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SmartStop REIT Pushes Back on CMG Tender Offer

The board of directors of SmartStop Self Storage REIT Inc. is pushing back on an unsolicited tender offer by CMG Partners LLC and its affiliates to acquire up to 225,000 shares of the REIT’s Class A common stock at a price of $7.50 per share.

According to a stockholder letter signed by H. Michael Schwartz, founder, chairman, and chief executive officer of SmartStop Self Storage REIT, CMG is a for-profit business attempting to capitalize on illiquidity by buying shares at what it believes is a discounted price with the intention of making a profit.

After careful evaluation of the CMG tender offer, the board asked its stockholders to ignore and reject the tender offer and to consider several factors, including the following:

  • The REIT published an estimated net asset value per share for its common stock of $15.25. The CMG offering price of $7.50 per share is less than half of that current NAV. Although the NAV does not represent the price that a stockholder could obtain in the open market, this is a material difference.
  • While the REIT’s share redemption program is currently partially suspended, stockholders do have the ability to redeem their shares with SmartStop in certain cases (such as death, disability, confinement to a long-term care facility, or other exigent circumstances).
  • As admitted by CMG, the offering price is “not necessarily equal the fair market value” of the shares, nor did CMG make an independent appraisal of the shares or the REIT’s properties, nor is CMG qualified to appraise real estate. SmartStop said this was in stark contrast to the rigorous methods uses in determining its NAV, including the engagement of a qualified independent valuation firm, which included an independent appraisal of the shares of the REIT, as well as its properties.

The board stressed its significant knowledge of the REIT and its assets and based upon the historical financial data disclosed in the REIT’s filings over the past several quarters, it said there are positive trends which indicate that the tender offer undervalues the per share value of the REIT.

As stated in the letter to stockholders, the board expressed concern that even if a stockholder were to take advantage of the tender offer, the board cannot verify that CMG has the funds to make a payment for any or all of the shares that may be tendered.

CMG has made two prior tender offers for the REIT’s shares, as follows: one in the second quarter of 2023 at $6.25 per share, and the first in the fourth quarter of 2021 at $7.70 per share.

The U.S. Securities and Exchange Commission cautions investors about the heightened risks involved with unsolicited tender offers, particularly mini-tender offers, those that are for less than 5% of a company’s shares. The board reiterated that the CMG offer is for up to approximately 0.2% of the REIT’s outstanding common stock, as of November 2023.

“Some bidders make mini-tender offers at below-market prices, hoping that they will catch investors off guard,” and “[i]nvestors typically feel pressured to tender their shares quickly without having solid information about the offer or the people behind it. And they’ve been shocked to learn that they generally cannot withdraw from mini-tender offers,” according to the SEC.

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