SmartStop Self Storage REIT Inc., a publicly registered non-traded real estate investment trust formerly known as Strategic Storage Trust II, has entered into a preferred stock purchase agreement with Extra Space Storage LP to purchase up to $200 million in shares of the REIT’s new Series A Convertible Preferred Stock. The purchase price is $1,000 per share.
Extra Space Storage is a subsidiary of Extra Space Storage Inc. (NYSE: EXR), a publicly traded REIT and the second largest owner and operator of self-storage properties in the United States.
In the initial closing, Extra Space Storage purchased $150 million in shares, and has committed to purchase up to an additional $50 million within 12 months.
SmartStop Self Storage REIT will pay the investor a fee of 0.25 percent per year on the remaining commitment amount until drawn, or on the 12-month anniversary of the initial closing.
SmartStop Self Storage REIT plans to use the net proceeds from the closings to payoff debt, to finance self-storage acquisitions, development, and improvement pipelines, and for working capital or other general corporate purposes.
Specifically, SmartStop paid off two higher-interest loans for a total of approximately $95.4 million. These include a senior term loan for approximately $80.9 million, which carried an effective interest rate of approximately 6.8 percent; and a KeyBank tenant program loan for approximately $14.5 million, which carried an effective interest rate of LIBOR + 3.5 percent in addition to high monthly principal amortization.
The loan payoffs reduced SmartStop’s overall leverage from 55 percent to 45 percent.
The company also plans to expand an existing property located in Riverview, Florida, and develop an outparcel for a quick-service drive-thru coffee store at an existing property in Ontario, Canada.
The company’s other investments include solar panel installations and LED lighting upgrades, portfolio-wide retail office renovations at all SmartStop locations, redeveloping individual existing drive-up buildings into multi-story, climate-controlled structures, and focusing on acquisitions with an emphasis on improving the institutional quality, demographics, and rents per square foot of the portfolio.
“The Series A Preferred equity investment positions SmartStop to continue its preparation for various strategic alternatives,” SmartStop wrote in a letter to shareholders. “We continue to be focused on unlocking value for stockholders, including any potential liquidity event for SmartStop. This investment increases the flexibility towards a variety of liquidity paths, including a listing on a national exchange, a sale of the portfolio, or a merger with a financial or strategic partner.”
Dividends paid on each share of Series A Preferred Stock will initially be 6.25 percent per year. If the Series A Preferred Stock has not been redeemed on or before the fifth anniversary of the initial closing, the dividend rate will increase an additional 0.75 percent per year each year to after a maximum of 9 percent per year until the tenth anniversary of the initial closing.
Then, the dividend rate will increase 0.75 percent per year each year until the Series A Preferred Stock is redeemed or repurchased in full.
If SmartStop Self Storage REIT voluntary or involuntary liquidates, disolves or winds up the company, the Series A Preferred Stock holders will be entitled to receive a payment equal to the greater of the purchase price of all outstanding shares, plus any accrued and unpaid dividends and the amount that that would have been paid had the shares been converted into common stock immediately prior to a liquidation.
SmartStop Self Storage REIT Inc, which was previously engaged in an offering focused on acquiring self-storage assets, closed its primary offering to new investors in January 2017. As of July 5, 2019, it had raised approximately $608 million in investor equity. The company is now the ninth largest fully integrated, self-administered and self-managed self-storage company, owning 113 self-storage properties in 17 states and Ontario, Canada.