | | | | | | | | | | | CDOR Cap | | | 99,300,000 | | (1) | | 3.00 | % | | October 11, 2018 | | October 15, 2021 | | Foreign Currency Forward: | | | | | | | | | | | | | | Denominated in CAD | | $ | 90,000,000 | | (1) | | 1.2846 | | | March 28, 2018 | | January 28, 2019 | (3) |
(1) | Notional amounts shown are denominated in CAD. |
(2) | The Oakland and Concord loan interest rate swap was settled on January 24, 2019 in conjunction with the SSGT Merger. See Note 11 – Subsequent Events. |
(3) | We settled this foreign currency forward on January 25, 2019 and received a settlement of approximately $2.1 million. In conjunction with the settlement, we entered into a new foreign currency forward contract with a notional amount of $95 million CAD, a maturity date of December 20, 2019, and a forward rate of approximately 1.3173. See Note 11 – Subsequent Events. |
During the quarter ended September 30, 2017, we settled our existing foreign currency forward contract, which resulted in us paying a net settlement of approximately $5.5 million, and simultaneously entered into another foreign currency forward contract with a notional amount of $101 million CAD, and a forward rate of approximately 1.2526. We settled the $101 million CAD foreign currency forward on March 28, 2018, receiving a net settlement of approximately $2.2 million and simultaneously entered the $90 million CAD foreign currency forward. A portion of our gain (loss) from our settled and unsettled foreign currency hedges is recorded net in foreign currency forward contract gain (loss) in our consolidated statements of comprehensive loss, and a gain of approximately $965,000 and a loss of approximately $125,000 related to the ineffective portion is recorded in other income (expense) within our consolidated statements of operations for the years ended December 31, 2018 and 2017, respectively. The following table summarizes the terms of our derivative financial instruments as of December 31, 2017: | | Notional Amount | | | Strike | | | Effective Date or Date Assumed | | Maturity Date | | Interest Rate Swaps: | | | | | | | | | | | | | | Oakland and Concord loan | | $ | 19,960,190 | | | | 3.95 | % | | May 18, 2016 | | April 10, 2023 | | Dufferin loan | | | 14,025,000 | | (1) | | 3.21 | % | | February 1, 2017 | | May 31, 2019 | (2) | Mavis loan | | | 11,821,000 | | (1) | | 3.21 | % | | February 1, 2017 | | May 31, 2019 | (2) | Brewster loan | | | 7,726,000 | | (1) | | 3.21 | % | | February 1, 2017 | | May 31, 2019 | (2) | Interest Rate Cap: | | | | | | | | | | | | | | LIBOR | | $ | 90,000,000 | | | | 1.25 | % | | July 1, 2017 | | December 22, 2018 | | Foreign Currency Forward: | | | | | | | | | | | | | | Denominated in CAD | | $ | 101,000,000 | | (1) | | 1.2526 | | | August 31, 2017 | | March 29, 2018 | |
(1) | Notional amount shown is denominated in CAD. |
(2) | These interest rate swaps were settled on October 11, 2018 in conjunction with the Canadian CitiBank Loan refinance for a net settlement of approximately $0.2 million. See Note 11 – Subsequent Events. |
F-26
The following table presents a gross presentation of the fair value of our derivative financial instruments as well as their classification on our consolidated balance sheets as of December 31, 2018 and 2017: | | Asset/Liability Derivatives | | | | Fair Value | | Balance Sheet Location | | December 31, 2018 | | | December 31, 2017 | | Interest Rate Swaps | | | | | | | | | Other assets | | $ | 361,802 | | | $ | 455,526 | | Accounts payable and accrued liabilities | | | — | | | | 6,320 | | Interest Rate Caps | | | | | | | | | Other assets | | | 87,808 | | | | 472,501 | | Foreign Currency Forwards | | | | | | | | | Other assets | | | 4,016,806 | | | | — | | Accounts payable and accrued liabilities | | | — | | | | 67,092 | |
Note 7. Related Party Transactions Fees to Affiliates Our Advisory Agreement with our Advisor, andour dealer manager agreement, (“as amended ("Dealer Manager Agreement”Agreement") with our Dealer Manager, entitle our AdvisorProperty Management Agreement with our Property Manager and our Dealer ManagerTransfer Agent Agreement with our Transfer Agent entitle such affiliates to specified fees upon the provision of certain services with regard to the 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 in providing services to us.reimbursements, as described below. STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
Organization and Offering Costs
Organization and offering costs of the Offering may be paid by our Advisor on our behalf and will be reimbursed to our Advisor from the proceeds of our Offering. Organization and offering costs consist of all expenses (other than sales commissions, the dealer manager fees and stockholder servicing fees) paid by us in connection with the Offering, including our legal, accounting, printing, mailing and filing fees, charges of our escrow holder and other accountable organization and offering expenses, including, but not limited to, (i) amounts to reimburse our Advisor for all marketing related costs and expenses such as salaries and direct expenses of employees of our Advisor and its affiliates in connection with registering and marketing our shares; (ii) technology costs associated with the Offering; (iii) our costs of conducting our training and education meetings; (iv) our costs of attending retail seminars conducted by participating broker-dealers; and (v) payment or reimbursement of bona fide due diligence expenses. Our Advisor must reimburse us within 60 days after the end of the month which the Offering terminates to the extent we paid or reimbursed organization and offering costs (excluding sales commissions, dealer manager fees, and stockholder servicing fees) in excess of 3.5% of the gross offering proceeds from the Primary Offering. Subsequent to the termination of our Primary Offering on January 9, 2017, we determined that organization and offering costs did not exceed 3.5% of the gross proceeds from the Primary Offering.
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 noted above, we are required under our Advisory Agreement to reimburse our Advisor for organization and offering costs. Our Advisory Agreement also requiresrequired our Advisor to reimburse us to the extent that offering expenses, including sales commissions, dealer manager fees, stockholder servicing fees and organization and offering expenses, arewere in excess of 15% of gross proceeds from the Offering. SubsequentHowever, subsequent to the termination of our Primary Offering on January 9, 2017, we determined offering expenses were not in excess of 15% of gross proceeds from the Offering.Offering, and thus there was no reimbursement. Our Advisor receives acquisition fees equal to 1.75% of the contract purchase price of each property we acquire plus reimbursement of any acquisition expenses incurred by our Advisor. Our Advisor also receives a monthly asset management fee equal to 0.05208%, which isone-twelfth of 0.625%, of our aggregate asset value, as defined.defined in the Advisory Agreement. Under our Advisory Agreement, our Advisor receives disposition fees in an amount equal to the lesser of(i) one-half of the competitive real estate commission or (ii) 1% of the contract sale price for each property we sell, as long as our Advisor provides substantial assistance in connection with the sale. The total real estate commissions paid (including the disposition fee paid to our Advisor) may not exceed the lesser of a competitive real estate commission or an amount equal to 6% of the contract sale price of the property. Our Advisor is also entitled to various subordinated distributions pursuant to our Operating Partnership Agreement if we (1) list our shares of common stock on a national exchange, (2) terminate our Advisory Agreement (other than a voluntary termination), (3) liquidate our portfolio, or (4) enter into an Extraordinary Transaction, as defined in the Operating Partnership Agreement. F-27
Our Advisory Agreement provides for reimbursement of our Advisor’s direct and indirect costs of providing administrative and management services to us. Beginning four fiscal quarters after we acquired our first real estate asset,Pursuant to the Advisory Agreement, our Advisor is requiredobligated to pay or reimburse us the amount by which our aggregate annual operating expenses, as defined, exceed the greater of 2% of our average invested assets or 25% of our net income, as defined, unless a majority of our independent directors determine that such excess expenses were justified based on unusual andnon-recurring factors. For any fiscal quarter for which total operating expenses for the 12 months then ended exceed the limitation, we will disclose this fact in our next quarterly report or within 60 days of the end of that quarter and send a written disclosure of this fact to our stockholders. In each case the disclosure will include an explanation of the factors that the independent directors considered in arriving at the conclusion that the excess expenses were justified. OurFor the years ended December 31, 2016, 2017, and 2018, our aggregate annual operating expenses, as defined, did not exceed the thresholds described above. STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
Dealer Manager Agreement OurIn connection with our Primary Offering, our Dealer Manager receivesreceived a sales commission of up to 7.0% of gross proceeds from sales of Class A Shares and up to 2.0% of gross proceeds from the sales of Class T Shares in the Primary Offering and a dealer manager fee up to 3.0% of gross proceeds from sales of both Class A Shares and Class T Shares in the Primary Offering under the terms of the Dealer Manager Agreement. In addition, our Dealer Manager receives an ongoing stockholder servicing fee that is payable monthly and accrues daily in an amount equal to 1/365th of 1% of the purchase price per share of the Class T Shares sold in the Primary Offering. We will cease paying the stockholder servicing fee with respect to the Class T Shares sold in the Primary Offering at the earlier of (i) the date we list our shares on a national securities exchange, merge or consolidate with or into another entity, or sell or dispose of all or substantially all of our assets, (ii) the date at which the aggregate underwriting compensation from all sources equals 10% of the gross proceeds from the sale of both Class A Shares and Class T Shares in our Primary Offering (i.e., excluding proceeds from sales pursuant to our distribution reinvestment plan), which calculation shall be made by us with the assistance of our Dealer Manager commencing after the termination of the Primary Offering; (iii) the fifth anniversary of the last day of the fiscal quarter in which our Primary Offering (i.e., excluding our distribution reinvestment plan offering) terminates;terminated; and (iv) the date that such Class T Share is redeemed or is no longer outstanding. Our Dealer Manager has entered into participating dealer agreements with certain other broker-dealers which authorizesauthorized them to sell our shares. Upon sale of our shares by such broker-dealers, our Dealer Managerre-allows re-allowed all of the sales commissions and, subject to certain limitations, the stockholder servicing fees paid in connection with sales made by these broker-dealers. Our Dealer Manager maycould alsore-allow to these broker-dealers a portion of their dealer manager fee as marketing fees, reimbursement of certain costs and expenses of attending training and education meetings sponsored by our Dealer Manager, payment of attendance fees required for employees of our Dealer Manager or other affiliates to attend retail seminars and public seminars sponsored by these broker-dealers, or to defray other distribution-related expenses. Our Dealer Manager also receivesreceived reimbursement of bona fide due diligence expenses; however, to the extent these due diligence expenses cannotcould not be justified, any excess over actual due diligence expenses will bewould have been considered underwriting compensation subject to a 10% FINRA limitation and, when aggregated with all othernon-accountable expenses in connection with our Offering, maycould not exceed 3% of gross offering proceeds from sales in the Offering.
Affiliated Dealer Manager Our Chief Executive Officer owned, throughSponsor owns a wholly-owned limited liability company, a 15%non-voting equity interest in our Dealer Manager through August 31, 2014. Effective, August 31, 2014, SmartStop indirectly owned the 15%non-voting equity interest in our Dealer Manager, pursuant to the Self Administration and Investment Management Transaction. Effective October 1, 2015, in connection with the Merger, the 15%non-voting equity interest in our Dealer Manager is now owned by our Sponsor. An affiliateManager. Affiliates of our Dealer Manager continues to own a 2.5%non-voting membership interest in our Advisor. 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 June 2018, our Transfer Agent provides transfer agent and registrar services 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. We believe that our Transfer Agent, through its knowledge and understanding of the direct participation program industry which includes non-traded REITs, is particularly suited to provide us with transfer agent and registrar services. Our Transfer Agent also conducts transfer agent and registrar services for other non-traded REITs sponsored by our Sponsor. F-28
It is the duty of our board of directors to evaluate the performance of our Transfer Agent. In connection with the engagement of our Transfer Agent, we paid a one-time initial setup fee of $50,000. In addition, the other fees to be paid to our Transfer Agent are based on a fixed quarterly fee, one-time account setup fees and monthly open account fees. In addition, we will reimburse our Transfer Agent for all reasonable expenses or other changes incurred by it in connection with the provision of its services to us, and we will pay our Transfer Agent fees for any additional services we may request from time to time, in accordance with its rates then in effect. Upon the request of our Transfer Agent, we may also advance payment for substantial reasonable out-of-pocket expenditures to be incurred by it. The initial term of the transfer agent agreement is 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 Management Agreement Through September 30, 2015,Since inception, our Property Manager has served as the property manager for each of our self storage properties was managed by our Property Manager underpursuant to separate property management agreements. In addition, the properties we acquired in the SSGT Merger will continue to be operated by the property manager in place at the time of the SSGT Merger. For additional information, see “Subsequent Events—Merger with Strategic Storage Growth Trust, Inc.—Property Manager.” From October 1, 2015 through September 30, 2017, our Property Manager contracted with Extra Space for Extra Space to serve as the sub-property manager for each of our properties located in the United States pursuant to separate sub-property management agreements for each property. Effective October 1, 2017, our Property Manager terminated its sub-property management agreements with Extra Space. Our Property Manager now manages all our properties directly. In addition, an affiliate of our Property Manager reacquired the rights to the “SmartStop® Self Storage” brand in the United States. As a result, we began using the “SmartStop® Self Storage” brand at our properties in the United States effective October 1, 2017. In connection with these terminations, each property management agreement that was subject to a sub-property management agreement with Extra Space was amended and, where applicable, we paid Extra Space a termination fee, as described below.
Prior Arrangement Under each agreement,the property management agreements in effect from October 1, 2015 through September 30, 2017 for our properties located in the United States, our Property Manager received a monthly management fee for each property equal to the greater of $2,500 or 6% of the gross revenues, plus reimbursement of our Property Manager’s costs of managing the properties. In addition, Extra Space agreed to pay up to $25,000 per property toward the signage and set-up costs associated with converting such property to the Extra Space brand (the “Set-Up Amount”). The property management agreements had a three year term and automatically renewed for successive one year periods thereafter, unless we or our Property Manager provided prior written notice at least 90 days prior to the expiration of the term. In general, if we terminated a property management agreement without cause during the initial three year term, we would have been required to pay our Property Manager a termination fee equal to the Set-Up Amount, reduced by 1/36th of the Set-Up Amount for every full month of the term that had elapsed. After the end of the initial three year term, we could have terminated a property management agreement on 30 days prior written notice without payment of a termination fee. Our Property Manager could have terminated a property management agreement on 60 days prior written notice to us. F-29
The sub-property management agreements between our Property Manager and Extra Space were substantially the same as the foregoing property management agreements. Under the sub-property management agreements, our Property Manager paid Extra Space a monthly management fee for each property equal to the greater of $2,500 or 6% of the gross revenues, plus reimbursement of Extra Space’s costs of managing the properties; provided, however that no management fee was due and payable to Extra Space for the months of January and July each year during the term. Extra Space had the exclusive right to offer tenant insurance to the tenants and was entitled to all of the benefits of such tenant insurance. The sub-property management agreements also had a three year term and automatically renewed for successive one year periods thereafter, unless our Property Manager or Extra Space provided prior written notice at least 90 days prior to the expiration of the term. In general, if our Property Manager terminated a sub-property management agreement without cause during the initial three year term, it would have been required to pay Extra Space a termination fee equal to the Set-Up Amount, reduced by 1/36th of the Set-Up Amount for every full month of the term that had elapsed. After the end of the initial three year term, our Property Manager could have terminated a sub-property management agreement on 30 days prior written notice without payment of a termination fee. Extra Space could have terminated a sub-property management agreement on 60 days prior written notice to our Property Manager. Termination of Sub-property Manager As of October 1, 2017, our Property Manager terminated each sub-property management agreement with Extra Space, and we amended each of our corresponding property management agreements as described below. To the extent a termination fee would have been owed by any of our property-owning subsidiaries had its servicescorresponding property management agreement with our Property Manager been terminated, each such property-owning subsidiary agreed to pay the termination fee owed by our Property Manager in managingaccordance with its termination of the sub-property management agreements. The aggregate costs incurred in connection with the property management changes were approximately $0.8 million. This amount was included in property operating expenses – affiliates in the accompanying consolidated statements of operations for the year ended December 31, 2017. Property Management Subsequent to September 30, 2017 In connection with the termination of each sub-property management agreement, each corresponding property management agreement was amended effective as of October 1, 2017. Pursuant to the amended property management agreements, our properties, generallyProperty Manager receives: (i) a monthly management fee for each property equal to the greater of $3,000 or 6% of the gross revenues from the properties plus reimbursement of the Property Manager’s costs of managing the properties. Reimbursable costsproperties and expenses included wages and salaries and other expenses of employees engaged in operating, managing and maintaining our properties. Our Property Manager also received aone-time fee for each property acquired by us that was managed by our Property Manager in the amount of $3,750. In the event that our Property Manager assisted with the development or redevelopment of a property, we paid a separate market-based fee for such services. In addition, our Property Manager was entitled to(ii) a construction management fee equal to 5% of the cost of construction or capital improvement work in excess of $10,000 and an administration fee equal to $0.50 a month for each insurance policy purchased by a tenant at one of our properties in connection with the tenant insurance program. Additionally, each agreement included anon-solicitation provision and a provision regarding the Property Manager’s use of trademarks and other intellectual property owned by SmartStop. As of October 1, 2015, each of our self storage properties located in the United States are subject to separate property management agreements$10,000. In addition, we have agreed with our Property Manager which in turn has entered intosub-property management agreements withor an affiliate to share equally in the net revenue attributable to the sale of Extra Space, which provideson-site management oftenant insurance at our properties. Such agreements were entered into effective the later of October 1, 2015, or their respective acquisition date. Under the property management agreements, our Property Manager receives a monthly management fee of $2,500 or 6% of the gross revenues, whichever is greater, plus reimbursement of the Property Manager’s costs of managing the properties. Extra Space agreed to pay up to $25,000 for each property managed toward the signage andset-up costs associated with converting each property to the Extra Space brand (the
STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
“Set-Up Amount”). The property management agreements have a three year term and automatically renew for successive onethree year periods thereafter, unless we or our Property Manager providesprovide prior written notice at least 90 days prior to the expiration of the term. We may terminate a property management agreement without cause at any time during the initial three year term if we pay the Property Manager a termination fee equal to theSet-Up Amount, reduced by 1/36th of theSet-Up Amount for every full month of the term. After the end of the initial three year term, weeither party may terminate a property management agreement on 30generally upon 60 days prior written notice without payment of a termination fee. Our Property Manager may terminatenotice. With respect to each new property we acquire for which we enter into a property management agreement on 60 days prior written notice to us.
Thesub-property management agreements betweenwith our Property Manager and Extra Space are substantially the same as the property management agreements between us and our Property Manager. Under thesub-property management agreements,we will also pay our Property Manager pays Extra Space a monthly managementone-time start-up fee in the amount of $2,500 or 6% of$3,750.
In connection with the gross revenues, whichever is greater, plus reimbursement of Extra Space’s costs of managing the properties; provided, however that no management fee is due and payable to Extra Space for the months of January and July each year during the term. Extra Space has the exclusive right to offer tenant insurance to the tenants and is entitled to all of the benefits of such tenant insurance. Thesub-property management agreements also have a three year term and automatically renew for successive one year periods thereafter, unlesschange in our Property Manager or Extra Space provides prior written notice at least 90 days prior to the expiration of the term. Our Property Manager may terminate thesub-property management agreement without cause at any time during the initial three year term if it pays Extra Space a termination fee equal to theSet-Up Amount, reduced by 1/36th of theSet-Up Amount for every full month of the term. After the end of the initial three year term, our Property Manager may terminate asub-property management agreement on 30 days prior written notice without payment of a termination fee. Extra Space may terminate a property management agreement on 60 days prior written notice tooperations, each of our Property Manager. In addition, we entered into an agreement with Extra Space and our Property Manager in which we agreed that, subject to certain limitations, our Property Manager will retain Extra Space assub-property manager for all self storage properties we acquirestores in the United States that will be managed by our Property Manager.were rebranded under the “SmartStop® Self Storage” brand.
Our self storage properties located in Canada are subject to separate property management agreements with our Property Manager which areon terms substantially similar to ourthe same as the amended property management agreements fordescribed above. All properties owned or acquired in Canada are managed by a subsidiary of our properties inSponsor and branded using the United States prior to September 30, 2015, except there is an agreement to share net tenant insurance revenues equally between us and our Property Manager.SmartStop® Self Storage brand. STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIESF-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
Pursuant to the terms of the agreements described above, the following table summarizes related party costs incurred and paid by us for the years ended December 31, 20152017 and 2016,2018, and any related amounts payable as of December 31, 20152017 and 2016:2018: | | | | Year Ended December 31, 2015 | | | Year Ended December 31, 2016 | | | Year Ended December 31, 2017 | | | Year Ended December 31, 2018 | | | | | Incurred | | | Paid | | | Payable | | | Incurred | | | Paid | | | Payable | | | Incurred | | | Paid | | | Payable | | | Incurred | | | Paid | | | Payable | | Expensed | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating expenses (including organizational costs) | | $ | 1,200,003 | | | $ | 1,988,533 | | | $ | 47,971 | | | $ | 735,891 | | | $ | 777,354 | | | $ | 6,508 | | | $ | 1,090,366 | | | $ | 751,010 | | | $ | 345,864 | | | $ | 2,199,596 | | | $ | 2,336,075 | | | $ | 209,385 | | Transfer Agent fees | | | | — | | | | — | | | | — | | | | 352,300 | | | | 302,839 | | | | 49,461 | | Asset management fees | | | 865,757 | | | | 888,011 | | | | — | | | | 2,970,846 | | | | 2,970,846 | | | | — | | | | 5,346,280 | | | | 5,346,280 | | | | — | | | | 5,445,528 | | | | 5,445,528 | | | | — | | Property management fees(1) | | | 1,259,135 | | | | 1,306,422 | | | | — | | | | 2,752,862 | | | | 2,752,862 | | | | — | | | | 5,285,082 | | | | 5,285,082 | | | | — | | | | 4,809,106 | | | | 4,809,106 | | | | — | | Acquisition expenses | | | 2,776,679 | | | | 3,479,712 | | | | — | | | | 10,729,535 | | | | 10,729,535 | | | | — | | | | 212,577 | | | | 212,577 | | | | — | | | | 72,179 | | | | 72,179 | | | | — | | Capitalized | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Debt issuance costs | | | 214,006 | | | | 655,879 | | | | — | | | | — | | | | — | | | | — | | | Other assets | | | 77,556 | | | | 539,048 | | | | — | | | | — | | | | — | | | | — | | | Acquisition costs | | | | — | | | | — | | | | — | | | | 48,664 | | | | 48,664 | | | | — | | AdditionalPaid-in Capital | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Selling commissions | | | 14,761,271 | | | | 14,761,271 | | | | — | | | | 21,141,748 | | | | 21,141,748 | | | | — | | | | 966,516 | | | | 966,516 | | | | — | | | | — | | | | — | | | | — | | Dealer manager fee | | | 3,690,318 | | | | 3,535,685 | | | | 160,512 | | | | 6,573,962 | | | | 6,573,760 | | | | 160,714 | | | Dealer Manager fee | | | | 353,167 | | | | 513,881 | | | | — | | | | — | | | | — | | | | — | | Stockholder servicing fee(2) | | | — | | | | — | | | | — | | | | 3,297,305 | | | | 286,292 | | | | 3,011,013 | | | | 299,299 | | | | 690,272 | | | | 2,620,040 | | | | — | | | | 675,049 | | | | 1,944,991 | | Offering costs | | | 319,882 | | | | 2,125,798 | | | | — | | | | 444,719 | | | | 444,719 | | | | — | | | | 33,466 | | | | 33,466 | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 25,164,607 | | | $ | 29,280,359 | | | $ | 208,483 | | | $ | 48,646,868 | | | $ | 45,677,116 | | | $ | 3,178,235 | | | $ | 13,586,753 | | | $ | 13,799,084 | | | $ | 2,965,904 | | | $ | 12,927,373 | | | $ | 13,689,440 | | | $ | 2,203,837 | | | | | | | | | | | | | | | | | | | | | |
(1) | During the years ended December 31, 20162018 and 2015,2017, property management fees included approximately $2.2 millionnone and $0.3$3.2 million of fees paid to thesub-property manager of our properties.properties, respectively. This includes the costs incurred related to the change in property management of approximately $0.8 million during 2017. |
(2) | The Company paysWe pay our Dealer Manager an ongoing stockholder servicing fee that is payable monthly and accrues daily in an amount equal to 1/365th of 1% of the purchase price per share of the Class T Shares sold in the Primary Offering. |
Extra Space Self StorageTenant Insurance
We offer a tenant insurance plan to customers at our properties. In connection with the Mergerproperty management agreement amendments effective as of SmartStop into Extra Space, certainOctober 1, 2017, we agreed with our Property Manager or an affiliate to share equally in the net revenue attributable to the sale of tenant insurance at our properties. To facilitate such revenue sharing, we and an affiliate of our executive officers, including H. Michael Schwartz, Paula Mathews, Michael McClureProperty Manager agreed to transfer our respective rights in such tenant insurance revenue to a newly created joint venture in March 2018, Strategic Storage TI Services II JV, LLC (the “TI Joint Venture”), a Delaware limited liability company owned 50% by our TRS subsidiary and James Berg, received units50% by our Property Manager’s affiliate SmartStop TI II, LLC (“SS TI II”). Under the terms of limited partnership interest in Extra Space Storage LP, the operating partnership for Extra Space, in exchange for units of limited partnership of SmartStop Self Storage Operating Partnership, L.P.,TI Joint Venture agreement, the operating partnership for SmartStop, owned by such executives. Tenant Protection Plan
During the first quarter of 2016, in connection with our acquisitions of properties located in Canada, our board of directors approved our participation in a tenant protection plan pursuant to which we will receiveTRS receives 50% of the net revenueseconomics generated for eachfrom such tenant protection plan purchased by a customer at our Canadian propertiesinsurance and our Property Manager will receiveSS TI II receives the other 50% of such net revenues.
STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
economics. The TI Joint Venture further provides, among other things, that if a member or its affiliate terminates all or substantially all of the property management agreements or defaults in its material obligations under the agreement or undergoes a change of control, as defined, (the “Triggering Member”), the other member generally shall have the right (but not the obligation) to either (i) sell its 50% interest in the TI Joint Venture to the Triggering Member at fair market value (as agreed upon or as determined under an appraisal process) or (ii) purchase the Triggering Member’s 50% interest in the TI Joint Venture at 95% of fair market value. For the years ended December 31, 2018 and 2017, we recorded net revenues of approximately $1.5 million and $0.3 million, respectively, related to tenant insurance which was included in ancillary operating revenue in the consolidated statements of operations. For the years ended December 31, 2018 and 2017, an affiliate of our Property Manager received net tenant insurance revenues of approximately $1.5 million and $0.3 million, respectively. In addition, in future periods, we expect to share equally in the net revenue attributable to the sale of tenant insurance at the properties we acquired in the SSGT Merger on substantially similar terms as set forth above. For additional information, see “Subsequent Events—Merger with Strategic Storage Growth Trust, Inc.—Property Manager.” Storage Auction Program Our Sponsor owns a minority interest in a company that owns 50% of an online auction company (the “Auction Company”) that serves as a web portal for self storage companies to post their auctions for the contents of abandoned storage units online instead of using live auctions conducted at the self storage facilities. The Auction Company receives a service fee for such services. Through December 31, 2017, neither our Property Manager nor our sub-property manager utilized the Auction Company at our properties. During the year ended December 31, 2018, we paid approximately $43,000 in fees to the Auction Company related to our properties. Our properties receive the proceeds from such online auctions. F-31
Toronto Merger On February 1, 2017, we entered into a definitive Agreement and Plan of Merger (the “Toronto Merger Agreement”) pursuant to which SST II Toronto Acquisition, LLC, a wholly owned and newly formed subsidiary of our Operating Partnership, merged (the “Toronto Merger”) with and into SS Toronto, a subsidiary of our Sponsor, with SS Toronto surviving the Toronto Merger and becoming a wholly owned subsidiary of our Operating Partnership. In connection with the Toronto Merger, we acquired five self storage properties located in the Greater Toronto Areas of North York, Mississauga, Brampton, Pickering and Scarborough (the “SS Toronto Properties”). Each property is operated under the “SmartStop” brand. At the effective time of the Toronto Merger, each share of common stock, $0.001 par value per share, of SS Toronto issued and outstanding was automatically converted into the right to receive $11.0651 USD in cash and 0.7311 Class A Units of our Operating Partnership. We paid an aggregate of approximately $7.3 million USD in cash consideration and issued an aggregate of approximately 483,197 Class A Units of our Operating Partnership to the common stockholders of SS Toronto, consisting of Strategic 1031 and SS Toronto REIT Advisors, Inc., affiliates of our Sponsor. We acquired the SS Toronto Properties subject to approximately $50.1 million CAD (approximately $38.4 million USD) in outstanding debt (as described further below), approximately $0.8 million in other net liabilities, and paid approximately $33.1 million USD to an affiliate of Extra Space as repayment of outstanding debt and accrued interest owed by SS Toronto. No acquisition fee was paid to our Advisor for the Toronto Merger. The terms of the Toronto Merger and the execution of the Toronto Merger Agreement were recommended by a special committee (the “Special Committee”) of our board of directors consisting of the Nominating and Corporate Governance Committee, the members of which were all of our independent directors. The Special Committee, with the assistance of its independent financial advisor and independent legal counsel, approved the transaction and determined that the Toronto Merger and the other transactions contemplated by the Toronto Merger Agreement were advisable and in the best interests of us, were fair and reasonable to us and were on terms and conditions not less favorable to us than those available from unaffiliated third parties. In connection with the Toronto Merger, we entered into guarantees, dated as of February 1, 2017 (the “Guarantees”), under which we agreed to guarantee certain obligations of SS Toronto. The SS Toronto loans consist of (i) term loans totaling approximately $34.8 million CAD pursuant to promissory notes executed by SS Toronto in favor of Bank of Montreal on June 3, 2016, 2015, and 2014(ii) mortgage financings in the aggregate amount of up to $17.7 million CAD pursuant to two promissory notes executed by subsidiaries of SS Toronto in favor of DUCA Financial Services Credit Union Ltd. on June 3, 2016. These loans were paid off in full on October 11, 2018 in conjunction with the Canadian CitiBank loan. Please see Note 5 for more information. Note 8. Commitments and Contingencies Distribution Reinvestment Plan We have adopted an amended and restated distribution reinvestment plan that allows both our Class A and Class T stockholders to have distributions otherwise distributable to them invested in additional shares of our Class A and Class T Shares, respectively. On April 21, 2016, theThe purchase price per share becamepursuant to our distribution reinvestment plan is equivalent to the estimated value per share approved by our board of directors and in effect on the date of purchase of shares under the plan. In conjunction with the board of directors’ declaration of a new estimated value per share of $10.09.our common stock on April 19, 2018, beginning in May 2018, shares sold pursuant to our distribution reinvestment plan are sold at the new estimated value per share of $10.65 per Class A Share and Class T Share. We may amend or terminate the amended and restated distribution reinvestment plan for any reason at any time upon 10 days’ prior written notice to stockholders. No sales commissions, or dealer manager fee, or stockholder servicing fee will be paid on shares sold through the amended and restated distribution reinvestment plan. AsThrough the termination of December 31, 2016our Offering on January 9, 2017, we had sold approximately 1.1 million Class A shares and 0.1 million Class T Shares through our original distribution reinvestment plan offering forplan. As of December 31, 2018, we had sold approximately 2.7 million Class A Shares and approximately 84,000 shares for our0.4 million Class T Shares.Shares through our DRP Offering. F-32
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 orover-the-counter market, our stockholders who have held their stock for at least one year may be able to have all or any portion of their shares of stock redeemed by us. We may redeem the shares of stock presented for redemption for cash to the extent that we have sufficient funds available to fund such redemption. 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 Form8-K or in our annual or quarterly reports, all publicly filed with the SEC, or by a separate mailing to our stockholders. The complete terms of our share redemption program are described in our prospectus. The amount that we may pay to redeem stock for redemptions is the redemption price set forth in the following table which is based upon the number of years the stock is held: | | | Number Years Held | | Redemption Price | Less than 1 | | No Redemption Allowed | 1 or more but less than 3 | | 90.0% of Redemption Amount | 3 or more but less than 4 | | 95.0% of Redemption Amount | 4 or more | | 100.0% of Redemption Amount |
At any time we are engaged in an offering of shares, the Redemption Amount for shares purchased under our share redemption program will always be equal to or lower than the applicable per share offering price. As long as we are engaged in an offering, the Redemption Amount shall be the lesser of the amount the stockholder paid for their shares or the price per share in the current Offering.offering. If we are no longer engaged in an offering, the per share Redemption Amount will be determined by our board of directors. Our board of directors will announce any redemption price adjustment and the time period of its effectiveness as a part of its regular communications with our stockholders. At any time the redemption price during an offering is determined by any method other than the offering price, if we have sold property and have made one or more special distributions to our stockholders of all or a portion of the net proceeds from such sales, the per share redemption price will be reduced by the net sale proceeds per share distributed to investors prior to the redemption date as a result of the sale of such property in the special distribution. Our board of directors will, in its sole discretion, determine which distributions, if any, constitute a special distribution. While our board of directors does not have specific criteria for determining a special distribution, we expect that a special distribution will only occur upon the sale of a property and the subsequent distribution of the net sale proceeds. There are several limitations on our ability to redeem shares under the share redemption program including, but not limited to: Unless the shares are being redeemed in connection with a stockholder’s death, “qualifying disability” (as defined under the share redemption program) or bankruptcy, we may not redeem shares until the stockholder has held his or her shares for one year. During any calendar year, we will not redeem in excess of 5% of the weighted-average number of shares outstanding during the prior calendar year. STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
The cash available for redemption is limited to the proceeds from the sale of shares pursuant to our distribution reinvestment plan, less any prior redemptions. We have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency. For the year ended December 31, 20162018, we received redemption requests totaling approximately $1.3$8.3 million (approximately 138,0000.9 million shares), approximately $1.1$7.0 million of which waswere fulfilled during year ended December 31, 2016,2018, with the remaining approximately $0.2$1.3 million included in accounts payable and accrued liabilities as of December 31, 20162018 and fulfilled in January 2017.2019. For the year ended December 31, 20152017 we received redemption requests totaling approximately $27,000,$2.2 million (approximately 2,8500.2 million shares), approximately $17,000$1.5 million of which waswere fulfilled in July 2015,during year ended December 31, 2017, with the remaining approximately $10,000$0.7 million included in accounts payable and accrued liabilities as of December 31, 2017 and fulfilled in January 2016.2018. F-33
Operating Partnership Redemption Rights The limited partners of our Operating Partnership have the right to cause our Operating Partnership to redeem their limited partnership units for cash equal to the value of an equivalent number of our shares, or, at our option, we may purchase their limited partnership units by issuing one share of our common stock for each limited partnership unit redeemed. These rights may not be exercised under certain circumstances that could cause us to lose our REIT election. Furthermore, limited partners may exercise their redemption rights only after their limited partnership units have been outstanding for one year. Our Advisor is prohibited from exchanging or otherwise transferring its limited partnership units so long as our Advisor is acting as our advisor under the Advisory Agreement. 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. Declaration of Distributions On December 20, 2016,2018, our board of directors declared a distribution rate for the first quarter of 20172019 of $0.00164383561$0.001644 per day per share on the outstanding shares of common stock payable to both Class A and Class T stockholders of record of such shares as shown on our books at the close of business on each day during the period, commencing on January 1, 20172019 and continuing on each day thereafter through and including March 31, 2017.2019. In connection with this distribution, after the stockholder servicing fee is paid, approximately $0.0014 per day will be paid per Class T share. Such distributions payable to each stockholder of record during a month will be paid the following month. Note 10. Selected Quarterly Data (Unaudited) The following is a summary of quarterly financial information for the years ended December 31, 20162018 and 2015:2017: | | | | Three months ended | | | Three months ended | | | | | March 31, 2016 | | | June 30, 2016 | | | September 30, 2016 | | | December 31, 2016(1) | | | March 31, 2018 | | | June 30, 2018 | | | September 30, 2018 | | | December 31, 2018 | | Total revenues | | $ | 6,234,589 | | | $ | 9,799,189 | | | $ | 14,457,550 | | | $ | 14,939,818 | | | $ | 19,866,457 | | | $ | 20,045,516 | | | $ | 20,313,069 | | | $ | 20,187,215 | | Total operating expenses | | $ | 10,048,926 | | | $ | 18,708,719 | | | $ | 15,753,103 | | | $ | 15,830,901 | | | $ | 16,010,116 | | | $ | 16,605,713 | | | $ | 15,836,436 | | | $ | 15,808,549 | | Operating loss | | $ | (3,814,337 | ) | | $ | (8,909,530 | ) | | $ | (1,295,553 | ) | | $ | (891,083 | ) | | Operating income | | | $ | 3,856,341 | | | $ | 3,439,803 | | | $ | 4,476,633 | | | $ | 4,378,666 | | Net loss | | $ | (4,508,654 | ) | | $ | (10,729,510 | ) | | $ | (6,341,069 | ) | | $ | (4,524,376 | ) | | $ | (667,047 | ) | | $ | (1,437,330 | ) | | $ | (457,278 | ) | | $ | (1,159,075 | ) | Net loss attributable to common stockholders | | $ | (4,505,204 | ) | | $ | (10,724,129 | ) | | $ | (6,338,356 | ) | | $ | (4,522,696 | ) | | $ | (661,203 | ) | | $ | (1,427,056 | ) | | $ | (451,424 | ) | | $ | (1,158,694 | ) | Net loss per Class A Share-basic and diluted | | $ | (0.17 | ) | | $ | (0.27 | ) | | $ | (0.14 | ) | | $ | (0.09 | ) | | $ | (0.01 | ) | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | (0.02 | ) | Net loss per Class T Share-basic and diluted | | $ | (0.17 | ) | | $ | (0.27 | ) | | $ | (0.14 | ) | | $ | (0.09 | ) | | $ | (0.01 | ) | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | (0.02 | ) |
| | Three months ended | | | | March 31, 2017 | | | June 30, 2017 | | | September 30, 2017 | | | December 31, 2017 | | Total revenues | | $ | 17,707,546 | | | $ | 19,076,777 | | | $ | 19,939,512 | | | $ | 19,385,071 | | Total operating expenses | | $ | 18,259,683 | | | $ | 18,085,017 | | | $ | 19,197,777 | | | $ | 16,991,318 | | Operating income (loss) | | $ | (552,137 | ) | | $ | 991,760 | | | $ | 741,735 | | | $ | 2,393,753 | | Net loss | | $ | (5,221,480 | ) | | $ | (3,538,491 | ) | | $ | (3,875,164 | ) | | $ | (2,351,155 | ) | Net loss attributable to common stockholders | | $ | (5,191,114 | ) | | $ | (3,502,661 | ) | | $ | (3,840,775 | ) | | $ | (2,329,515 | ) | Net loss per Class A Share-basic and diluted | | $ | (0.09 | ) | | $ | (0.06 | ) | | $ | (0.07 | ) | | $ | (0.04 | ) | Net loss per Class T Share-basic and diluted | | $ | (0.09 | ) | | $ | (0.06 | ) | | $ | (0.07 | ) | | $ | (0.04 | ) |
STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
| | | | | | | | | | | | | | | | | | | | Three months ended | | | | | March 31, 2015 | | | June 30, 2015 | | | September 30, 2015 | | | December 31, 2015(2) | | Total revenues | | $ | 3,006,780 | | | $ | 4,488,212 | | | $ | 5,053,724 | | | $ | 5,356,983 | | Total operating expenses | | $ | 5,925,633 | | | $ | 5,613,146 | | | $ | 5,989,195 | | | $ | 5,454,605 | | Operating loss | | $ | (2,918,853 | ) | | $ | (1,124,934 | ) | | $ | (935,471 | ) | | $ | (97,622 | ) | Net loss | | $ | (3,580,205 | ) | | $ | (1,990,815 | ) | | $ | (1,854,575 | ) | | $ | (1,511,945 | ) | Net loss attributable to common stockholders | | $ | (4,979,729 | ) | | $ | (4,037,637 | ) | | $ | (3,739,454 | ) | | $ | (2,534,121 | ) | Net loss per Class A Share-basic and diluted | | $ | (2.26 | ) | | $ | (1.36 | ) | | $ | (0.82 | ) | | $ | (0.18 | ) | Net loss per Class T Share-basic and diluted | | $ | — | | | $ | — | | | $ | — | | | $ | (0.18 | ) |
F-34 (1) | Includes a net decrease of approximately $0.3 million of depreciation and amortization expense related to the finalization of purchase price allocations. |
(2) | Includes a net decrease of approximately $500,000 of depreciation and amortization expense related to the finalization of purchase price allocations. |
During 2015 we completed the purchase price allocations for our five properties acquired in 2014 and recognized the adjustments during the fourth quarter measurement period in 2015. These adjustments had the aggregate impact of increasing our allocation to land by approximately $1.2 million and site improvements by approximately $140,000, with reductions to buildings and intangible assets of approximately $380,000 and $960,000 respectively. The impact of such reclassifications was that we recognized measurement period adjustments during the fourth quarter of 2015 to our consolidated statement of operations, which had the net impact of an increase to depreciation expense of approximately $2,000 and a decrease to intangible amortization expense of approximately $180,000. During 2015, we also completed the purchase price allocations for the properties acquired during the first and second quarters of 2015 and recognized adjustments during the fourth quarter measurement period, which had the aggregate impact of increasing our allocation to land by approximately $1.2 million, building by approximately $4.2 million, and site improvements by approximately $0.7 million, with reductions to intangible assets of approximately $6.1 million. The impact of such reclassifications was that we recognized measurement period adjustments during the fourth quarter of 2015 to our consolidated statement of operations, which had the net impact of an increase to depreciation expense of approximately $130,000 and a decrease to intangible amortization expense of approximately $450,000.
As discussed in Note 3, during 2016 we completed the purchase price allocations for our Foley, AL and Tampa, FL properties acquired in 2015 and 33 properties acquired in 2016 and recognized the measurement period adjustments in our consolidated statement of operations during the fourth quarter of 2016. If such measurement period adjustments were retroactively recorded they would have had the net impact of increasing depreciation expense by approximately $400, and $3,000 for the third and fourth quarters of 2015, respectively, and decreasing depreciation expense by approximately $9,000, $9,000, and $10,000 for the first, second, and third quarters of 2016, respectively. Intangible amortization expense would have had the net impact of increasing by approximately $2,000 and $8,000 for the third and fourth quarters of 2015, respectively, and decreasing amortization expense by approximately $40,000, $120,000, and $130,000 for the first, second, and third quarters of 2016, respectively. However, with the adoption of amended accounting guidance, the cumulative measurement period adjustments were recorded in the fourth quarter of 2016.
Note 11. Subsequent Events DividendDistribution Declaration
On March 21, 2017,18, 2019, our board of directors declared a distribution rate for the second quarter of 20172019 of $0.00164383561$0.001644 per day per share on the outstanding shares of common stock payable to both Class A and Class T stockholders of record of such shares as shown on our books at the close of business on each day during the period, commencing on April 1, 20172019 and continuing on each day thereafter through and including June 30, 2017.2019. In connection with this distribution, after the stockholder servicing fee is paid, approximately $0.0014 per day will be paid per Class T share. Such distributions payable to each stockholder of record during a month will be paid the following month. STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
Acquisitions
Acquisition of Aurora II PropertyMerger with Strategic Storage Growth Trust, Inc.
On January 11, 2017,October 1, 2018, we, closed on a self storage facility located in Aurora, Colorado (the “Auroraour Operating Partnership, and SST II Property”). We acquired the Aurora II Property from an unaffiliated third party for a purchase price of approximately $10.1 million, plus closing costs and acquisition fees. Our Advisor earned approximately $0.2 million in acquisition fees in connection with this acquisition. We financed the acquisition of the Aurora II Property with net proceeds fromGrowth Acquisition, LLC, our Offering. Toronto Five Property Portfolio wholly-owned subsidiary (“Merger
On February 1, 2017 we Sub”), entered into a definitivean Agreement and Plan of Merger (the “Toronto“SSGT Merger Agreement”) pursuant to which SST II Toronto Acquisition, LLCwith Strategic Storage Growth Trust, Inc. (“Toronto Merger Sub”SSGT”), a wholly ownednon-traded REIT sponsored by our Sponsor, and newly formed subsidiarySS Growth Operating Partnership, L.P. (“SSGT OP”). Pursuant to the terms and conditions set forth in the SSGT Merger Agreement, on January 24, 2019: (i) we acquired SSGT by way of a merger of SSGT with and into Merger Sub, with Merger Sub being the surviving entity (the “SSGT REIT Merger”); and (ii) immediately after the SSGT REIT Merger, SSGT OP merged with and into our Operating Partnership, merged (the “Toronto Merger”) with the Operating Partnership continuing as the surviving entity and into Strategic Storage Toronto Properties REIT, Inc. (“SS Toronto”), with SS Toronto surviving the Toronto Merger and becomingremaining a wholly owned subsidiary of our Operating Partnership. In connectionthe Company (the “SSGT Partnership Merger” and, together with the TorontoSSGT REIT Merger, we acquired five self storage properties located in the Greater Toronto Areas of North York, Mississauga, Brampton, Pickering and Scarborough. Each property is operated under the “SmartStop” brand.“SSGT Mergers”).
At the effective time of the TorontoSSGT REIT Merger (the “Toronto“SSGT REIT Merger Effective Time”), each share of SSGT common stock, $0.001 par value $0.001 per share of SS Toronto issued and(the “SSGT Common Stock”), outstanding immediately prior to the TorontoSSGT REIT Merger Effective Time (other than shares owned by SSGT and its subsidiaries or us and our subsidiaries) was automatically converted into the right to receive $11.0651 USDan amount in cash equal to $12.00, without interest and 0.7311 Class A Unitsless any applicable withholding taxes (the “SSGT Merger Consideration”), which represents a total purchase price of approximately $350 million (which includes outstanding debt of SSGT of approximately $19.2 million that was repaid at closing, and approximately $5.0 million of debt assumed, excluding transaction costs). Immediately prior to the SSGT REIT Merger Effective Time, all shares of SSGT Common Stock that were subject to vesting and other restrictions also became fully vested and converted into the right to receive the SSGT Merger Consideration upon the SSGT REIT Merger. At the effective time of the SSGT Partnership Merger, each outstanding unit of partnership interest in SSGT OP was converted automatically into 1.127 units of partnership interest in our Operating Partnership (the “Toronto Merger Consideration”). We paid an aggregatePartnership. As a result of approximately $7.3 million USD in cash consideration and issued an aggregatethe SSGT Mergers, we acquired all of approximately 483,197 Class A Units of our Operating Partnership (the “Equity Consideration”) to the common stockholders of SS Toronto,real estate owned by SSGT, consisting of Strategic 1031, LLC,28 operating self storage facilities located in 10 states and in the Greater Toronto, Canada area, and one development property in the Greater Toronto Area. Additionally, we obtained the rights to acquire a subsidiaryself storage facility currently under development located in Gilbert, Arizona that was previously under contract with SSGT. We expect the acquisition to close in the second quarter of SmartStop Asset Management, LLC, our Sponsor,2019 after the construction is complete and SS Toronto REIT Advisors, Inc.a certificate of occupancy has been issued On January 24, 2019, we, through certain wholly-owned special purpose entities, entered into various financings (defined below), an affiliate of our Sponsor.as follows: In connection with the Toronto Merger,
Merger Financings | | Principal Borrowing as of Merger Date | | | Interest Rate | | | | Maturity Date | CMBS SASB Loan | | $ | 235,000,000 | | | | 5.5 | % | (1) | | 2/9/2022 | CMBS Loan | | | 104,000,000 | | | | 5.0 | % | (2) | | 2/1/2029 | Secured Loan | | | 89,178,000 | | | | 5.1 | % | (1) | | 1/24/2022 | Senior Term Loan | | | 72,000,000 | | | | 6.85 | % | (1) | | 1/24/2022 | Total | | $ | 500,178,000 | | | | | | | | |
(1) | Interest rate shown for this variable rate loan is the rate in effect as of January 24, 2019. |
(2) | Fixed rate debt with interest only payments. |
F-35
As described above, we entered into guarantees, dated as of February 1, 2017these financings (the “Guarantees”“SSGT Merger Financings”), under which we agreed to guarantee certain obligations of SS Toronto in for an aggregate amount upinitial draw of approximately $500.2 million. The proceeds from such SSGT Merger Financings were primarily used to $52.5facilitate the SSGT Mergers as described, including the payment of the SSGT Merger Consideration and the repayment, in full, of certain of our debt, as follows: Merger Financings | | Principal Repaid | | | Original Maturity Date | Raleigh/Myrtle Beach promissory note | | $ | 11,862,471 | | | 9/1/2023 | Amended KeyBank Credit Facility | | | 98,782,500 | | | 2/1/2029 | Oakland and Concord loan | | | 19,443,753 | | | 4/10/2023 | $11M KeyBank Subordinate Loan | | | 11,000,000 | | | 6/1/2020 | Total | | $ | 141,088,724 | | | |
CMBS SASB Loan This loan is a $235 million CADcommercial mortgage-backed securities (“CMBS”), single-asset/single-borrower (“SASB”) financing (the “SS Toronto Loans”“CMBS SASB Loan”) with KeyBank, National Association (“KeyBank”) and Citi Real Estate Funding Inc. or its affiliates (“Citibank”), with approximately $50.1 million CAD outstanding as lender (together, the “CMBS SASB Lenders”), comprised of February 1, 2017. The SS Toronto Loans consist of (i)(A) a termmortgage loan in the amount of $34.8$180 million CAD pursuant to(the “CMBS SASB Mortgage Loan”) and (B) a promissory note executed by SS Toronto in favor of Bank of Montreal on June 3, 2016, and (ii) mortgage financingsmezzanine loan in the aggregate amount of up to $17.7$55 million CAD pursuant to(the “CMBS SASB Mezzanine Loan”). The CMBS SASB Mortgage Loan is secured by a first mortgage or deed of trust on each of 29 wholly owned properties (the “CMBS SASB Properties”), and the CMBS SASB Mezzanine Loan is secured by a pledge of the equity interests in the 29 special purpose entities that own the CMBS SASB Properties. Each loan has a maturity date of February 9, 2022, which may, in certain circumstances, be extended at the option of the respective borrower for two promissory notes executed by subsidiariesconsecutive terms of SS Torontoone year each, as set forth in favor of DUCA Financial Services Credit Union Ltd. on June 3, 2016. In addition, on February 1, 2017, we paid approximately $33.1 million USD to an affiliate of Extra Space Storage, Inc. as repayment of outstanding debt and accrued interest owed by SS Toronto. Debt Refinancing
Amended KeyBank Credit Facility
In connectionthe respective loan agreement (collectively, the “CMBS SASB Loan Agreements”). Monthly payments due under the CMBS SASB Loan Agreements are interest-only, with the Toronto Merger, we borrowed approximately $30 millionfull principal amount becoming due and payable on the Amended KeyBank Credit Facility. On March 8, 2017 we removed five of the properties held as collateral (Plantation, Wellington, Naples, Port St. Lucie II, and Doral) under the Amended KeyBank Property Loan and added them to the Amended KeyBank Credit Facility. In conjunction with adding these five properties to the Amended KeyBank Credit Facility, we borrowed $56 million which was used to pay down approximately $46 million of principal on the Amended KeyBank Property Loan and the remaining outstanding principal balance on the Amended Subordinate Loan of $10 million. As of March 31, 2017, we had approximately $98.3 million in borrowingsrespective maturity date.
The amounts outstanding under the Amended KeyBank Credit Facility. STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016, 2015, and 2014
Foreign Currency Hedging Activity
DuringCMBS SASB Loan Agreements bear interest at an annual rate equal to LIBOR (approximately 2.5% as of January 24, 2019) plus 3%. In addition, pursuant to the first quarterrequirements of 2016, we entered into a foreign currency forward contract (the “First FX Hedge”) in orderthe CMBS SASB Loan Agreements: (a) the borrower with respect to hedge foreign currency exposure related to our investment in subsidiaries that hold properties we acquired in Canada. The forward contract hadthe CMBS SASB Mortgage Loan has purchased an interest rate cap with a notional amount of $42.5$180 million, CAD, a durationwith an effective date of 12 months,January 24, 2019, whereby LIBOR is capped at 3% through February 15, 2022 and a forward rate of approximately 1.3392.
We entered into a second foreign currency hedge (the “Second FX Hedge”) on February 1, 2017 to hedge our net investment related(b) the borrower with respect to the Toronto Merger. The Second FX Hedge hadCMBS SASB Mezzanine Loan has purchased an interest rate cap with a notional amount of $58.5$55 million, CAD,with an effective date of January 24, 2019, whereby LIBOR is capped at 3% through February 15, 2022. None of the CMBS SASB Loan may be prepaid, in whole or in part, without satisfying certain conditions as set forth in the respective CMBS SASB Loan Agreements, such as the payment of a durationspread maintenance premium if the prepayment is made within the first two years. Thereafter the CMBS SASB Loan may be prepaid in whole or in part at par without penalty.
The loan documents for the CMBS SASB Loan contain: customary affirmative, negative and financial covenants; agreements; representations; warranties and borrowing conditions; reserve requirements and events of 37 days,default all as set forth in such loan documents. In addition, and pursuant to the terms of the limited recourse guaranties, with respect to the CMBS SASB Mortgage Loan (the “CMBS SASB Mortgage Loan Guaranty”), and with respect to the CMBS SASB Mezzanine Loan (the “CMBS SASB Mezzanine Loan Guaranty” and collectively the “CMBS SASB Guarantees”), each dated January 24, 2019, in favor of the CMBS SASB Lenders, the Company serves as a forwardnon-recourse guarantor with respect to each of the CMBS SASB Mortgage Loan and the CMBS SASB Mezzanine Loan and is subject to certain net worth and liquidity requirements, each as described in the CMBS SASB Guarantees. CMBS Loan The CMBS loan is a $104 million CMBS financing with KeyBank as lender (the “CMBS Lender”) pursuant to a mortgage loan (the “CMBS Loan”), and is secured by a first mortgage or deed of trust on each of 10 wholly owned properties. The loan has a maturity date of February 1, 2029. Monthly payments due under the loan agreement (the “CMBS Loan Agreement”) are interest-only, with the full principal amount becoming due and payable on the maturity date. F-36
The amounts outstanding under the CMBS Loan bear interest at an annual fixed rate equal to 5%. Commencing two years after securitization, the CMBS Loan may be defeased in whole, but not in part, subject to certain conditions as set forth in the CMBS Loan Agreement. The loan documents for the CMBS Loan contain: customary affirmative, negative and financial covenants; agreements; representations; warranties and borrowing conditions; reserve requirements and events of default all as set forth in such loan documents. In addition, and pursuant to the terms of the limited recourse guaranty dated January 24, 2019, in favor of the CMBS Lender, the Company serves as a non-recourse guarantor with respect to the CMBS Loan. Secured Loan This represents secured financing with KeyBank, Fifth Third Bank (“Fifth Third”), and SunTrust Bank (“SunTrust”) as equal co-lenders (the “Secured Lenders”) for an amount up to approximately $96.4 million pursuant to a mortgage loan (the “Secured Loan”). The Secured Loan is secured by a first mortgage or deed of trust on each of 16 wholly owned properties. An additional property will be mortgaged upon its anticipated acquisition later this year, subject to the terms of the loan agreement (the “Secured Loan Agreement”) and we will have the right to draw an additional approximately $5.7 million. The loan has a maturity date of January 24, 2022, which may, in certain circumstances, be extended at the option of the borrower for one additional term equal to one year, as set forth in the Secured Loan Agreement. Monthly payments due under the Secured Loan Agreement are interest-only, with the full principal amount becoming due and payable on the maturity date. On January 24, 2019, an initial borrowing of approximately 1.3058.$89.2 million was made under the Secured Loan. In general, the amounts outstanding under the Secured Loan Agreement bear interest at an annual rate equal to LIBOR plus 2.5%. On January 24, 2019, the borrowers entered into an interest rate swap arrangement with a notional amount of approximately $89.2 million, such that LIBOR is fixed at approximately 2.6% until August 1, 2020, resulting in an annual interest rate equal to approximately 5.1%. The Secured Loan may be prepaid at any time, subject to certain conditions as set forth in the Secured Loan Agreement. The loan documents for the Secured Loan contain: customary affirmative, negative and financial covenants; agreements; representations; warranties and borrowing conditions; reserve requirements and events of default all as set forth in such loan documents. In particular, the Secured Loan Agreement imposes certain requirements on the Company such as a total leverage ratio, tangible net worth and liquidity requirements, fixed charge coverage ratios and limits on the amount of unhedged variable rate debt exposure. In addition, and pursuant to the terms of the full recourse guaranty (the “Secured Loan Guaranty”), dated January 24, 2019, in favor of the Secured Lenders, we, along with our Operating Partnership serve as full recourse guarantors with respect to the Secured Loan. Senior Term Loan We along with our Operating Partnership entered into a financing for an amount up to $87.7 million with KeyBank and SunTrust, as co-lenders (the “Senior Term Lenders”), pursuant to a senior term loan (the “Senior Term Loan”). The Senior Term Loan is secured by a pledge of 49% of the equity interests in our property-owning special purpose entities, other than those that own the CMBS SASB Properties. The net proceeds from certain capital events (after payment of transaction costs) must be applied to repayment of the Senior Term Loan, except in certain transactions whereby up to $50 million in equity issuances by us and our Operating Partnership may be excluded (the “Capital Event Net Proceeds”). In addition, the Senior Term Loan is secured by a pledge of the Capital Event Net Proceeds. The Senior Term Loan was made pursuant to a loan agreement with a maturity date of January 24, 2022 (the “Senior Term Loan Agreement”). Monthly payments due under the Senior Term Loan Agreement are interest-only, with the full principal amount becoming due and payable on the maturity date. On January 24, 2019, an initial borrowing of $72.0 million was made under the Senior Term Loan and we have the right to draw an additional $15.7 million as set forth in the Senior Term Loan Agreement. In general, the amounts outstanding under the Senior Term Loan Agreement bear interest at an annual rate equal to LIBOR plus 4.25%. On January 24, 2019, we entered into an interest rate swap arrangement with a notional amount of $72 million, such that LIBOR is fixed at approximately 2.6% until August 1, 2020, resulting in an annual interest rate equal to approximately 6.85%. The Senior Term Loan may be prepaid at any time, subject to certain conditions as set forth in the Senior Term Loan Agreement. F-37
The loan documents for the Senior Term Loan contain: customary affirmative, negative and financial covenants; agreements; representations; warranties and borrowing conditions; reserve requirements and events of default all as set forth in such loan documents. In particular, the Senior Loan Agreement imposes certain requirements such as a total leverage ratio, tangible net worth and liquidity requirements, fixed charge coverage ratios and limits on the amount of unhedged variable rate debt exposure. The Senior Term Loan is fully recourse to us and our Operating Partnership. Property Manager The properties that we acquired in the SSGT Mergers will continue to be operated by SS Growth Property Management, LLC, which is 100% owned by our Sponsor (the “GT Property Manager”) and is an affiliate of our Property Manager. The property management agreements in place for such properties are on substantially similar terms as the property management agreements in place with our Property Manager. In addition, SSGT and the GT Property Manager had a joint venture in place with respect to the tenant insurance on substantially similar terms as our TI Joint Venture (the “GT TI Joint Venture”). As a result of the SSGT Mergers, we will derive a benefit from the GT TI Joint Venture in the same way as our TI Joint Venture. Foreign Currency Hedging Activity On March 8, 2017January 25, 2019, we settled the First FX Hedge and Second FX Hedgeour foreign currency forward contract which resulted in us receiving a net settlement of approximately $1.4$2.1 million. In conjunction with the settlement, we entered into a third forward contract (the “Third FX Hedge”) to continue hedging ournew foreign currency exposure related to our Canadian properties.forward contract. The Third FX Hedgenew foreign currency forward contract has a notional amount of $101$95 million CAD, a durationmaturity date of approximately six months,December 20, 2019, and a forward rate of approximately 1.3439.1.3173. Storage Auction ProgramPotential Sale of San Antonio II Property
In MarchOn February 5, 2019, we executed a purchase and sale agreement (the “San Antonio II Sale Agreement”) with an unaffiliated third party (the “Buyer”) for the sale of 2017, our Sponsor acquired a minority interest in a company (the “Auction Company”) that serves as a web portal for self storage companies to post their auctionsfacility and industrial warehouse/office space we own in San Antonio, Texas (the “San Antonio II Property”). The San Antonio II Property was acquired by us in the SSGT Merger.
The sale price for the contentsSan Antonio II Property is approximately $16.1 million, less closing costs. The Buyer made a deposit of abandoned storage units online instead$100,000 in connection with the execution of using live auctions conducted at the self storage facilities.San Antonio II Sale Agreement. The Auction CompanySan Antonio II Sale Agreement provides for a due diligence period of approximately three months during which the Buyer may terminate the San Antonio II Sale Agreement (with a full return of the earnest money), for any reason. The current outside closing date is expectedduring the second half of 2019, although such closing may occur earlier upon satisfaction of certain conditions. The San Antonio II Sale Agreement is subject to receive a service fee for such services. Oursub-property manager in the future may utilize the Auction Company at our properties,various contingencies and we would be responsible for paying any fees related to our properties. Our properties would receive the proceeds from such online auctions.cannot provide assurance whether or when this transaction will occur. Closedown of Offering
On January 9, 2017, our Primary Offering terminated. In preparation for the termination of our Primary Offering, on November 30, 2016, we filed with the SEC a Registration Statement on FormS-3, which incorporated our distribution reinvestment plan and registered up to an additional $100.9 million in shares under our DRP Offering. The DRP Offering may be terminated at any time upon 10 days’ prior written notice to stockholders.
Distribution Reinvestment Plan Offering Status As of March 23, 2017,22, 2019, in connection with our Primary Offering which terminated on January 9, 2017, and our DRP Offering, we had issued approximately 483.0 million Class A sharesShares of our common stock and approximately 70.5 million Class T Shares of our common stock for gross proceeds of approximately $495$31.3 million and approximately $73$4.8 million, respectively. F-38
STRATEGIC STORAGE TRUST II, INC. AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 20162018 | | | | | | Initial Cost to Company | | Gross Carrying Amount at December 31, 2016 | | | | | | | | | Initial Cost to Company | | | Gross Carrying Amount at December 31, 2018 | | | | | | Description | | ST | | Encumbrance | | Land | | Building and
Improvements | | Total | | Cost Capitalized
Subsequent to
Acquisition | | Land | | Building and
Improvements | |
Total | | Accumulated
Depreciation | | Date of
Construction | | Date
Acquired | | ST | | Encumbrance | | | Land | | | Building and Improvements | | | Total | | | Cost Capitalized Subsequent to Acquisition | | | Land | | | Building and Improvements | | | Total(1) | | | Accumulated Depreciation | | | Date of Construction | | Date Acquired | Morrisville | | NC | | $ | 1,181,939 | | | $ | 531,000 | | | $ | 1,891,000 | | | $ | 2,422,000 | | | $ | 103,091 | | | $ | 531,000 | | | $ | 1,994,091 | | | $ | 2,525,091 | | | $ | 154,976 | | | 2004 | | 11/3/2014 | | NC | | $ | 1,144,827 | | | $ | 531,000 | | | $ | 1,891,000 | | | $ | 2,422,000 | | | $ | 111,669 | | | $ | 531,000 | | | $ | 2,002,669 | | | $ | 2,533,669 | | | $ | 322,028 | | | 2004 | | 11/3/2014 | Cary | | NC | | 2,535,910 | | | 1,064,000 | | | 3,301,000 | | | 4,365,000 | | | 72,004 | | | 1,064,000 | | | 3,373,004 | | | 4,437,004 | | | 266,247 | | | 1998/2005/
2006 | | 11/3/2014 | | NC | | | 2,456,293 | | | | 1,064,000 | | | | 3,301,000 | | | | 4,365,000 | | | | 98,853 | | | | 1,064,000 | | | | 3,399,853 | | | | 4,463,853 | | | | 520,480 | | | 1998/2005/2006 | | 11/3/2014 | Raleigh | | NC | | 2,175,218 | | | 1,186,000 | | | 2,540,000 | | | 3,726,000 | | | 130,098 | | | 1,186,000 | | | 2,670,098 | | | 3,856,098 | | | 243,341 | | | 1999 | | 11/3/2014 | | NC | | | 2,106,920 | | | | 1,186,000 | | | | 2,540,000 | | | | 3,726,000 | | | | 156,961 | | | | 1,186,000 | | | | 2,696,961 | | | | 3,882,961 | | | | 489,525 | | | 1999 | | 11/3/2014 | Myrtle Beach I | | SC | | 3,296,127 | | | 1,482,000 | | | 4,476,000 | | | 5,958,000 | | | 155,728 | | | 1,482,000 | | | 4,631,728 | | | 6,113,728 | | | 379,548 | | | 1998/2005-
2007 | | 11/3/2014 | | SC | | | 3,192,639 | | | | 1,482,000 | | | | 4,476,000 | | | | 5,958,000 | | | | 211,345 | | | | 1,482,000 | | | | 4,687,345 | | | | 6,169,345 | | | | 754,592 | | | 1998/2005-2007 | | 11/3/2014 | Myrtle Beach II | | SC | | 3,074,197 | | | 1,690,000 | | | 3,654,000 | | | 5,344,000 | | | 131,140 | | | 1,690,000 | | | 3,785,140 | | | 5,475,140 | | | 316,662 | | | 1999/2006 | | 11/3/2014 | | SC | | | 2,977,717 | | | | 1,690,000 | | | | 3,654,000 | | | | 5,344,000 | | | | 159,139 | | | | 1,690,000 | | | | 3,813,139 | | | | 5,503,139 | | | | 632,911 | | | 1999/2006 | | 11/3/2014 | Whittier | | CA | | 4,602,761 | | | 2,730,000 | | | 2,916,875 | | | 5,646,875 | | | 171,393 | | | 2,730,000 | | | 3,088,268 | | | 5,818,268 | | | 242,584 | | | 1989 | | 2/19/2015 | | CA | | | 4,979,473 | | | | 2,730,000 | | | | 2,916,875 | | | | 5,646,875 | | | | 217,322 | | | | 2,730,000 | | | | 3,134,197 | | | | 5,864,197 | | | | 529,889 | | | 1989 | | 2/19/2015 | La Verne | | CA | | 3,167,492 | | | 1,950,000 | | | 2,036,875 | | | 3,986,875 | | | 180,871 | | | 1,950,000 | | | 2,217,746 | | | 4,167,746 | | | 182,661 | | | 1986 | | 1/23/2015 | | CA | | | 3,415,843 | | | | 1,950,000 | | | | 2,036,875 | | | | 3,986,875 | | | | 242,697 | | | | 1,950,000 | | | | 2,279,572 | | | | 4,229,572 | | | | 395,844 | | | 1986 | | 1/23/2015 | Santa Ana | | CA | | 5,196,666 | | | 4,890,000 | | | 4,006,875 | | | 8,896,875 | | | 173,634 | | | 4,890,000 | | | 4,180,509 | | | 9,070,509 | | | 339,950 | | | 1978 | | 2/5/2015 | | CA | | | 5,648,721 | | | | 4,890,000 | | | | 4,006,875 | | | | 8,896,875 | | | | 204,137 | | | | 4,890,000 | | | | 4,211,012 | | | | 9,101,012 | | | | 724,284 | | | 1978 | | 2/5/2015 | Upland | | CA | | 3,612,920 | | | 2,950,000 | | | 3,016,875 | | | 5,966,875 | | | 214,148 | | | 2,950,000 | | | 3,231,023 | | | 6,181,023 | | | 263,782 | | | 1979 | | 1/29/2015 | | CA | | | 3,919,871 | | | | 2,950,000 | | | | 3,016,875 | | | | 5,966,875 | | | | 319,527 | | | | 2,950,000 | | | | 3,336,402 | | | | 6,286,402 | | | | 580,123 | | | 1979 | | 1/29/2015 | La Habra | | CA | | 3,662,412 | | | 2,060,000 | | | 2,356,875 | | | 4,416,875 | | | 122,720 | | | 2,060,000 | | | 2,479,595 | | | 4,539,595 | | | 182,043 | | | 1981 | | 2/5/2015 | | CA | | | 3,955,410 | | | | 2,060,000 | | | | 2,356,875 | | | | 4,416,875 | | | | 146,324 | | | | 2,060,000 | | | | 2,503,199 | | | | 4,563,199 | | | | 396,558 | | | 1981 | | 2/5/2015 | Monterey Park | | CA | | 2,573,587 | | | 2,020,000 | | | 2,216,875 | | | 4,236,875 | | | 187,914 | | | 2,020,000 | | | 2,404,789 | | | 4,424,789 | | | 163,042 | | | 1987 | | 2/5/2015 | | CA | | | 2,810,776 | | | | 2,020,000 | | | | 2,216,875 | | | | 4,236,875 | | | | 197,205 | | | | 2,020,000 | | | | 2,414,080 | | | | 4,434,080 | | | | 376,344 | | | 1987 | | 2/5/2015 | Huntington Beach | | CA | | 6,978,379 | | | 5,460,000 | | | 4,856,875 | | | 10,316,875 | | | 123,998 | | | 5,460,000 | | | 4,980,873 | | | 10,440,873 | | | 385,150 | | | 1986 | | 2/5/2015 | | CA | | | 7,542,052 | | | | 5,460,000 | | | | 4,856,875 | | | | 10,316,875 | | | | 266,705 | | | | 5,460,000 | | | | 5,123,580 | | | | 10,583,580 | | | | 809,144 | | | 1986 | | 2/5/2015 | Chico | | CA | | 1,163,063 | | | 400,000 | | | 1,336,875 | | | 1,736,875 | | | 171,497 | | | 400,000 | | | 1,508,372 | | | 1,908,372 | | | 108,547 | | | 1984 | | 1/23/2015 | | CA | | | 1,266,310 | | | | 400,000 | | | | 1,336,875 | | | | 1,736,875 | | | | 220,555 | | | | 400,000 | | | | 1,557,430 | | | | 1,957,430 | | | | 260,182 | | | 1984 | | 1/23/2015 | Lancaster | | CA | | 1,682,730 | | | 200,000 | | | 1,516,875 | | | 1,716,875 | | | 221,423 | | | 200,000 | | | 1,738,298 | | | 1,938,298 | | | 145,071 | | | 1980 | | 1/29/2015 | | CA | | | 1,841,786 | | | | 200,000 | | | | 1,516,875 | | | | 1,716,875 | | | | 306,462 | | | | 200,000 | | | | 1,823,337 | | | | 2,023,337 | | | | 326,770 | | | 1980 | | 1/29/2015 | Riverside | | CA | | 2,326,127 | | | 370,000 | | | 2,326,875 | | | 2,696,875 | | | 284,031 | | | 370,000 | | | 2,610,906 | | | 2,980,906 | | | 184,777 | | | 1985 | | 1/23/2015 | | CA | | | 2,524,250 | | | | 370,000 | | | | 2,326,875 | | | | 2,696,875 | | | | 309,957 | | | | 370,000 | | | | 2,636,832 | | | | 3,006,832 | | | | 422,937 | | | 1985 | | 1/23/2015 | Fairfield | | CA | | 2,746,809 | | | 730,000 | | | 2,946,875 | | | 3,676,875 | | | 76,326 | | | 730,000 | | | 3,023,201 | | | 3,753,201 | | | 233,869 | | | 1984 | | 1/23/2015 | | CA | | | 2,983,998 | | | | 730,000 | | | | 2,946,875 | | | | 3,676,875 | | | | 89,177 | | | | 730,000 | | | | 3,036,052 | | | | 3,766,052 | | | | 488,508 | | | 1984 | | 1/23/2015 | Lompoc | | CA | | 2,821,047 | | | 1,000,000 | | | 2,746,875 | | | 3,746,875 | | | 95,400 | | | 1,000,000 | | | 2,842,275 | | | 3,842,275 | | | 214,257 | | | 1982 | | 2/5/2015 | | CA | | | 3,016,379 | | | | 1,000,000 | | | | 2,746,875 | | | | 3,746,875 | | | | 106,087 | | | | 1,000,000 | | | | 2,852,962 | | | | 3,852,962 | | | | 453,629 | | | 1982 | | 2/5/2015 | Santa Rosa | | CA | | 7,324,823 | | | 3,150,000 | | | 6,716,875 | | | 9,866,875 | | | 97,165 | | | 3,150,000 | | | 6,814,040 | | | 9,964,040 | | | 530,905 | | | 1979-1981 | | 1/29/2015 | | CA | | | 7,941,515 | | | | 3,150,000 | | | | 6,716,875 | | | | 9,866,875 | | | | 187,216 | | | | 3,150,000 | | | | 6,904,091 | | | | 10,054,091 | | | | 1,098,855 | | | 1979-1981 | | 1/29/2015 | Vallejo | | CA | | 627,392 | | | 990,000 | | | 3,946,875 | | | 4,936,875 | | | 122,690 | | | 990,000 | | | 4,069,565 | | | 5,059,565 | | | 314,761 | | | 1981 | | 1/29/2015 | | CA | | | 2,775,764 | | | | 990,000 | | | | 3,946,875 | | | | 4,936,875 | | | | 148,563 | | | | 990,000 | | | | 4,095,438 | | | | 5,085,438 | | | | 653,024 | | | 1981 | | 1/29/2015 | Federal Heights | | CO | | 2,375,619 | | | 1,100,000 | | | 3,346,875 | | | 4,446,875 | | | 118,897 | | | 1,100,000 | | | 3,465,772 | | | 4,565,772 | | | 300,984 | | | 1983 | | 1/29/2015 | | CO | | | 2,565,370 | | | | 1,100,000 | | | | 3,346,875 | | | | 4,446,875 | | | | 242,498 | | | | 1,100,000 | | | | 3,589,373 | | | | 4,689,373 | | | | 645,219 | | | 1983 | | 1/29/2015 | Aurora | | CO | | 4,800,729 | | | 810,000 | | | 5,906,875 | | | 6,716,875 | | | 135,408 | | | 810,000 | | | 6,042,283 | | | 6,852,283 | | | 454,630 | | | 1984 | | 2/5/2015 | | CO | | | 5,152,327 | | | | 810,000 | | | | 5,906,875 | | | | 6,716,875 | | | | 359,669 | | | | 810,000 | | | | 6,266,544 | | | | 7,076,544 | | | | 970,790 | | | 1984 | | 2/5/2015 | Littleton | | CO | | 2,177,650 | | | 1,680,000 | | | 2,456,875 | | | 4,136,875 | | | 96,736 | | | 1,680,000 | | | 2,553,611 | | | 4,233,611 | | | 202,816 | | | 1985 | | 1/23/2015 | | CO | | | 2,286,478 | | | | 1,680,000 | | | | 2,456,875 | | | | 4,136,875 | | | | 212,906 | | | | 1,680,000 | | | | 2,669,781 | | | | 4,349,781 | | | | 439,666 | | | 1985 | | 1/23/2015 | Bloomingdale | | IL | | 2,375,619 | | | 810,000 | | | 3,856,874 | | | 4,666,874 | | | 253,318 | | | 810,000 | | | 4,110,192 | | | 4,920,192 | | | 290,712 | | | 1987 | | 2/19/2015 | | IL | | | 2,551,418 | | | | 810,000 | | | | 3,856,874 | | | | 4,666,874 | | | | 288,940 | | | | 810,000 | | | | 4,145,814 | | | | 4,955,814 | | | | 633,459 | | | 1987 | | 2/19/2015 | Crestwood | | IL | | 1,633,238 | | | 250,000 | | | 2,096,875 | | | 2,346,875 | | | 218,355 | | | 250,000 | | | 2,315,230 | | | 2,565,230 | | | 173,260 | | | 1987 | | 1/23/2015 | | IL | | | 1,719,742 | | | | 250,000 | | | | 2,096,875 | | | | 2,346,875 | | | | 264,444 | | | | 250,000 | | | | 2,361,319 | | | | 2,611,319 | | | | 388,300 | | | 1987 | | 1/23/2015 | Forestville | | MD | | 3,464,444 | | | 1,940,000 | | | 4,346,875 | | | 6,286,875 | | | 623,564 | | | 1,940,000 | | | 4,970,439 | | | 6,910,439 | | | 408,657 | | | 1988 | | 1/23/2015 | | MD | | | 3,757,442 | | | | 1,940,000 | | | | 4,346,875 | | | | 6,286,875 | | | | 666,261 | | | | 1,940,000 | | | | 5,013,136 | | | | 6,953,136 | | | | 913,779 | | | 1988 | | 1/23/2015 | Warren I | | MI | | 1,954,936 | | | 230,000 | | | 2,966,875 | | | 3,196,875 | | | 280,939 | | | 230,000 | | | 3,247,814 | | | 3,477,814 | | | 205,359 | | | 1996 | | 5/8/2015 | | MI | | | 2,119,573 | | | | 230,000 | | | | 2,966,875 | | | | 3,196,875 | | | | 394,874 | | | | 230,000 | | | | 3,361,749 | | | | 3,591,749 | | | | 504,476 | | | 1996 | | 5/8/2015 | Sterling Heights | | MI | | 2,301,381 | | | 250,000 | | | 3,286,875 | | | 3,536,875 | | | 536,813 | | | 250,000 | | | 3,823,688 | | | 4,073,688 | | | 212,378 | | | 1977 | | 5/21/2015 | | MI | | | 2,491,132 | | | | 250,000 | | | | 3,286,875 | | | | 3,536,875 | | | | 686,396 | | | | 250,000 | | | | 3,973,271 | | | | 4,223,271 | | | | 557,880 | | | 1977 | | 5/21/2015 | Troy | | MI | | 3,414,952 | | | 240,000 | | | 4,176,875 | | | 4,416,875 | | | 141,789 | | | 240,000 | | | 4,318,664 | | | 4,558,664 | | | 315,168 | | | 1988 | | 5/8/2015 | | MI | | | 3,654,932 | | | | 240,000 | | | | 4,176,875 | | | | 4,416,875 | | | | 170,044 | | | | 240,000 | | | | 4,346,919 | | | | 4,586,919 | | | | 650,804 | | | 1988 | | 5/8/2015 | Warren II | | MI | | 2,251,889 | | | 240,000 | | | 3,066,875 | | | 3,306,875 | | | 589,359 | | | 240,000 | | | 3,656,234 | | | 3,896,234 | | | 229,933 | | | 1987 | | 5/8/2015 | | MI | | | 2,438,850 | | | | 240,000 | | | | 3,066,875 | | | | 3,306,875 | | | | 646,847 | | | | 240,000 | | | | 3,713,722 | | | | 3,953,722 | | | | 572,537 | | | 1987 | | 5/8/2015 | Beverly | | NJ | | 1,385,778 | | | 400,000 | | | 1,696,875 | | | 2,096,875 | | | 158,583 | | | 400,000 | | | 1,855,458 | | | 2,255,458 | | | 105,504 | | | 1988 | | 5/28/2015 | | NJ | | | 1,530,882 | | | | 400,000 | | | | 1,696,875 | | | | 2,096,875 | | | | 174,938 | | | | 400,000 | | | | 1,871,813 | | | | 2,271,813 | | | | 261,779 | | | 1988 | | 5/28/2015 | Everett | | WA | | 2,722,063 | | | 2,010,000 | | | 2,956,875 | | | 4,966,875 | | | 491,454 | | | 2,010,000 | | | 3,448,329 | | | 5,458,329 | | | 222,592 | | | 1986 | | 2/5/2015 | | WA | | | 2,978,785 | | | | 2,010,000 | | | | 2,956,875 | | | | 4,966,875 | | | | 517,609 | | | | 2,010,000 | | | | 3,474,484 | | | | 5,484,484 | | | | 522,118 | | | 1986 | | 2/5/2015 | Foley | | AL | | 4,132,587 | | | 1,839,000 | | | 5,717,000 | | | 7,556,000 | | | 542,360 | | | 1,839,000 | | | 6,259,360 | | | 8,098,360 | | | 308,512 | | | 1985/1996/
2006 | | 9/11/2015 | | AL | | | 4,450,700 | | | | 1,839,000 | | | | 5,717,000 | | | | 7,556,000 | | | | 575,504 | | | | 1,839,000 | | | | 6,292,504 | | | | 8,131,504 | | | | 853,151 | | | 1985/1996/2006 | | 9/11/2015 | Tampa | | FL | | 1,633,238 | | | 718,244 | | | 2,257,471 | | | 2,975,715 | | | 445,762 | | | 718,244 | | | 2,703,233 | | | 3,421,477 | | | 110,660 | | | 1985 | | 11/3/2015 | | FL | | | 1,756,018 | | | | 718,244 | | | | 2,257,471 | | | | 2,975,715 | | | | 476,023 | | | | 718,244 | | | | 2,733,494 | | | | 3,451,738 | | | | 335,706 | | | 1985 | | 11/3/2015 | Boynton Beach | | FL | | 8,166,188 | | | 1,983,491 | | | 15,232,817 | | | 17,216,308 | | | 262,858 | | | 1,983,491 | | | 15,495,675 | | | 17,479,166 | | | 455,897 | | | 2004 | | 1/7/2016 | | FL | | | 8,688,004 | | | | 1,983,491 | | | | 15,232,817 | | | | 17,216,308 | | | | 373,348 | | | | 1,983,491 | | | | 15,606,165 | | | | 17,589,656 | | | | 1,413,264 | | | 2004 | | 1/7/2016 | Lancaster II | | CA | | 2,350,873 | | | 670,392 | | | 3,711,424 | | | 4,381,816 | | | 171,805 | | | 670,392 | | | 3,883,229 | | | 4,553,621 | | | 136,852 | | | 1991 | | 1/11/2016 | | CA | | | 2,546,205 | | | | 670,392 | | | | 3,711,424 | | | | 4,381,816 | | | | 195,671 | | | | 670,392 | | | | 3,907,095 | | | | 4,577,487 | | | | 457,215 | | | 1991 | | 1/11/2016 | Milton(1) | | ONT | | 4,956,483 | | | 1,501,716 | | | 8,196,411 | | | 9,698,127 | | | | 22,689 | (2) | | 1,501,716 | | | 8,219,100 | | | 9,720,816 | | | 217,998 | | | 2006 | | 2/11/2016 | | Burlington I(1) | | ONT | | 7,113,697 | | | 3,403,987 | | | 10,624,437 | | | 14,028,424 | | | | 40,324 | (2) | | 3,403,987 | | | 10,664,761 | | | 14,068,748 | | | 294,078 | | | 2011 | | 2/11/2016 | | Oakville I(1) | | ONT | | 7,486,937 | | | 2,744,484 | | | 13,511,955 | | | 16,256,439 | | | | 28,978 | (2) | | 2,744,484 | | | 13,540,933 | | | 16,285,417 | | | 388,098 | | | 2016 | | 2/11/2016 | | Oakville II(1) | | ONT | | 7,310,803 | | | 2,998,831 | | | 9,394,919 | | | 12,393,750 | | | | 9,531 | (2) | | 2,998,831 | | | 9,404,450 | | | 12,403,281 | | | 252,777 | | | 2004 | | 2/29/2016 | | Burlington II(1) | | ONT | | 4,921,575 | | | 2,959,356 | | | 5,152,513 | | | 8,111,869 | | | | 3,418 | (2) | | 2,959,356 | | | 5,155,931 | | | 8,115,287 | | | 138,015 | | | 2008 | | 2/29/2016 | | Xenia | | OH | | 384,338 | | | 275,493 | | | 2,664,693 | | | 2,940,186 | | | | — | | | 275,493 | | | 2,664,693 | | | 2,940,186 | | | 75,012 | | | 2003 | | 4/20/2016 | | Sidney | | OH | | 226,292 | | | 255,246 | | | 1,806,349 | | | 2,061,595 | | | | — | | | 255,246 | | | 1,806,349 | | | 2,061,595 | | | 73,095 | | | 2003 | | 4/20/2016 | | Troy | | OH | | 384,338 | | | 150,666 | | | 2,596,010 | | | 2,746,676 | | | 2,476 | | | 150,666 | | | 2,598,486 | | | 2,749,152 | | | 82,758 | | | 2003 | | 4/20/2016 | | Greenville | | OH | | 231,081 | | | 82,598 | | | 1,909,466 | | | 1,992,064 | | | | — | | | 82,598 | | | 1,909,466 | | | 1,992,064 | | | 51,913 | | | 2003 | | 4/20/2016 | | Washington Court House | | OH | | 274,185 | | | 255,456 | | | 1,882,203 | | | 2,137,659 | | | | — | | | 255,456 | | | 1,882,203 | | | 2,137,659 | | | 53,762 | | | 2003 | | 4/20/2016 | | Richmond | | IN | | 419,060 | | | 223,159 | | | 2,944,379 | | | 3,167,538 | | | 1,894 | | | 223,159 | | | 2,946,273 | | | 3,169,432 | | | 85,846 | | | 2003 | | 4/20/2016 | | Connersville | | IN | | 227,490 | | | 155,533 | | | 1,652,290 | | | 1,807,823 | | | | — | | | 155,533 | | | 1,652,290 | | | 1,807,823 | | | 48,650 | | | 2003 | | 4/20/2016 | | Port St. Lucie I | | FL | | 1,017,716 | | | 2,589,781 | | | 6,339,578 | | | 8,929,359 | | | 24,854 | | | 2,589,781 | | | 6,364,432 | | | 8,954,213 | | | 148,853 | | | 1999 | | 4/29/2016 | | Sacramento | | CA | | 975,810 | | | 1,205,209 | | | 6,616,767 | | | 7,821,976 | | | 33,041 | | | 1,205,209 | | | 6,649,808 | | | 7,855,017 | | | 135,533 | | | 2006 | | 5/9/2016 | | Oakland | | CA | | 5,315,948 | | | 5,711,189 | | | 6,902,446 | | | 12,613,635 | | | 13,340 | | | 5,711,189 | | | 6,915,786 | | | 12,626,975 | | | 139,545 | | | 1979 | | 5/18/2016 | | Concord | | CA | | 14,684,052 | | | 19,090,003 | | | 17,202,868 | | | 36,292,871 | | | 25,260 | | | 19,090,003 | | | 17,228,128 | | | 36,318,131 | | | 360,874 | | | 1988/1998 | | 5/18/2016 | | Pompano Beach | | FL | | 7,800,455 | | | 3,947,715 | | | 16,656,002 | | | 20,603,717 | | | 8,528 | | | 3,947,715 | | | 16,664,530 | | | 20,612,245 | | | 288,008 | | | 1979 | | 6/1/2016 | | Lake Worth | | FL | | 8,572,515 | | | 12,108,208 | | | 10,804,173 | | | 22,912,381 | | | 25,657 | | | 12,108,208 | | | 10,829,830 | | | 22,938,038 | | | 260,333 | | | 1998/2003 | | 6/1/2016 | | Jupiter | | FL | | 9,530,933 | | | 16,029,881 | | | 10,556,833 | | | 26,586,714 | | | 25,249 | | | 16,029,881 | | | 10,582,082 | | | 26,611,963 | | | 211,275 | | | 1992/2012 | | 6/1/2016 | | Royal Palm Beach | | FL | | 9,477,688 | | | 11,425,394 | | | 13,275,322 | | | 24,700,716 | | | 15,210 | | | 11,425,394 | | | 13,290,532 | | | 24,715,926 | | | 302,580 | | | 2001/2003 | | 6/1/2016 | | Port St. Lucie II | | FL | | 5,697,262 | | | 5,130,621 | | | 8,410,474 | | | 13,541,095 | | | 17,330 | | | 5,130,621 | | | 8,427,804 | | | 13,558,425 | | | 175,945 | | | 2002 | | 6/1/2016 | | Wellington | | FL | | 8,253,043 | | | 10,233,511 | | | 11,662,801 | | | 21,896,312 | | | 12,412 | | | 10,233,511 | | | 11,675,213 | | | 21,908,724 | | | 219,317 | | | 2005 | | 6/1/2016 | | Doral | | FL | | 9,371,197 | | | 11,335,658 | | | 11,485,045 | | | 22,820,703 | | | 22,118 | | | 11,335,658 | | | 11,507,163 | | | 22,842,821 | | | 217,478 | | | 1998 | | 6/1/2016 | | Plantation | | FL | | 11,660,751 | | | 12,989,079 | | | 19,224,919 | | | 32,213,998 | | | 22,386 | | | 12,989,079 | | | 19,247,305 | | | 32,236,384 | | | 360,491 | | | 2002/2012 | | 6/1/2016 | | Naples | | FL | | 10,702,333 | | | 11,789,085 | | | 12,771,305 | | | 24,560,390 | | | 24,429 | | | 11,789,085 | | | 12,795,734 | | | 24,584,819 | | | 233,780 | | | 2002 | | 6/1/2016 | | Delray | | FL | | 11,687,373 | | | 17,096,692 | | | 12,983,627 | | | 30,080,319 | | | 32,492 | | | 17,096,692 | | | 13,016,119 | | | 30,112,811 | | | 246,692 | | | 2003 | | 6/1/2016 | | Baltimore | | MD | | 2,753,821 | | | 3,897,872 | | | 22,427,843 | | | 26,325,715 | | | 75,574 | | | 3,897,872 | | | 22,503,417 | | | 26,401,289 | | | 436,236 | | | 1990/2014 | | 6/1/2016 | | Sonoma | | CA | | 826,146 | | | 3,468,153 | | | 3,679,939 | | | 7,148,092 | | | 8,154 | | | 3,468,153 | | | 3,688,093 | | | 7,156,246 | | | 69,813 | | | 1984 | | 6/14/2016 | | Las Vegas I | | NV | | 1,372,121 | | | 2,391,220 | | | 11,117,892 | | | 13,509,112 | | | 5,333 | | | 2,391,220 | | | 11,123,225 | | | 13,514,445 | | | 143,680 | | | 2002 | | 7/28/2016 | | Las Vegas II | | NV | | 1,472,695 | | | 3,840,088 | | | 9,916,937 | | | 13,757,025 | | | 50,971 | | | 3,840,088 | | | 9,967,908 | | | 13,807,996 | | | 81,732 | | | 2000 | | 9/23/2016 | | Las Vegas III | | NV | | 1,107,515 | | | 2,565,579 | | | 6,338,944 | | | 8,904,523 | | | | — | | | 2,565,579 | | | 6,338,944 | | | 8,904,523 | | | 62,838 | | | 1989 | | 9/27/2016 | | Asheville I | | NC | | 7,143,593 | | | 3,619,676 | | | 11,173,603 | | | 14,793,279 | | | | — | | | 3,619,676 | | | 11,173,603 | | | 14,793,279 | | | 2,101 | | | 1988/2005/
2015 | | 12/30/2016 | | Asheville II | | NC | | 3,250,087 | | | 1,764,969 | | | 3,107,311 | | | 4,872,280 | | | | — | | | 1,764,969 | | | 3,107,311 | | | 4,872,280 | | | 614 | | | 1984 | | 12/30/2016 | | Hendersonville I | | NC | | 2,243,715 | | | 1,081,547 | | | 3,441,204 | | | 4,522,751 | | | | — | | | 1,081,547 | | | 3,441,204 | | | 4,522,751 | | | 647 | | | 1982 | | 12/30/2016 | | Asheville III | | NC | | 4,677,156 | | | 5,096,833 | | | 4,620,013 | | | 9,716,846 | | | | — | | | 5,096,833 | | | 4,620,013 | | | 9,716,846 | | | 947 | | | 1991/2002 | | 12/30/2016 | | Arden | | NC | | 6,557,917 | | | 1,790,118 | | | 10,265,741 | | | 12,055,859 | | | | — | | | 1,790,118 | | | 10,265,741 | | | 12,055,859 | | | 1,737 | | | 1973 | | 12/30/2016 | | Asheville IV | | NC | | 4,413,190 | | | 4,558,139 | | | 4,455,118 | | | 9,013,257 | | | | — | | | 4,558,139 | | | 4,455,118 | | | 9,013,257 | | | 931 | | | 1985/1986/
2005 | | 12/30/2016 | | Asheville V | | NC | | 5,073,106 | | | 2,414,680 | | | 7,826,417 | | | 10,241,097 | | | | — | | | 2,414,680 | | | 7,826,417 | | | 10,241,097 | | | 1,484 | | | 1978/2009/
2014 | | 12/30/2016 | | Milton(2) | | | ONT | | | 5,061,840 | | | | 1,452,870 | | | | 7,929,810 | | | | 9,382,679 | | | | 340,370 | | (3) | | 1,481,321 | | | | 8,241,728 | | | | 9,723,049 | | | | 711,152 | | | 2006 | | 2/11/2016 | Burlington I(2) | | | ONT | | | 8,069,600 | | | | 3,293,267 | | | | 10,278,861 | | | | 13,572,128 | | | | 332,301 | | (3) | | 3,357,759 | | | | 10,546,670 | | | | 13,904,429 | | | | 947,486 | | | 2011 | | 2/11/2016 | Oakville I(2) | | | ONT | | | 5,575,360 | | | | 2,655,215 | | | | 13,072,458 | | | | 15,727,673 | | | | 2,065,841 | | (3) | | 2,707,211 | | | | 15,086,303 | | | | 17,793,514 | | | | 1,355,970 | | | 2016 | | 2/11/2016 | Oakville II(2) | | | ONT | | | 6,529,040 | | | | 2,983,307 | | | | 9,346,283 | | | | 12,329,590 | | | | (45,039 | ) | (3) | | 2,958,105 | | | | 9,326,446 | | | | 12,284,551 | | | | 852,113 | | | 2004 | | 2/29/2016 | Burlington II(2) | | | ONT | | | 4,034,800 | | | | 2,944,035 | | | | 5,125,839 | | | | 8,069,874 | | | | (64,800 | ) | (3) | | 2,919,165 | | | | 5,085,909 | | | | 8,005,074 | | | | 462,855 | | | 2008 | | 2/29/2016 |
S-1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Initial Cost to Company | | | Gross Carrying Amount at December 31, 2016 | | | | | | Description | | ST | | Encumbrance | | | Land | | | Building and
Improvements | | | Total | | | Cost Capitalized
Subsequent to
Acquisition | | | Land | | | Building and
Improvements | | |
Total | | | Accumulated
Depreciation | | | Date of
Construction | | Date
Acquired | Asheville VI | | NC | | | 3,489,307 | | | | 1,306,240 | | | | 5,121,332 | | | | 6,427,572 | | | | — | | | | 1,306,240 | | | | 5,121,332 | | | | 6,427,572 | | | | 889 | | | 2004 | | 12/30/2016 | Asheville VIII | | NC | | | 4,536,924 | | | | 1,764,965 | | | | 6,162,855 | | | | 7,927,820 | | | | — | | | | 1,764,965 | | | | 6,162,855 | | | | 7,927,820 | | | | 1,183 | | | 1968/2002 | | 12/30/2016 | Hendersonville II | | NC | | | 4,272,956 | | | | 2,597,584 | | | | 5,037,350 | | | | 7,634,934 | | | | — | | | | 2,597,584 | | | | 5,037,350 | | | | 7,634,934 | | | | 1,129 | | | 1989/2003 | | 12/30/2016 | Asheville VII | | NC | | | 1,592,048 | | | | 782,457 | | | | 2,139,791 | | | | 2,922,248 | | | | — | | | | 782,457 | | | | 2,139,791 | | | | 2,922,248 | | | | 434 | | | 1999 | | 12/30/2016 | Sweeten Creek Land | | NC | | | — | | | | 348,480 | | | | — | | | | 348,480 | | | | — | | | | 348,480 | | | | — | | | | 348,480 | | | | — | | | N/A | | 12/30/2016 | Highland Center Land | | NC | | | — | | | | 50,000 | | | | — | | | | 50,000 | | | | — | | | | 50,000 | | | | — | | | | 50,000 | | | | — | | | N/A | | 12/30/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $311,356,435 | | | | $249,051,278 | | | | $469,949,536 | | | | $719,000,814 | | | | $8,454,919 | | | | $249,051,278 | | | | $478,404,455 | | | | $727,455,733 | | | | $14,855,188 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Initial Cost to Company | | | Gross Carrying Amount at December 31, 2018 | | | | | | Description | | ST | | Encumbrance | | | Land | | | Building and Improvements | | | Total | | | Cost Capitalized Subsequent to Acquisition | | | Land | | | Building and Improvements | | | Total(1) | | | Accumulated Depreciation | | | Date of Construction | | Date Acquired | Xenia | | OH | | | 1,620,848 | | | | 275,493 | | | | 2,664,693 | | | | 2,940,185 | | | | 5,250 | | | | 275,493 | | | | 2,669,942 | | | | 2,945,435 | | | | 291,045 | | | 2003 | | 4/20/2016 | Sidney | | OH | | | 1,011,171 | | | | 255,246 | | | | 1,806,349 | | | | 2,061,595 | | | | 73,319 | | | | 255,246 | | | | 1,879,668 | | | | 2,134,914 | | | | 291,946 | | | 2003 | | 4/20/2016 | Troy | | OH | | | 1,591,108 | | | | 150,666 | | | | 2,596,010 | | | | 2,746,676 | | | | 28,949 | | | | 150,666 | | | | 2,624,959 | | | | 2,775,625 | | | | 323,687 | | | 2003 | | 4/20/2016 | Greenville | | OH | | | 976,474 | | | | 82,598 | | | | 1,909,466 | | | | 1,992,064 | | | | 32,410 | | | | 82,598 | | | | 1,941,876 | | | | 2,024,474 | | | | 205,059 | | | 2003 | | 4/20/2016 | Washington Court House | | OH | | | 1,159,873 | | | | 255,456 | | | | 1,882,203 | | | | 2,137,658 | | | | 14,515 | | | | 255,456 | | | | 1,896,717 | | | | 2,152,173 | | | | 210,622 | | | 2003 | | 4/20/2016 | Richmond | | IN | | | 1,734,852 | | | | 223,159 | | | | 2,944,379 | | | | 3,167,538 | | | | 23,738 | | | | 223,159 | | | | 2,968,117 | | | | 3,191,276 | | | | 336,197 | | | 2003 | | 4/20/2016 | Connersville | | IN | | | 941,777 | | | | 155,533 | | | | 1,652,290 | | | | 1,807,824 | | | | 16,544 | | | | 155,533 | | | | 1,668,835 | | | | 1,824,368 | | | | 190,996 | | | 2003 | | 4/20/2016 | Port St. Lucie I | | FL | | | 4,213,213 | | | | 2,589,781 | | | | 6,339,578 | | | | 8,929,360 | | | | 99,207 | | | | 2,589,781 | | | | 6,438,786 | | | | 9,028,567 | | | | 604,801 | | | 1999 | | 4/29/2016 | Sacramento | | CA | | | 4,039,728 | | | | 1,205,209 | | | | 6,616,767 | | | | 7,821,975 | | | | 94,884 | | | | 1,205,209 | | | | 6,711,650 | | | | 7,916,859 | | | | 575,820 | | | 2006 | | 5/9/2016 | Oakland | | CA | | | 5,177,736 | | | | 5,711,189 | | | | 6,902,446 | | | | 12,613,636 | | | | 72,497 | | | | 5,711,189 | | | | 6,974,944 | | | | 12,686,133 | | | | 600,516 | | | 1979 | | 5/18/2016 | Concord | | CA | | | 14,305,391 | | | | 19,090,003 | | | | 17,202,868 | | | | 36,292,871 | | | | 140,515 | | | | 19,090,003 | | | | 17,343,383 | | | | 36,433,386 | | | | 1,541,538 | | | 1988/1998 | | 5/18/2016 | Pompano Beach | | FL | | | 9,209,792 | | | | 3,947,715 | | | | 16,656,002 | | | | 20,603,718 | | | | 75,286 | | | | 3,947,715 | | | | 16,731,289 | | | | 20,679,004 | | | | 1,286,701 | | | 1979 | | 6/1/2016 | Lake Worth | | FL | | | 10,927,852 | | | | 12,108,208 | | | | 10,804,173 | | | | 22,912,381 | | | | 96,035 | | | | 12,108,208 | | | | 10,900,208 | | | | 23,008,416 | | | | 1,165,339 | | | 1998/2003 | | 6/1/2016 | Jupiter | | FL | | | 12,316,124 | | | | 16,029,881 | | | | 10,556,833 | | | | 26,586,714 | | | | 79,700 | | | | 16,029,881 | | | | 10,636,533 | | | | 26,666,414 | | | | 948,016 | | | 1992/2012 | | 6/1/2016 | Royal Palm Beach | | FL | | | 10,320,221 | | | | 11,425,394 | | | | 13,275,322 | | | | 24,700,716 | | | | 50,830 | | | | 11,425,394 | | | | 13,326,152 | | | | 24,751,546 | | | | 1,346,590 | | | 2001/2003 | | 6/1/2016 | Port St. Lucie II | | FL | | | 5,303,692 | | | | 5,130,621 | | | | 8,410,474 | | | | 13,541,095 | | | | 111,367 | | | | 5,130,621 | | | | 8,521,841 | | | | 13,652,462 | | | | 805,360 | | | 2002 | | 6/1/2016 | Wellington | | FL | | | 7,682,918 | | | | 10,233,511 | | | | 11,662,801 | | | | 21,896,312 | | | | 52,526 | | | | 10,233,511 | | | | 11,715,327 | | | | 21,948,838 | | | | 977,093 | | | 2005 | | 6/1/2016 | Doral | | FL | | | 8,723,830 | | | | 11,335,658 | | | | 11,485,045 | | | | 22,820,702 | | | | 120,107 | | | | 11,335,658 | | | | 11,605,151 | | | | 22,940,809 | | | | 977,562 | | | 1998 | | 6/1/2016 | Plantation | | FL | | | 10,855,220 | | | | 12,989,079 | | | | 19,224,919 | | | | 32,213,998 | | | | 102,212 | | | | 12,989,079 | | | | 19,327,131 | | | | 32,316,210 | | | | 1,610,515 | | | 2002/2012 | | 6/1/2016 | Naples | | FL | | | 9,963,010 | | | | 11,789,085 | | | | 12,771,305 | | | | 24,560,390 | | | | 157,245 | | | | 11,789,085 | | | | 12,928,550 | | | | 24,717,635 | | | | 1,052,770 | | | 2002 | | 6/1/2016 | Delray | | FL | | | 12,691,764 | | | | 17,096,692 | | | | 12,983,627 | | | | 30,080,319 | | | | 79,490 | | | | 17,096,692 | | | | 13,063,117 | | | | 30,159,809 | | | | 1,102,197 | | | 2003 | | 6/1/2016 | Baltimore | | MD | | | 11,400,459 | | | | 3,897,872 | | | | 22,427,843 | | | | 26,325,715 | | | | 237,062 | | | | 3,897,872 | | | | 22,664,905 | | | | 26,562,777 | | | | 1,961,789 | | | 1990/2014 | | 6/1/2016 | Sonoma | | CA | | | 3,420,138 | | | | 3,468,153 | | | | 3,679,939 | | | | 7,148,092 | | | | 46,773 | | | | 3,468,153 | | | | 3,726,712 | | | | 7,194,865 | | | | 336,784 | | | 1984 | | 6/14/2016 | Las Vegas I | | NV | | | 5,680,403 | | | | 2,391,220 | | | | 11,117,892 | | | | 13,509,112 | | | | 86,303 | | | | 2,391,220 | | | | 11,204,195 | | | | 13,595,415 | | | | 829,818 | | | 2002 | | 7/28/2016 | Las Vegas II | | NV | | | 6,096,767 | | | | 3,840,088 | | | | 9,916,937 | | | | 13,757,025 | | | | 73,536 | | | | 3,840,088 | | | | 9,990,473 | | | | 13,830,561 | | | | 766,365 | | | 2000 | | 9/23/2016 | Las Vegas III | | NV | | | 4,584,967 | | | | 2,565,579 | | | | 6,338,944 | | | | 8,904,522 | | | | 156,867 | | | | 2,565,579 | | | | 6,495,810 | | | | 9,061,389 | | | | 501,229 | | | 1989 | | 9/27/2016 | Asheville I | | NC | | | 7,143,593 | | | | 3,619,676 | | | | 11,173,603 | | | | 14,793,279 | | | | 113,790 | | | | 3,619,676 | | | | 11,287,393 | | | | 14,907,069 | | | | 797,073 | | | 1988/2005/2015 | | 12/30/2016 | Asheville II | | NC | | | 3,250,087 | | | | 1,764,969 | | | | 3,107,311 | | | | 4,872,280 | | | | 49,077 | | | | 1,764,969 | | | | 3,156,388 | | | | 4,921,357 | | | | 238,050 | | | 1984 | | 12/30/2016 | Hendersonville I | | NC | | | 2,243,715 | | | | 1,081,547 | | | | 3,441,204 | | | | 4,522,750 | | | | 72,555 | | | | 1,081,547 | | | | 3,513,758 | | | | 4,595,305 | | | | 248,636 | | | 1982 | | 12/30/2016 | Asheville III | | NC | | | 4,677,156 | | | | 5,096,833 | | | | 4,620,013 | | | | 9,716,846 | | | | 136,386 | | | | 5,096,833 | | | | 4,756,399 | | | | 9,853,232 | | | | 361,102 | | | 1991/2002 | | 12/30/2016 | Arden | | NC | | | 6,557,917 | | | | 1,790,118 | | | | 10,265,741 | | | | 12,055,859 | | | | 82,720 | | | | 1,790,118 | | | | 10,348,461 | | | | 12,138,579 | | | | 657,630 | | | 1973 | | 12/30/2016 | Asheville IV | | NC | | | 4,413,190 | | | | 4,558,139 | | | | 4,455,118 | | | | 9,013,256 | | | | 84,934 | | | | 4,558,139 | | | | 4,540,051 | | | | 9,098,190 | | | | 355,793 | | | 1985/1986/2005 | | 12/30/2016 | Asheville V | | NC | | | 5,073,106 | | | | 2,414,680 | | | | 7,826,417 | | | | 10,241,097 | | | | 101,928 | | | | 2,414,680 | | | | 7,928,345 | | | | 10,343,025 | | | | 565,165 | | | 1978/2009/2014 | | 12/30/2016 |
S-2
| | | | | | | | Initial Cost to Company | | | Gross Carrying Amount at December 31, 2018 | | | | | | Description | | ST | | Encumbrance | | | Land | | | Building and Improvements | | | Total | | | Cost Capitalized Subsequent to Acquisition | | | Land | | | Building and Improvements | | | Total(1) | | | Accumulated Depreciation | | | Date of Construction | | Date Acquired | Asheville VI | | NC | | | 3,489,307 | | | | 1,306,240 | | | | 5,121,332 | | | | 6,427,572 | | | | 49,649 | | | | 1,306,240 | | | | 5,170,981 | | | | 6,477,221 | | | | 338,613 | | | 2004 | | 12/30/2016 | Asheville VIII | | NC | | | 4,536,924 | | | | 1,764,965 | | | | 6,162,855 | | | | 7,927,820 | | | | 136,899 | | | | 1,764,965 | | | | 6,299,754 | | | | 8,064,719 | | | | 452,627 | | | 1968/2002 | | 12/30/2016 | Hendersonville II | | NC | | | 4,272,956 | | | | 2,597,584 | | | | 5,037,350 | | | | 7,634,934 | | | | 88,974 | | | | 2,597,584 | | | | 5,126,324 | | | | 7,723,908 | | | | 432,012 | | | 1989/2003 | | 12/30/2016 | Asheville VII | | NC | | | 1,592,048 | | | | 782,457 | | | | 2,139,791 | | | | 2,922,248 | | | | 30,285 | | | | 782,457 | | | | 2,170,076 | | | | 2,952,533 | | | | 166,781 | | | 1999 | | 12/30/2016 | Sweeten Creek Land | | NC | | | — | | | | 348,480 | | | | — | | | | 348,480 | | | | — | | | | 348,480 | | | | — | | | | 348,480 | | | | — | | | N/A | | 12/30/2016 | Highland Center Land | | NC | | | — | | | | 50,000 | | | | — | | | | 50,000 | | | | — | | | | 50,000 | | | | — | | | | 50,000 | | | | — | | | N/A | | 12/30/2016 | Aurora II | | CO | | | 5,006,289 | | | | 1,584,664 | | | | 8,196,091 | | | | 9,780,754 | | | | 91,020 | | | | 1,584,664 | | | | 8,287,110 | | | | 9,871,774 | | | | 635,157 | | | 2012 | | 1/11/2017 | Dufferin(2) | | ONT | | | 15,699,040 | | | | 6,258,511 | | | | 16,287,332 | | | | 22,545,843 | | | | (845,357 | ) | (3) | | 6,000,057 | | | | 15,700,429 | | | | 21,700,486 | | | | 959,954 | | | 2015 | | 2/1/2017 | Mavis(2) | | ONT | | | 10,857,280 | | | | 4,657,233 | | | | 14,493,508 | | | | 19,150,741 | | | | (784,409 | ) | (3) | | 4,464,906 | | | | 13,901,426 | | | | 18,366,332 | | | | 845,201 | | | 2013 | | 2/1/2017 | Brewster(2) | | ONT | | | 7,996,240 | | | | 4,136,329 | | | | 9,527,410 | | | | 13,663,740 | | | | (562,613 | ) | (3) | | 3,965,514 | | | | 9,135,613 | | | | 13,101,127 | | | | 562,899 | | | 2013 | | 2/1/2017 | Granite(2) | | ONT | | | 5,281,920 | | | | 3,126,446 | | | | 8,701,429 | | | | 11,827,875 | | | | (475,559 | ) | (3) | | 2,997,335 | | | | 8,354,981 | | | | 11,352,316 | | | | 489,927 | | | 1998/2016 | | 2/1/2017 | Centennial(2) | | ONT | | | 3,741,360 | | | | 1,714,644 | | | | 11,428,538 | | | | 13,143,182 | | | | (482,247 | ) | (3) | | 1,643,835 | | | | 11,017,100 | | | | 12,660,935 | | | | 632,364 | | | 2016/2017 | | 2/1/2017 | | | | | $ | 408,240,498 | | | $ | 270,249,425 | | | $ | 537,456,860 | | | $ | 807,706,284 | | | $ | 12,589,742 | | | $ | 269,522,776 | | | $ | 550,773,250 | | | $ | 820,296,026 | | | $ | 54,264,685 | | | | | |
(1) | The aggregate cost of real estate for United States federal income tax purposes is approximately $864,063,014. |
(2) | This property is located in Ontario, Canada. |
(2)(3) | The change in cost at these self storage facilities are the net of the impact of foreign exchange rate changes and any actual additions. |
S-3
Activity in real estate facilities during 20162018 was as follows: | | | | | | | | 2016 | | Real estate facilities | | | | | Balance at beginning of year | | $ | 156,244,550 | | Facility acquisitions | | | 563,278,685 | | Impact of foreign exchange rate changes | | | 1,406,663 | | Finalized purchase price allocations related to 2015 acquisitions | | | (45,785 | ) | Improvements and additions | | | 6,571,620 | | | | | | | Balance at end of year | | $ | 727,455,733 | | | | | | | Accumulated depreciation | | | | | Balance at beginning of year | | $ | (3,755,709 | ) | Depreciation expense and impact of foreign exchange rate changes | | | (11,099,479 | ) | | | | | | Balance at end of year | | $ | (14,855,188 | ) | | | | | | Construction in process | | | | | Balance at beginning of year | | $ | 385,408 | | Additions | | | 1,354,731 | | | | | | | Balance at end of year | | $ | 1,740,139 | | | | | | | Real estate facilities, net | | $ | 714,340,684 | | | | | | |
| | 2018 | | Real estate facilities | | | | | Balance at beginning of year | | $ | 829,679,477 | | Impact of foreign exchange rate changes | | | (11,915,703 | ) | Improvements and additions | | | 2,532,252 | | Balance at end of year | | $ | 820,296,026 | | Accumulated depreciation | | | | | Balance at beginning of year | | $ | (34,686,973 | ) | Depreciation expense | | | (20,134,068 | ) | Impact of foreign exchange rate changes | | | 556,356 | | Balance at end of year | | $ | (54,264,685 | ) | Construction in process | | | | | Balance at beginning of year | | $ | 92,519 | | Net additions and assets placed into service | | | 37,864 | | Balance at end of year | | $ | 130,383 | | Real estate facilities, net | | $ | 766,161,724 | |
EXHIBIT INDEX
S-4
EXHIBIT INDEX | | | Exhibit No. | | Description | | | | 1.1 | | Dealer Manager Agreement and Participating Dealer Agreement, incorporated by reference to Exhibit 1.1 toPre-Effective Amendment No. 2 to the Company’s Registration Statement on FormS-11, filed on December 11, 2013, Commission File No.333-190983 | | | | 1.2 | | Amendment No. 1 to Dealer Manager Agreement and Participating Dealer Agreement, incorporated by reference to Exhibit 1.1 to Post-Effective Amendment No. 7 to the Company’s Registration Statement on FormS-11, filed on September 28, 2015, Commission FileNo. 333-190983 | | | | 2.1 | | Agreement and Plan of Merger, incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K, filed on October 2, 2018, Commission File No. 000-55617 | | | | 3.1 | | First Articles of Amendment and Restatement of Strategic Storage Trust II, Inc., incorporated by reference to Exhibit 3.1 to the Company’s Form10-K, filed on March 31, 2014, Commission FileNo. 333-190983 | | | | 3.2 | | Articles of Amendment of Strategic Storage Trust II, Inc., incorporated by reference to Exhibit 3.1 to Post-Effective Amendment No. 7 to the Company’s Registration Statement on FormS-11, filed on September 28, 2015, Commission FileNo. 333-190983 | | | | 3.3 | | Articles Supplementary of Strategic Storage Trust II, Inc., incorporated by reference to Exhibit 3.2 to Post-Effective Amendment No. 7 to the Company’s Registration Statement on FormS-11, filed on September 28, 2015, Commission FileNo. 333-190983 | | | | 3.4 | | Bylaws of Strategic Storage Trust II, Inc., incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement onForm S-11, filed on September 4, 2013, Commission FileNo. 333-190983 | | | | 3.5 | | Amendment No. 1 to the Amended and Restated Bylaws, incorporated by reference for Exhibit 3.1 to the Company’s Form 8-K, filed on August 6, 2018, Commission File No. 000-55617 | | | | 4.1 | | Distribution Reinvestment Plan Enrollment Form of Subscription Agreement and Subscription Agreement Signature Page (included as Appendix A to prospectus), incorporated by reference to Post-Effective Amendmentthe Company’s Registration Statement on Form S-3, filed on November 30, 2016, Commission File No. 9333-214848 | | | | 4.2 | | Second Amended and Restated Distribution Reinvestment Plan (included as Appendix B to prospectus), incorporated by reference to the Company’s Registration Statement on FormS-11, S-3, filed on March 10,November 30, 2016, Commission FileNo. 333-190983333-214848 | | | | 10.1 | | Second Amended and Restated Limited Partnership Agreement of Strategic Storage Operating Partnership II, L.P., incorporated by reference to Exhibit 10.2 to the Company’s Form8-K, filed on November 6, 2014, Commission FileNo. 333-190983 | | | | 10.2 | | Advisory Agreement by and among Strategic Storage Trust II, Inc., Strategic Storage Operating Partnership II, L.P. and Strategic Storage Advisor, LLC, incorporated by reference to Exhibit 10.2 to the Company’s Form10-K, filed on March 31, 2014, Commission FileNo. 333-190983 | | | | 10.3 | | Strategic Storage Trust II, Inc. Amended and Restated Distribution Reinvestment Plan (included as Appendix B to prospectus), incorporated by reference to Post-Effective Amendment No. 9 to the Company’s Registration Statement on FormS-11, filed on March 10, 2016, Commission FileNo. 333-190983 | | | 10.4 | | Employee and Director Long-Term Incentive Plan of Strategic Storage Trust II, Inc., incorporated by reference to Exhibit 10.5 to the Company’s Form10-K, filed on March 31, 2014, Commission FileNo. 333-190983 | | | | 10.5 10.4 | | 26 Property Portfolio Purchase Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Form8-K, filed on August 19, 2014, Commission FileNo. 333-190983 | | | 10.6 | | Partial Assignment of one of the properties of the 26 Property Portfolio, incorporated by reference to Exhibit 10.2 to the Company’s Form8-K, filed on August 19, 2014, Commission FileNo. 333-190983 | | | 10.7 | | Raleigh/Myrtle Beach Portfolio Purchase Agreement, incorporated by reference to Exhibit 10.3 to the Company’sForm 8-K, filed on August 19, 2014, Commission FileNo. 333-190983 | | | 10.8 | | Partial Assignment of one of the properties of the Raleigh/Myrtle Beach Portfolio, incorporated by reference to Exhibit 10.4 to the Company’s Form8-K, filed on August 19, 2014, Commission FileNo. 333-190983 | | | 10.9 | | Schedule of Omitted Documents, incorporated by reference to Exhibit 10.5 to the Company’s Form8-K, filed on August 19, 2014, Commission FileNo. 333-190983 | | | 10.10 | | Amendment No. 1 to the Second Amended and Restated Limited Partnership Agreement of Strategic Storage Operating Partnership II, L.P. , incorporated by reference to Exhibit 10.3 to the Company’s Form8-K, filed on November 6, 2014, Commission FileNo. 333-190983 |
| | | Exhibit
No.
| | Description
| 10.5 | | 10.11 | | Raleigh/Myrtle Beach Promissory Note, incorporated by reference to Exhibit 10.4 to the Company’s Form8-K, filed on November 6, 2014, Commission FileNo. 333-190983 | | | 10.12 | | Raleigh/Myrtle Beach Loan Assumption, incorporated by reference to Exhibit 10.5 to the Company’s Form8-K, filed on November 6, 2014, Commission FileNo. 333-190983 | | | 10.13 | | Raleigh/Myrtle Beach Guaranty, incorporated by reference to Exhibit 10.6 to the Company’s Form8-K, filed on November 6, 2014, Commission FileNo. 333-190983 | | | 10.14 | | Amendment No. 2 to the Second Amended and Restated Limited Partnership Agreement of Strategic Storage Operating Partnership II, L.P., incorporated by reference to Exhibit 10.1 to Post-Effective Amendment No. 7 to the Company’s Registration Statement on FormS-11, filed on September 28, 2015, Commission FileNo. 333-190983 | | | | 10.15 10.6 | | Amendment No. 3 to the Second Amended and Restated CreditLimited Partnership Agreement with KeyBank National Association,of Strategic Storage Operating Partnership II, L.P., incorporated by reference to Exhibit 10.1 to the Company’s Form8-K, 10-Q, filed on December 28, 2015,November 13, 2018, Commission FileNo. 333-190983000-55617 | | | | 10.16 10.7 | | Amended and Restated Loan Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed on August 3, 2016, Commission File No. 000-55617 | | | |
Exhibit No. | | Description | 10.8 | | KeyBank Guaranty, incorporated by reference to Exhibit 10.2 to the Company’s Form8-K filed on December 28, 2015, Commission FileNo. 333-190983 | | | 10.17 | | Purchase and Sale Agreement, dated as of March 25, 2016, by and between Nob Hill Storage Limited Partnership and SST II Acquisitions, LLC for the purchase of 10325 W. Broward Boulevard, incorporated by reference to Exhibit 10.1 to the Company’s Form8-K, filed on March 31,August 3, 2016, Commission FileNo. 333-190983000-55617 | | | | 10.18 10.9 | | Purchase and Sale Agreement, dated as of March 25, 2016, by and Between George’sStor-Mor Realty, LLC, GSM Two, LLC, 15 Chaparral, LLC, 2561 Sweeten Creek, LLC, 2635 WL, LLC, Swannanoa Storage, LLC, and 3175 Storage, LLC, and SST II Acquisitions, LLC, incorporated by reference to Exhibit 10.2 to the Company’s Form8-K, filed on March 31, 2016, Commission FileNo. 333-190983 | | | 10.18 | | Schedule of Omitted Documents,Promissory Note A-1, incorporated by reference to Exhibit 10.3 to the Company’s Form8-K filed on March 31, 2016, Commission FileNo. 333-190983 | | | 10.19 | | Property Loan Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Form8-K, filed on June 7, 2016, Commission FileNo. 000-55617 | | | 10.20 | | Property Loan Guaranty, incorporated by reference to Exhibit 10.2 to the Company’s Form8-K, filed on June 7, 2016, Commission FileNo. 000-55617 | | | 10.21 | | Subordinate Loan Agreement, incorporated by reference to Exhibit 10.3 to the Company’s Form8-K, filed on June 7, 2016, Commission FileNo. 000-55617 | | | 10.22 | | Loan Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Form8-K, filed on August 3, 2016, Commission FileNo. 000-55617 | | | | 10.23 10.10 | | KeyBank Guaranty, incorporated by reference to Exhibit 10.2 to the Company’s Form8-K filed on August 3, 2016, Commission FileNo. 000-55617 | | | 10.24 | | Promissory NoteA-1, incorporated by reference to Exhibit 10.3 to the Company’s Form8-K filed on August 3, 2016, Commission FileNo. 000-55617 | | | 10.25 | | Promissory NoteA-2, incorporated by reference to Exhibit 10.4 to the Company’s Form8-K filed on August 3, 2016, Commission FileNo. 000-55617 | | | | 10.26 10.11 | | First Amendment to the Property Loan, incorporated by reference to Exhibit 10.1 to the Company’s Form8-K filed on January 5, 2017, Commission FileNo. 000-55617 | | | 10.27 | | Assumption Agreement, incorporated by reference to Exhibit 10.2 to the Company’s Form8-K filed on January 5, 2017, Commission FileNo. 000-55617 | | | | 10.28 10.12 | | Joinder By and Agreement of New Indemnitor, incorporated by reference to Exhibit 10.3 to the Company’s Form8-K filed on January 5, 2017, Commission FileNo. 000-55617 | | | | 10.29 10.13 | | First Amendment to the Subordinate Loan, incorporated by reference to Exhibit 10.4 to the Company’s Form8-K filed on January 5, 2017, Commission FileNo. 000-55617 | | | 10.30 | | Agreement and Plan of Merger, dated February 1, 2017, by and among Strategic Storage Trust II, Inc., Strategic Storage Operating Partnership II, L.P., Strategic Storage Toronto Properties REIT, Inc. and SST II Toronto Acquisition, LLC, incorporated by reference to Exhibit 2.1 to the Company’s Form8-K filed on February 7, 2017, Commission FileNo. 000-55617 | | | | 10.14 | | Form of Indemnification Agreement, incorporated by reference for Exhibit 10.1 to the Company’s Form 8-K, filed on August 6, 2018, Commission File No. 000-55617 | | | | 10.15 | | Loan Agreement, dated October 11, 2018, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed on October 17, 2018, Commission File No. 000-55617 | | | | 10.16 | | Limited Recourse Guaranty, dated October 11, 2018, incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K, filed on October 17, 2018, Commission File No. 000-55617 | | | | 10.17 | | CMBS SASB Mortgage Loan Agreement, dated January 24, 2019, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.18 | | CMBS SASB Mortgage Promissory Note A-1, dated January 24, 2019, incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.19 | | CMBS SASB Mortgage Promissory Note A-2, dated January 24, 2019, incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.20 | | CMBS SASB Mortgage Guaranty Agreement, dated January 24, 2019, incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.21 | | CMBS SASB Mezzanine Loan Agreement, dated January 24, 2019, incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.22 | | CMBS SASB Mezzanine Promissory Note A-1, dated January 24, 2019, incorporated by reference to Exhibit 10.6 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.23 | | CMBS SASB Mezzanine Promissory Note A-2, dated January 24, 2019, incorporated by reference to Exhibit 10.7 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.24 | | CMBS SASB Mezzanine Guaranty Agreement, dated January 24, 2019, incorporated by reference to Exhibit 10.8 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.25 | | CMBS Loan Agreement, dated January 24, 2019, incorporated by reference to Exhibit 10.9 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.26 | | CMBS Promissory Note A-1, dated January 24, 2019, incorporated by reference to Exhibit 10.10 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.27 | | CMBS Promissory Note A-2, dated January 24, 2019, incorporated by reference to Exhibit 10.11 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.28 | | CMBS Promissory Note A-3, dated January 24, 2019, incorporated by reference to Exhibit 10.12 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.29 | | CMBS Promissory Note A-4, dated January 24, 2019, incorporated by reference to Exhibit 10.13 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | |
| | | Exhibit No. | | Description | 10.30 | | CMBS Guaranty Agreement, dated January 24, 2019, incorporated by reference to Exhibit 10.14 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | 21.1 | | | 10.31 | | Secured Loan Agreement, dated January 24, 2019, incorporated by reference to Exhibit 10.15 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.32 | | Secured Note (KeyBank), dated January 24, 2019, incorporated by reference to Exhibit 10.16 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.33 | | Secured Note (SunTrust), dated January 24, 2019, incorporated by reference to Exhibit 10.17 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.34 | | Secured Guaranty, dated January 24, 2019, incorporated by reference to Exhibit 10.18 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.35 | | Senior Term Loan Agreement, dated January 24, 2019, incorporated by reference to Exhibit 10.19 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.36 | | Senior Note (KeyBank), dated January 24, 2019, incorporated by reference to Exhibit 10.20 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.37 | | Senior Note (SunTrust), dated January 24, 2019, incorporated by reference to Exhibit 10.21 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.38 | | Pledge and Security Agreement, dated January 24, 2019, incorporated by reference to Exhibit 10.22 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.39 | | Pledge and Security Agreement (Capital Events), dated January 24, 2019, incorporated by reference to Exhibit 10.23 to the Company’s Form 8-K, filed on January 30, 2019, Commission File No. 000-55617 | | | | 10.40* | | First Amendment to CMBS SASB Mortgage Loan Agreement, dated February 12, 2019 | | | | 10.41* | | First Amendment to CMBS SASB Mezzanine Loan Agreement, dated February 12, 2019 | | | | 21.1 | | Subsidiaries of Strategic Storage Trust II, Inc., incorporated by reference to Exhibit 21.1 to the Company’s Registration Statement on FormS-11, filed on September 4, 2013, Commission FileNo. 333-190983 | | | | 31.1* 23.1* | | Consent of Independent Registered Public Accounting Firm – BDO USA, LLP | | | | 23.2* | | Consent of Independent Registered Public Accounting Firm – CohnReznick LLP | | | | 31.1* | | Certification of Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | 31.2* | | Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | 32.1* | | Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 | | | | 32.2* | | Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 | | | | 101* | | The following Strategic Storage Trust II, Inc. financial information for the Year Ended December 31, 2016,2018, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements |
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Ladera Ranch, State of California, on March 22, 2019. STRATEGIC STORAGE TRUST II, INC. | | | By: | /s/ H. Michael Schwartz | | H. Michael Schwartz | | Chief Executive Officer and Director |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: | | | | | Signature | | Title | | Date | | | | | | /s/ H. Michael Schwartz H. Michael Schwartz | | Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) | | March 22, 2019 | | | | | | /s/ Matt F. Lopez Matt F. Lopez | | Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) | | March 22, 2019 | | | | | | /s/ David J. Mueller David J. Mueller | | Independent Director | | March 22, 2019 | | | | | | /s/ Harold “Skip” Perry Harold “Skip” Perry | | Independent Director | | March 22, 2019 | | | | | | /s/ Timothy S. Morris Timothy S. Morris | | Independent Director | | March 22, 2019 | | | | | | /s/ Paula Mathews Paula Mathews | | Director | | March 22, 2019 |
|
|
|
|
|
|
|
|