| Related Party Transactions | Note 9. Related Party Transactions
Investment Management Transactions
Effective August 31, 2014, our Operating Partnership acquired
SmartStop Asset Management, LLC (formerly known as Strategic
Storage Realty Group, LLC), the parent company of the advisors and
property managers for SST II and SSGT, as part of the Self
Administration and Investment Management Transaction. As a result,
we are now their sponsor and will be entitled to receive various
fees and expense reimbursements discussed below from the Managed
REITs.
As of June 30, 2015, SSGT owned nine self storage properties
and SST II owned 31 self storage properties.
Advisory Agreement Fees
Our indirect subsidiaries, Strategic Storage Advisor II, LLC, the
advisor to SST II, and SS Growth Advisor, LLC, the advisor to SSGT,
are entitled to receive various fees and expense reimbursements
under the terms of the SST II and SSGT advisory agreements.
However, in connection with the Self Administration and Investment
Management Transaction, we, the Operating Partnership and SSH
agreed, under the Acquisition Fee Tail Agreement, that for a period
of six months following the closing of the Self Administration and
Investment Management Transaction, subject to certain extensions,
SSH, as the former ultimate parent company of Strategic Storage
Advisor II, LLC and SS Growth Advisor, LLC, will retain any and all
acquisition fees that would have been due under their respective
advisory agreements with respect to any properties whose
acquisition was pending, under contract, or was otherwise in
process as of the closing of the Self Administration and Investment
Management Transaction (See Note 4).
SST II Advisory Agreement
Strategic Storage Advisor II, LLC (the “SST II
Advisor”) provides acquisition and advisory services to SST
II pursuant to an advisory agreement (the “SST II Advisory
Agreement”). SST II is required to reimburse SST II Advisor
for organization and offering costs under the SST II Advisory
Agreement; provided, however, the SST II Advisor will be required
to reimburse SST II within 60 days after the end of the month in
which the SST II public offering terminates to the extent SST II
paid or reimbursed organization and offering costs (excluding sales
commissions and dealer manager fees) in excess of 3.5% of the gross
offering proceeds from the SST II offering. The SST II Advisory
Agreement also requires the SST II Advisor to reimburse SST II to
the extent that offering expenses, including sales commissions,
dealer manager fees and organization and offering expenses, are in
excess of 15% of gross proceeds from the SST II offering.
Subject to the Acquisition Fee Tail Agreement, the SST II Advisor
will receive acquisition fees equal to 1.75% of the contract
purchase price of each property SST II acquires plus reimbursement
of any acquisition expenses that SST II Advisor incurs. The SST II
Advisor will also receive a monthly asset management fee equal to
0.05208%, which is one-twelfth of 0.625%, of SST II’s average
invested assets, as defined.
Under the SST II Advisory Agreement, the SST II Advisor will
receive disposition fees in an amount equal to the lesser of
(i) one-half of the competitive real estate commission or
(ii) 1% of the contract sale price for each property SST II
sells, as long as the SST II Advisor provides substantial
assistance in connection with the sale. The total real estate
commissions paid (including the disposition fee paid to the SST II
Advisor) may not exceed the lesser of a competitive real estate
commission or an amount equal to 6% of the contract sale price of
the property. The SST II Advisor may potentially also be entitled
to various subordinated distributions under the SST II operating
partnership agreement if SST II (1) lists its shares of common
stock on a national exchange, (2) terminates the SST II
Advisory Agreement, (3) liquidates its portfolio, or
(4) enters into an Extraordinary Transaction, as defined in
the SST II operating partnership agreement.
The SST II Advisory Agreement provides for reimbursement of the SST
II Advisor’s direct and indirect costs of providing
administrative and management services to SST II. Beginning four
fiscal quarters after SST II acquires its first real estate asset
(which occurred on November 4, 2014) the SST II Advisor will
be required to pay or reimburse SST II the amount by which SST
II’s aggregate annual operating expenses, as defined, exceed
the greater of 2% of SST II’s average invested assets or 25%
of SST II’s net income, as defined, unless a majority of SST
II’s independent directors determine that such excess
expenses were justified based on unusual and non-recurring
factors.
SSGT Advisory Agreement
SS Growth Advisor, LLC (the “SSGT Advisor”) provided
acquisition and advisory services to SSGT pursuant to an advisory
agreement in connection with the private placement offering (the
“SSGT Private Offering Advisory Agreement”). On
January 20, 2015 the SSGT Advisor entered into a substantially
similar advisory agreement in connection with the public offering
(the “SSGT Public Offering Advisory Agreement” and,
together with the Private Offering Advisory Agreement, the
“SSGT Advisory Agreements”). SSGT is required to
reimburse the SSGT Advisor for organization and offering costs from
the SSGT private offering and the SSGT public offering pursuant to
the SSGT Advisory Agreements; provided, however, pursuant to the
SSGT Public Offering Advisory Agreement, the SSGT Advisor will be
required to reimburse SSGT within 60 days after the end of the
month in which the SSGT public offering terminates to the extent
SSGT paid or reimbursed organization and offering costs (excluding
sales commissions and dealer manager fees) in excess of 3.5% of the
gross offering proceeds from the SSGT primary offering.
The SSGT Public Offering Advisory Agreement also requires the SSGT
Advisor to reimburse SSGT to the extent that offering expenses,
including sales commissions, dealer manager fees and organization
and offering expenses, are in excess of 15% of gross proceeds from
the SSGT public offering. The SSGT Advisor will receive acquisition
fees equal to 1% and 1.75% (subject to the Acquisition Fee Tail
Agreement), respectively, of the contract purchase price of each
property SSGT acquires plus reimbursement of any acquisition
expenses the SSGT Advisor incurs pursuant to the SSGT Private
Offering Advisory Agreement and the SSGT Public Offering Advisory
Agreement. The SSGT Advisor will also receive a monthly asset
management fee equal to 0.04167%, which is one-twelfth of 0.5%, of
SSGT’s average invested assets, as defined. SSGT may also pay
the SSGT Advisor a financing fee of up to 0.5% of the borrowed
amount of a loan for arranging for financing in connection with the
acquisition, development or repositioning of SSGT’s
properties.
Under the Public Offering Advisory Agreement, the SSGT Advisor will
receive disposition fees in an amount equal to the lesser of
(i) one-half of the competitive real estate commission or
(ii) 1% of the contract sale price for each property SSGT
sells, as long as the SSGT Advisor provides substantial assistance
in connection with the sale. As provided under the SSGT Public
Offering Advisory Agreement, the total real estate commissions paid
(including the disposition fee paid to the SSGT Advisor) may not
exceed the lesser of a competitive real estate commission or an
amount equal to 6% of the contract sale price of the property. SSGT
will also pay the SSGT Advisor or its affiliate a market-based
development fee some or all of which may be reallowed to a third
party developer. The development fee will be paid in connection
with properties that SSGT anticipates developing or expanding
within 12 months of the acquisition of such properties. A
development fee to a third party developer may take the form of an
up-front fee and participation in a back-end performance fee. The
SSGT Advisor may also be potentially entitled to various
subordinated distributions under SSGT’s operating partnership
agreement if SSGT (1) lists its shares of common stock on a
national exchange, (2) terminates the SSGT Public Offering
Advisory Agreement, (3) liquidates its portfolio, or
(4) merges with another entity or enters into an Extraordinary
Transaction, as defined in the SSGT operating partnership
agreement.
The SSGT Advisory Agreements provide for reimbursement of the SSGT
Advisor’s direct and indirect costs of providing
administrative and management services to SSGT. Beginning four
fiscal quarters after SSGT acquires its first real estate asset
(which occurred on July 31, 2014), pursuant to the SSGT Public
Offering Advisory Agreement, the SSGT Advisor will be required to
pay or reimburse SSGT the amount by which SSGT’s aggregate
annual operating expenses, as defined, exceed the greater of 2% of
SSGT’s average invested assets or 25% of its net income, as
defined, unless a majority of SSGT’s independent directors
determine that such excess expenses were justified based on unusual
and non-recurring factors.
Property Management Agreements
Commencing September 1, 2014, our indirect subsidiaries,
Strategic Storage Property Management II, LLC and SS Growth
Property Management, LLC (collectively the “Managed REITs
Property Managers”), are entitled to receive fees for their
services in managing the properties owned by the Managed REITs
pursuant to property management agreements entered into between the
owner of the property and the applicable Managed REIT’s
Property Manager. The Managed REITs Property Managers will receive
a property management fee equal to 6% of the gross revenues from
the properties, generally subject to a monthly minimum of $3,000
per property, plus reimbursement of the costs of managing the
properties. Reimbursable costs and expenses include wages and
salaries and other expenses of employees engaged in operating,
managing and maintaining such properties. Pursuant to the property
management agreements, we through our Operating Partnership employ
the on-site staff for the Managed REITs’ properties. For the
three and six months ended June 30, 2015 such payroll related
costs totaled approximately $0.6 million and $1.0 million,
respectively.
In the event that a Managed REITs Property Manager assists with the
development or redevelopment of a property owned by a Managed REIT,
a Managed REITs Property Manager may be entitled to receive a
separate market-based fee for such services. In addition, a Managed
REITs Property Manager will be entitled to a construction
management fee equal to 5% of the cost of a related construction or
capital improvement work project in excess of $10,000 and an
administration fee equal to $0.50 a month for each insurance policy
purchased by a customer at one of the Managed REITs’
properties in connection with the tenant insurance program.
Summary of Fees and Reimbursable Costs
Pursuant to the terms of the various agreements described above for
the Managed REITs, the following summarizes the related party fees
and reimbursable costs recorded for the three and six months ended
June 30, 2015:
Three Months Ended June 30, 2015 Six Months Ended June 30, 2015
Revenues Reimbursable (1) Revenues Reimbursable (1)
Property Management Agreement - SST II $ 318,232 $ 581,117 $ 596,905 $ 989,068
Property Management Agreement - SSGT 91,705 204,754 186,139 363,449
Advisory Agreement - SST II 228,257 268,038 374,518 515,951
Advisory Agreement - SSGT 45,383 214,236 127,267 404,101
Other 36,392 14,424 70,670 21,528
Total $ 719,969 $ 1,282,569 $ 1,355,499 $ 2,294,097
(1) Reimbursable costs include
reimbursement of both the SST II and SSGT Advisors’ direct
and indirect costs of providing administrative and management
services to the Managed REITs. Additionally, reimbursable costs
includes reimbursement pursuant to the property management
agreements for the costs of managing the Managed REITs’
properties, including wages and salaries and other expenses of
employees engaged in operating, managing and maintaining such
properties.
Investments in Managed REITs
On July 31, 2014, SSTI Preferred Investor, LLC, entered into a
preferred unit purchase agreement (the “SSGT Unit Purchase
Agreement”) with SS Growth Operating Partnership, L.P. (the
“SSGT Operating Partnership”) and SSGT. Pursuant to the
SSGT Unit Purchase Agreement, the SSTI Preferred Investor agreed to
provide up to $18,100,000 through a preferred equity investment in
the SSGT Operating Partnership (the “SSGT Investment”),
which amount may be invested in one or more tranches, to be used
for investments in self storage properties, as described in the
SSGT Unit Purchase Agreement, in exchange for up to an aggregate of
724,000 preferred units of limited partnership interest of the SSGT
Operating Partnership (the “SSGT Preferred Units”),
each having a liquidation preference of $25.00 per SSGT Preferred
Unit (the “SSGT Liquidation Amount”), plus all
accumulated and unpaid distributions. The SSTI Preferred Investor
is entitled to receive current distributions (the “SSGT
Current Distributions”) at a rate of one-month LIBOR plus
6.5% per annum on the SSGT Liquidation Amount, payable monthly
and calculated on an actual/360 basis. In addition to the SSGT
Current Distributions, the SSGT Operating Partnership has the
obligation to elect either (A) to pay the SSTI Preferred
Investor additional distributions monthly in an amount equal to:
(i) 4.35% per annum on the SSGT Liquidation Amount through
March 31, 2017; and (ii) thereafter, 6.35% per annum
on the SSGT Liquidation Amount or (B) defer the additional
distributions (“SSGT Deferred Distribution”), which
SSGT Deferred Distribution will accumulate monthly in an amount
equal to (i) LIBOR plus 10.85% of the SSGT Deferred
Distribution through March 31, 2017; and (ii) thereafter,
LIBOR plus 12.85% of the SSGT Deferred Distribution. The SSGT
Investment is redeemable at SSTI Preferred Investor’s
discretion following certain events set forth in the designation of
rights establishing the SSGT Preferred Units.
On November 3, 2014, the SSTI Preferred Investor entered into
a preferred unit purchase agreement (the “SST II Unit
Purchase Agreement”) with Strategic Storage Operating
Partnership II, L.P. (the “SST II Operating
Partnership”) and SST II. Pursuant to the SST II Unit
Purchase Agreement, the SSTI Preferred Investor agreed to provide
up to $65 million through a preferred equity investment in the SST
II Operating Partnership (the “SST II Investment”),
which amount may be invested in one or more tranches, to be used
for investments in self storage properties, as described in the SST
II Unit Purchase Agreement, in exchange for up to an aggregate of
2.6 million preferred units of limited partnership interest of
the SST II Operating Partnership (the “SST II Preferred
Units”), each having a liquidation preference of $25.00 per
Preferred Unit (the “SST II Liquidation Amount”), plus
all accumulated and unpaid distributions. The SSTI Preferred
Investor is entitled to receive current distributions (the
“SST II Current Distributions”) at a rate of one-month
LIBOR plus 6.5% per annum on the SST II Liquidation Amount,
payable monthly and calculated on an actual/360 basis. In addition
to the SST II Current Distributions, the SST II Operating
Partnership has the obligation to elect either (A) to pay the
SSTI Preferred Investor additional distributions monthly in an
amount equal to: (i) 4.35% per annum on the SST II Liquidation
Amount through March 31, 2017; and (ii) thereafter,
6.35% per annum on the SST II Liquidation Amount or
(B) defer the additional distributions (“SST II Deferred
Distribution”), which SST II Deferred Distribution will
accumulate monthly in an amount equal to (i) LIBOR plus 10.85%
of the SST II Deferred Distribution through March 31, 2017;
and (ii) thereafter, LIBOR plus 12.85% of the SST II Deferred
Distribution. The SST II Investment is redeemable at SSTI Preferred
Investor’s discretion following certain events set forth in
the designation of rights establishing the SST II Preferred
Units.
As of June 30, 2015 and December 31, 2014, the SSTI
Preferred Investor had invested in total approximately $18 million
and approximately $10 million in the SS Growth Operating
Partnership, respectively. As of June 30, 2015 and
December 31, 2014, the SSTI Preferred Investor had invested in
total approximately $60 million and approximately $7 million in the
SST II Operating Partnership, respectively. Such amounts are
included in investments in and advances to Managed REITs in our
consolidated balance sheets.
For the three months and six months ended June 30, 2015, we
recorded income related to those investments, totaling
approximately $3.0 million and $3.9 million, respectively, which is
included in equity in earnings of unconsolidated entities in our
consolidated statements of operations. For the three months and six
months ended June 30, 2015, we recorded approximately $0.4
million and $0.9 million, respectively, of income related to the
accretion of additional issuances of preferred units by SSGT and
SST II, pursuant to the unit purchase agreements to reimburse our
costs to obtain the KeyBank Bridge Loan, which is included in
equity in earnings of unconsolidated entities in our consolidated
statements of operations.
Below is a summary of our investments in and advances to the
Managed REITs:
June 30, 2015 December 31, 2014
SST II Investment $ 59,469,500 $ 6,517,119
SST II distributions receivable 1,480,776 37,495
Investment in SST II common equity 106,286 166,786
SST II advances (1) 550,534 1,046,539
Total investments in and advances to SST II $ 61,607,096 $ 7,767,939
SSGT Investment $ 17,461,577 $ 10,263,582
SSGT distributions receivable 636,408 61,163
Investment in SSGT common equity 113,825 177,303
SSGT advances (1) 1,507,142 700,046
Total investments in and advances to SSGT $ 19,718,952 $ 11,202,094
Total investments in and advances to Managed REITs $ 81,326,048 $ 18,970,033
(1) Advances include receivables related
to asset management fees, property management fees, reimbursable
costs, and other direct routine expenditures of the Managed REITs
that we directly funded.
Related Party Transactions Related to the Mergers
In connection with the Merger Agreement, we and our Operating
Partnership, along with certain other wholly-owned subsidiaries of
our Operating Partnership, agreed to sell to Strategic 1031,
subject to certain closing conditions, certain assets identified by
Extra Space as being not complementary with the Extra Space asset
portfolio. Strategic 1031 is owned and controlled by H. Michael
Schwartz, our Chief Executive Officer, President and Chairman of
our Board of Directors. See Note 3, Merger
Related Party Transactions Prior to Self Administration and
Investment Management Transaction
Through the closing of the Self Administration and Investment
Management Transaction, effective August 31, 2014, we were a
party to and incurred expenses under the following agreements for
the three and six months ended June 30, 2014.
Fees to Affiliates
Our Former Advisory Agreement with our Former Advisor and dealer
manager agreement (“Dealer Manager Agreement”) with our
Dealer Manager entitled our Former Advisor and our Dealer Manager
to specified fees upon the provision of certain services with
regard to the Offering, as well as reimbursement for organizational
and offering costs incurred by our Former Advisor on our behalf and
entitled our Former Advisor to specified fees upon the investment
of funds in real estate properties, among other services and
reimbursement of certain costs and expenses incurred by our Former
Advisor in providing services to us.
Advisory Agreement
Prior to the Self Administration and Investment Management
Transaction, we did not have any employees. Our Former Advisor
was primarily responsible for managing our business affairs and
carrying out the directives of our board of directors. Our Former
Advisor received various fees and expenses under the terms of our
Former Advisory Agreement. Our Former Advisory Agreement also
required our Former Advisor to reimburse us to the extent that
offering expenses, including sales commissions, dealer manager fees
and organization and offering expenses, were in excess of 15% of
gross proceeds from the Offering. Subsequent to the termination of
our Offering on September 22, 2013, we have determined that
these expenses did not exceed 15% of gross proceeds from the
Offering. In addition, certain organization and offering costs of
the Offering were paid by our Former Advisor on our behalf and
reimbursed to our Former Advisor from the proceeds of the Offering.
Organization and offering costs consisted of all expenses (other
than sales commissions and the dealer manager fee) paid by us in
connection with the Offering, including our legal, accounting,
printing, mailing and filing fees, charges of our escrow holder and
other accountable offering expenses, including, but not limited to,
(i) amounts to reimburse our Former Advisor for all marketing
related costs and expenses such as salaries and direct expenses of
employees of our Former 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 Former Advisor was required to
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 and
dealer manager fees) in excess of 3.5% of the gross offering
proceeds from the Primary Offering. Subsequent to the termination
of our Offering on September 22, 2013, we have determined that
organization and offering costs did not exceed 3.5% of the gross
proceeds from the Primary Offering.
Our Former Advisor received acquisition fees equal to 2.5% of the
contract purchase price of each property we acquired plus
reimbursement of any acquisition expenses the Former Advisor
incurred. Our Former Advisor also received a monthly asset
management fee equal to one-twelfth of 1.0% of the average invested
assets, as defined in the Former Advisory Agreement, of our assets,
excluding those properties acquired through our mergers with REIT I
and REIT II and the SS I, DST, Madison DST, Colonial DST and SF DST
acquisitions; provided, however, that if the average invested
assets, as defined, of our assets exceeded $500 million, the
monthly asset management fee would be reduced to one-twelfth of
0.75% of the average invested assets, as defined, of those assets
exceeding $500 million unless our modified funds from operations
(as defined in the Former Advisory Agreement), including payment of
the fee, was greater than 100% of our distributions in any month.
The monthly asset management fees for our properties acquired
through our mergers with REIT I and REIT II and the SS I, DST,
Madison DST, Colonial DST and SF DST acquisitions was equal to 2.0%
of the gross revenues from the properties and was paid to
affiliates of our Former Sponsor. Under our Former Advisory
Agreement, and our articles of incorporation, as amended, our
Former Advisor may have received disposition fees in an amount
equal to the lesser of (i) 3.0% of the contract sale price for
each property we sell, or (ii) one-half of the competitive
real estate commission, as long as our Former Advisor provided
substantial assistance in connection with the sale. The disposition
fees paid to our Former Advisor were subordinated to the receipt of
our stockholders of a 6% cumulative, non-compounded, annual return
on such stockholders’ invested capital. The total real estate
commissions paid (including disposition fees paid to our Former
Advisor) may not have exceeded the lesser of a competitive real
estate commission or an amount equal to 6.0% of the contract sale
price of the property.
Our Former Advisory Agreement provided for reimbursement of our
Former Advisor’s direct and indirect costs of providing
administrative and management services to us. Beginning
October 1, 2009 (four fiscal quarters after the acquisition of
our first real estate asset), our Former Advisor was required to
reimburse us the amount by which our aggregate annual operating
expenses, as defined, exceeded the greater of 2% of our average
invested assets or 25% of our net income, as defined, unless a
majority of our independent directors determined 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 exceeded the limitation, we were required to
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 was
required to include an explanation of the factors that the
independent directors considered in arriving at the conclusion that
the excess expenses were justified. Our aggregate annual
operating expenses, as defined, did not exceed the thresholds
described above.
On September 27, 2012, we entered into a Second Amended and
Restated Advisory Agreement (the “Amended Advisory
Agreement”) with our Former Advisor. The material terms of
the Former Advisory Agreement were not changed. However, certain
provisions were added, the most significant of which was a
provision restricting us, during the term of the Amended Advisory
Agreement and for a period of two years after the termination of
the Amended Advisory Agreement, from soliciting or hiring any
employee of, or person performing services on behalf of, our Former
Advisor.
On March 28, 2014, in a series of related transactions, we
entered into an amended and restated advisory agreement (the
“Third Amended and Restated Advisory Agreement”) and an
amended and restated limited partnership agreement (the
“Second Amended and Restated Limited Partnership
Agreement”), and REIT I and REIT II entered into
amendments to their respective operating partnership agreements,
(the “First REIT I OP Agreement Amendment” and the
“First REIT II OP Agreement Amendment,” respectively).
REIT I and REIT II are each wholly-owned by our Operating
Partnership.
The Third Amended and Restated Advisory Agreement with our Former
Advisor and our Operating Partnership amended and superseded the
Second Amended and Restated Advisory Agreement. Pursuant to
the Third Amended and Restated Advisory Agreement, provisions
related to various subordinated fees that would be due to our
Former Advisor upon the occurrence of certain events were removed
from such agreement and were included in the Second Amended and
Restated Limited Partnership Agreement of our Operating
Partnership. Additionally, our Operating Partnership became a
party to the Third Amended and Restated Advisory Agreement and
provided customary representations and warranties, and certain
provisions of the Second Amended and Restated Limited Partnership
Agreement were incorporated into the Third Amended and Restated
Advisory Agreement.
The Second Amended and Restated Limited Partnership Agreement with
our Operating Partnership and our Former Advisor amended and
superseded the First Amended and Restated Limited Partnership
Agreement. Pursuant to the Second Amended and Restated Limited
Partnership Agreement, our Former Advisor and the advisors to REIT
I and REIT II were each granted a special limited partnership
interest in our Operating Partnership and each became a party to
the Second Amended and Restated Limited Partnership
Agreement. In addition, provisions related to various
subordinated fees that would be due to our Former Advisor upon the
occurrence of certain events were included in such agreement and
were payable as distributions pursuant to our Former
Advisor’s special limited partnership interest. After
giving effect to the Second Amended and Restated Limited
Partnership Agreement, the First REIT I OP Agreement Amendment, and
the First REIT II OP Agreement Amendment, our Former Advisor and
the advisors to REIT I and REIT II became entitled to receive
various potential subordinated distributions, each of which were
outlined further in the Second Amended and Restated Limited
Partnership Agreement, the First REIT I OP Agreement Amendment, and
the First REIT II OP Agreement Amendment, if (1) our shares of
common stock were listed on a national exchange, (2) we
terminated our Former Advisory Agreement (other than a voluntary
termination by mutual assent), (3) we liquidated our
portfolio, or (4) we entered into an Extraordinary
Transaction, as defined in such agreements. In the case of
each of the foregoing distributions, our Former Advisor’s
receipt of the distribution is subordinate to return of capital to
our stockholders plus at least a 6% cumulative, non-compounded
return, and our Former Advisor’s share of the distribution
was 5%, 10%, or 15%, depending on the return level to our
stockholders. The receipt of the distribution by the former
advisors to REIT I and REIT II is subordinate to return of capital
to the original REIT I and REIT II stockholders plus at least a 7%
cumulative, non-compounded return, and such advisors’ share
of the distribution was 15%. In addition, our Former Advisor was
potentially entitled to a one-time cash distribution in the event
that we (1) listed our shares of common stock on a national
exchange, (2) liquidated our portfolio, or (3) entered
into an Extraordinary Transaction resulting in a return to our
stockholders in excess of an amount per share that will be
determined by our independent directors. Such one-time cash
distribution would be paid as part of the complete redemption of
our Former Advisor’s special limited partnership interest in
our Operating Partnership and would be up to the aggregate amount
of all unreturned and unreimbursed capital invested by our Former
Advisor and its affiliates in us, our Operating Partnership, our
Former Advisor and affiliates, relating in any way to our business
or our Operating Partnership’s business or any offering.
Dealer Manager Agreement
During the term of our Offering, our Dealer Manager received a
sales commission of up to 7.0% of gross proceeds from sales in the
Primary Offering and a dealer manager fee equal to up to 3.0% of
gross proceeds from sales in the Primary Offering under
the terms of our Dealer Manager Agreement. Our Dealer Manager
entered into participating dealer agreements with
certain other broker-dealers which authorized them to
sell our shares. Upon sale of our shares by such broker-dealers,
our Dealer Manager re-allowed all of the sales commissions paid in
connection with sales made by these broker-dealers. Our Dealer
Manager was also permitted to re-allow to these broker-dealers a
portion of the 3.0% dealer manager fee as marketing fees,
reimbursement of certain costs and expenses of attending training
and education meetings sponsored by our Dealer Manager, payment of
attendance fees required for employees of our Dealer Manager or
other affiliates to attend retail seminars and public seminars
sponsored by these broker-dealers, or to defray other distribution
related expenses. Our Dealer Manager also received reimbursement of
bona fide due diligence expenses; however, to the extent these due
diligence expenses cannot be justified, any excess over actual due
diligence expenses will be considered underwriting
compensation subject to a 10% FINRA limitation and, when aggregated
with all other non-accountable expenses, may not exceed 3% of gross
offering proceeds from sales in the Primary Offering. The Dealer
Manager Agreement terminated upon the termination of our
Offering.
Prior to the Self Administration and Investment Management
Transaction, our Chief Executive Officer, through a wholly-owned
limited liability company, owned a 15% non-voting equity interest
in our Dealer Manager. We acquired that equity interest through the
Self Administration and Investment Management Transaction.
Property Management Agreement
Our Property Manager received and was entitled to certain fees up
to the date of our acquisition of our Property Manager through the
Self Administration and Investment Management Transaction. Our
Property Manager received a fee for its services in managing our
properties, generally equal to 6% of the gross revenues from the
properties plus reimbursement of the direct costs of managing the
properties under our property management agreement. In the event
that our Property Manag |
