UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20172018
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 333-212639000-55928
Strategic Storage Trust IV, Inc.
(Exact name of Registrant as specified in its charter)
Maryland | 81-2847976 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
10 Terrace Road,
Ladera Ranch, California 92694
(Address of principal executive offices)
(877) 327-3485
(Registrant’s telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
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Non-accelerated filer | ☒ | Smaller reporting company | ☐ |
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| 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 accountaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of NovemberAugust 3, 2017,2018, there were 990,6292,401,418 outstanding shares of Class A common stock, 266,8041,079,217 outstanding shares of Class T common stock and 92,967256,571 outstanding shares of Class W common stock of the registrant.
STRATEGIC STORAGE TRUST IV, INC.
TABLE OF CONTENTS
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Item 1. | 2 | |
| Consolidated Balance Sheets as of | 3 |
| 4 | |
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| Consolidated Statement of Equity for the |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q of Strategic Storage Trust IV, Inc., other than historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, including known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “seek,” “continue,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the Securities and Exchange Commission. We cannot guarantee the accuracy of any such forward-looking statements contained in this Form 10-Q, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Any such forward-looking statements are subject to risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations and provide distributions to stockholders, and our ability to find suitable investment properties, may be significantly hindered. See the risk factors identified in the “Risk Factors” section of Amendment No. 4 to our Annual Report on Form S-11 Registration Statement (SEC Registration No. 333-212639),10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission, as supplemented by the risk factors included in Part II, Item 1A of this Form 10-Q, for a discussion of some, although not all, of the risks and uncertainties that could cause actual results to differ materially from those presented in our forward-looking statements.
The information furnished in the accompanying unaudited consolidated balance sheets and related consolidated statements of operations, comprehensive loss, equity and cash flows reflects all adjustments (consisting of normal and recurring adjustments) that are, in management’s opinion, necessary for a fair and consistent presentation of the aforementioned consolidated financial statements.
The accompanying consolidated financial statements should be read in conjunction with the notes to our consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report on Form 10-Q. The accompanying consolidated financial statements should also be read in conjunction with our consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2017. Our results of operations for the three and ninesix months ended SeptemberJune 30, 20172018 are not necessarily indicative of the operating results expected for the full year.
2
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
|
| September 30, 2017 (Unaudited) |
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| December 31, 2016 |
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| June 30, 2018 (Unaudited) |
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| December 31, 2017 |
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ASSETS |
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Real estate facility: |
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Real estate facilities: |
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Land |
| $ | 902,914 |
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| $ | — |
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| $ | 8,413,652 |
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| $ | 1,713,976 |
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Buildings |
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| 3,289,314 |
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| — |
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| 30,067,217 |
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| 9,614,412 |
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Site improvements |
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| 524,514 |
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|
| — |
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| 2,356,904 |
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| 1,011,151 |
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| 4,716,742 |
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|
| — |
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| 40,837,773 |
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| 12,339,539 |
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Accumulated depreciation |
|
| (73,216 | ) |
|
| — |
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| (462,963 | ) |
|
| (138,219 | ) |
Real estate facility, net |
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| 4,643,526 |
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|
| — |
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Real estate facilities, net |
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| 40,374,810 |
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| 12,201,320 |
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Cash and cash equivalents |
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| 14,366,322 |
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| 201,000 |
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| 22,978,010 |
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| 21,929,125 |
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Other assets, net |
|
| 1,080,369 |
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|
| — |
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| 4,960,537 |
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| 1,221,753 |
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Intangible assets, net of accumulated amortization |
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| 155,505 |
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| — |
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| 1,399,211 |
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| 451,889 |
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Total assets |
| $ | 20,245,722 |
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| $ | 201,000 |
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| $ | 69,712,568 |
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| $ | 35,804,087 |
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LIABILITIES AND EQUITY |
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Accounts payable and accrued liabilities |
| $ | 142,000 |
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| $ | — |
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| $ | 1,100,185 |
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| $ | 301,273 |
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Due to affiliates |
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| 343,829 |
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| — |
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| 1,293,554 |
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| 587,628 |
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Distributions payable |
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| 120,213 |
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| — |
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| 404,082 |
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| 216,415 |
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Total liabilities |
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| 606,042 |
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| — |
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| 2,797,821 |
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| 1,105,316 |
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Commitments and contingencies (Note 6) |
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Redeemable common stock |
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| 31,391 |
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| — |
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| 903,405 |
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| 183,420 |
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Equity: |
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Strategic Storage Trust IV, Inc. equity: |
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Preferred stock, $0.001 par value; 200,000,000 shares authorized; none issued and outstanding at September 30, 2017 and December 31, 2016 |
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| — |
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| — |
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Class A common stock, $0.001 par value; 315,000,000 and 30,000 shares authorized at September 30, 2017 and December 31, 2016, respectively; 840,424 and 44 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively |
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| 840 |
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| — |
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Class T common stock, $0.001 par value; 315,000,000 and no shares authorized at September 30, 2017 and December 31, 2016, respectively; 151,332 and no shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively |
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| 151 |
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| — |
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Class W common stock, $0.001 par value; 70,000,000 and no shares authorized at September 30, 2017 and December 31, 2016, respectively; 63,978 and no shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively |
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| 64 |
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| — |
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Preferred Stock, $0.001 par value; 200,000,000 shares authorized; none issued and outstanding at June 30, 2018 and December 31, 2017 |
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| — |
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| — |
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Class A Common stock, $0.001 par value; 315,000,000 shares authorized; 2,236,197 and 1,253,576 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively |
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| 2,236 |
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| 1,254 |
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Class T Common stock, $0.001 par value; 315,000,000 shares authorized; 933,922 and 426,228 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively |
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| 934 |
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| 426 |
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Class W Common stock, $0.001 par value; 70,000,000 shares authorized; 245,905 and 110,646 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively |
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| 246 |
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| 111 |
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Additional paid-in capital |
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| 20,621,396 |
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| 1,000 |
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| 71,607,361 |
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| 36,653,000 |
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Distributions |
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| (532,081 | ) |
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| — |
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| (2,977,171 | ) |
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| (1,079,785 | ) |
Accumulated deficit |
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| (660,018 | ) |
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| — |
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| (2,751,417 | ) |
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| (1,230,755 | ) |
Accumulated other comprehensive loss |
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| (29,992 | ) |
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| — |
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Total Strategic Storage Trust IV, Inc. equity |
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| 19,430,352 |
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| 1,000 |
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| 65,852,197 |
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| 34,344,251 |
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Noncontrolling interests in our Operating Partnership |
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| 177,937 |
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| 200,000 |
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| 159,145 |
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| 171,100 |
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Total equity |
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| 19,608,289 |
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| 201,000 |
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| 66,011,342 |
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| 34,515,351 |
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Total liabilities and equity |
| $ | 20,245,722 |
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| $ | 201,000 |
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| $ | 69,712,568 |
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| $ | 35,804,087 |
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See notes to consolidated financial statements.
3
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
| Three Months Ended September 30, |
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| Three Months Ended September 30, |
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| Nine Months Ended September 30, |
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| For the period from June 1, 2016 (date of inception) through September 30, |
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| Three Months Ended June 30, |
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| Six Months Ended June 30, |
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|
| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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| 2018 |
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| 2017 |
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| 2018 |
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| 2017 |
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Revenues: |
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Self storage rental revenue |
| $ | 129,163 |
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| $ | — |
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| $ | 244,209 |
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| $ | — |
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| $ | 819,874 |
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| $ | 115,046 |
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| $ | 1,177,122 |
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| $ | 115,046 |
|
Ancillary operating revenue |
| 264 |
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|
| — |
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| 348 |
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| — |
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| 4,239 |
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|
| 84 |
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| 5,095 |
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|
| 84 |
| ||
Total revenues |
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| 129,427 |
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|
| — |
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| 244,557 |
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|
| — |
|
|
| 824,113 |
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|
| 115,130 |
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| 1,182,217 |
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| 115,130 |
|
Operating expenses: |
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Property operating expenses |
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| 59,233 |
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|
| — |
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|
| 119,066 |
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|
| — |
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| 260,106 |
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| 59,833 |
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| 388,721 |
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|
| 59,833 |
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Property operating expenses – affiliates |
|
| 23,863 |
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|
| — |
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| 40,779 |
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|
| — |
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| 129,166 |
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|
| 16,916 |
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|
| 186,921 |
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|
| 16,916 |
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General and administrative |
|
| 153,069 |
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|
| — |
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| 447,951 |
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|
| — |
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| 503,979 |
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|
| 179,467 |
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| 799,552 |
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|
| 294,882 |
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Depreciation |
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| 36,496 |
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|
| — |
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|
| 73,330 |
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|
| — |
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|
| 233,605 |
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|
| 36,834 |
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|
| 331,439 |
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|
| 36,834 |
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Intangible amortization expense |
|
| 38,877 |
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|
| — |
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|
| 77,754 |
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|
| — |
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| 251,286 |
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| 38,877 |
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| 353,519 |
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| 38,877 |
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Acquisition expenses – affiliates |
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| 46,242 |
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| — |
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| 94,378 |
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|
| — |
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Acquisition expense – affiliates |
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| 178,994 |
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| 42,036 |
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| 299,086 |
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| 48,136 |
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Other property acquisition expenses |
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| 31,580 |
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|
| — |
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| 63,906 |
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|
| — |
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| 319,876 |
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|
| 31,360 |
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| 469,800 |
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|
| 32,326 |
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Total operating expenses |
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| 389,360 |
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|
| — |
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|
| 917,164 |
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|
| — |
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| 1,877,012 |
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| 405,323 |
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| 2,829,038 |
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| 527,804 |
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Operating loss |
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| (1,052,899 | ) |
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| (290,193 | ) |
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| (1,646,821 | ) |
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| (412,674 | ) | ||||||||||||||||
Other income |
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| 95,914 |
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| — |
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| 121,089 |
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| — |
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Net loss |
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| (259,933 | ) |
|
| — |
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|
| (672,607 | ) |
|
| — |
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|
| (956,985 | ) |
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| (290,193 | ) |
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| (1,525,732 | ) |
|
| (412,674 | ) |
Net loss attributable to the noncontrolling interests in our Operating Partnership |
|
| 3,034 |
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|
| — |
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| 12,589 |
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| — |
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| 2,790 |
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| 6,592 |
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|
| 5,070 |
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|
| 9,555 |
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Net loss attributable to Strategic Storage Trust IV, Inc. common stockholders |
| $ | (256,899 | ) |
| $ | — |
|
| $ | (660,018 | ) |
| $ | — |
|
| $ | (954,195 | ) |
| $ | (283,601 | ) |
| $ | (1,520,662 | ) |
| $ | (403,119 | ) |
Net loss per Class A share—basic and diluted |
| $ | (0.35 | ) |
| $ | — |
|
| $ | (1.43 | ) |
| $ | — |
|
| $ | (0.32 | ) |
| $ | (0.75 | ) |
| $ | (0.59 | ) |
| $ | (1.24 | ) |
Net loss per Class T share—basic and diluted |
| $ | (0.35 | ) |
| $ | — |
|
| $ | (1.43 | ) |
| $ | — |
|
| $ | (0.32 | ) |
| $ | (0.75 | ) |
| $ | (0.59 | ) |
| $ | (1.24 | ) |
Net loss per Class W share—basic and diluted |
| $ | (0.35 | ) |
| $ | — |
|
| $ | (1.43 | ) |
| $ | — |
|
| $ | (0.32 | ) |
| $ | (0.75 | ) |
| $ | (0.59 | ) |
| $ | (1.24 | ) |
Weighted average Class A shares outstanding—basic and diluted |
|
| 613,965 |
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|
| 44 |
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|
| 420,271 |
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|
| 40 |
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|
| 1,964,622 |
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|
| 374,131 |
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|
| 1,729,367 |
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|
| 321,303 |
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Weighted average Class T shares outstanding—basic and diluted |
|
| 73,599 |
|
|
| — |
|
|
| 25,116 |
|
|
| — |
|
|
| 795,291 |
|
|
| 660 |
|
|
| 668,298 |
|
|
| 330 |
|
Weighted average Class W shares outstanding—basic and diluted |
|
| 43,837 |
|
|
| — |
|
|
| 16,729 |
|
|
| — |
|
|
| 199,087 |
|
|
| 5,737 |
|
|
| 167,157 |
|
|
| 2,868 |
|
See notes to consolidated financial statements.
4
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2018 |
|
| 2017 |
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| 2018 |
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| 2017 |
| ||||
Net loss |
| $ | (956,985 | ) |
| $ | (290,193 | ) |
| $ | (1,525,732 | ) |
| $ | (412,674 | ) |
Other comprehensive loss: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| (16,621 | ) |
|
| - |
|
|
| (29,992 | ) |
|
| - |
|
Comprehensive loss |
|
| (973,606 | ) |
|
| (290,193 | ) |
|
| (1,555,724 | ) |
|
| (412,674 | ) |
Comprehensive loss attributable to noncontrolling interests: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Comprehensive loss attributable to the noncontrolling interests in our Operating Partnership |
|
| 2,836 |
|
|
| - |
|
|
| 5,170 |
|
|
| - |
|
Comprehensive loss attributable to Strategic Storage Trust IV, Inc. common stockholders |
| $ | (970,770 | ) |
| $ | (290,193 | ) |
| $ | (1,550,554 | ) |
| $ | (412,674 | ) |
See notes to consolidated financial statements.
Strategic Storage Trust IV, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
(Unaudited)
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| Common Stock |
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| Total |
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| Class A |
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| Class T |
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| Class W |
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| Strategic |
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| Noncontrolling |
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| Number of Shares |
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| Common Stock Par Value |
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| Number of Shares |
|
| Common Stock Par Value |
|
| Number of Shares |
|
| Common Stock Par Value |
|
| Additional Paid-in Capital |
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| Distributions |
|
| Accumulated Deficit |
|
| Storage Trust IV, Inc. Equity |
|
| Interests in our Operating Partnership |
|
| Total Equity |
|
| Redeemable Common Stock |
| |||||||||||||
Balance as of December 31, 2016 |
|
| 44 |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 1,000 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,000 |
|
| $ | 200,000 |
|
| $ | 201,000 |
|
| $ | — |
|
Gross proceeds from issuance of common stock |
|
| 839,482 |
|
|
| 839 |
|
|
| 151,116 |
|
|
| 151 |
|
|
| 63,729 |
|
|
| 64 |
|
|
| 24,570,219 |
|
|
| — |
|
|
| — |
|
|
| 24,571,273 |
|
|
| — |
|
|
| 24,571,273 |
|
|
| — |
|
Offering costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,949,822 | ) |
|
| — |
|
|
| — |
|
|
| (3,949,822 | ) |
|
| — |
|
|
| (3,949,822 | ) |
|
| — |
|
Changes to redeemable common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (31,391 | ) |
|
| — |
|
|
| — |
|
|
| (31,391 | ) |
|
| — |
|
|
| (31,391 | ) |
|
| 31,391 |
|
Distributions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (532,081 | ) |
|
| — |
|
|
| (532,081 | ) |
|
| — |
|
|
| (532,081 | ) |
|
| — |
|
Distributions for noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,474 | ) |
|
| (9,474 | ) |
|
| — |
|
Issuance of shares for distribution reinvestment plan |
|
| 898 |
|
|
| 1 |
|
|
| 216 |
|
|
| — |
|
|
| 249 |
|
|
| — |
|
|
| 31,390 |
|
|
| — |
|
|
| — |
|
|
| 31,391 |
|
|
| — |
|
|
| 31,391 |
|
|
| — |
|
Net loss attributable to Strategic Storage Trust IV, Inc. |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (660,018 | ) |
|
| (660,018 | ) |
|
| — |
|
|
| (660,018 | ) |
|
| — |
|
Net loss attributable to the noncontrolling interests in our Operating Partnership |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12,589 | ) |
|
| (12,589 | ) |
|
| — |
|
Balance as of September 30, 2017 |
|
| 840,424 |
|
| $ | 840 |
|
|
| 151,332 |
|
| $ | 151 |
|
|
| 63,978 |
|
| $ | 64 |
|
| $ | 20,621,396 |
|
| $ | (532,081 | ) |
| $ | (660,018 | ) |
| $ | 19,430,352 |
|
| $ | 177,937 |
|
| $ | 19,608,289 |
|
| $ | 31,391 |
|
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| Class A |
|
| Class T |
|
| Class W |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Number of Shares |
|
| Common Stock Par Value |
|
| Number of Shares |
|
| Common Stock Par Value |
|
| Number of Shares |
|
| Common Stock Par Value |
|
| Additional Paid-in Capital |
|
| Distributions |
|
| Accumulated Deficit |
|
| Accumulated Other Comprehensive Loss |
|
| Total Strategic Storage Trust IV, Inc. Equity |
|
| Noncontrolling Interests in our Operating Partnership |
|
| Total Equity |
|
| Redeemable Common Stock |
| ||||||||||||||
Balance as of December 31, 2017 |
|
| 1,253,576 |
|
| $ | 1,254 |
|
|
| 426,228 |
|
| $ | 426 |
|
|
| 110,646 |
|
| $ | 111 |
|
| $ | 36,653,000 |
|
| $ | (1,079,785 | ) |
| $ | (1,230,755 | ) |
| $ | — |
|
| $ | 34,344,251 |
|
| $ | 171,100 |
|
| $ | 34,515,351 |
|
| $ | 183,420 |
|
Gross proceeds from issuance of common stock |
|
| 962,551 |
|
|
| 962 |
|
|
| 499,352 |
|
|
| 500 |
|
|
| 132,977 |
|
|
| 133 |
|
|
| 39,129,774 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 39,131,369 |
|
|
| — |
|
|
| 39,131,369 |
|
|
| — |
|
Offering costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,175,383 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,175,383 | ) |
|
| — |
|
|
| (4,175,383 | ) |
|
| — |
|
Changes to redeemable common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (719,985 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (719,985 | ) |
|
| — |
|
|
| (719,985 | ) |
|
| 719,985 |
|
Distributions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,897,386 | ) |
|
| — |
|
|
| — |
|
|
| (1,897,386 | ) |
|
| — |
|
|
| (1,897,386 | ) |
|
| — |
|
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,885 | ) |
|
| (6,885 | ) |
|
| — |
|
Issuance of shares for distribution reinvestment plan |
|
| 20,070 |
|
|
| 20 |
|
|
| 8,342 |
|
|
| 8 |
|
|
| 2,282 |
|
|
| 2 |
|
|
| 719,955 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 719,985 |
|
|
| — |
|
|
| 719,985 |
|
|
| — |
|
Net loss attributable to Strategic Storage Trust IV, Inc. |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,520,662 | ) |
|
| — |
|
|
| (1,520,662 | ) |
|
| — |
|
|
| (1,520,662 | ) |
|
| — |
|
Net loss attributable to the noncontrolling interests in our Operating Partnership |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,070 | ) |
|
| (5,070 | ) |
|
| — |
|
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (29,992 | ) |
|
| (29,992 | ) |
|
| — |
|
|
| (29,992 | ) |
|
| — |
|
Balance as of June 30, 2018 |
|
| 2,236,197 |
|
| $ | 2,236 |
|
|
| 933,922 |
|
| $ | 934 |
|
|
| 245,905 |
|
| $ | 246 |
|
| $ | 71,607,361 |
|
| $ | (2,977,171 | ) |
| $ | (2,751,417 | ) |
| $ | (29,992 | ) |
| $ | 65,852,197 |
|
| $ | 159,145 |
|
| $ | 66,011,342 |
|
| $ | 903,405 |
|
See notes to consolidated financial statements.
5
STrategic Storage Trust IV, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| Six Months Ended June 30, |
| |||||||||||||
|
| Nine Months Ended September 30, 2017 |
|
| For the period from June 1, 2016 (date of inception) through September 30, 2016 |
|
| 2018 |
|
| 2017 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (672,607 | ) |
| $ | — |
|
| $ | (1,525,732 | ) |
| $ | (412,674 | ) |
Adjustments to reconcile net loss to cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 151,084 |
|
|
| — |
|
|
| 684,958 |
|
|
| 75,711 |
|
Increase (decrease) in cash from change in assets and liabilities: |
|
|
|
|
|
|
|
| ||||||||
Other assets |
|
| (612,683 | ) |
|
| — |
| ||||||||
Increase (decrease) in cash and cash equivalents from change in assets and liabilities: |
|
|
|
|
|
|
|
| ||||||||
Other assets, net |
|
| (723,600 | ) |
|
| (608,459 | ) | ||||||||
Accounts payable and accrued liabilities |
|
| 113,844 |
|
|
| — |
|
|
| 287,635 |
|
|
| 94,854 |
|
Due to affiliates |
|
| 54,596 |
|
|
| — |
|
|
| 51,000 |
|
|
| 75,971 |
|
Net cash used in operating activities |
|
| (965,766 | ) |
|
| — |
|
|
| (1,225,739 | ) |
|
| (774,597 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of real estate |
|
| (4,950,000 | ) |
|
| — |
|
|
| (29,684,794 | ) |
|
| (4,950,724 | ) |
Deposits on acquisitions of real estate facilities |
|
| (325,000 | ) |
|
| — |
| ||||||||
Additions to real estate |
|
| (114,281 | ) |
|
| — |
| ||||||||
Deposits on acquisitions of real estate |
|
| (3,610,313 | ) |
|
| — |
| ||||||||
Return of deposits on acquisitions of real estate |
|
| 650,000 |
|
|
| — |
| ||||||||
Net cash used in investing activities |
|
| (5,275,000 | ) |
|
| — |
|
|
| (32,759,388 | ) |
|
| (4,950,724 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross proceeds from issuance of common stock |
|
| 24,428,472 |
|
|
| 1,000 |
|
|
| 39,531,145 |
|
|
| 9,840,741 |
|
Offering costs |
|
| (3,632,433 | ) |
|
| — |
|
|
| (3,421,958 | ) |
|
| (2,013,084 | ) |
Distributions paid to common stockholders |
|
| (382,189 | ) |
|
| — |
|
|
| (989,117 | ) |
|
| (196,981 | ) |
Distributions paid to noncontrolling interest in our Operating Partnership |
|
| (7,762 | ) |
|
| — |
|
|
| (7,502 | ) |
|
| (4,832 | ) |
Issuance of noncontrolling interests in our Operating Partnership |
|
| — |
|
|
| 200,000 |
| ||||||||
Prepaid debt issuance costs |
|
| (78,556 | ) |
|
| — |
| ||||||||
Net cash provided by financing activities |
|
| 20,406,088 |
|
|
| 201,000 |
|
|
| 35,034,012 |
|
|
| 7,625,844 |
|
Change in cash and cash equivalents |
|
| 14,165,322 |
|
|
| 201,000 |
| ||||||||
Net change in cash and cash equivalents |
|
| 1,048,885 |
|
|
| 1,900,523 |
| ||||||||
Cash and cash equivalents, beginning of period |
|
| 201,000 |
|
|
| — |
|
|
| 21,929,125 |
|
|
| 201,000 |
|
Cash and cash equivalents, end of period |
| $ | 14,366,322 |
|
| $ | 201,000 |
|
| $ | 22,978,010 |
|
| $ | 2,101,523 |
|
Supplemental cash flow and non-cash transactions: |
|
|
|
|
|
|
|
| ||||||||
Supplemental disclosures and non-cash transactions: |
|
|
|
|
|
|
|
| ||||||||
Proceeds from issuance of common stock in other assets |
| $ | 142,800 |
|
| $ | — |
|
| $ | 130,000 |
|
| $ | 166,250 |
|
Offering costs included in due to affiliates |
| $ | 289,233 |
|
| $ | — |
|
| $ | 758,244 |
|
| $ | 278,718 |
|
Offering costs included in accounts payable and accrued liabilities |
| $ | 28,156 |
|
| $ | — |
|
| $ | 126,292 |
|
| $ | 200,003 |
|
Distributions payable |
| $ | 120,213 |
|
| $ | — |
|
| $ | 404,082 |
|
| $ | 53,568 |
|
Issuance of shares pursuant to distribution reinvestment plan |
| $ | 31,391 |
|
| $ | — |
|
| $ | 719,985 |
|
| $ | 436 |
|
Foreign currency translation adjustment in other assets |
| $ | 29,992 |
|
| $ | — |
| ||||||||
Other assets included in accrued expenses |
| $ | 80,939 |
|
| $ | — |
|
See notes to consolidated financial statements.
67
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172018
(Unaudited)
Note 1. Organization
Strategic Storage Trust IV, Inc., a Maryland corporation (the “Company”), was formed on June 1, 2016 under the Maryland General Corporation Law for the purpose of engaging in the business of investing in self storage facilities. The Company’s year-end is December 31. As used in this report, “we,” “us,” “our” and “Company” refer to Strategic Storage Trust IV, Inc. and each of our subsidiaries.
SmartStop Asset Management, LLC, a Delaware limited liability company organized in 2013, (our “Sponsor”), is the sponsor of our Offering of shares of our common stock (our “Sponsor”), as described below. Our Sponsor is a company focused on providing real estate advisory, asset management, and property management services. Our Sponsor owns 97.5% of the economic interests (and 100% of the voting membership interests) of Strategic Storage Advisor IV, LLC (our “Advisor”) and owns 100% of Strategic Storage Property Management IV, LLC (our “Property Manager”).
We have no employees. Our Advisor, a Delaware limited liability company, was formed on May 31, 2016. Our Advisor is responsible for managing our affairs on a day-to-day basis and identifying and making acquisitions and investments on our behalf under the terms of an advisory agreement we entered into with our Advisor (our “Advisory Agreement”) on March 3, 2017. The officers of our Advisor, as well as a majority of the officers of our Sponsor, are also officers of us and our Sponsor.us.
On June 15, 2016, our Advisor purchased 44 shares of our common stock for $1,000 and became our initial stockholder. Our Articles of Incorporation authorized 30,000 shares of common stock with a par value of $0.001. Our Articles of Amendment and Restatement, which were filed with the State Department of Assessments and Taxation of Maryland on January 17, 2017, authorized 700,000,000 shares of common stock with a par value of $0.001, of which 315,000,000 shares are designated as Class A shares, 315,000,000 shares are designated as Class T shares, and 70,000,000 shares are designated as Class W shares, and 200,000,000 shares of preferred stock with a par value of $0.001. Upon the filing of our Articles of Amendment and Restatement, our Advisor’s 44 shares of our common stock were classified as Class A shares. We are offering a maximum of $1.0 billion in common shares for sale to the public (the “Primary Offering”) and $95.0 million in common shares for sale pursuant to our distribution reinvestment plan (collectively, the “Offering”).
On January 25, 2017, we sold approximately 360,577 Class A shares for $7.5 million to an institutional account investor pursuant to a private offering transaction (the “Private Offering Transaction”). Due to the proceeds raised in our Private Offering Transaction, there was not a minimum number of shares we needed to sell before accepting subscriptions for the Primary Offering. On March 17, 2017 (the “Effective Date”), the Securities and Exchange Commission (“SEC”) declared our registration statement effective and we commenced formal operations. As of SeptemberJune 30, 2017,2018, approximately 480,0001,876,000 Class A shares for gross offering proceeds of approximately $12.0$46.7 million, approximately 151,000934,000 Class T shares for gross offering proceeds of approximately $3.6$22.5 million and approximately 64,000246,000 Class W shares for gross offering proceeds of approximately $1.4$5.6 million had been sold in the Offering. We intend to invest the net proceeds from the Private Offering Transaction and the Offering primarily in self storage facilities consisting of both income-producing and growth properties located in the United States and Canada. As of SeptemberJune 30, 2017,2018, we owned one property.five properties located in five states (California, Florida, Nevada, Texas and Washington).
Our operating partnership, Strategic Storage Operating Partnership IV, L.P., a Delaware limited partnership (our “Operating Partnership”), was formed on June 2, 2016. On June 15, 2016, our Advisor purchased a limited partnership interest in our Operating Partnership for $200,000 (8,889 partnership units) and on June 15, 2016, we contributed the initial $1,000 capital contribution we received to our Operating Partnership in exchange for the general partner interest. Our Operating Partnership will own,owns, directly or indirectly through one or more special purpose entities, all of the self storage properties that we acquire in the future.acquire. As of SeptemberJune 30, 2017,2018, we owned approximately 99.2%99.7% of the common units of limited partnership interests of our Operating Partnership. The remaining approximately 0.8%0.3% of the common units are owned by our Advisor.
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 will conduct certain activities (such as selling packing supplies and locks) through our taxable REIT subsidiary, Strategic Storage TRS IV, Inc., a Delaware corporation (the “TRS”) which was formed on June 2, 2016, and is a wholly owned subsidiary of our Operating Partnership.
78
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172018
(Unaudited)
Our Property Manager is a Delaware limited liability company which was formed on May 31, 2016 to manage our properties. Our Property Manager derives substantially all of its income from the property management services it performs for us. Our Property Manager may enter into sub-property management agreements with third party management companies and pay part of its management fee to such sub-property manager. At the acquisition of our property, we entered into a property management agreement with our Property Manager and our Property Manager entered into a sub-property management agreement with an affiliate of Extra Space Storage Inc. (“Extra Space”) for the management of our property which was branded under the Extra Space name.
On July 14, 2017, our Property Manager provided written notice to Extra Space of its intention to terminate the sub-property management agreement effective October 1, 2017. As of October 1, 2017, our Property Manager now manages our property directly. In addition, our Sponsor 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 property effective October 1, 2017. Please see Note 5 – Related Party Transactions – Property Management Agreement.
Our dealer manager is Select Capital Corporation, a California corporation (our “Dealer Manager”). On February 10, 2017, the Company executed a dealer manager agreement, as amended (the “Dealer Manager Agreement”), with our Dealer Manager. Our Dealer Manager is responsible for marketing our shares to be offered pursuant to our Primary Offering. Our Sponsor owns, through a wholly-owned limited liability company, a 15% non-voting equity interest in our Dealer Manager and affiliates of our Dealer Manager own a 2.5% non-voting membership interest in our Advisor.
Our Sponsor owns 100% of the membership interests of Strategic Transfer Agent Services, LLC, our transfer agent (our “Transfer Agent”). On May 31, 2018, the Company executed an agreement (the “Transfer Agent Agreement”), with our Transfer Agent to provide transfer agent and registrar services to us that are substantially similar to what a third party transfer agent would provide in the ordinary course of performing its functions as a transfer agent. Our Transfer Agent may retain and supervise third party vendors in its efforts to administer certain services. Please see Note 5 – Related Party Transactions – Transfer Agent Agreement.
As we accept subscriptions for shares of our common stock, we transfer all of the net offering proceeds to our Operating Partnership as capital contributions in exchange for additional units of interest in our Operating Partnership. However, we are deemed to have made capital contributions in the amount of gross proceeds received from investors, and our Operating Partnership is deemed to have simultaneously paid the sales commissions and other costs associated with the Primary Offering. In addition, our Operating Partnership is structured to make distributions with respect to limited partnership units that are equivalent to the distributions made to holders of common stock. Finally, a limited partner in our Operating Partnership may later exchange his or her limited partnership units in our Operating Partnership for shares of our common stock at any time after one year following the date of issuance of their limited partnership units, subject to certain restrictions outlined in the limited partnership agreement of our Operating Partnership, as amended (the “Operating Partnership Agreement”). Our Advisor is prohibited from exchanging or otherwise transferring its limited partnership units so long as it is acting as our Advisor pursuant to our Advisory Agreement.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC.
Principles of Consolidation
Our financial statements, and the financial statements of our Operating Partnership, including its wholly-owned subsidiaries, are consolidated in the accompanying consolidated financial statements. The portion of these entities not wholly-owned by us is presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated in consolidation.
89
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172018
(Unaudited)
Current accounting guidance provides a framework for identifying a variable interest entity (“VIE”) and determining when a company should include the assets, liabilities, noncontrolling interests, and results of activities of a VIE in its consolidated financial statements. In general, a VIE is an entity or other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations. Generally, a VIE should be consolidated if a party with an ownership, contractual, or other financial interest in the VIE (a variable interest holder) has the power to direct the VIE’s most significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities, and noncontrolling interest at fair value and subsequently account for the VIE as if it were consolidated based on majority voting interest. Our Operating Partnership is deemed to be a VIE and is consolidated by the Company as the primary beneficiary.
As of SeptemberJune 30, 20172018 and December 31, 2016,2017, we had not entered into any other contracts/interests that would be deemed to be variable interests in VIEs.VIEs other than two joint ventures, which are accounted for under the equity method of accounting. Please see Note 9 – Joint Ventures with SmartCentres. Other than the SmartCentres joint ventures, we do not currently have any relationships with unconsolidated entities or financial partnerships.
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 subsidiary, issubsidiaries, are consolidated bywith the Company and the limited partner interest is reflected as a noncontrolling interest in the accompanying consolidated balance sheets. The noncontrolling interest shall be attributed its share of income and losses, even if that attribution results in a deficit noncontrolling interest balance.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions. Management will adjust such estimates when facts and circumstances dictate. Actual results could materially differ from those estimates. The most significant estimates made include the allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed at relative fair value, the determination if certain entities should be consolidated, the evaluation of potential impairment of long-lived assets, and the estimated useful lives of real estate assets and intangibles.
Cash and Cash Equivalents
We consider all short-term, highly liquid investments that are readily convertible to cash with a maturity of three months or less at the time of purchase to be cash equivalents.
We may maintain cash and cash equivalents in financial institutions in excess of insured limits, but believe this risk will be mitigated by only investing in or through major financial institutions.
910
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172018
(Unaudited)
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 approximately $1.3 million and $600,000 in intangible assets to adjust those estimates as necessaryrecognize the value of in-place leases related to our acquisitions during the measurement period (defined assix months ended June 30, 2018 and the period,year ended December 31, 2017, respectively. We do not expect, nor to exceed one year, in whichdate have we may adjustrecorded, intangible assets for the provisional amounts recognized for an acquisition). value of customer relationships because we expect we will not have concentrations of significant customers and the average customer turnover will be fairly frequent.
Acquisitions of portfolios of facilities will beare 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 propertiesworkforce or an acquired contract that cannot be replaced without significant cost, effort or delay. As a result, once an acquisition is deemed probable, transaction costs are at market rates, ascapitalized rather than expensed. During the majority of the leases are month-to-month contracts. We also consider whether in-place, market leases represent an intangible asset. We recorded approximately $235,000 in intangible assets to recognize the value of in-place leases related to our acquisition during the ninesix months ended SeptemberJune 30, 2017. We do2018, we acquired three properties that did not expect, nor to date havemeet the revised definition of a business, and we recorded, intangible assets for the valuecapitalized approximately $105,000 of customer relationships because we expect we will not have concentrations of significant customers and the average customer turnover will be fairly frequent. Our acquisition-related transaction costs are requiredthat would have otherwise been expensed under the guidance in effect prior to be expensed as incurred. January 1, 2018.
During the three and ninesix months ended SeptemberJune 30, 2017,2018, we expensed approximately $78,000$500,000 and $160,000,$770,000, 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 ninesix months ended SeptemberJune 30, 2018 and 2017, 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 are month-to-month. Revenues from any long-term operating leases are recognized on a straight-line basis over the term of the lease. The excess of rents received over amounts contractually due pursuant to the underlying leases is included in accounts payable and accrued liabilities in our consolidated balance sheets and contractually due but unpaid rent is included in other assets.
11
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
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.
10
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
Real Estate FacilityFacilities
Our realReal estate facility isfacilities are recorded based on relative fair value as of the date of acquisition. We capitalize costs incurred to develop, construct, renovate and improve properties, including interest and property taxes incurred during the construction period. The construction period begins when expenditures for the real estate assets have been made and activities that are necessary to prepare the asset for its intended use are in progress. The construction period ends when the asset is substantially complete and ready for its intended use.
Depreciation of Real Property Assets
Our management is required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives.
Depreciation of our real property assets is charged to expense on a straight-line basis over the estimated useful lives
as follows:
Description | Standard Depreciable Life |
Land | Not Depreciated |
Buildings | 35 years |
Site Improvements | 7 |
Depreciation of Personal Property Assets
Personal property assets consist primarily of furniture, fixtures and equipment and are depreciated on a straight-line basis over the estimated useful lives generally ranging from 3 to 5 years, and are included in other assets on our consolidated balance sheets.
Foreign Currency Translation
For non-U.S. functional currency operations, assets and liabilities are translated to U.S. dollars at current exchange rates. Revenues and expenses are translated at the average rates for the period. All related adjustments are recorded in accumulated other comprehensive income (loss) as a separate component of equity. Transactions denominated in a currency other than the functional currency of the related operation are recorded at rates of exchange in effect at the date of the transaction. Gains or losses on foreign currency transactions are recorded in other income (expense).
Intangible Assets
We have allocated a portion of our real estate purchase price to in-place lease intangibles. We are amortizing in-place lease intangibles on a straight-line basis over the estimated future benefit period. As of SeptemberJune 30, 2017,2018, the gross amounts allocated to in-place lease intangibles was approximately $235,000$1.9 million and accumulated amortization of in-place lease intangibles totaled approximately $80,000.$500,000. As of December 31, 2017, the gross amounts allocated to in-place lease intangibles were approximately $600,000 and accumulated amortization of in-place lease intangibles totaled approximately $150,000.
The total estimated future amortization expense of intangible assets for the years ending December 31, 20172018, and 20182019 is approximately $40,000$600,000 and $115,000, respectively.$800,000, respectively, and none for the years thereafter.
12
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
The net carrying value of costs incurred in connection with obtaining non-revolving financing will be presented on the consolidated balance sheets as a reduction of the related debt. The net carrying value of costs incurred in connection with obtaining revolving financing will be presented as debt issuance costs on the consolidated balance sheets. Debt issuance costs will be amortized on a straight-line basis over the term of the related loan, which we do not expect will be materially different than the effective interest method. There were no debt issuance costs incurred by us for the period ended December 31, 2016 or for the nine months ended September 30, 2017.
11
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
Organization and Offering Costs
Our Advisor may fund organization and offering costs on our behalf. We are required to reimburse our Advisor for such organization and offering costs; provided, however, our Advisor will fund, and will not be reimbursed for, 1.15% of the gross offering proceeds from the sale of Class W shares towards payment of organization and offering expenses, which we will recognize as a capital contribution from our Advisor. Organization and offering costs funded by our Advisor are recognized as a liability in our consolidated financial statements as of SeptemberJune 30, 2018 and December 31, 2017, as we had a present responsibility to reimburse our Advisor after the Effective Date of the Primary Offering. Our Advisor must reimburse us within 60 days after the end of the month in which the initial public offeringOffering terminates to the extent we paid or reimbursed organization and offering costs (excluding sales commissions, dealer manager fees, stockholder servicing fees and dealer manager servicing fees) in excess of 3.5% of the gross offering proceeds from the Primary Offering. If at any point in time we determine that the total organization and offering costs are expected to exceed 3.5% of the gross proceeds anticipated to be received from the Primary Offering, we will recognize such excess as a capital contribution from our Advisor. Offering costs are recorded as an offset to additional paid-in capital, and organization costs are recorded as an expense.
In connection with our Primary Offering, our Dealer Manager will receive a sales commission of up to 6.0% of gross proceeds from sales of Class A shares and up to 3.0% of gross proceeds from the sales of Class T shares in the Primary Offering and a dealer manager fee of up to 3.0% of gross proceeds from sales of both Class A shares and Class T shares in the Primary Offering under the terms of the Dealer Manager Agreement. Our Dealer Manager does not receive an upfront sales commission or dealer manager fee from the sales of Class W shares in the Primary Offering. In addition, our Dealer Manager receives an ongoing stockholder servicing fee that is payable monthly and accrues daily in an amount equal to 1/365th of 1% of the purchase price per share of the Class T shares sold in the Primary Offering. Our Dealer Manager also receives an ongoing dealer manager servicing fee that is payable monthly and accrues daily in an amount equal to 1/365th of 0.5% of the purchase price per share of the Class W shares sold in the Primary Offering. We will cease paying the stockholder servicing fee with respect to the Class T shares sold in the Primary Offering at the earlier of (i) the date we list our shares on a national securities exchange, merge or consolidate with or into another entity, or sell or dispose of all or substantially all of our assets, (ii) the date at which the aggregate underwriting compensation from all sources equals 10% of the gross proceeds from the sale of Class A shares, Class T shares, and Class W shares in our Primary Offering (i.e., excluding proceeds from sales pursuant to our distribution reinvestment plan), which calculation shall be made by us with the assistance of our Dealer Manager commencing after the termination of our Primary Offering; (iii) with respect to a particular Class T share, the third anniversary of the issuance of the share; and (iv) the date that such Class T share is redeemed or is no longer outstanding. We will cease paying the dealer manager servicing fee with respect to the Class W shares sold in the Primary Offering at the earlier of (i) the date we list our shares on a national securities exchange, merge or consolidate with or into another entity, or sell or dispose of all or substantially all of our assets, (ii) the date at which the aggregate underwriting compensation from all sources equals 10% of the gross proceeds from the sale of Class A shares, Class T shares, and Class W shares in our Primary Offering (i.e., excluding proceeds from sales pursuant to our distribution reinvestment plan),which calculation shall be made by us with the assistance of our Dealer Manager commencing after the termination of our Primary Offering; (iii) the end of the month in which the aggregate underwriting compensation paid in our Primary Offering with respect to Class W shares, comprised of the dealer manager servicing fee, equals 9.0% of the gross proceeds from the sale of Class W shares in our Primary Offering (i.e., excluding proceeds from sales pursuant to our distribution reinvestment plan), which calculation shall be made by us with the assistance of our Dealer Manager commencing after the termination of our Primary Offering, and (iv) the date that such Class W share is redeemed or is no longer outstanding.
13
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
Our Dealer Manager will enterenters into participating dealer agreements with certain other broker-dealers which authorizes them to sell our shares. Upon sale of our shares by such broker-dealers, our Dealer Manager will re-allow all of the sales commissions and, subject to certain limitations, the stockholder servicing fees paid in connection with sales made by these broker-dealers. Our Dealer Manager may also re-allow to these broker-dealers a portion of their dealer manager fee and dealer manager servicing fee as marketing fees, reimbursement of certain costs and expenses of attending training and education meetings sponsored by our Dealer Manager, payment of attendance fees required for employees of our Dealer Manager or other affiliates to attend retail seminars and public seminars sponsored by these broker-dealers, or to defray other distribution-related expenses. Our Dealer Manager will also receive reimbursement of bona fide due diligence expenses; however, to the extent these due diligence expenses cannot be justified, any excess over actual due diligence expenses would have been considered underwriting compensation subject to a 10% FINRA limitation and, when aggregated with all other non-accountable expenses in connection with our Offering, may not exceed 3% of gross offering proceeds from sales in the Offering. We record a liability within Due to Affiliates for the future estimated stockholder and dealer manager servicing fees and a reduction to additional paid-in capital at the time of sale of the Class T and Class W shares as an offering cost.
12
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
We adopted a share redemption program that will enable stockholders to sell their shares to us in limited circumstances.
We record amounts that are redeemable under the share redemption program as redeemable common stock in the accompanying consolidated balance sheets since the shares are redeemable at the option of the holder and therefore their redemption is outside our control. The maximum amount redeemable under our share redemption program will be limited to the number of shares we could repurchase with the amount of the net proceeds from the sale of shares under the distribution reinvestment plan. However, accounting guidance states that determinable amounts that can become redeemable but that are contingent on an event that is likely to occur (e.g., the passage of time) should be presented as redeemable when such amount is known. Therefore, the net proceeds from the distribution reinvestment plan are considered to be temporary equity and are presented as redeemable common stock in our consolidated balance sheets.
In addition, current accounting guidance requires, among other things, that financial instruments that represent a mandatory obligation of us to repurchase shares be classified as liabilities and reported at settlement value. Our redeemable common shares are contingently redeemable at the option of the holder. When we determine we have a mandatory obligation to repurchase shares under the share redemption program, we will reclassify such obligations from temporary equity to a liability based upon their respective settlement values.
For the ninesix months ended SeptemberJune 30, 2018 and year ended December 31, 2017, we did not receive any requests for redemptions.
Accounting for Equity Awards
The cost of restricted stock is required to be measured based on the grant date fair value and the cost recognized over the relevant service period.
Fair Value Measurements
Under GAAP, we are required to measure certain financial instruments at fair value on a recurring basis. In addition, we are required to measure other financial instruments and balances at fair value on a non-recurring basis. Fair value is defined by the accounting standard for fair value measurements and disclosures as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels. The following summarizes the three levels of inputs and hierarchy of fair value we will use when measuring fair value:
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access;
Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as interest rates and yield curves that are observable at commonly quoted intervals; and
14
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
Level 3 inputs are unobservable inputs for the assets or liabilities that are typically based on an entity’s own assumptions as there is little, if any, related market activity.
• | Level 3 inputs are unobservable inputs for the assets or liabilities that are typically based on an entity’s own assumptions as there is little, if any, related market activity. |
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the fair value measurement will fall within the lowest level that is significant to the fair value measurement in its entirety.
The accounting guidance for fair value measurements and disclosures provides a framework for measuring fair value and establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In determining fair value, we will utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment will be necessary to interpret Level 2 and 3 inputs in determining fair value of our financial and non-financial assets and liabilities. Accordingly, there can be no assurance that the fair values we will present will be indicative of amounts that may ultimately be realized upon sale or other disposition of these assets.
Financial and non-financial assets and liabilities measured at fair value on a non-recurring basis in our consolidated financial statements consist of real estate and related liabilities assumed related to our acquisitions. The fair values of these assets and liabilities were determined as of the acquisition dates using widely accepted valuation techniques, including (i) discounted cash flow analysis, which considers, among other things, leasing assumptions, growth rates, discount rates and terminal capitalization rates, (ii) income capitalization approach, which considers prevailing market capitalization rates, and (iii) comparable sales activity. In general, we consider multiple valuation techniques when measuring fair values. However, in certain circumstances, a single valuation technique may be appropriate. All of the fair values of the assets and liabilities as of the acquisition dates were derived using Level 3 inputs.
The carrying amounts of cash and cash equivalents, tenant account receivables, other assets, accounts payable and accrued liabilities, distributions payable and amounts due to affiliates approximate fair value because of their relatively short-term nature.
13
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIESWe had no assets or liabilities that required fair value measurement on a recurring basis as of June 30, 2018 and December 31, 2017.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
We intend to make 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 endingended December 31, 2017. To qualify as a REIT, we must continue to meet certain organizational and operational requirements, including a requirement to currently distribute at least 90% of the REIT’s ordinary taxable income to stockholders.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 will beare organized and will 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 qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income.
We filed an electionelections to treat our TRS as a taxable REIT subsidiary. In general, the TRS may performperforms additional services for our tenantscustomers and generally may engageengages in any real estate or non-real estate related business. The TRS is subject to corporate federal and state income tax. The TRS will followfollows accounting guidance which will requirerequires the use of the asset and liability method. Deferred income taxes will represent the tax effect of future differences between the book and tax bases of assets and liabilities.
15
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
Basic earnings per share attributable to our common stockholders for all periods presented is computed by dividing net income (loss) attributable to our common stockholders by the weighted average number of shares outstanding during the period, excluding unvested restricted stock. Diluted earnings per share will beis computed by including the dilutive effect of unvested restricted stock, utilizing the treasury stock method once restrictedmethod. For all periods presented the dilutive effect of unrestricted stock has been granted.was not included in the diluted weighted average shares as such shares were antidilutive.
Recently Issued Accounting Guidance
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” as ASC Topic 606. The objective of ASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new standard, companies will perform a five-step analysis of transactions to determine when and how revenue is recognized. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB ASC. 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 with early adoption permitted. This ASU will still be applied using either a full retrospective or modified retrospective approach. We have determined that our self storage rental revenues will not be subject to the guidance in ASU 2014-09, as they qualify as lease contracts, which are excluded from its scope.
14
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
In We adopted this ASU on January 2016, the FASB issued ASU 2016-01, “Financial Instruments–Overall (Subtopic 825-10): Recognition1, 2018 and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 updates guidance related to recognition and measurement of financial assets and financial liabilities. ASU 2016-01 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 ASU 2016-01 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 ASU 2016-01 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. ASU 2016-01 is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with earlyits adoption permitted. We dodid not anticipate the adoption of this standard to have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 amends the guidance on accounting for leases. Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under ASU 2016-02, lessor accounting is largely unchanged. It also includes extensive amendments to the disclosure requirements. ASU 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted for financial statements that have not yet been made available for issuance. ASU 2016-02 requires a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. While we continue to evaluate the standard, based upon our assessment to date, we do not anticipate the adoption of this standard will have a material impact on our consolidated financial statements, because substantially all of our lease revenues are derived from month-to-month leases.
In August 2016,Note 3. Real Estate Facilities
The following summarizes the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 addresses eight classification issues related to the statement of cash flows. The guidance will become effective for periods beginning after December 15, 2017, with early adoption permitted. We do not anticipate the adoption of this standard to have a material impact on our consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” ASU 2016-18 will require companies to include restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 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 equivalent balances will be required to disclose the nature of the restrictions. ASU 2016-18 is effective for reporting periods beginning after December 15, 2017, with early adoption permitted, and will be applied retrospectively to all periods presented. As of September 30, 2017 and December 31, 2016, we did not have any restricted cash. We do not anticipate the adoption of this standard to have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” 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 resultactivity 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 update is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for transactions that have not been reported in previously issued (or available to be issued) financial statements and shall be applied on a prospective basis. We expect that acquisitions of real estate or in-substance real estate will not meetfacilities during the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related intangible assets) or because the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. The adoption of this guidance will likely result in a decrease in acquisition related costs being expensed, as our acquisition of real estate properties will likely be considered asset acquisitions rather than business combinationssix months ended June 30, 2018:
under ASU 2017-01.
15
Real estate facilities |
|
|
|
Balance at December 31, 2017 | $ | 12,339,539 |
|
Facility acquisitions |
| 28,383,953 |
|
Improvements and additions |
| 114,281 |
|
Balance at June 30, 2018 | $ | 40,837,773 |
|
Accumulated depreciation |
|
|
|
Balance at December 31, 2017 | $ | (138,219 | ) |
Depreciation expense |
| (324,744 | ) |
Balance at June 30, 2018 | $ | (462,963 | ) |
16
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172018
(Unaudited)
The following summarizes the activity in the real estate facility during the nine months ended September 30, 2017:
Real estate facility |
|
|
|
Balance at December 31, 2016 | $ | — |
|
Facility acquisition |
| 4,716,742 |
|
Balance at September 30, 2017 | $ | 4,716,742 |
|
Accumulated depreciation |
|
|
|
Balance at December 31, 2016 | $ | — |
|
Depreciation expense |
| (73,216 | ) |
Balance at September 30, 2017 | $ | (73,216 | ) |
The following table summarizes the preliminary purchase price allocation for our acquisitionacquisitions during the ninesix months ended SeptemberJune 30, 2017:2018:
Property |
| Acquisition Date |
| Real Estate Assets |
|
| Intangibles |
|
| Total |
|
| 2017 Revenue(1) |
|
| 2017 Property Operating Income(2) |
|
| Acquisition Date |
| Real Estate Assets |
|
| Intangibles |
|
| Total(1) |
|
| 2018 Revenue(2) |
|
| 2018 Property Operating Income (2) (3) |
| ||||||||||
Jensen Beach—FL |
| 4/11/17 |
| $ | 4,716,742 |
|
| $ | 233,258 |
|
| $ | 4,950,000 |
|
| $ | 244,557 |
|
| $ | 112,044 |
| ||||||||||||||||||||||
Riverside-- CA |
| 3/27/18 |
| $ | 6,583,372 |
|
| $ | 281,736 |
|
| $ | 6,865,108 |
|
| $ | 170,264 |
|
| $ | 86,326 |
| ||||||||||||||||||||||
Las Vegas I--NV |
| 4/05/18 |
| $ | 8,841,728 |
|
| $ | 346,682 |
|
| $ | 9,188,410 |
|
| $ | 170,696 |
|
| $ | 115,311 |
| ||||||||||||||||||||||
Puyallup--WA |
| 5/22/18 |
| $ | 12,958,853 |
|
| $ | 672,423 |
|
| $ | 13,631,276 |
|
| $ | 130,905 |
|
| $ | 96,482 |
| ||||||||||||||||||||||
|
|
|
| $ | 28,383,953 |
|
| $ | 1,300,841 |
|
| $ | 29,684,794 |
|
| $ | 471,865 |
|
| $ | 298,119 |
|
(1) | The |
|
|
The purchase price allocationoperating results of the facilities acquired above have been included in our consolidated statement of operations since their respective acquisition dates.
(2)The operating results of the facilities acquired above is preliminaryhave been included in our consolidated statement of operations since their respective acquisition dates.
(3) Property operating income excludes corporate general and therefore, subject to change upon the completion of our analysis of appraisalsadministrative expenses, asset management fees, depreciation, amortization, and other information related to the acquisition. We anticipate finalizing the purchase price allocation by December 31, 2017, as further evaluations are completed and additional information is received from third parties.acquisition expenses.
Note 4. Pro Forma Consolidated Financial Information (Unaudited)
The table set forth below summarizes, on an unauditeda pro forma basis, the combined results of operations of the Company for the ninesix months ended SeptemberJune 30, 2018 and 2017. Such presentation reflects the Company’s acquisitions that occurred during 2018 and 2017, which met the GAAP definition of a business in effect at that time, as if the acquisitions had occurred as of January 1, 2017 and for the period from June 1, 2016 (date(inception), respectively. As the Company’s acquisitions that were completed during the six months ended June 30, 2018 did not meet the revised definition of inception) through September 30, 2016 as if our acquisition was completed as of June 1, 2016.a business, no adjustments for these acquisitions have been reflected in the pro forma information below. This pro forma information does not purport to represent what ourthe actual consolidated results of operations of the Company would have been for the periods indicated, nor does it purport to predict the results of operations for future periods.
|
| For the six months ended |
| |||||||||||||
|
| For the nine months ended September 30, 2017 |
|
| For the period from June 1, 2016 (date of inception) through September 30, 2016 |
|
| June 30, 2018 |
|
| June 30, 2017 |
| ||||
Pro forma revenue |
| $ | 385,824 |
|
| $ | 174,086 |
|
| $ | 1,182,217 |
|
| $ | 617,983 |
|
Pro forma operating expenses |
|
| (949,522 | ) |
|
| (195,892 | ) |
|
| (2,629,618 | ) |
|
| (1,066,042 | ) |
Pro forma net loss attributable to common stockholders |
|
| (558,439 | ) |
|
| (21,602 | ) |
|
| (1,322,413 | ) |
|
| (446,851 | ) |
The pro forma consolidated financial information for the ninesix months ended SeptemberJune 30, 20172018 and for the period from June 1, 2016 (date of inception) through September 30, 20162017 were adjusted to exclude approximately $127,000$0 and $0,$48,000, respectively, for acquisition related expenses.
16
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
Note 5. Related Party Transactions
Fees to Affiliates
Our Advisory Agreement with our Advisor and our Dealer Manager Agreement with our Dealer Manager entitle our Advisor and our Dealer Manager 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 organization and offering costs incurred by our Advisor on our behalf and reimbursement of certain costs and expenses incurred by our Advisor in providing services to us.
17
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
Organization and Offering Costs
Organization and offering costs of the Offering may be paid by our Advisor on our behalf and reimbursed to our Advisor from the proceeds of our Offering; provided, however, that our Advisor will fund, and will not be reimbursed for, 1.15% of the gross offering proceeds from the sale of Class W shares towards payment of organization and offering expenses. Organization and offering costs consist of all expenses (other than sales commissions, the dealer manager fee, stockholder servicing fees and dealer manager servicing fees) to be 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, stockholder servicing fees and dealer manager servicing fees) in excess of 3.5% of the gross offering 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; provided, however, our Advisor will fund, and will not be reimbursed for, 1.15% of the gross offering proceeds from the sale of Class W shares towards payment of organization and offering expenses, and is required to reimburse us within 60 days after the end of the month in which the Offering terminates to the extent we paid or reimbursed organization and offering costs (excluding sales commissions, dealer manager fees, stockholder servicing fees and dealer manager servicing fees) in excess of 3.5% of the gross offering proceeds from the Primary Offering.
Our Advisory Agreement also requires our Advisor to reimburse us to the extent that offering expenses, including sales commissions, dealer manager fees, stockholder servicing fees, dealer manager servicing fees and organization and offering expenses, are in excess of 15% of gross proceeds from the Offering. Our Advisor also receives a monthly asset management fee equal to 0.0833%, which is one-twelfth of 1%, of our aggregate asset value, as defined. 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, or (3) liquidate our portfolio.
Our Advisory Agreement provides for reimbursement of our Advisor’s direct and indirect costs of providing administrative and management services to us. Beginning four fiscal quarters after we acquire our first real estate asset, our Advisor is required to pay or reimburse us the amount by which our aggregate annual operating expenses, as defined, exceed the greater of 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 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.
17
18
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172018
(Unaudited)
In connection with our Primary Offering, our Dealer Manager receives a sales commission of up to 6.0% of gross proceeds from sales of Class A shares and up to 3.0% of gross proceeds from sales of Class T shares in the Primary Offering and a dealer manager fee of up to 3.0% of gross proceeds from sales of both Class A shares and Class T shares in the Primary Offering under the terms of the Dealer Manager Agreement. Our Dealer Manager does not receive an upfront sales commission or dealer manager fee from sales of Class W shares in the Primary Offering. In addition, our Dealer Manager receives an ongoing stockholder servicing fee that is payable monthly and accrues daily in an amount equal to 1/365th of 1% of the purchase price per share of the Class T shares sold in the Primary Offering. Our Dealer Manager also receives an ongoing dealer manager servicing fee that is payable monthly and accrues daily in an amount equal to 1/365th of 0.5% of the purchase price per share of the Class W shares sold in the Primary Offering. We will cease paying the stockholder servicing fee with respect to the Class T shares sold in the Primary Offering at the earlier of (i) the date we list our shares on a national securities exchange, merge or consolidate with or into another entity, or sell or dispose of all or substantially all of our assets, (ii) the date at which the aggregate underwriting compensation from all sources equals 10% of the gross proceeds from the sale of Class A shares, Class T shares, and Class W shares in our Primary Offering (i.e., excluding proceeds from sales pursuant to our distribution reinvestment plan), which calculation shall be made by the Company with the assistance of our Dealer Manager commencing after the termination of our Primary Offering; (iii) with respect to a particular Class T share, the third anniversary of the issuance of the share; and (iv) the date that such Class T share is redeemed or is no longer outstanding. We will cease paying the dealer manager servicing fee with respect to the Class W shares sold in the Primary Offering at the earlier of (i) the date we list our shares on a national securities exchange, merge or consolidate with or into another entity, or sell or dispose of all or substantially all of our assets, (ii) the date at which the aggregate underwriting compensation from all sources equals 10% of the gross proceeds from the sale of Class A shares, Class T shares, and Class W shares in our Primary Offering (i.e., excluding proceeds from sales pursuant to our distribution reinvestment plan), which calculation shall be made by the Company with the assistance of our Dealer Manager commencing after the termination of our Primary Offering; (iii) the end of the month in which the aggregate underwriting compensation paid in our Primary Offering with respect to Class W shares, comprised of the dealer manager servicing fees, equals 9.0% of the gross proceeds from the sale of Class W shares in our Primary Offering (i.e., excluding proceeds from sales pursuant to our distribution reinvestment plan), which calculation shall be made by us with the assistance of our Dealer Manager commencing after the termination of our Primary Offering, and (iv) the date that such Class W share is redeemed or is no longer outstanding.
Our Dealer Manager enteredenters into participating dealer agreements with certain other broker-dealers which authorizes them to sell our shares. Upon sale of our shares by such broker-dealers, our Dealer Manager will re-allow all of the sales commissions and, subject to certain limitations, the stockholder servicing fees paid in connection with sales made by these broker-dealers. Our Dealer Manager may also re-allow to these broker-dealers a portion of their dealer manager fee as marketing fees, reimbursement of certain costs and expenses of attending training and education meetings sponsored by our Dealer Manager, payment of attendance fees required for employees of our Dealer Manager or other affiliates to attend retail seminars and public seminars sponsored by these broker-dealers, or to defray other distribution-related expenses. Our Dealer Manager will also receive reimbursement of bona fide due diligence expenses; however, to the extent these due diligence expenses cannot be justified, any excess over actual due diligence expenses are considered underwriting compensation subject to a 10% FINRA limitation and, when aggregated with all other non-accountable expenses in connection with our Offering, may not exceed 3% of gross offering proceeds from sales in the Offering. We record a liability as due to affiliates for the future estimated stockholder and dealer manager servicing fees and a reduction to additional paid-in capital at the time of sale of the Class T and Class W shares as an offering cost.
Affiliated Dealer Manager
Our Sponsor owns, through a wholly-owned limited liability company, a 15% non-voting equity interest in our Dealer Manager and affiliates of our Dealer Manager own a 2.5% non-voting membership interest in our Advisor.
19
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
From the acquisition of our propertythe Jensen Beach Property (on April 11, 2017) through September 30, 2017, our Property Manager contracted with Extra Space for Extra Space to serve as the sub-property manager for ourthe property pursuant to a separate sub-property management agreement. As of October 1, 2017, our Property Manager terminated the sub-property management agreement, and our Property Manager now manages all of our propertyproperties directly. In connection with the termination, the property management agreement was amended and we paid Extra Space a termination fee, as described below.fee.
18
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
Under the property management agreement in effect from April 11, 2017 through September 30, 2017 for our property, our Property Manager received a monthly management fee for the 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 property. In addition, Extra Space agreed to pay up to $25,000 toward the signage and set-up costs associated with converting such property to the Extra Space brand (the “Set-Up Amount”). The property management agreement 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.
The sub-property management agreement between our Property Manager and Extra Space was substantially the same as the foregoing property management agreement. Under the sub-property management agreement, our Property Manager paid Extra Space a monthly management fee for the property equal to the greater of $2,500 or 6% of the gross revenues, plus reimbursement of Extra Space’s costs of managing the property; 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 agreement 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 the 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.
Termination of Sub-property Manager
As of October 1, 2017, our Property Manager terminated the sub-property management agreement with Extra Space, and we amended the corresponding property management agreements as described below. In connection with the amendment of the property management agreement, the property-owning subsidiary agreed to pay the termination fee owed by our Property Manager in accordance with its termination of the sub-property management agreement. The aggregate costs incurred in connection with the property management change were approximately $4,000. This amount was included in property operating expenses – affiliates in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2017.
Property Management Subsequent to September 30, 2017
In connection with the termination of the sub-property management agreement, the corresponding property management agreement was amended effective as of October 1, 2017. Pursuant to the amended property management agreement, our Property Manager receives: (i) a monthly management fee for the property equal to the greater of $3,000 or 6% of the gross revenues from the property plus reimbursement of the Property Manager’s costs of managing the property 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, our Property Manager or an affiliate has the exclusive right to offer tenant insurance to the tenants and is entitled to substantially all of the benefits of such tenant insurance. The property management agreement has a three year term and automatically renews for successive onethree 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 we will also pay our Property Manager a one-time start-up fee in the amount of $3,750.
In connection with the change inAll our property management agreement, our store has been rebrandedproperties are operated under the “SmartStop® Self Storage” brand.
19Transfer 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 processes our subscription agreements and certain other forms directly, as well as provides customer service to our stockholders. These services include, among other things, processing payment of any sales commission and dealer manager fees associated with a particular purchase, as well as processing the distributions and any servicing fees with respect to our shares. Additionally, our Transfer Agent may retain and supervise third party vendors in its efforts to administer certain services. 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.
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. 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.
20
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172018
(Unaudited)
Pursuant to the terms of the agreements described above, the following table summarizes related party costs incurred and paid by us for the nineyear ended December 31, 2017 and the six months ended SeptemberJune 30, 2017,2018, as well as any related amounts payable as of September 30, 2017. There were no related party costs incurred or paid by us for the period from June 1, 2016 (date of inception) throughDecember 31, 2016:2017 and June 30, 2018:
|
| Nine Months Ended September 30, 2017 |
|
| Year Ended December 31, 2017 |
|
| Six Months Ended June 30, 2018 |
| |||||||||||||||||||||||||||
|
| Incurred |
|
| Paid |
|
| Payable |
|
| Incurred |
|
| Paid |
|
| Payable |
|
| Incurred |
|
| Paid |
|
| Payable |
| |||||||||
Expensed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (including organizational costs) |
| $ | 182,502 |
|
| $ | 153,340 |
|
| $ | 29,162 |
|
| $ | 283,322 |
|
| $ | 278,258 |
|
| $ | 5,064 |
|
| $ | 291,522 |
|
| $ | 267,137 |
|
| $ | 29,449 |
|
Asset management fees |
|
| 23,394 |
|
|
| 19,250 |
|
|
| 4,144 |
|
|
| 45,471 |
|
|
| 35,876 |
|
|
| 9,595 |
|
|
| 113,654 |
|
|
| 117,958 |
|
|
| 5,291 |
|
Property management fees(1) |
|
| 17,385 |
|
|
| 16,120 |
|
|
| 1,265 |
|
|
| 35,545 |
|
|
| 26,785 |
|
|
| 8,760 |
|
|
| 73,267 |
|
|
| 82,027 |
|
|
| - |
|
Transfer Agent expenses |
|
| - |
|
|
| - |
|
|
| — |
|
|
| 58,172 |
|
|
| 50,000 |
|
|
| 8,172 |
| ||||||||||||
Acquisition expenses |
|
| 94,378 |
|
|
| 74,353 |
|
|
| 20,025 |
|
|
| 187,641 |
|
|
| 187,641 |
|
|
| - |
|
|
| 299,086 |
|
|
| 267,576 |
|
|
| 31,510 |
|
Additional Paid-in Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling commissions |
|
| 1,271,629 |
|
|
| 1,271,629 |
|
|
| — |
|
|
| 2,212,286 |
|
|
| 2,212,286 |
|
|
| — |
|
|
| 2,121,065 |
|
|
| 2,017,226 |
|
|
| 103,839 |
|
Dealer Manager fees |
|
| 465,255 |
|
|
| 442,562 |
|
|
| 22,693 |
|
|
| 797,508 |
|
|
| 781,825 |
|
|
| 15,683 |
|
|
| 715,301 |
|
|
| 697,940 |
|
|
| 33,044 |
|
Stockholder Servicing Fees and Dealer Manager Servicing Fees(2) |
|
| 240,240 |
|
|
| 2,547 |
|
|
| 237,693 |
|
|
| 533,108 |
|
|
| 17,948 |
|
|
| 515,160 |
|
|
| 634,952 |
|
|
| 76,212 |
|
|
| 1,073,900 |
|
Offering costs |
|
| 1,386,947 |
|
|
| 1,358,100 |
|
|
| 28,847 |
|
|
| 1,581,394 |
|
|
| 1,548,028 |
|
|
| 33,366 |
|
|
| 213,807 |
|
|
| 238,824 |
|
|
| 8,349 |
|
Total |
| $ | 3,681,730 |
|
| $ | 3,337,901 |
|
| $ | 343,829 |
|
| $ | 5,676,275 |
|
| $ | 5,088,647 |
|
| $ | 587,628 |
|
| $ | 4,520,826 |
|
| $ | 3,814,900 |
|
| $ | 1,293,554 |
|
(1) | During the |
(2) | We 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 and an ongoing dealer manager servicing fee that is payable monthly and accrues daily in an amount equal to 1/365th of 0.5% of the purchase price per share of the Class W Shares sold in the Primary Offering. |
Extra Space Self StorageTenant Insurance Joint Venture
CertainWe offer a tenant insurance plan to customers at our properties pursuant to which, as of October 1, 2017, our Property Manager or an affiliate is entitled to substantially all of the net revenue attributable to the sale of tenant insurance at our properties.
In order to protect the interest of the Property Manager in receiving these tenant insurance revenues in light of the fact that we control the properties and, hence, the ability of the Property Manager to receive the tenant insurance revenues, 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, Strategic Storage TI Services IV JV, LLC (the “TI Joint Venture”), a Delaware limited liability company owned 0.1% by our TRS subsidiary and James Berg, received units99.9% by our Property Manager’s affiliate, SmartStop TI IV, LLC (“SS TI IV”). Under the terms of limited partnershipthe TI Joint Venture Agreement, dated March 27, 2018, our TRS will receive 0.1% of the net revenues generated from such tenant insurance and SS TI IV will receive the other 99.9% of such net revenues. 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 TI Joint Venture 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 all of its interest in Extra Space Storage LP, the operating partnership for Extra Space,TI Joint Venture to the Triggering Member at fair market value (as agreed upon or as determined under an appraisal process) or (ii) purchase all of the Triggering Member’s interest in exchange for unitsthe TI Joint Venture at 95% of limited partnership of SmartStop Self Storage Operating Partnership, L.P., the operating partnership for SmartStop Self Storage, Inc., owned by such executives.fair market value.
Storage Auction Program
In March 2017, ourOur Sponsor acquiredowns a minority interest in a company that owns 50% in 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
21
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
units online instead of using live auctions conducted at the self storage facilities. The Auction Company is expected to receivereceives a service fee for such services services. Through September 30,December 31, 2017, neither our Property Manager nor our sub-property manager did not utilizeutilized the Auction Company at our property. Inproperties. During the future, our Property Manager may utilizethree and six months ended June 30, 2018, we paid approximately $50 and approximately $150, respectively in fees to the Auction Company at our properties, and we would be responsible for paying any fees related to our properties. Our properties would receive the proceeds from such online auctions.
20
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
Note 6. Commitments and Contingencies
Distribution Reinvestment Plan
We adopted a distribution reinvestment plan that will allow our stockholders to have distributions otherwise distributable to them invested in additional shares of our common stock. The plan became effective on the effective date of our Offering. The purchase price per share is $23.75 per share for Class A shares, $23.00 per share for Class T shares and $22.75 per share for Class W shares during the Primary Offering. No sales commission or dealer manager fee will be paid on shares sold through the distribution reinvestment plan. We may amend or terminate the distribution reinvestment plan for any reason at any time upon 10 days’ prior written noticeto stockholders.
As of June 30, 2018, we have sold approximately 25,000 Class A shares, 10,000 Class T shares and 3,000 Class W shares through our distribution reinvestment plan offering.
Share Redemption Program
We adopted a share redemption program that enables stockholders to sell their shares to us in limited circumstances. As long as our common stock is not listed on a national securities exchange or over-the-counter market, our stockholders who have held their stock for at least 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 Form 8-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 detail in our prospectus.
Until our board of directors approves an estimated net asset value per share, as published from time to time in an Annual Report on Form 10-K, a Quarterly Report on Form 10-Q and/or a Current Report on Form 8-K publicly filed with the SEC, the per share price for the redemption of shares shall be equal to the then-current net investment amount of our shares, which will be based on the “amount available for investment” percentage shown in the estimated use of proceeds table in our prospectus. For each class of shares, this amount will equal the current offering price of the shares, less the associated sales commissions, dealer manager fee and estimated organization and offering expenses not reimbursed by our Advisor. Once our board of directors approves an estimated net asset value per share, the per share price for the repurchase of a given class of shares will be equal to the then-current estimated net asset value per share for such class of shares.
There will beare 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.
The cash available for redemption is limited to the proceeds from the sale of shares pursuant to our distribution reinvestment plan.
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 nine months ended September 30, 2017, we did not receive any requests for redemptions.
2122
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172018
(Unaudited)
For the six months ended June 30, 2018 and year ended December 31, 2017, we did not receive any requests for redemptions.
Operating Partnership Redemption Rights
The limited partners of our Operating Partnership will have the right to cause our Operating Partnership to redeem their limited partnership units for cash equal to the value of an equivalent number of our shares, or, at our option, we may 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 7. Selected Quarterly Data (Unaudited)
The following is a summary of quarterly financial information for the periods shown below. There were no operations for the period from June 1, 2016 (date of inception) through December 31, 2016.
|
| Three months ended |
|
|
|
| |||||||||||||||||||||||||
|
| March 31, 2017 |
|
| June 30, 2017 |
|
| September 30, 2017 |
|
| June 30, 2017 |
|
| September 30, 2017 |
|
| December 31, 2017 |
|
| March 31, 2018 |
| June 30, 2018 |
| ||||||||
Total revenues |
| $ | — |
|
| $ | 115,130 |
|
| $ | 129,427 |
|
| $ | 115,130 |
|
| $ | 129,427 |
|
| $ | 230,847 |
|
| $ | 358,104 |
| $ | 824,113 |
|
Total operating expenses |
|
| 122,481 |
|
|
| 405,323 |
|
|
| 389,360 |
|
|
| 405,323 |
|
|
| 389,360 |
|
|
| 804,920 |
|
|
| 952,026 |
| 1,877,012 |
| |
Operating loss |
|
| (290,193 | ) |
|
| (259,933 | ) |
|
| (574,073 | ) |
|
| (593,922 | ) |
| (1,052,899 | ) | ||||||||||||
Net loss |
|
| (122,481 | ) |
|
| (290,193 | ) |
|
| (259,933 | ) |
|
| (290,193 | ) |
|
| (259,933 | ) |
|
| (574,073 | ) |
|
| (568,747 | ) |
| (956,985 | ) |
Net loss attributable to the common stockholders |
|
| (119,518 | ) |
|
| (283,601 | ) |
|
| (256,899 | ) | |||||||||||||||||||
Net loss attributable to common stockholders |
|
| (283,601 | ) |
|
| (256,899 | ) |
|
| (570,737 | ) |
|
| (566,467 | ) |
| (954,195 | ) | ||||||||||||
Net loss per Class A share-basic and diluted |
|
| (0.46 | ) |
|
| (0.75 | ) |
|
| (0.35 | ) |
|
| (0.75 | ) |
|
| (0.35 | ) |
|
| (0.40 | ) |
|
| (0.26 | ) |
| (0.32 | ) |
Net loss per Class T share-basic and diluted |
|
| — |
|
|
| (0.75 | ) |
|
| (0.35 | ) |
|
| (0.75 | ) |
|
| (0.35 | ) |
|
| (0.40 | ) |
|
| (0.26 | ) |
| (0.32 | ) |
Net loss per Class W share-basic and diluted |
|
| — |
|
|
| (0.75 | ) |
|
| (0.35 | ) |
|
| (0.75 | ) |
|
| (0.35 | ) |
|
| (0.40 | ) |
|
| (0.26 | ) |
| (0.32 | ) |
23
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
Note 8. Declaration of Distributions
Cash Distribution Declaration
On September 18, 2017,June 12, 2018, our board of directors declared a daily distribution rate for the fourththird quarter of 20172018 of approximately $0.004281 per day per share on the outstanding shares of common stock payable to Class A, Class T and Class W stockholders of record of such shares as shown on our books at the close of business on each day of the period commencing on OctoberJuly 1, 20172018 and ending December 31, 2017.September 30, 2018. In connection with this distribution, for the stockholders of Class T shares, after the stockholder servicing fee is paid, approximately $0.003618 per day will be paid per Class T share and for the stockholders of Class W shares, after the dealer manager servicing fee is paid, approximately $0.003969 per day will be paid per Class W share. Such distributions payable to each stockholder of record during a month will be paid the following month.
Note 9. Potential Acquisitions
Palm Beach Gardens, Florida Surprise Property
On August 18,November 7, 2017 (as amended on March 14, 2018), one of our subsidiaries executed a purchase and sale agreement with an unaffiliated third party for the acquisition of a property that is being developed into a self storage facility located in Palm Beach Gardens, FloridaSurprise, Arizona (the “Palm Beach Gardens“Surprise Property”). The purchase price for the Palm Beach GardensSurprise Property is approximately $18.9$7.8 million, plus closing and acquisition costs. The purchase and sale agreement includes a provision for an additional purchase price payment of up to $1.8 million that could become due based upon the property exceeding certain performance hurdles in its fourth year of operations.We expect the acquisition of the Palm Beach GardensSurprise Property to close in the third quarterfirst half of 20182019 after construction is complete on the self storage facility and a certificate of occupancy has been issued. We expect to fund such acquisition with a combination of net proceeds from our Offering and a credit facility and/or otherpotential debt financing. If we fail to acquire the Palm Beach GardensSurprise Property, in addition to the incurred acquisition costs, we may also forfeit approximately $250,000$300,000 in earnest money as a result.
22 San Gabriel Property
On January 4, 2018, one of our subsidiaries executed a purchase and sale agreement with an unaffiliated third party for the acquisition of a property that is being developed into a self storage facility located in San Gabriel, California (the “San Gabriel Property”). The purchase price for the San Gabriel Property is approximately $13.5 million, plus closing and acquisition costs. We expect the acquisition of the San Gabriel Property to close in the second half of 2019 after construction is complete on the self storage facility and a certificate of occupancy has been issued. We expect to fund such acquisition with net proceeds from our Offering and/or potential debt financing. If we fail to acquire the San Gabriel Property, in addition to the incurred acquisition costs, we may also forfeit approximately $200,000 in earnest money as a result.
Joint Ventures with SmartCentres
In January 2018, a subsidiary of our sponsor entered into two contribution agreements (“Contribution Agreements”) with a subsidiary of SmartCentres Real Estate Investment Trust, an unaffiliated third party (“SmartCentres”), for two tracts of land located in Brampton, Ontario (the “Brampton Land”) and Vaughan, Ontario (the “Vaughan Land,” and collectively with the Brampton Land, the “Ontario Lots”) in the Greater Toronto Area of Canada. On March 26, 2018, the subsidiary of our sponsor assigned its interest in the two Contribution Agreements to one of our subsidiaries. Upon closing of the Ontario Lots, self storage facilities will be developed on both of the Ontario Lots in a joint venture with SmartCentres.
Upon closing, the Ontario Lots will each be owned by a limited partnership (the “Limited Partnerships”), in which we (through our subsidiaries) and SmartCentres (through its subsidiaries) will each be a 50% limited partner and each have an equal ranking general partner in the Limited Partnerships. On June 6, 2018, we (through our subsidiaries) and SmartCentres (through its subsidiaries) entered into Initial Limited Partnership Agreements for each joint venture. It is intended that the Limited Partnerships develop self storage facilities on the Ontario Lots. The value of the Brampton Land and the Vaughan Land to be contributed by SmartCentres to the Limited Partnerships has an agreed upon fair market value of approximately $1.8 million CAD and $3.4 million CAD, respectively. At closing, we (through our subsidiaries) will subscribe for 50% of the units in the Brampton and Vaughan Limited Partnerships at an agreed upon subscription price of approximately $0.9 million CAD and $1.7 million CAD, respectively, representing contributions equivalent to 50% of the agreed upon fair market value of each parcel of land. We expect the acquisitions of the Brampton Land and Vaughan Land to close in the fourth quarter of 2018 and the first quarter of 2019, respectively after the land has been zoned so as to permit the self storage
24
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172018
(Unaudited)
facilities. In some circumstances, if we fail to complete the Brampton Land and Vaughan Land acquisition, we may forfeit up to approximately $200,000 CAD and $500,000 CAD, respectively in earnest money.
Escondido Property
Texas City, TexasOn April 16, 2018, one of our subsidiaries executed a purchase and sale agreement with an unaffiliated third party for the acquisition of a property that is being developed into a self storage facility located in Escondido, California (the “Escondido Property”). The purchase price for the Escondido Property is approximately $18.0 million, plus closing and acquisition costs. We expect the acquisition of the Escondido Property to close in the second half of 2019 after construction is complete on the self storage facility and a certificate of occupancy has been issued. We expect to fund such acquisition with net proceeds from our Offering and/or potential debt financing. If we fail to acquire the Escondido Property, in addition to the incurred acquisition costs, we may also forfeit $750,000 in earnest money as a result.
Houston Portfolio
On September 25, 2017,April 18, 2018, one of our subsidiaries executed a purchase and sale agreement with unaffiliated third parties for the acquisition of a portfolio of seven self storage facilities located in the greater Houston area of Texas (the “Houston Portfolio”). The purchase price for the Houston Portfolio is approximately $58.5 million, plus closing and acquisition costs. We expect the acquisition of the Houston Portfolio to close in the third and/or fourth quarter of 2018 and expect to fund the acquisition with net proceeds from our Offering, assumptions of existing loans and a draw on the KeyBank Term Loan. If we fail to acquire the Houston Portfolio, we may also forfeit approximately $1,000,000 in earnest money as a result.
Cary Property- Termination of Purchase and Sale Agreement
On April 17, 2018, one of our subsidiaries executed a purchase and sale agreement with an unaffiliated third party for the acquisition of a self storage facility located in Texas City, TexasCary, North Carolina (the “Texas City“Cary Property”). The purchase price forUnder the Texas City Property is approximately $8 million, plus closing and acquisition costs. We expect the acquisitionoriginal terms of the Texas CityCary Property Purchase Agreement and First Amendment thereto, the Approval Period (as defined therein) would have expired on June 11, 2018, and unless our subsidiary provided the seller of the Cary Property with a notice to occur inconsummate the fourth quarter of 2017. We expect to fund such acquisition with net proceeds from our Offering. If we fail to acquire the Texas City Property, in additiontransaction prior to the incurred acquisition costs, we may also forfeit approximately $75,000expiration of the Approval Period, the Cary Property Purchase Agreement would have automatically terminated at such time. The parties did not agree to any further extension of the Approval Period. Accordingly, on June 11, 2018, the Cary Property Purchase Agreement terminated according to its terms and our initial deposit of $150,000 was returned in earnest money as a result.full.
Note 10. Subsequent Events
Completed Acquisitions
Las Vegas II Property
Potential Acquisitions
Surprise, Arizona
On November 7, 2017, one of our subsidiaries executedJuly 18, 2018, we purchased a purchase and sale agreement withself storage facility (the “Las Vegas II Property”) located in Las Vegas, Nevada. We acquired the Las Vegas Property from an unaffiliated third party for the acquisitiona purchase price of property that is being developed intoapproximately $12.8 million, plus closing costs which was funded with net proceeds from our Offering.
Naples Property
On August 1, 2018, we purchased a self storage facility (the “Naples Property”) located in Surprise, ArizonaNaples, Florida. We acquired the Naples Property from an unaffiliated third party for a purchase price of approximately $27.3 million, plus closing costs which was funded with net proceeds from our Offering and a draw on the KeyBank Term Loan.
KeyBank Term Loan
On July 31, 2018, we, through six special purpose entities (collectively, the “Borrower”) wholly owned by our Operating Partnership, entered into a credit agreement (the “Surprise Property”“Credit Agreement”) with KeyBank, National Association (“KeyBank”), as administrative agent and KeyBanc Capital Markets, LLC, as sole book runner and sole lead arranger.
25
STRATEGIC STORAGE TRUST IV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
Under the terms of the Credit Agreement, the Borrower has a maximum borrowing capacity of $70 million (the “KeyBank Credit Facility”). However, certain financial requirements with respect to both the Borrower and the “Pool” of “Mortgaged Properties” (as each term is defined in the Credit Agreement) must be satisfied prior to making any drawdowns on the KeyBank Credit Facility in accordance with the Credit Agreement. In order to finance a portion of the Naples Property acquisition, the Borrower, through six special purposes entities, borrowed $17 million on the KeyBank Credit Facility. Accordingly, the Borrower is currently able to borrow approximately an additional $16 million under the KeyBank Credit Facility and remain in compliance with the financial requirements. Prior to October 31, 2018, additional properties may be added to the Pool of Mortgaged Properties, pursuant to the terms of the Credit Agreement, which may allow the Borrower to borrow up to the maximum capacity of $70 million and remain in compliance with the financial requirements. After October 31, 2018, the maximum borrowing capacity of the KeyBank Credit Facility shall be reduced by the amount of the undrawn commitments as of that date. It is anticipated that the KeyBank Credit Facility will be used by the Borrower to fund future self storage property acquisitions in accordance with the Credit Agreement.
The KeyBank Credit Facility is a term loan that has a maturity date of July 31, 2019, which may, in certain circumstances, be extended at the option of the Borrower until July 31, 2020. In general, payments due under the KeyBank Credit Facility are interest-only.
The amounts outstanding under the KeyBank Credit Facility bear interest based on the type of borrowing, which are either “ABR” or “Eurodollar” (as each term is defined in the Credit Agreement) at our election, and whether the Principal Reduction Conditions have been satisfied.
We and the Borrower, on a consolidated basis, must at all times comply with the following financial covenants: (i) a total leverage ratio no greater than 65%; and (ii) a tangible net worth not less than the Base Amount, plus 85% of the net equity proceeds received by us after the effective date. The Pool of Mortgaged Properties shall at all times comply with the following covenants: (i) Maximum Pool loan to value ratio not greater than 60%; (ii) prior to October 31, 2018, a debt service coverage ratio of not less than 1.20:1.00; and (iii) from and after October 31, 2018, a debt service coverage ratio of not less than 1.35:1.00. If the Borrower does not meet certain other quarterly debt service coverage ratios, the Borrower may be required either to fund certain amounts into an account held by KeyBank, as administrative agent as additional collateral or to make certain prepayments, as set forth in the Credit Agreement.
Escondido Preferred Equity Investment
On July 31, 2018, one of our subsidiaries made a preferred equity investment of approximately $2.5 million in the entity that is developing the Escondido Property. Such investment will be redeemed upon purchase of the completed property and has a preferred return of 8% to be paid quarterly, with an additional 4% preferred return to be paid upon closing of the property.
Potential Acquisitions
Mission Viejo Land On July 25, 2018, a subsidiary of our Sponsor assigned its interest in a real estate contract to purchase vacant land in Mission Viejo, California (the “Mission Viejo Land’) to one of our subsidiaries. The purchase price for the Surprise PropertyMission Viejo Land is approximately $7.5$4.3 million, plus closing and acquisition costs. We expect the acquisition of the Surprise PropertyMission Viejo Land to close in the third quarter of 2018 after construction is complete on2018. Subsequent to the acquisition of the Mission Viejo Land, the land will be developed into a self storage facility and a certificate of occupancy has been issued. We expect to fund such acquisition with a combination of net proceeds from our Offering and a credit facility or other debt financing. (the “Mission Viejo Property”). If we fail to acquire the Surprise Property,Mission Viejo Land, we may also forfeit the incurred acquisition costs.
Approval Period Extension for Palm Beach Gardens Property
Under the original terms of the Palm Beach Gardens Property purchase agreement, the Approval Period (as defined therein) would have expired on October 30, 2017. On October 27, 2017, the parties to the Palm Beach Gardens Property purchase agreement entered intoapproximately $100,000 in earnest money as a first amendment to the Palm Beach Gardens Property purchase agreement that extends the Approval Period to December 14, 2017. The remaining terms and conditions of the Palm Beach Gardens Property purchase agreement continue in full force and effect.
result.
Offering Status
As of NovemberAugust 3, 2017,2018, in connection with our Private Offering Transaction and Offering we have issued approximately 991,0002,400,000 Class A shares for gross offering proceeds of approximately $23.2$58.4 million, approximately 267,0001,079,000 Class T shares for gross offering proceeds of approximately $6.5$26.1 million and approximately 93,000257,000 Class W shares for gross offering proceeds of approximately $2.1$5.8 million.
23
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and notes thereto contained elsewhere in this report. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should also be read in conjunction with our financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2017. See also “Cautionary Note Regarding Forward Looking Statements” preceding Part I.
Overview
Strategic Storage Trust IV, Inc. was formed on June 1, 2016 under the Maryland General Corporation Law for the purpose of engaging in the business of investing in self storage facilities and related self storage real estate investments. Our year end is December 31. As used in this report, “we,” “us,” “our,” and “Company” refer to Strategic Storage Trust IV, Inc. and each of our subsidiaries.
SmartStop Asset Management, LLC (our “Sponsor”), is the sponsor of our Public Offering (as defined below). Our Sponsor owns 97.5% of the economic interests (and 100% of the voting membership interests) of Strategic Storage Advisor IV, LLC, a Delaware limited liability company (our “Advisor”) and owns, 100% of Strategic Storage Property Management IV, LLC, a Delaware limited liability company (our “Property Manager”) and 100% of Strategic Transfer Agent Services, LLC, a Delaware limited liability company (our “Transfer Agent”). See Note 1 of the Notes to the Consolidated Statements contained in this report for further details about our affiliates.
On January 25, 2017, we sold approximately 360,577 Class A shares for $7.5 million to an institutional account investor pursuant to a private offering transaction (the “Private Offering Transaction”). Due to the proceeds raised in the Private Offering Transaction, there was no minimum number of shares we had to sell before accepting subscriptions for the Primary Offering (as defined below).
On March 17, 2017, 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,”), consisting of three classes of shares: Class A shares for $25.00 per share (up to $450 million in shares), Class T shares for $24.21 per share (up to $450 million in shares), and Class W shares for $22.75 per share (up to $100 million in shares). As of SeptemberJune 30, 2017,2018, we have issued approximately 480,0001,876,000 Class A shares for gross offering proceeds of approximately $12.0$46.7 million, approximately 151,000934,000 Class T shares for gross offering proceeds of approximately $3.6$22.5 million and approximately 64,000246,000 Class W shares for gross offering proceeds of approximately $1.4$5.6 million in our Offering. We intend to invest the net proceeds from the Private Offering Transaction and the Offering primarily in self storage facilities consisting of both income-producing and growth properties located in the United States and Canada.
As of SeptemberJune 30, 2017,2018, 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) |
| ||||||||||||
Florida |
|
| 1 |
|
|
| 600 |
|
|
| 67,000 |
|
|
| 100 | % |
|
| 98 | % |
|
| 100 | % |
|
| 1 |
|
|
| 600 |
|
|
| 67,000 |
|
|
| 19.9 | % |
|
| 95 | % |
|
| 16 | % |
Texas |
|
| 1 |
|
|
| 480 |
|
|
| 60,000 |
|
|
| 17.8 | % |
|
| 95 | % |
|
| 20 | % | ||||||||||||||||||||||||
California |
|
| 1 |
|
|
| 470 |
|
|
| 57,500 |
|
|
| 17.0 | % |
|
| 94 | % |
|
| 16 | % | ||||||||||||||||||||||||
Nevada |
|
| 1 |
|
|
| 580 |
|
|
| 55,000 |
|
|
| 16.3 | % |
|
| 98 | % |
|
| 18 | % | ||||||||||||||||||||||||
Washington |
|
| 1 |
|
|
| 830 |
|
|
| 98,000 |
|
|
| 29.0 | % |
|
| 88 | % |
|
| 30 | % | ||||||||||||||||||||||||
|
|
| 5 |
|
|
| 2,960 |
|
|
| 337,500 |
|
|
| 100 | % |
|
| 94 | % |
|
| 100 | % |
(1) | Includes all rentable units, consisting of storage units and parking units (approximately |
(2) | Includes all rentable square feet consisting of storage units and parking units (approximately |
(3) | Represents the occupied square feet of all facilities we owned in a state divided by total rentable square feet of all the facilities we owned in such state as of |
(4) | Represents rental income for all facilities we own in a state divided by our total rental income for the month ended |
Our results of operations for the nine months ended September 30, 2017 are not indicative of those expected in future periods as we expect that rental income, operating expenses, depreciation expense, amortization expense and interest expense will each increase in future periods as a result of anticipated future acquisitions of real estate assets.
24
We have established accounting policies which conform to generally accepted accounting principles (“GAAP”). in the U.S. Preparing financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. Following is a discussion of the estimates and assumptions used in setting accounting policies that we consider critical in the presentation of our 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 are month-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 could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements, as such allocations may vary dramatically based on the estimates and assumptions we use.
Impairment of Long-Lived Assets
The majority of our assets, other than cash and cash equivalents, consist of long-lived real estate assets as well as intangible assets related to our acquisitions. We will evaluate such assets for impairment based on events and changes in circumstances that may arise in the future and that may impact the carrying amounts of our long-lived assets. When indicators of potential impairment are present, we will assess the recoverability of the particular asset by determining whether the carrying value of the asset will be recovered, through an evaluation of the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. This evaluation is based on a number of estimates and assumptions. Based on this evaluation, if the expected undiscounted future cash flows do not exceed the carrying value, we will adjust the value of the long-lived asset and recognize an impairment loss. Our evaluation of the impairment of long-lived assets could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements, as the amount of impairment loss recognized, if any, may vary based on the estimates and assumptions we use.
25
Estimated Useful Lives of Long-Lived Assets
We assess the useful lives of the assets underlying our properties based upon a subjective determination of the period of future benefit for each asset. We record depreciation expense with respect to these assets based upon the estimated useful lives we determine. Our determinations of the useful lives of the assets could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements, as such determinations, and the corresponding amount of depreciation expense, may vary dramatically based on the estimates and assumptions
we use.
Consolidation of Investments in Joint Ventures
We 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.
REIT Qualification
We intend to make an election to be taxed as a Real Estate Investment Trust (“REIT”), under Sections 856 through 860Section 856(c) of the Internal Revenue Code of 1986 as amended (the “Code”), to be taxed as a REIT under the Code, commencing with ourthe taxable year endingended December 31, 2017. To qualifyBy qualifying as a REIT we must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90% of the REIT’s ordinary taxablefor federal income to stockholders. As a REIT,tax purposes, 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 taxestax 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 duringin which our qualification is lost unless the IRS grants us relief under certain statutory provisions.denied. Such an event could materially and adversely affect our net income and net cash available for distribution to stockholders.could have a material adverse impact on our financial condition and results of operations. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT and intend to operate in the foreseeable future in such a manner that we will remain qualified as a REIT for federal income tax purposes.
Results of Operations
Overview
We derive revenues principally from: (i) rents received from tenants who rent storage units under month-to-month leases at each of our self storage facility;facilities; and (ii) sales of packing- and storage-related supplies at our storage facility.facilities. Therefore, our operating results depend significantly on our ability to successfully acquire and operate additional self storage facilities, retain our existing tenants and lease our available self storage units to new tenants, while maintaining and, where possible, increasing the prices for our self storage units. Additionally, our operating results depend on our tenants making their required rental payments to us.
Competition in the market areas in which we operate is significant and affects the occupancy levels, rental rates, rental revenues and operating expenses of our facility.facilities. Development of any new self storage facilities would intensify competition of self storage operators in the marketmarkets in which we operate.
On March 17, 2017, we commenced our Offering and formal operations. On April 11, 2017, we acquired our first self storage propertyfacility located in Florida comprising approximately 600 unitsFlorida. As of June 30, 2018 and approximately 67,000 rentable square feet.2017, we owned five and one self storage facilities, respectively.
Our operating results for the three months ended June 30, 2017 include partial quarter results for our first facility acquired during the quarter. Our operating results for the three months ended June 30, 2018 include full quarter results for three self storage facilities and partial quarter results for two facilities acquired during the quarter.
Our operating results for the six months ended June 30, 2017 include partial quarter results for our first facility acquired during the period. Our operating results for the six months ended June 30, 2018 include full six-month results for two self storage facilities acquired during 2017 and partial quarter results for one facility acquired in the first quarter of 2018 and two facilities acquired in the second quarter of 2018.
As a result of the timing of the acquisitions of our properties, we believe there is little basis for comparison between the three and six months ended June 30, 2018 and 2017. Operating results in future periods will depend on the results of operations of these properties and the real estate properties that we acquire.
As a result ofacquire in the timing of our formation, commencement of operations and acquisition of our first property, we believe there is little basis for comparison between the three and nine months ended September 30, 2017 to the three months ended September 30, 2016 and the period from June 1, 2016 (date of inception) through September 30, 2016. We expect revenue and expenses to increase in future periods as we acquire additional properties.future.
26
Comparison of Operating Results for the Three Months Ended June 30, 2018 and 2017
Total Revenues
Total revenues for the ninethree months ended SeptemberJune 30, 2018 and 2017 were approximately $245,000, which$824,000 and $115,000, respectively. The increase in total revenues is primarily attributable to a full quarter of operations for three properties and a partial quarter of operations for two properties in the acquisitionsecond quarter of our first self storage2018, compared to a partial quarter of operations for one property duringin the second quarter of 2017. We expect total revenues to increase in future periods commensurate with our future acquisition activity.
Property Operating Expenses
Property operating expenses for the ninethree months ended SeptemberJune 30, 2018 and 2017 were approximately $119,000.$260,000 and $60,000, respectively. Property operating expenses includesinclude the costcosts to operate our facilityfacilities including payroll, utilities, insurance, real estate taxes, and marketing. The increase in property operating expenses areis primarily attributable to a full quarter of operations for three properties and a partial quarter of operations for two properties in the acquisitionsecond quarter of our first self storage2018, compared to a partial quarter of operations for one property duringin the second quarter of 2017. We expect property operating expenses to increase in the future asperiods commensurate with our operational activity increases.future acquisition activity.
Property Operating Expenses – Affiliates
Property operating expenses – affiliates for the ninethree months ended SeptemberJune 30, 2018 and 2017 were approximately $41,000.$129,000 and $17,000, respectively. Property operating expenses – affiliates includes property management fees and asset management fees. The increase in property operating expenses – affiliates areis primarily attributable to a full quarter of operations for three properties and a partial quarter of operations for two properties in the acquisitionsecond quarter of our first self storage2018, compared to a partial quarter of operations for one property duringin the second quarter of 2017. We expect property operating expenses – affiliates to increase in the future asperiods commensurate with our operational activity increases.future acquisition activity.
General and Administrative Expenses
General and administrative expenses for the ninethree months ended SeptemberJune 30, 2018 and 2017 were approximately $448,000. $504,000 and $179,000, respectively. General and administrative expenses consist primarily of legal expenses, transfer agent fees, directors’ and officers’ insurance, expense,transfer agent fees, an allocation of a portion of our Advisor’s payroll related costs, accounting expenses and board of directorsdirectors’ related costs.The increase in general and administrative expenses is primarily attributable to an increase in legal expenses, our Advisor’s payroll related costs, transfer agent fees related to the increase in proceeds from our Offering and the initial set-up fee paid to our Transfer Agent, and professional expenses which is commensurate with the increase in our operational activity. We expect general and administrative expenses to increase in the future as our operational activity increases.increases, but decrease as a percentage of total revenue.
Depreciation and Amortization Expenses
Depreciation and amortization expenses for the ninethree months ended SeptemberJune 30, 2018 and 2017 were approximately $151,000.$485,000 and $76,000, respectively. Depreciation expense consists primarily of depreciation on the buildings and site improvements at our property.properties. Amortization expense consists of the amortization of intangible assets resulting from the acquisitionour acquisitions. The increase in depreciation and amortization expense is primarily attributable to a full quarter of our first self storage property duringoperations for three properties and a partial quarter of operations for two properties in the second quarter of 2018, compared to a partial quarter of operations for one property in the second quarter of 2017. We expect depreciation and amortization expense to increase in future periods commensurate with our future acquisition activity.
Acquisition Expenses – Affiliates
Acquisition expenses – affiliates for the ninethree months ended SeptemberJune 30, 2018 and 2017 were approximately $94,000. These$179,000 and $42,000 respectively. The increase in acquisition expenses primarily relaterelates to the costs associated with our firstpotential acquisitions of self storage facilities prior to the acquisitions becoming probable in accordance with our capitalization policy. We expect acquisition expenses- affiliates to fluctuate in the future commensurate with our acquisition activity.
Other Property Acquisition Expenses
Other property acquiredacquisition expenses for the three months ended June 30, 2018 and 2017 were approximately $320,000 and $31,000 respectively. The increase in acquisition expenses primarily relates to the costs associated with our potential acquisitions of self storage facilities prior to the acquisitions becoming probable in accordance with our capitalization policy. We expect other property acquisition expenses to fluctuate in the future commensurate with our acquisition activity.
Other Income
Other income for the three months ended June 30, 2018 and 2017 was approximately $96,000 and $0, respectively. The increase in other income primarily relates to interest income earned during the second quarterthree months ended June 30, 2018 on cash balances.
Comparison of Operating Results for the Six Months Ended June 30, 2018 and 2017
Total Revenues
Total revenues for the six months ended June 30, 2018 and 2017 were approximately $1,182,000 and prospective$115,000, respectively. The increase in total revenues is primarily attributable to a full six months of operations for two properties and partial period of operations for three properties in the six months ended June 30, 2018, compared to a partial period of operations for one property in the six months ended June 30, 2017. We expect total revenues to increase in future periods commensurate with our future acquisition activity.
Property Operating Expenses
Property operating expenses for the six months ended June 30, 2018 and 2017 were approximately $389,000 and $60,000, respectively. Property operating expenses include the costs to operate our facilities including payroll, utilities, insurance, real estate taxes, and marketing. The increase in property operating expenses is primarily attributable to a full six months of operations for two properties and a partial period of operations for three properties in the six months ended June 30, 2018, compared to a partial period of operations for one property in the six months ended June 30, 2017. We expect property operating expenses to increase in future periods commensurate with our future acquisition activity.
Property Operating Expenses – Affiliates
Property operating expenses – affiliates for the six months ended June 30, 2018 and 2017 were approximately $187,000 and $17,000, 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 six months of operations for two properties and a partial period of operations for three properties in the six months ended June 30, 2018, compared to a partial period of operations for one property in the six months ended June 30, 2017. We expect property operating expenses – affiliates to increase in future periods commensurate with our future acquisition activity.
General and Administrative Expenses
General and administrative expenses for the six months ended June 30, 2018 and 2017 were approximately $800,000 and $295,000, respectively. General and administrative expenses consist primarily of legal expenses, directors’ and officers’ insurance, transfer agent fees, an allocation of a portion of our Advisor’s payroll related costs, accounting expenses and board of directors’ related costs. The increase in general and administrative expenses is primarily attributable to an increase in legal expenses, our Advisor’s payroll related costs, transfer agent fees related to the increase in proceeds from our Offering and the initial set-up fee paid to our Transfer Agent, professional expenses, and accounting expenses which is commensurate with the increase in our operational activity. We expect general and administrative expenses to increase in the future as our operational activity increases, but decrease as a percentage of total revenue.
Depreciation and Amortization Expenses
Depreciation and amortization expenses for the six months ended June 30, 2018 and 2017 were approximately $685,000 and $76,000, respectively. Depreciation expense consists primarily of depreciation on the buildings and site improvements at our properties. Amortization expense consists of the amortization of intangible assets resulting from our acquisitions. The increase in depreciation and amortization expense is primarily attributable to a full six months of operations for two properties and a partial period of operations for three properties in the six months ended June 30, 2018, compared to a partial period of operations for one property in the six months ended June 30, 2017. We expect depreciation and amortization expense to increase in future periods commensurate with our future acquisition activity.
Acquisition Expenses – Affiliates
Acquisition expenses – affiliates for the six months ended June 30, 2018 and 2017 were approximately $299,000 and $48,000 respectively. The increase in acquisition expenses primarily relates to the costs associated with our potential acquisitions of self storage propertiesfacilities prior to be acquiredthe acquisitions becoming probable in accordance with our capitalization policy. We expect acquisition expenses- affiliates to fluctuate in the future periods.commensurate with our acquisition activity.
Other Property Acquisition Expenses
Other property acquisition expenses for the ninesix months ended SeptemberJune 30, 2018 and 2017 were approximately $64,000. These$470,000 and $32,000 respectively. The increase in acquisition expenses include property acquisition expenses incurred by third parties and primarily relaterelates to the costs associated with our firstpotential acquisitions of self storage facilities prior to the acquisitions becoming probable in accordance with our capitalization policy. We expect other property acquiredacquisition expenses to fluctuate in the future commensurate with our acquisition activity.
Other Income
Other income for the six months ended June 30, 2018 and 2017 was approximately $121,000 and $0, respectively. The increase in other income primarily relates to interest income earned during the second quarter of 2017 and prospective self storage properties to be acquired in future periods.six months ended June 30, 2018 on cash balances.
27
Liquidity and Capital Resources
Cash Flows
A comparison of cash flows for operating, investing and financing activities for the ninesix months ended SeptemberJune 30, 20172018 and for the period from June 1, 2016 (date of inception) through September 30, 20162017 is as follows:
|
| Six Months Ended |
|
|
|
|
| |||||||||||||||||
|
| Nine Months Ended September 30, 2017 |
|
| For the period from June 1, 2016 (date of inception) through September 30, 2016 |
|
| Change |
|
| June 30, 2018 |
|
| June 30, 2017 |
|
| Change |
| ||||||
Net cash flow provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
| $ | (965,766 | ) |
| $ | — |
|
| $ | (965,766 | ) |
| $ | (1,225,739 | ) |
| $ | (774,597 | ) |
| $ | (451,142 | ) |
Investing activities |
|
| (5,275,000 | ) |
|
| — |
|
|
| (5,275,000 | ) |
|
| (32,759,388 | ) |
|
| (4,950,724 | ) |
|
| (27,808,664 | ) |
Financing activities |
|
| 20,406,088 |
|
|
| 201,000 |
|
|
| 20,205,088 |
|
|
| 35,034,012 |
|
|
| 7,625,844 |
|
|
| 27,408,168 |
|
Cash flows used in operating activities for the ninesix months ended SeptemberJune 30, 2018 and 2017 were approximately $966,000, which$1.2 million and $775,000, respectively, an increase of approximately $451,000. The change in cash used in our operating activities is primarily the result of aan increase in our net loss, of approximately $673,000 and cash used in other assets of approximately $612,000 offset by increases in accounts payable and accrued liabilities and amounts due to affiliates, totaling approximately $168,000 andadjusted for depreciation and amortization totaling approximately $151,000.amortization.
Cash flows used in investing activities for the ninesix months ended SeptemberJune 30, 2018 and 2017 were approximately $5.3$32.8 million whichand $5.0 million, respectively, an increase of approximately $27.8 million. The increase in cash used in our investing activities is primarily the result of cash consideration paidan increase in acquisitions during the six months ended June 30, 2018 of $4.95approximately $24.7 million for our acquisition andas well as an increase in deposits made on potential future acquisitions of real estate facilitiesapproximately $3.6 million, offset by a return of $325,000 during the nine months ended September 30, 2017.deposits of $650,000.
Cash flows provided by financing activities for the ninesix months ended SeptemberJune 30, 20172018 and for the period from June 1, 2016 (date of inception) through September 30, 20162017 were approximately $20.4$35.0 million and $0.2$7.6 million, respectively, an increase of approximately $27.4 million. The increase in cash provided by our financing activities is primarily the result of an increase in net proceeds raised from our offering of approximately $20.2 million. The change is primarily comprised$28.3 million, partially offset by an increase in cash distributions paid of approximately $24.4 million in gross proceeds from our issuance of common stock offset by approximately $3.6 million of offering costs and approximately $390,000 in distributions paid.$795,000.
Short-Term Liquidity and Capital Resources
Through March 17, 2017, the date we commenced our Offering, we met our short-term operating liquidity requirements through advances from our Advisor or its affiliates, as we needed to fund our offering costs and operating expenses incurred before our Offering commenced. Currently, we generally expect that we will meet our short-term operating liquidity requirements from the combination of proceeds from our Offering, and the Private Offering Transaction, proceeds from secured or unsecured financing from banks or other lenders, net cash provided by property operations and advances from our Advisor which will be repaid, without interest, as funds are available after meeting our current liquidity requirements, subject to the limitations on reimbursement set forth in our advisory agreement with our Advisor.
Distribution Policy
On September 18, 2017,June 12, 2018, our board of directors authorizeddeclared a daily distribution rate for the fourththird quarter of 20172018 of approximately $0.004281 per day per share on the outstanding shares of common stock payable to Class A, Class T and Class W stockholders of record of such shares as shown on our books as ofat the close of business on each day duringof the period commencing on OctoberJuly 1, 20172018 and continuing on each day thereafter through and including December 31, 2017.September 30, 2018. In connection with this distribution, for the stockholders of Class T shares, after the stockholder servicing fee is paid, approximately $0.003618 per day will be paid per Class T share and for the stockholders of Class W shares, after the dealer manager servicing fee is paid, approximately $0.003969 per day will be paid per Class W share. Such distributions payable to each stockholder of record will be paid the following month.
28
Currently, we are making distributions to our stockholders using proceeds from the Offering and the Private Offering Transaction in anticipation of future cash flow. As such, this reduces the amount of capital we will ultimately invest in properties. Because substantially all of our operations are performed indirectly through our Operating Partnership, our ability to pay distributions depends in large part on our Operating Partnership’s ability to pay distributions to its partners, including to us. In the event we do not have enough cash from operations to fund cash distributions, we may borrow, issue additional securities or sell assets in order to fund the distributions or make the distributions out of net proceeds from the Offering and the Private Offering Transaction.Offering. Though we presently intend to pay only cash distributions, and potentially stock distributions, we are authorized by our charter to pay in-kind distributions of readily marketable securities, distributions of beneficial interests in a liquidating trust established for our dissolution and the liquidation of our assets in accordance with the terms of the charter or distributions that meet all of the following conditions: (a) our board of directors advises each stockholder of the risks associated with direct ownership of the property; (b) our board of directors offers each stockholder the election of receiving such in-kind distributions; and (c) in-kind distributions are only made to those stockholders who accept such offer.
During our Offering, when we may raise capital more quickly than we acquire income-producing assets, we may not be able to pay distributions from our cash flows from operations, in which case distributions may be paid in part from debt financing or from proceeds from the Offering and the Private Offering Transaction. 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 investment in our portfolio. As a result, future distributions declared and paid may exceed cash flow from operations.
Distributions are paid to our stockholders as of the record date selected by our board of directors. We declare andcurrently pay distributions monthly based on daily declaration and record dates so that investors may be entitled to distributions immediately upon purchasing our shares. We expect to continue to regularly pay distributions unless our results of operations, our general financial condition, general economic conditions, or other factors inhibit us from doing so. Distributions will be authorized at the discretion of our board of directors, which will be directed, in substantial part, by its obligation to cause us to comply with the REIT requirements of the Code. Our board of directors may increase, decrease or eliminate the distribution rate that is being paid at any time. Distributions will be made on all classes of our common stock at the same time. The per share amount of distributions on Class A Shares, Class T Shares and Class W Shares will likely differ because of different allocations of class-specific expenses. Specifically, distributions on Class T Shares will likely be lower than distributions on Class A Shares because Class T Shares are subject to ongoing stockholder servicing fees and distributions of Class W Shares will likely be lower than distributions on Class A Shares because Class W Shares are subject to the ongoing dealer manager servicing fees. The funds we receive from operations that are available for distribution may be affected by a number of factors, including the following:
the amount of time required for us to invest the funds received in the Offering;
our operating and interest expenses;
the amount of distributions or dividends received by us from our indirect real estate investments;
our ability to keep our properties occupied;
our ability to maintain or increase rental rates;
capital expenditures and reserves for such expenditures;
the issuance of additional shares; and
financings and refinancings.
29
The following shows our distributions and the sources of such distributions for the nine months ended September 30, 2017. There were no distributions from June 1, 2016 (date of inception) through December 31, 2016.respective periods presented:
|
| Nine Months Ended September 30, 2017 |
|
|
|
|
|
| Six Months Ended June 30, 2018 |
|
|
|
|
| Six Months Ended June 30, 2017 |
|
|
|
|
| |||
Distributions paid in cash — common stockholders |
| $ | 382,189 |
|
|
|
|
|
| $ | 989,117 |
|
|
|
|
| $ | 196,981 |
|
|
|
|
|
Distributions paid in cash — Operating Partnership unitholders |
|
| 7,762 |
|
|
|
|
|
|
| 7,502 |
|
|
|
|
| 4,832 |
|
|
|
|
| |
Distributions reinvested |
|
| 31,391 |
|
|
|
|
|
|
| 719,985 |
|
|
|
|
|
| 436 |
|
|
|
|
|
Total distributions |
| $ | 421,342 |
|
|
|
|
|
| $ | 1,716,604 |
|
|
|
|
| $ | 202,249 |
|
|
|
|
|
Source of distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by operations |
| $ | — |
|
|
| 0 | % |
| $ | — |
|
|
| 0% |
| $ | — |
|
|
| 0 | % |
Proceeds from our Primary Offering and Private Offering Transaction |
|
| 389,951 |
|
|
| 92.5 | % | |||||||||||||||
Proceeds from the Offering and the Private Offering Transaction |
|
| 996,619 |
|
|
| 58.1 | % |
| 201,813 |
|
|
| 99.8 | % | ||||||||
Offering proceeds from distribution reinvestment plan |
|
| 31,391 |
|
|
| 7.5 | % |
|
| 719,985 |
|
|
| 41.9 | % |
| 436 |
|
|
| 0.2 | % |
Total sources |
| $ | 421,342 |
|
|
| 100.0 | % |
| $ | 1,716,604 |
|
|
| 100.0 | % | $ | 202,249 |
|
|
| 100.0 | % |
From our inception through SeptemberJune 30, 2017,2018, we paid cumulative distributions of approximately $421,000,$3.0 million, as compared to cumulative net loss attributable to our common stockholders of approximately $660,000.$2.8 million. For the six months ended June 30, 2018, we paid distributions of approximately $1.7 million, as compared to a net loss attributable to our common stockholders of approximately $1.5 million. Net loss attributable to our common stockholders for the ninesix months ended SeptemberJune 30, 2017 and cumulative net loss reflect2018 reflects non-cash depreciation and amortization of approximately $151,000,$685,000 and acquisition related expenses of approximately $158,000.$769,000. Cumulative net loss attributable to our common stockholders reflects non-cash depreciation and amortization of approximately $970,000, and acquisition related expenses of approximately $1.2 million.
For the ninesix months ended SeptemberJune 30, 2017, we paid total distributions of approximately $421,000.$202,000. From our commencement of paying cash distributions on our common shares in February 2017, distributions were paid solely from proceeds of our Primary Offering and Private Offering Transaction.
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 the Offering and the Private Offering Transaction.Offering. 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.
Indebtedness
As of SeptemberJune 30, 20172018 and December 31, 2016,2017, we did not have any third-party indebtedness.
Long-Term Liquidity and Capital Resources
On a long-term basis, our principal demands for funds are 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.
30
Long-term potential future sources of capital include proceeds from our Offering, secured or unsecured financings from banks or other lenders, issuance of equity instruments and undistributed funds from operations. To the extent we are not able to secure requisite financing in the form of a credit facility or other debt, we will be dependent upon proceeds from the issuance of equity securities and cash flows from operating activities in order to meet our long-term liquidity requirements and to fund our distributions.
Off-Balance Sheet Arrangements
WeOther than our joint ventures with SmartCentres, 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 purposespurpose entities, which typically are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitments or intent to provide funding to any such entities.
Subsequent Events
Please see Note 10 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 facilityfacilities which we believe will be slightly higher over the summer months due to increased moving activity.
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.
Disclosure Controls and Procedures
As of the end of the period covered by this report, management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended SeptemberJune 30, 20172018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
31
None.
The following should be read in conjunction with the risk factors set forth in the “Risk Factors” section of the prospectus contained in our registration statement.statement, as amended and supplemented through the date of this report. With the exception of the risk factors set forth below, there have been no material changes from the risk factors set forth in such prospectus.
We have incurred a net loss to date, have an accumulated deficit and our operations may not be profitable in 2017.2018.
We incurred a net loss attributable to common stockholders of approximately $660,000$954,000 and $1.5 million for the ninethree and six months ended SeptemberJune 30, 2017.2018, respectively. Our accumulated deficit was approximately $660,000$2.8 million as of SeptemberJune 30, 2017.2018. Given that we are still early in our fundraising and acquisition stage, our operations may not be profitable in 2017.
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 in order to fund the distributions or make the distributions out of net proceeds from our offering. 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 commencement of paying cash distributions in February 2017, the payment of cash distributions has been paid from gross proceeds from the Offering and the Private Offering Transaction. If we continue to pay distributions from sources other than cash flow from operations, we will have fewer funds available for acquiring properties, which 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.2018.
(a) | None. |
With the net offering proceeds of the Offering, we acquired approximately |
(c) | 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. Since inception, we have not received any redemption requests nor have we redeemed any shares of common stock. |
None.
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Not applicable.
None.
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The exhibits required to be filed with this report are set forth on the Exhibit Index hereto and incorporated by
reference herein.
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The following exhibits are included in this report on Form 10-Q for the period ended SeptemberJune 30, 20172018 (and are numbered in accordance with Item 601 of Regulation S-K).
Exhibit No. |
| Description |
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3.1 |
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3.2 |
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3.3* |
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4.1 |
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10.1 |
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10.2 |
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10.3 | ||
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31.1* |
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31.2* |
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32.1* |
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32.2* |
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101* |
| The following Strategic Storage Trust IV, Inc. financial information for the |
* | Filed herewith. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| STRATEGIC STORAGE TRUST IV, INC. (Registrant) | |
Dated: |
| By: | /s/ Matt F. Lopez |
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| Matt F. Lopez Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
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