SmartStop sponsored REITs to merge in $340 million deal

John Egan
October 7, 2018

Two related self-storage REITs, Strategic Storage Growth Trust Inc. and Strategic Storage Trust II Inc., are merging in a stock-and-debt deal valued at $340 million that would bring ownership of more than 100 self-storage facilities under one umbrella.

The $12-per-share deal materialized after Strategic Storage Growth Trust explored “strategic alternatives.” The boards of the two Strategic Storage entities have approved the merger, which is expected to close in the first quarter of 2019. Stockholders of Strategic Storage Growth Trust still must OK the deal.

“We are proud of the high-quality portfolio of properties we have built and the value it will bring to our stockholders upon the closing of the merger,” said Michael Schwartz, chairman, president and CEO of Strategic Storage Growth Trust, whose stock is being bought out.

Strategic Storage Growth Trust is a public non-traded REIT with 27 self-storage facilities in 10 states and Canada as of June 30, in addition to a facility under development in Canada. For the first half of 2018, the REIT reported revenue of $9.1 million and a net loss of $1.8 million.

Strategic Storage Trust II is a public non-traded REIT with 83 self-storage facilities in 14 states and Canada as of June 30. During the first half of 2018, the REIT posted revenue of $39.9 million and a net loss of $2.1 million.

Based on current figures, the Strategic Storage combo would have more than 110 facilities and potential annual revenue of at least $100 million.

Under the deal, Strategic Storage Growth Trust would be folded into a wholly owned subsidiary of Strategic Storage Trust II and would no longer be required to file financial reports with the U.S. Securities and Exchange Commission.

Ladera Ranch, CA-based SmartStop Asset Management LLC, which invests in self-storage, student housing and senior housing properties, is the sponsor of four public non-traded REITs: Strategic Storage Growth Trust, Strategic Storage Trust II and Strategic Storage Trust IV Inc., all of which focus on self-storage, and Strategic Student & Senior Housing Trust Inc., which focuses on student housing and senior housing.

Eric Frankel, a REIT analyst at Newport Beach, CA-based research and advisory firm Green Street Advisors LLC, said that since the self-storage sector benefits from economies of scale, it would make sense for SmartStop to have as many self-storage assets under one management structure as possible.

All told, SmartStop has about $1.6 billion in assets under management: 118 self-storage facilities, five student housing properties and four senior housing properties.

Strategic Storage Trust II must pay a termination fee of $9.6 million if it fails to go ahead with the Strategic Storage Growth Trust merger, according to an Oct. 3 announcement about the deal.

The deal allows Strategic Storage Growth Trust to pursue third-party proposals during a “go-shop period” that ends Nov. 15. Investment bank KeyBanc Capital Markets Inc. is advising Strategic Storage Growth Trust during the 45-day period.

Under the merger agreement, Strategic Storage Growth Trust must pay a termination fee of $2.9 million if it kills the deal in connection with a “superior” offer that comes up during the go-shop period and a termination fee of $9.6 million if it cancels the deal in connection with a “superior” offer that arises after the go-shop period.

“There can be no assurance that this process will result in a superior proposal,” the merger announcement says.

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